Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential Fraud and Abuse
Published: 2002-10-11T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Army's individually billed travel card program is different from the purchase card program in that the cardholder is directly responsible for all charges incurred on his or her travel card account, 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 Army for all valid expenses related to official government travel. The intent of the travel card program was to improve convenience for the traveler and to reduced the government's costs of administering travel. GAO found substantial delinquencies and charge-offs of Army travel-card accounts during fiscal year 2001, and delinquencies continued into the first half of fiscal year 2002. GAO's analysis shows a correlation between delinquency problems and the travel cardholder's age and pay grade.
section_title: What GAO Found
paragraphs: GAO found that the Army's delinquency and charge-off problems are primarily associated with young, low- to mid-level enlisted military personnel. In addition, a weak internal control environment compounded by instances of delays in processing travel reimbursements to Army military and civilian personnel contributed to the high delinquency rates. The Army and the Department of Defense have taken action to address and focus command- and installation-level attention on management of delinquent travel card accounts. However, these actions are primarily focused on treating the symptoms or "back-end" problems rather than the "front-end" or preventive controls. GAO's work identified numerous instances of potentially fraudulent and abusive activity related to the travel card. During fiscal year 2001, 1,200 of the over 4,200 Army account holders who had written at least one nonsufficient funds (NSF) check to pay their travel card bill had their accounts charged off. In the same period, more than 200 cardholders whose accounts were eventually charged off may have also committed bank fraud by writing three or more NSF checks to the Bank of America. GAO's audit found that weaknesses in the Army's overall control environment, including a number of specific controls that were either flawed in their design or in their implementation, are the root source of the Army's inability to prevent or effectively detect the numerous instances of potentially fraudulent and abusive travel card related activity previously detected.

section_title: Letter
paragraphs: On July 17, 2002, we testified 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 associated with about 430,000 individually  billed Army travel card accounts, and $619 million in related travel card  charges for fiscal year 2001.  The individually billed travel card program is  significantly different from the purchase card program in that the  cardholder is directly responsible for all charges incurred on his or her  travel card account 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 Army for all valid expenses  related to official government travel.  In contrast, all purchase card charges  are billed directly to the government for monthly payment.  The intent of  the travel card program was to improve convenience for the traveler and to  reduce the government’s costs of administering travel.  Appendix I provides  additional background information on the Army’s travel card program.
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.  This report provides details  and results of our Army travel card audit, which was summarized in our  recent testimony.
The objectives of our audit of the Army’s travel card program were to  determine (1) the reported magnitude and impact of delinquent and  charged-off Army travel card accounts for fiscal year 2001 and the first 6  months of fiscal year 2002, along with an analysis of related causes and  DOD and Army corrective actions, (2) whether indications existed of  potentially fraudulent and abusive activity related to the Army travel card  during fiscal year 2001, and (3) the effectiveness of the overall control  environment and key internal controls for the Army’s travel program. We  analyzed the Army’s account delinquency and charge-off information and  compared it to non-Army DOD components and other federal agencies.  In  addition, we evaluated the adequacy of selected, specific internal control  policies, procedures, and activities at four Army installations, representing  3 of the Army’s 13 major commands.
We selected the four installations we audited based on the relative amount  of travel card activity, the number and percentage of accounts past due,  and the number and percentage of accounts charged off.  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 Army as a whole.  Through auditing travel card transactions at the four  installations and data mining of fiscal year 2001 transactions incurred by  units throughout the Army, 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.
We conducted our audit work from December 2001 through July 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 comments on a draft of this report from the Under Secretary of  Defense  (Comptroller) dated September 30, 2002.  We addressed DOD’s  comments in the “Agency Comments and Our Evaluation” section and  reprinted them in appendix V.  See appendix II for details on our scope and  methodology.
subsections: section_title: Army Has Highest Delinquency and Charge-off Rates but Recent Actions Have Resulted in Some Improvements
paragraphs: The Army’s travel card delinquency rate and amounts charged-off are  substantially higher than non-Army DOD components and civilian agencies  in the federal government.  Cumulative Army charge-offs since the  inception of the travel card program with Bank of America in November  1998 are nearly $34 million.  Our analysis of available data shows the travel  cardholder’s age and pay rate are strong predictors of delinquency  problems.  We found that the Army’s delinquency and charge-off problems  are primarily related to young, low- and midlevel enlisted military  employees.  Further, as discussed in the following sections of this report,  weaknesses in the Army’s overall control environment and delays and  errors in processing and paying valid travel vouchers exacerbate the  Army’s delinquency problems.  The Army’s high delinquency and default  rates have also resulted in contentious relations with Bank of America.   The bank threatened to end its participation in the program, but eventually  agreed to contract modifications that included increased fees.  The  delinquencies and charge-offs have cost the Army, the federal government,  and the taxpayers millions of dollars in lost rebates, higher fees, and  substantial resources spent pursuing and collecting on past due accounts.
The Army 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 show a significant drop in charged-off accounts.  Most of this  reduction is attributable to a salary and military retirement offset  program—similar to garnishment.  These offsets began in November 2001.   Other Army actions included encouraging the use of a split disbursement  payment process, in which DFAS sends a portion of the traveler’s  reimbursement directly to the bank rather than the cardholder, and  increased management attention and focus on the delinquency issue. The  Army’s actions, however, primarily address the symptoms or “back-end”  result of delinquency and charge-offs after they have already occurred.  As  noted in the remaining sections of this report, the Army’s control  weaknesses that are the root cause of the problem are generally related to  the “front-end” management of the travel card program, such as issuing the  cards and overseeing the proper use of the cards.
subsections: section_title: The Army’s Delinquencies and Charge-offs
paragraphs: 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 23,000 Army travel card accounts with nearly $34 million of bad debt.   As of March 31, 2002, over 11,000 Army cardholders had $8.4 million in  delinquent debt.  The amount of delinquencies and charge-offs at the Army  is the highest in DOD.  Table 1 provides a comparison of cumulative  charge-offs and delinquencies by military service as of March 31, 2002.
Figure 1 compares delinquency rates among the Army, non-Army DOD  components including the other military services, and the 23 largest civilian  agencies.
As of March 31, 2002, the Army had the highest delinquency rate in the  federal government.  Army’s delinquency rate over the last 2 years  fluctuated between 10 and 18 percent, and on average was about 5 percent  higher than the other non-Army DOD components and about 7 percent  higher than the federal civilian agencies.  According to Army officials, the  nature of the Army’s mission, which includes extensive travel for extended  periods in remote, often hostile locations around the world, contributes, at  least in part, to the Army’s high delinquency rate.  Appendix III provides a  breakdown of the Army’s delinquency rates by major command.
section_title: Age and Pay Grade Are Correlated to Delinquency and Charge-off Problems
paragraphs: A number of factors contributed to the Army’s high delinquency rates.   Many of the problems related directly to the control environment at the  Army and at the sites we visited.  Other problems related to the  implementation of the travel card program and a lack of controls over  travel card use and travel processing.  A detailed discussion of the control  environment and specific internal control issues is provided in the  following sections of this report.  Without proper management control,  demographics such as the age and pay rates of Army personnel also  contributed to delinquencies and charge-offs.
Our analysis of available data showed that there was a correlation between  certain demographic factors and high delinquency and charge-off rates.   According to Army representatives, and based on our analysis, most Army  travel cardholders responsible for delinquencies and charge-offs were  young (generally married), low- and midlevel enlisted military personnel  (E-1-privates to E-6-staff sergeants), with relatively low incomes and little  experience in handling personal finances.  If these individuals get into  financial difficulty, they have fewer resources at their disposal to pay their  travel card balances in full every month.
In the Army, grades E-1 through E-6 account for about 73 percent of all  military personnel.  Consequently, it is not surprising that they have the  highest outstanding travel card balance.  As shown in figure 2, the travel  cardholder’s grade (and associated pay) is a strong predictor of  delinquency problems.  We found that the Army’s delinquency and charge- off problems are primarily associated with young, low- and midlevel  enlisted military personnel with basic pay levels ranging from $11,000 to  $26,000.  Delinquency rates were as high as 40 percent and 25 percent for E- 1 to E-3 and E-4 to E-6, respectively, compared to Army civilians whose  delinquency rate is consistent with rates for federal civilian agencies, as  shown in figure 1.
As shown in figure 3, personnel in grades E-1 through E-6 account for about  $8 million of the $10 million in total Army charge-offs for fiscal year 2001.
Enlisted personnel in the E-1 to E-6 grade level range in rank from privates  to staff sergeants, respectively, and receive basic pay ranging from $11,033  to $26,253.  Although these basic pay rates are supplemented with amounts  such as housing and food allowances, these salaries may not permit  payment of excessive personal charges on travel cards. Also, if cardholders  in these lower grade levels do not receive their travel card reimbursements  promptly because of either delays in filing their vouchers or in voucher  processing, they may lack the financial resources to make timely required  payments on their travel card accounts.  Further, as discussed later,  because of the Army’s failure to take any action to exempt personnel with  poor credit histories from required use of travel cards, these low- and  midlevel enlisted military personnel are often issued travel cards even  though they may already be in serious financial trouble and, therefore, may  not have been appropriate credit risks.  The failure to provide proper  training and monitoring of travel card use, as well as maintain firm credit  limits, may also have exacerbated the delinquency rates for these  individuals.
section_title: High Delinquency and Charge-off Rates Have Resulted in Increased Costs to the Government
paragraphs: Although the bank generally absorbs the losses associated with  delinquencies and charge-offs, this problem has significant consequences  to the Army.  The high delinquency and charge-off rates resulted in  increased costs in terms of increased fees imposed by Bank of America  following a contract dispute with DOD and the loss of potential refunds  associated with the program.  Other costs are real but not easily  measurable, such as the increased administrative burden to the Army  associated with additional resources required to address delinquent and  charged-off accounts.  For example, to effectively manage the travel card  program, employees with delinquent accounts must be identified,  counseled, disciplined, and closely monitored.  In addition, employees with  financial problems who also have access to sensitive data may pose a  security risk, as discussed later in this report. While most employees  properly manage their travel card accounts and pay their bills on time, the  high delinquency and charge-off rates may undermine the professional  image of the Army and its personnel.
subsections: section_title: Dispute between Contractor and DOD
paragraphs: Unexpectedly high defaults by DOD’s travel cardholders, including the  Army’s, resulted in a 5-month legal dispute with DOD’s contractor, 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 for  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 Bank of America 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.  Bank of America officials estimated that 43,000 DOD employees  defaulted on more than $59 million in debts.  Bank of America only agreed  to drop its legal dispute with DOD after GSA renegotiated the terms of the  master contract and DOD renegotiated the related tailored task order for  travel card services in April 2001.  Specifically, under the renegotiated  master contract and related task order 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; facilitating  the collection of delinquent and charged-off amounts through salary and  military retirement pay offset; and participating in the split disbursement  payment process, in which the government pays the bank directly.
section_title: Effect of Increased Fees
paragraphs: One of the terms of the renegotiation of the task order between Bank of  America and DOD was an increase in travel card cash advance fees from  1.9 percent to 3 percent, or $2, whichever would be the higher fee amount,  effective August 10, 2001.  The Army reimburses cash advance fees  incurred by a traveler while on authorized travel.  We estimate that this  contract modification will result in approximately $1.4 million of increased  costs to the Army each year for the reimbursement of cash advance fees.   Our estimate was made by applying the increase in the advance fees to cash  advances made during fiscal year 2001.  Other fee increases agreed to in the  renegotiation increased the cost to the Army, such as the fee for expedited  travel card issuance, and to delinquent cardholders, such as the increase in  late fees from $20 to $29.
section_title: Delinquent Account Payment Affects Rebates to the Army
paragraphs: The GSA master contract modification also changed the rebate calculation,  making it imperative that the Army 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 as a result of a combination of both individually billed  and centrally billed card usage.  The rebate to the agency is reduced, or  eliminated, if significant numbers of an agency’s individual cardholders do  not pay their accounts timely.  Specifically, credit losses or balances that  reach 180 calendar days past the closing date on the statement of account  reduce the rebate amounts.  Effective January 2001, one of the terms of 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 sales 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 credit losses, significantly affected the amount of rebate that  the Army received as a result of combined individually and centrally billed  net sales in fiscal year 2001.  The Army collected approximately $635,000 of  the $3 million in rebates for fiscal year 2001 that we estimated that the  Army would have received, based on fiscal year 2001 dollar volume, had  individually billed account payments been timely.  Prior to the change in  the way the rebates were calculated, in fiscal year 2000, the Army received  approximately $2.7 million in rebates from the travel card program, net of  $450,000 that was paid to GSA for an industrial funding fee (contract  administration fee).
GSA receives a contract administration fee of four basis points or four one- hundredths of a percent (.0004)—of net sales on both the individually and  centrally billed accounts.  For fiscal year 2001, GSA received approximately  $485,000 for the Army’s net sales.  Bank of America pays this fee to GSA  regardless of whether the agency or service receives any rebates.  For  example, for the last three quarters of fiscal year 2001, the Army had  negative rebates after the credit loss fees were deducted and GSA received  approximately $386,000 from Bank of America for those three quarters.
The negative net rebates are carried over to subsequent quarters until they  can be offset by positive net rebates that the agency earns.
section_title: Army and DOD Have Taken Some Steps to Reduce Delinquencies and Charge- offs, but Additional Actions Are Needed
paragraphs: The Army 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 show 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.  This program began to offset  amounts from delinquent cardholders’ salaries and military retirement  benefit payments in November 2001.  Other Army actions include a limited  split disbursement payment plan, in which DFAS disburses a portion of a  travel reimbursement directly to the bank (instead of disbursing the entire  amount of the reimbursement to the cardholder), and increased  management attention and focus on the delinquency issue. The Army’s  actions, however, primarily address the symptoms or “back-end” result of  delinquency and charge-offs after they have already occurred.  As noted in  the remaining sections of this report, the Army has significant control  weaknesses, particularly with respect to the front-end management of the  travel card program, such as issuing the cards and overseeing the proper  use of the cards, which it has not yet effectively addressed.
subsections: section_title: Charge-offs Have Decreased
paragraphs: As shown in figure 4, the Army’s charge-offs have decreased substantially.
Specifically, although Army delinquency rates have not changed  substantially in the last 2 years, the total dollars charged off by Bank of  America have decreased for each of the last four quarters.  Figure 4 also  shows that recoveries of charge-offs increased markedly in the second  quarter of fiscal year 2002. The primary causes of the decrease in charge- offs and recent increase in recoveries are DOD’s new salary and military  retirement benefit offset program as well as other positive steps, including  encouraging the use of split disbursements and increased management  focus and attention.
section_title: Salary and Military Retirement Offset Program
paragraphs: Starting in fiscal year 2002, DOD began to offset the salary of certain  civilian and military employees and retired military members for all  services, including the Army, for the amounts delinquent or charged off on  travel card accounts.  The DOD salary offset program implements a  provision of the Travel and Transportation Reform Act of 1998 (TTRA)  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 to the contractor, as a result of delinquencies not  disputed by the employee, on his or her travel card.
With the task order modification, DOD agreed with Bank of America to  implement an offset program.  From April 2001 through August 2001, DOD  worked with the Bank of America to establish protocols and to set up the  program.  In August 2001, Bank of America sent demand letters to  cardholders with accounts over 90 days delinquent.  DFAS processed the  initial offsets of delinquent accounts in October 2001 in the various DOD  pay systems.  The first deduction was made from the November pay period.   Collections were paid to Bank of America starting in early 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 charged-off accounts.
The process takes approximately 2 months from initiating the offset  through payment to the bank.  Specifically, after 90 days delinquency, Bank  of America sends a demand letter to the individual cardholder that requests  payment in full within 30 days.  The demand letter provides for initiating  offset if payment is not made in full within 30 days.  The cardholder may  negotiate an installment agreement or may dispute the charges with the  bank.  The cardholder has a right to review all records, such as invoices,  and to request a hearing if he or she is not satisfied with the bank’s  disposition of the dispute.
After the 30 days have passed, 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  cannot be accepted for offset.
Civilian employees in bargaining units that have not agreed to offset  cannot be accepted.  According to a DFAS official, as of the end of April  2002, 789 of 1,227 DOD bargaining units have agreed.
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 (active, reserve, retired military, or civilian) systems cannot  be accepted for offset.
Civilian retirees are not currently subject to offset.  The authorizing  statutes for both the Civil Service Retirement System and the Federal  Employee’s Retirement System 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.
Once an individual is accepted for offset, the related debt is established in  the respective pay system and DFAS can deduct up to 15 percent of  disposable pay.  Disposable pay is defined in GSA’s Federal Travel  Regulation 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.
According to DFAS, from October 2001 through April 2002, Bank of  America referred  49,014 DOD-wide cases with debt of $72.4 million to DOD  for offset.  DOD accepted and started offset for 73 percent of the cases and  68 percent of the debt amounts referred.   The number and debt amount of  Army cases forwarded by Bank of America were not available.  From  November 2001 through April 2002, DFAS collected $6.3 million from Army  military and retired military members through the offset program.  DFAS  was unable to provide the amount of collections for civilian employees by  military service.  However, the amount of total collections from November  2001 through April 2002 for civilian employees of DOD services and  agencies was about $702,000.
section_title: Split Disbursement Payment Process
paragraphs: DOD has recently encouraged cardholders to make greater use of the split  disbursement payment process.  This payment method, by which  cardholders elect to have all or part of their reimbursement sent directly to  Bank of America, has the potential to significantly reduce delinquencies.   Split disbursements are a standard practice of many private sector  companies.  DOD reported that for about 27 percent of the travel vouchers  paid in April 2002 at one of its major disbursing centers, cardholders  elected this payment option.
However, the use of the split disbursement payment process by employees  is currently voluntary, as shown by DOD’s low participation rate.  The  defense authorization bill for fiscal year 2003 passed by the Senate would  change this 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 early October 2002, the bill (H.R. 4546) was in  conference.
section_title: Management Focus and Attention
paragraphs: In response to the excessive delinquency rate, in October 2000, the Vice  Chief of Staff of the Army issued a directive to cut the Army’s delinquencies  by 50 percent by the end of March 2001.  Further, the Vice Chief of Staff  established a goal of a delinquency rate of no more than 4 percent of active  cardholders as soon as possible and ordered commanders throughout the  Army to provide additional attention to the government travel card  program.  Army officials emphasized setting goals, monitoring results,  providing feedback, providing training, and coordinating efforts with DOD  and Bank of America.   We have also seen increased management attention  and focus on reducing delinquencies at the Army command level.  For  example, commanders at both Ft. Bragg locations we audited told us they  hold monthly meetings to discuss the status of any outstanding  delinquencies and related corrective actions.
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.  For example, as previously  discussed, we support the provision of the fiscal year 2003 defense  authorization bill that would authorize DOD to require the use of the split  disbursement payment process.  If enacted and required DOD-wide, this  authority has the potential to significantly reduce DOD’s and the Army’s  delinquency rates.  Other 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.
section_title: Potentially Fraudulent and Abusive Travel Card Activity
paragraphs: Our review identified numerous instances of potentially fraudulent and  abusive activity associated with the Army’s travel card program during  fiscal year 2001.  Failure to implement controls to reasonably prevent such  transactions can increase the Army’s vulnerability to additional  delinquencies and charge-offs.  As discussed previously, about $34 million  associated with over 23,000 Army accounts was charged off since the  inception of the travel card program with Bank of America.
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.  For purposes of this report, the only cases  we characterized as potentially fraudulent were those where cardholders  wrote three or more NSF checks or wrote checks on closed accounts to  pay their Bank of America bills.  These cases are potentially fraudulent  because they indicate a pattern of activity in violation of one or more  elements of federal or state criminal codes.  In addition, some of the travel  card activity that we categorized as abusive may be fraudulent if it can be  established that the cardholder violated any element of federal or state  criminal codes.
For purposes of this report, we considered abusive travel card activity to  include (1) personal use of the cards—any use other than for official  government travel—regardless of 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 and thus benefited personally.
subsections: section_title: Potentially Fraudulent Transactions
paragraphs: 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.  Further, it is a violation of the Uniform Code of Military Justice  (UCMJ) 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, of the over 4,200 account  holders who wrote NSF checks, close to 1,200 Army personnel had their  accounts charged off.  In the same period, more than 200 personnel whose  accounts were eventually charged off may have committed bank fraud by  writing three or more NSF checks to Bank of America.  Table 2 shows the  10 cases we selected for review where the cardholders wrote three or more  NSF checks to Bank of America, and whose accounts were charged off due  in part to repeated use of NSF checks.
Eight of the 10 cardholders included in table 2 had significant credit  problems prior to card issuance, such as charged-off credit card accounts  and automobile loans; mortgage foreclosures; bankruptcies; serious  delinquencies; referrals to collection agencies for unpaid utility bills,  medical fees, and department store accounts; and, in one case, prior  criminal convictions for writing NSF checks.  The remaining two had  similar credit problems subsequent to issuance of Bank of America travel  cards.  These examples are illustrative of many of the breakdowns in the  management and oversight over the Army travel card program, as  discussed in the following sections of this report.  The following provides  detailed information on some of these cases.
Cardholder #1 was a staff sergeant who wrote 86 NSF checks totaling  almost $270,000 for payment on his Bank of America travel card account  for charges incurred when the cardholder was not on official  government travel.  This cardholder had a previous criminal record for  writing NSF checks.  The cardholder also had numerous other financial  problems, including mortgage foreclosure and claims discharged in  December 2001 for Chapter 7 bankruptcy.  Among the claims discharged  in bankruptcy was a $2,199 claim on the cardholder’s previous  government travel card issued by American Express and a $114,750 real  estate loan.  This cardholder applied for and received a new Social  Security number when he legally changed his name in 1998, and since  then has had two Social Security numbers—one under each name.  The  individual authorized a credit check at the time of his application for a  government travel card from Bank of America.  However, it appeared  that the credit check was not performed and the individual was issued a  standard card with a $10,000 limit in April 1999, instead of a restricted  card with a $2,500 credit limit.
From July 1999 through November 2000, the cardholder wrote  approximately 86 NSF checks—some on closed or invalid accounts—to  Bank of America.  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 successively larger NSF checks, which  Bank of America credited to his travel card account, the staff sergeant  was able to, in effect, successively increase his credit limit to over  $35,000—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.  Despite the 86 NSF checks and associated  increases in the cumulative unpaid balance on the cardholder’s  government travel card account, records we obtained indicate that Bank  of America did not close this individual’s account until February 2001,  when the account was charged off.  The cardholder was undergoing  court-martial in late May 2002 for NSF checks related to his Bank of  America account as well as to the Army and Air Force Exchange  Services. Bank of America acknowledged that it erred in not closing this  account sooner.  This has resulted in the bank changing its policy to  require accounts to be closed when a cardholder has written three NSF  checks.
Cardholder #3 currently works at the Pentagon as a GS-13 employee on  a classified program.  Because of her position, the cardholder has a top- secret clearance.  Prior to applying for the Bank of America travel card,  the employee had credit problems, including several charged-off  accounts.  Because the employee did not authorize a credit check on her  travel card application, she was given a restricted card with a credit  limit of $2,500, which should have been issued in “inactive” status and  only activated when needed for travel.  However, Bank of America  records showed that in July 2000, immediately after receiving the travel  card, the employee used the card to pay for a personal move and other  charges totaling more than $3,600—more than $1,000 in excess of the  credit limit on restricted travel cards.  The cognizant APC told us that  while a credit check authorization should have been done for the  cardholder to exceed the $2,500 credit limit, she could not confirm that  one was done in this case.
In addition, from October 2000 through September 2001, the employee  wrote four NSF checks totaling more than $7,700 to Bank of America.   The cardholder’s account had an unpaid balance of $3,257 at the time it  was charged off in September 2001.  Although the cardholder had a  restricted card that should have been activated only for the first official  travel, the fact that she was able to use the card immediately upon  issuance while not on travel indicated that Bank of America issued the  card in an “active” status.  Shortly after our investigators contacted this  cardholder, she paid her account balance in full.
We also found that no disciplinary action had been taken against this  individual.  The two APCs were not aware that the employee had  problems with her account, much less that the account was charged  off, until contacted by our investigators.  The APCs told us they had  little time to devote to reviewing the over 500 individual accounts for  which they had oversight responsibilities assigned as a collateral duty.   In addition, while, according to a Bank of America official, APCs have  had access to NSF check information in its database since 2000, one of  the APCs told us she only recently received training on how to identify  delinquent accounts in Bank of America’s database.
Cardholder #6 exhibited a pattern of writing NSF checks about once a  month.  During fiscal year 2001, the cardholder wrote 11 NSF checks to  Bank of America that ranged from $250 to $630.  Some checks were  written to pay charges that appeared to be for personal travel.  The  cardholder’s account balance of $3,380 was charged off in February  2002.  Further, when the cardholder was assigned from Ft. Hood, Texas,  to the U.S. Army Recruiting Command in Tampa, Florida, her travel card  account was not transferred and assigned to the APC responsible for  travel card oversight in her new unit.  Consequently, the APC in Florida  was not aware of the cardholder’s problems because the cardholder did  not appear in any of the Recruiting Command’s delinquency reports.
Abusive Travel Card Activity We found instances of abusive travel card activity by Army cardholders that  covered charges for a wide variety of personal goods and services,  including cruises; sports and music event tickets; personal clothing items;  casino and Internet gambling; transactions to obtain cash at adult  entertainment establishments; and, in one case, the purchase of a used  automobile.  There should be no misunderstanding by Army personnel that  personal use of the card is not permitted.  The standard government travel  card used by most Army personnel is clearly marked, “For Official  Government Travel Only” on the face of the card.
In addition, all Army travel card applicants sign a statement that provides,  in part, that “I also understand that I am authorized to use the card only for  those necessary and reasonable expenses incurred by me for official  travel.” As part of our statistical sampling tests of travel card activity at  four Army locations, we estimated that 15 percent to 45 percent of the  fiscal year 2001 travel card transactions at those locations appeared to be  for charges not related to official travel and, therefore, were abusive.     Further, abusive use of the card related to failure to pay Bank of America  was the result of  (1) cardholders who were reimbursed for official travel  and then did not pay Bank of America and (2) cardholders who used the  card for personal charges and failed to pay Bank of America.
subsections: section_title: Travel Card Abuse due to Failure to Pay Bank of America Charges
paragraphs: Our work at four case study sites and our Army-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, leading to  charge off of the cardholders’ accounts, or (2) transactions incurred by  cardholders that were not associated with approved travel orders where  unpaid accounts were also charged off.  In all cases, we found that  ineffective monitoring contributed to charge-offs.  Specifically, many APCs,  commanders, and supervisors did not effectively monitor travel card usage  or address delinquencies timely.  We found little documentation indicating  that the APCs, commanders, and supervisors were aware of the problems  with individual cardholders, conducted follow-up, and took appropriate  disciplinary actions.  Table 3 provides examples of the two types of abusive  transactions related to nonpayment and the related follow-up and  disciplinary actions.
Similar to individuals who wrote NSF checks, many of the 105 cardholders  that we reviewed whose accounts were charged off had significant prior  credit problems, such as charged-off credit card account balances and  automobile loan defaults, and referrals to collection agencies.  Many of  these individuals experienced further credit problems, including mortgage  foreclosure, after issuance of the government travel card.  As shown in  table 4, some charged-off accounts resulted from the use of the card for  transactions that were not proper travel expenses covered by valid travel  orders, while others resulted from official travel expenses that were  reimbursed but the cardholders failed to pay the bills.  The magnitude and  range of abusive transactions reflect the poor control environment and  other internal control weaknesses discussed later in this report.  The  following include details of some of these.
Cardholder #1 was a GS-12 employee in Army Forces Command at Ft.  McPherson, Georgia.  In August 2000, the cardholder used the card to  pay for authorized charges associated with a permanent change of  station move from Qatar to Ft. McPherson.  The cardholder did not elect  split disbursement of his travel reimbursement between himself and  Bank of America when filing travel vouchers.  Thus, the entire  reimbursement for travel expenses was electronically deposited in the  cardholder’s checking account.  The cardholder did not pay his travel  card bill, but instead used the reimbursement to, among other things,  pay the closing costs on the purchase of a home.  The cardholder was  counseled by the APC and his supervisors after his travel card account  became delinquent, but no disciplinary action was taken.  The  cardholder is now in the salary offset program.  The cardholder  informed us that he was briefed, at the time of card issuance, of his  responsibility to make timely payments to Bank of America in payment  of expenses claimed on approved travel vouchers.
Cardholder #2 was a sergeant first class (E-7) with an Army Reserve  Officers’ Training Corps unit.  Army investigative records showed that in  January 2001, the cardholder’s spouse used his government travel card  to make two payments of $2,050 each to Budget Rent-A-Car for the  purchase of a used automobile.  The spouse was able to use the travel  card because of the general military power of attorney provided to her  by the sergeant.  In addition, several automated teller machine (ATM)  withdrawals were made using the card at times when the sergeant was  not on official travel status.  The cardholder received a letter of  reprimand and subsequently retired.  In February 2002, after his account  was charged off, the cardholder’s account was put into the offset  program and a portion of his annuity automatically withheld for  repayment to Bank of America.
Cardholder #9 was an Army specialist (E-4) at Ft. Drum and received a  total of three travel card accounts.  Shortly after receiving his first card  he incurred over $5,000 in personal charges, including casino gambling.   He then notified Bank of America that his wallet, which contained his  government travel card and driver’s license, had been stolen and that the  charges on the card were not made by him and therefore were  fraudulent charges.  Bank of America closed this account, charged off  the amount as a fraud loss, and issued the soldier a second account.  The  soldier then incurred over $8,000 in personal charges for casino  gambling and notified Bank of America that this card was lost.  Bank of  America again closed this account and issued a third account to the  soldier.  The soldier incurred approximately $5,000 in personal charges  on this account, including casino gambling.  Bank of America personnel  began to question the soldier regarding the transactions made on both  the first and second accounts because both accounts showed  transactions at the same casino and the signatures on the charge  receipts were similar to the soldier’s signature.  As of April 17, 2002, the  soldier’s travel card account was in charge-off status, with an unpaid  balance of $10,029.  The soldier told us that he falsified the report to  Bank of America that his first card was stolen and that the charges were  fraudulent because he could not pay the bill.  He also told us that he  falsely reported his second card lost again because he could not pay the  bill.  In addition, the soldier stated that he made personal charges on the  third card, including casino gambling, in hopes of winning enough to pay  the bill.  In October 2000, the soldier received an Article 15 for misuse of  his travel cards.  He received a reduction in grade from an E-4 to an E-1,  forfeited a half-month’s pay, and was to serve 45 days of extra duty  beyond his November 30, 2000, discharge date.  The soldier informed us  that the Commander waived the 45 days and he received an honorable  discharge as an E-4.  In February 2002, the Army enrolled this soldier in  the offset program.  The soldier is currently an E-5 with the  Pennsylvania National Guard.  According to the National Guard, the  Army’ official personnel file for this soldier contains no information  concerning any adverse action.
Cardholder #10, another Army specialist (E-4) at Ft. Drum used his  government travel card to make numerous purchases of personal items  totaling $2,841 over a 3-month period from May through July 2000.  The  personal items included 38 restaurant charges, 37 charges at gas  stations, 14 charges at grocery stores, and 5 hotel charges in the vicinity  of Ft. Drum.  The specialist, who had received a $10,000 credit limit on  his government travel card, had an unpaid balance of $7,643 as of  December 11, 2000.  As of April 17, 2002, the travel card was in charge- off status and the specialist no longer worked for the Army.  Our review  of the soldier’s credit report showed that he received his government  travel card from Bank of America in May 1999.  Since that time, the  soldier opened numerous credit card and other consumer accounts with  other vendors, almost all of which had unpaid balances and were in  collection status or had been charged off.  We found no evidence that  the APC detected the soldier’s personal use of the government travel  card.  As a result, the Army could not take timely action to cancel or  suspend the soldier’s travel card account.  We also found no evidence  that disciplinary action was taken to address personal use of the travel  card or the unpaid debt once the Army became aware of the problem.
In contrast to the charged-off accounts discussed above, we found some  instances where the failure to pay the travel card bill was attributable to the  delays and errors in processing vouchers and reimbursing the travelers.
This issue is discussed in more detail in a later section on testing of key  internal controls.
section_title: Travel Card Abuse Where Cardholder Paid Bank of America
paragraphs: We also found instances in which cardholders used their travel cards for  personal purposes, but paid their travel card bills when they became due.   These cardholders benefited by, in effect, getting interest-free loans.   Personal use of the card increases the risk of charge-offs related to abusive  purchases, which are costly to the government and the taxpayer.  In  addition, the high rate of abuse with respect to travel card activity is  indicative of the weak internal control environment and the failure of the  APCs to monitor credit card activities, as discussed later in this report.
Table 4 provides examples of the types of abusive charges we found during  our review.
As shown in table 4, cardholders used their travel cards for a wide variety  of personal goods or services, including cruises, sporting and music event  tickets, membership dues, and personal clothing items.  For example, we  were able to determine that, during fiscal year 2001, approximately $45,000  was spent Army-wide to purchase cruise packages or to pay for a variety of  activities or services on cruise ships.
Some individuals who abused their travel card privileges held positions  where they may have been responsible for taking appropriate disciplinary  action with respect to travel card abuse by personnel within their  commands.  For example, a Lieutenant Colonel used his travel card to  purchase accommodations and tickets to attend the Tournament of Roses  in Pasadena, California, as shown in example 2 in table 4.
section_title: Abusive Travel Card Use at Adult Entertainment Establishments
paragraphs: We also found instances of abusive travel card activity in which Army  personnel used travel cards to obtain cash at establishments, such as  “gentlemen’s clubs,” instead of following prescribed ATM procedures.   Specifically, we found cases in which these clubs provided adult  entertainment services and helped the cardholders circumvent travel card  ATM cash withdrawal limits, by supplying cardholders with actual cash or  “club cash” for a 10 percent fee.  We were able to identify about 200 Army  travel cardholders who during fiscal year 2001 charged almost $38,000 on  their government travel cards at these establishments.  Some of these  individuals also did not pay their related travel card bills, and their travel  card accounts were charged off.
DOD’s travel card policy sets limits on the amount of cash a cardholder can  withdraw using ATMs.  Typically, the ATM limit is set at $500 for a standard  card and $200 for a restricted card, meaning that in any 1-month cycle,  Army cardholders could only obtain cash up to the limit specified on their  cards.  However, Army cardholders circumvented these policies by  obtaining cash or club cash at a substantial fee from such clubs.
The gentlemen’s clubs typically sell adult entertainment, many sell alcohol,  and some sell food.  DOD and other federal agencies use merchant  category codes (MCC) to identify and block merchants in certain  categories from accepting travel cards as payment for goods and services  at those establishments.  However, some merchants with blocked codes  circumvented this control by using an allowable MCC to submit cash  transactions at their establishments.  For instance, Crazy Horse Too is an  entertainment establishment that provides topless dancing and sells  alcohol, but not food.  This establishment allows customers to use their  travel cards to obtain club cash from the bar for a 10 percent fee.  Club cash  can only be used to tip dancers, waitresses, and bartenders, but cannot be  exchanged for currency and cannot be used to purchase alcohol.  Crazy  Horse Too codes the club cash that it provides to customers as a “bar  charge” in the name of its operating company, the Power Company.  This  coding allows these charges to bypass the MCC blocking control.  Other  clubs, such as Cheetahs Lounge Club, provide actual cash instead of club  cash, and also code the transactions as “bar charges.”
For example, one cardholder used his restricted travel card to obtain more  than $5,000 in cash.  As discussed previously, a restricted card has a  maximum credit limit of $2,500 and an ATM cash withdrawal limit of $200  per monthly statement cycle.  In this instance, the cardholder’s restricted  travel card was activated about 20 days prior to his official travel.  The  cardholder used the card to make numerous ATM cash withdrawals and  pay for large restaurant and grocery store charges prior to departure for  government travel.  After arrival at his temporary assignment location, the  cardholder requested that his APC raise his credit limit from $2,500 to  $10,000 based on his “mission-critical status.” The APC took the requested  action, without reviewing the cardholder’s account history.  The cardholder  then frequented gentlemen’s clubs near his temporary assignment location,  where he obtained more than $5,000 in cash.  The cardholder told our  investigators that he sent approximately $2,000 to his spouse, leaving him  with about $3,000 for personal use and entertainment.  The cardholder also  told us the ability to obtain cash from these clubs was common knowledge  among military personnel at his temporary assignment location.  In this  case, the APC subsequently discovered the abuse of the travel card and  took steps that resulted in closing the cardholder’s account, and the  cardholder received an administrative reprimand for unacceptable  behavior.
section_title: Few Documented Disciplinary Actions Taken against Cardholders Who Misused the Travel Card
paragraphs: We found that disciplinary actions were taken against the cardholders in  less than half of the cases of cardholder abuse that we reviewed.  It is  critical that cardholders who misuse their travel cards are identified and  held accountable for their actions.  Lacking such an environment, the Army  is likely to continue to experience the types of potentially fraudulent and  abusive activity identified in our work.  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 Army 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.  Available documentation  indicates that commanders or supervisors did not take any disciplinary  actions against the majority of individuals who abused or misused their  cards during fiscal year 2001.  We found little documentation  demonstrating that APCs forwarded cardholder delinquency information to  appropriate commanders and supervisors to consider in determining  whether disciplinary actions were warranted.
For the cardholders we inquired about, the primary action taken when  Army officials identified misuse or abuse of the travel card was to counsel  cardholders on proper use of the card and responsibility for timely  payment of travel card bills.  In some cases, APCs took actions to cancel  the cardholder’s travel card account.  To the extent that more severe  disciplinary actions were taken, they were often in response to travel card  abuse in conjunction with other more serious offenses—such as failing to  obey orders or drug abuse.  In these instances, documented disciplinary  actions included dismissal from the Army and criminal prosecutions  resulting in prison sentences.
At the sites we audited, we were not provided any documentation of  disciplinary actions taken against cardholders in 65 of 105 charge-off cases  we reviewed.  For example, we found one instance in which a cardholder  (whose account was charged off for more than $5,000) was not subject to  any disciplinary action, and was subsequently promoted from Major to  Lieutenant Colonel.  As shown in table 3 (cardholder #5), this individual  had a history of substantial credit problems, including writing three NSF  checks.  In this instance, records indicated that the cardholder was  reimbursed for official travel, but did not pay the travel card bill.  The  individual was subsequently placed in the salary offset program.
Also, we found little evidence that cardholders faced adverse  consequences for personal use of the card as long as they paid the bills  received from Bank of America.  For example, we identified cardholder  transactions of $5,192 for a Celebrity Cruise Line vacation for four people,  $2,195 for a stock market investing course, and $1,395 in tickets to a  musical event.  In these instances, the cardholders essentially obtained  interest-free loans with no adverse consequences.  We saw few indications  that supervisors were aware that these abusive transactions occurred.  To  the extent that we saw documentation that APCs or supervisors were  aware of such travel card abuse, we saw little evidence of any disciplinary  actions.
section_title: Credit Problems Generally Not Referred to Security Officials
paragraphs: We also found many instances in which there was no evidence that Army  security officials were informed of travel card charge-offs for consideration  in reevaluating security clearances.  Army regulations provide that an  individual’s finances are one of the key factors to be considered in whether  an individual should continue to be entrusted with a secret or top-secret  clearance.  However, we found that Army security officials were unaware  of travel card debt problems and, consequently, did not consider this  information in determining whether these individuals should continue to  receive their security clearances.  Our review of the 105 charge-off cases  discussed previously showed that of 43 cardholders who had secret or top- secret clearances at the time their accounts were charged off, 38  maintained the same level of clearance as of June 2002.  The clearances for  the remaining 5 cardholders had expired.  These financially troubled  individuals may present security risks to the Army.
The U.S. Army Central Personnel Security Clearance Facility (commonly  referred to as Army CAF) is responsible for issuing and updating security  clearances for Army personnel.  Secret clearances are updated every 10  years and top-secret clearances are updated every 5 years.  During the  interim periods, Army regulations require commanders of personnel with  clearances, such as secret and top secret, to submit to Army CAF any  evidence of financial irresponsibility on the part of the personnel that  would affect their clearance.   Such evidence would include information on  financial impropriety by the security clearance holder, such as excessive  indebtedness.  Army CAF is to evaluate this information and determine  whether to revoke the clearance.
We found that commanders responsible for referring evidence of financial  irresponsibility information to Army CAF were, for the most part, unaware  of their subordinates’ financial problems.  We provided the information we  collected on individuals with charged-off accounts to Army CAF for its  consideration in determining whether to revoke, change, or renew their  security clearances.
section_title: Weak Overall Control Environment and Ineffective Travel Card Program Controls
paragraphs: A weak overall control environment and ineffective internal controls over  the travel card program contributed to the potentially fraudulent and  abusive activity related to the travel card and the Army’s high rates of  delinquency and charge-offs.  The foundation of all other controls, a  positive control environment provides discipline and structure as well as  the climate that 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 abuse the card and a  lack of management attention and focus on establishing and maintaining  the organizational structure and human capital needed to support an  effective Army travel card management program.  We found that this  overall weak control environment contributed to design flaws and  weaknesses in seven management control areas needed for an effective  travel card program.  Specifically, we identified weaknesses in the Army  travel program controls related to (1) travel card issuance, (2) APCs’  capacity to carry out assigned duties, (3) limiting card activation to meet  travel needs, (4) controls over transferred and “orphan” accounts,  (5) procedures for terminating accounts when cardholders leave military  service, (6) segregation of duties to ensure that no one individual can  control all aspects of a travel transaction, and (7) access controls for Bank  of America’s travel card database.
All seven of these areas related to two key overall management  weaknesses:  (1) the lack of clear, sufficiently detailed policies and  procedures and (2) limited travel card audit and program oversight.  First,  the units we audited used DOD’s travel management regulations (DOD  FMR, Volume 9, Chapter 3) as the primary source of policy guidance for  management of Army’s travel card program.  However, in many areas, the  existing guidance was not sufficiently detailed to provide clear, consistent  travel management procedures to be followed across all Army units.   Second, as recognized in the DOD Inspector General’s March 2002  summary report on the DOD travel card program, “ecause of its dollar  magnitude and mandated use, the DOD travel card program remains an  area needing continued emphasis, oversight, and improvement.   Independent internal audits should continue to be an integral component of  management controls.”  However, the DOD Inspector General report noted  that only two internal review reports were issued from fiscal year 1999  through fiscal year 2001 concerning the Army’s travel card program.  These  reports, issued by the Army’s Assistant Secretary for Financial  Management (and Comptroller)’s Internal Review Office, covered  government travel card usage in the Army during fiscal year 2000. In  addition, each of the Army installations we audited had internal review  groups that did some level of review of the travel program and identified  deficiencies in the Army’s travel program at their installations.
To the extent that oversight reviews were conducted, we saw few  indications that management took action to address the deficiencies  auditors identified.  For example, the Army’s two fiscal year 2000 internal  review reports disclosed that existing review procedures were not effective  in identifying card misuse and identified additional actions needed to  address travel card abuses, such as unauthorized usage of the card and  unauthorized cash withdrawals.  We identified these same issues in our  fiscal year 2001 work.
subsections: section_title: Ineffective Controls over Issuance of Travel Cards
paragraphs: The Army’s ability to prevent potentially fraudulent and abusive  transactions that can eventually lead to additional delinquencies and  charge-offs is significantly weakened if individuals who had histories of  financial irresponsibility are permitted to receive travel cards.  The Army’s  practice is to facilitate Bank of America issuing travel cards—with few  credit restrictions—to all applicants regardless of whether they have  histories of credit problems.  DOD guidance in FMR, Volume 9, Chapter 3,  provides that all DOD personnel are to use the travel card to pay for official  business travel.  However, the policy also provides that exemptions from  using the travel card 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. In addition, the DOD FMR provides that credit  checks are to be performed on all travel card applicants, unless an  applicant declines a credit check.  We found no evidence that the Army  exempted any individuals or groups from required acceptance and use of  travel cards, even those with histories of previous credit problems.
In July 1999, Bank of America began obtaining credit checks on DOD travel  card applicants and used the credit history obtained through these checks  as a basis for determining the type of account—restricted or standard—it  would provide to new DOD travel applicants.  An applicant who did not  authorize a credit check, or with either no credit history or 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.  DOD policy also permits commanders or supervisors to raise the  credit limits and ATM limits of restricted travel cardholders to whatever  level they deem necessary to meet mission requirements, except when the  cardholder declined a credit check.  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 Army cardholders would  not have qualified for credit cards even with the restricted limits.  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.
Consequently, until the Army takes action to prevent applicants with past  credit problems from receiving government travel cards, it will continue to  unnecessarily increase the risk that individuals will continue a pattern of  fraud, abuse, and delinquency or nonpayment.  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.    As discussed previously, many of the Army 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; defaulted automobile loans that resulted in  repossession of the vehicles; defaulted mortgage payments and foreclosure  proceedings on homes; numerous bankruptcies; and, in several cases, prior  arrests and convictions for crimes such as writing bad checks.
section_title: Unrealistic APC Performance Expectations
paragraphs: DOD policy provides that APCs are the primary focal points for day-to-day  management of the travel program.  However, APC duties are generally  “other duties as assigned.”  As discussed in the following sections, the  sheer number of responsibilities assigned to APCs, coupled with issues  concerning APC span of control, selection, turnover, training, and  performance evaluation, result in unrealistic expectations for the  effectiveness of APCs in carrying out their critical duties.  Consequently,  we found that APCs were generally ineffective in performing their key  travel program management oversight duties.
subsections: section_title: APC Responsibilities
paragraphs: As prescribed by DOD’s FMR guidance, 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 any account delinquencies, interacting with the  bank, and fielding questions about the program from both cardholders and  supervisors.  APCs are also required to monitor delinquent cardholders and  notify commanders/supervisors of such delinquencies for appropriate  action.  Further, DOD’s FMR also provides that APCs are to receive reports  from Bank of America showing  cardholder transaction activity during the  most recent billing cycle.  However, DOD’s guidance does not further  specify APC responsibilities for actions based on their review of Bank of  America reports.
We were told that individuals were given APC responsibilities as a  collateral duty.  APC estimates of the percentage of time spent on their APC  responsibilities ranged from 2 percent to as high as 80 percent, with most  indicating they spent about 5 to 20 percent of their time on APC duties.   Several of the APCs we interviewed indicated that keeping up with their  APC responsibilities was a challenge because they were expected to  perform many other duties as well.  For example, at the sites we audited,  civilians with APC responsibilities were often program or budget analysts  who worked in the installations’ resource management offices.
While some of the military personnel assigned APC responsibilities at the  sites we audited had primary job responsibilities that were finance related,  such as budget and resource managers, others had more mission-related  duties.  For example, one of the APCs at the sites we audited was  responsible for security at an airport, and another was a transportation  officer.  At Ft. Bragg, Special Operations, entire units, along with the APCs,  were deployed at the time of our audit.  Such deployments make it  increasingly difficult for military personnel assigned APC duties to carry  out their responsibilities.
Few of the APCs we interviewed performed any account transaction  reviews beyond those conducted in conjunction with delinquencies.   Consequently, instances of abuse of the travel cards were seldom detected  promptly.  Some units’ operating procedures specify that APCs monitor  credit card activities to identify misuse.  For example, in its operating  procedures, the California National Guard requires that APCs review credit  card activity to identify misuse, that such misuse be brought to the  attention of the commanders/supervisors, and that the  commanders/supervisors take actions to address the problems.  However,  one California National Guard APC told us that she does not have sufficient  time available to monitor the travel activity of all the cardholders under her  purview.  Another California National Guard APC told us that, as time  permits, he monitors the travel card transaction activity of the cardholders  that are his responsibility on a weekly basis.
section_title: APC Span of Control
paragraphs: 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.  Bank of  America guidance provides that an optimal span of control is 100  cardholders per APC.  In addition, because APC duties 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 5, at the four sites we audited, the average ratio of cardholders with  open accounts to APCs ranged from 65 to 1 to 804 to 1.
The span of control responsibilities for the APCs at the four sites we  audited ranged from about 5 open accounts to over 1,000.  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 another lower-level APC has direct responsibility, but  for which the higher-level APC has oversight responsibility.  For example,  an APC at the California National Guard site we audited who had direct  responsibility for managing the travel activities of over 1,000 cardholders  also had oversight monitoring responsibility for about another 400  cardholders.   An APC at Ft. Bragg, Forces Command, with direct  responsibility for managing 287 travel card accounts told us that he was in  the process of working with Bank of America to identify and deactivate the  cards of any infrequent travelers within his purview.  He reported that he  hoped to reduce the number of accounts he was responsible for to about  100.
The sites we audited were consistent in that few of the APCs we  interviewed performed any account transaction reviews beyond those  conducted in conjunction with delinquencies.  Several of the APCs told us  that they received detailed account transaction activity reports from Bank  of America.  But, outside of reviews of account activity associated with  delinquencies, they told us that detailed transaction reviews were too time- consuming to carry out for their other cardholders.  Another APC we talked  to, who attempted to compare reports on travel card transactions received  from Bank of America with valid travel orders for the cardholders within  her purview, said this activity was time-consuming and almost impossible  to perform for all of the people under her span of control.
Failure to review available cardholder transaction activity reports available  from Bank of America and take action to address any inappropriate card  usage can result in delinquencies and account charge-offs.  For example,  one APC was not aware that a cardholder within his sphere of  responsibility made multiple personal use transactions, including  purchases at Wal-Mart, Vitamin World, General Nutrition Center, and  Hecht’s, until 3 months after the cardholder’s name appeared in a  delinquency report in January 2001.  By that time, the cardholder owed  $5,655 and was from 30 to 59 days delinquent.  The cardholder’s account  was eventually charged-off on August 10, 2001, with a balance of $6,997.
section_title: APC Selection, Turnover, Training, and Performance Evaluation
paragraphs: Our internal control standards state that management’s commitment to  competence and good human capital practices are critical factors in  establishing and maintaining a strong internal control environment.   Specifically, our standards provide that management needs to identify  appropriate knowledge and skills needed for various jobs and provide  needed training, as well as candid and constructive counseling, and  performance appraisals.  They also state that establishing appropriate  human capital practices, including hiring, training, evaluating, counseling,  and disciplining personnel, is another critical environmental factor.
APC selection and turnover.  As discussed previously, the DOD FMR  assigns a number of key duties for government travel card management to  APCs.  However, neither DOD nor the Army had procedures in place that  addressed the requisite knowledge and skills needed, or the expected  tenure, for those selected to carry out these key APC responsibilities.  We  found that APC assignments were based on the commanding officer’s  judgment as to who could best carry out assigned APC duties.
At three of the four sites we audited, the individuals assigned overall APC  duties for the sites were civilians, and the majority of the individuals  assigned as subordinate-level APCs were military personnel.   We did not  identify any information indicating that individuals appointed as APCs  were expected to serve in this role for any specified period.  We found that  civilians appointed as APCs generally served longer terms than military  APC appointees.  For example, at the Ft. Bragg Special Operations site we  audited, we were told that the civilian APC had served for over 2 years in  this role, while most of the military APCs turned over roughly every 6  months.  At the Ft. Bragg, Forces Command, site we audited, only 1 of the  11 APCs we attempted to interview who had been in position during fiscal  year 2001 remained in that position.
APC training.  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 to the travel card program.   There are no supporting DOD or Army-wide procedures detailing  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.
A number of the APCs we interviewed told us they relied heavily on on-the- job learning and other program coordinators for advice on how to carry out  their duties when they assumed their APC responsibilities.  At the Ft.  Bragg, Special Operations, site we audited, we were told that the  command-level APC provided training every 3 months and expected all  APCs to attend, unless they were deployed or on an assignment that would  not allow them to attend the training.  APCs at Ft. Bragg, Special  Operations, also told us they received annual or semiannual briefings from  Bank of America on the electronic tools available in its Web-based system  containing travel card transaction data—EAGLS (Electronic Account  Government Ledger System).  According to the APCs we interviewed, the  briefings they received on EAGLS included guidance on how to use the  system to establish a travel account, how to extract individual cardholder  delinquency and transaction activity reports, and how to contact Bank of  America for additional help with the Web-based tools. Some of the APCs  we talked with reported that they have become proficient in, and routinely  use, the tools available through EAGLS to assist them in their APC duties  with respect to delinquency monitoring.  Other APCs indicated that they  either did not use the tools available through EAGLS or were not proficient  in using them to monitor cardholders’ travel activities.  According to data  provided by Bank of America, about 23 percent of the Army’s APCs have  never logged into EAGLS.
APC performance evaluation.  Generally, APC responsibilities were  assigned as an “other duty assignment.” Individuals serving as APCs had,  and were rated on, other job duties and responsibilities.  The extent to  which the performance of APCs was recognized as a major duty, and rated  as such, varied.  At Ft. Bragg, Special Operations, none of the individuals  serving as APCs were rated on how well they performed those duties.  At  the Ft. Drum location, one of the APCs had a position description that  included “serves as travel card program manager” as a major duty (with the  recognition that this duty, combined with duties as the unit’s program  manager for cost accounting, should require about 30 percent of the  employee’s time).
section_title: Controls over Activating/Deactivating Travel Cards to Meet Travel Needs
paragraphs: Allowing Army travel cardholders to maintain accounts in an active status  when not needed for government travel unnecessarily exposes the Army to  an increased 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.  By contrast, standard cards 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 cards when cardholders were not on travel.  For  example, the California National Guard’s August 2001 guidance to all of its  APCs required them to deactivate all travel card accounts for cardholders  not on official travel.  In addition, APCs at Ft. Bragg, Special Operations,  told us that, as a matter of practice, they deactivate the cards of  cardholders in military grades of E-5 or below when they are not on official  travel.
section_title: Accountability for Transferred and Orphaned Accounts
paragraphs: We also found that the Army lacks clear, sufficiently detailed procedures  with respect to maintaining effective day-to-day accountability for  cardholders’ travel card accounts.  Until the Army takes action to work  with Bank of America to clearly establish accountability for accounts that  are not under the control of a specific APC, it will continue to be vulnerable  to undetected, potentially fraudulent, or abusive use of these accounts.
In practice, the Army relies on cardholders to inform the transferring  location’s APC that they will be moving to another Army unit.  After a  cardholder notifies the transferring APC of his or her upcoming move, the  APC is to inform the cardholder that he or she is required to report to the  APC at the new location within 10 days of arrival.  If the cardholder does  not check in with the APC at the gaining location at the end of 10 days, the  losing APC is to deactivate the cardholder’s account.  However, transferring  units’ APCs told us that cardholders do not always inform them of  upcoming moves and, therefore, they do not deactivate the cards when the  cardholders fail to report to the new APC within 10 days.
As a result, many accounts fell into “limbo” and are also referred to as  “orphan accounts.”  Accounts for transferred cardholders can remain in  this limbo status for lengthy periods.  For example, 2 California National  Guard accounts out of the 166 that we examined for our statistical tests  belonged to cardholders who had transferred from their units in 1998 and  2000, respectively.  The responsible APC was not aware that the transfers  had taken place until we brought the matter to her attention.
According to Army officials, this breakdown in accountability is one of the  primary causes for the Army’s large number of orphaned accounts.  These  are Army travel card accounts that are not under the purview of any APC,  according to Bank of America records.  Bank of America officials also told  us that some of the accounts in this group might not even be Army  accounts.  As shown in appendix III, Bank of America data show that as of  the end of fiscal year 2001, orphaned accounts had about a 20 percent  delinquency rate.
Without an APC assigned to oversee these accounts, orphan accounts pose  a higher risk of charge-offs.  In fiscal year 2001, Bank of America charged  off 717 accounts of the approximately 7,479 active orphan Army accounts,  accounting for almost $1 million.   In May 2002, Bank of America issued  letters to all cardholders in the orphan grouping informing them that unless  they took action to identify accountable APCs, their accounts would be  closed.
section_title: Exit Control Procedures for Separating Employees
paragraphs: As with transferred employees, neither DOD nor Army procedures are  sufficiently detailed to ensure that APCs are notified and take prompt  action to terminate cardholders’ accounts when cardholders leave the  Army.  DOD’s FMR provides that APCs are responsible for terminating  travel cards when cardholders are dismissed, retire, or are separated from  DOD.  Operating procedures established by individual Army commands  and installations to notify APCs in the case of retirement, separation, or  death of employees were neither consistent nor effective.
In general, we found that APCs relied on cardholders to notify them that  they were leaving the Army.  Some APCs informed us that their units’ exit  procedures for separated, retired, or dismissed employees require that  individuals turn in their travel cards as part of the exit process before  leaving the organizations.  For example, the National Guard’s standard  operating procedures provide that “All departing cardholders that are  terminating their federal employment status will turn in their Travel Charge  Card to their APC as a part of their out processing.”  However, we found  instances in which these procedures were difficult to implement.  For  example, a California National Guard official told us that this procedure is  difficult to implement because some guard employees are hundreds of  miles from the location of their cognizant APC.  The official told us that  many of the separations from the guard are handled through mail, e-mail,  and fax, and not through face-to-face contact with unit officials or the APC.   One APC told us that she sometimes becomes aware that cardholders are  departing when she receives their travel cards through the mail.   If an APC  does not receive messages or paperwork to cancel the cards, or if there is a  delay in notifying the APC of the cardholders’ departure, the cardholders’  accounts would remain active and the separated cardholders may abuse  the cards.
Due to the lack of procedures to effectively identify and terminate the  cards of individuals no longer in the Army, we found the following  examples of separated or retired individuals who abused the travel card.   These separated or retired Army employees benefited by using travel cards  to purchase a variety of goods and services and then not paying their  monthly bills, essentially obtaining the personal items for no cost and  possibly receiving discounted government rates by using their government  travel cards.
A service member (E-4) assigned to Ft. Knox was released from active  duty on September 16, 2000, but his travel card was not deactivated at  that time as required.  In May 2001, over 8 months after he separated,  charges started appearing on his travel card.  Charges included ATM  withdrawals, restaurant charges, and monthly fees for a fraternal  organization.  In addition, the cardholder spent more than $110 at  Platinum Plus, an adult entertainment establishment.  The cardholder  continued to use the card through August 2001, almost 1 year after he  left the service.  Although the cardholder charged more than $1,125 on  the card, he did not submit any payments on his Bank of America bills.   The account balance was charged off in January 2002.
An air reservist (E-6) assigned to military postal service was discharged  on February 4, 2000, but did not turn in his card.  The individual  continued to use his government-issued travel card for personal use.  In  fiscal year 2001, the individual made charges totaling approximately  $5,800 on his travel card, including over $5,000 of cash advances in the  vicinity of his home in New York.  The soldier’s travel card account was  closed on March 11, 2002, and the unpaid balance of $3,419 was charged  off.
A first sergeant  (E-8) at Ft. Hood, Texas, repeatedly used his travel card  after his retirement on September 30, 2000.  During fiscal year 2001, he  used the travel card for personal goods and services totaling more than  $8,000.  The charges consisted of almost $2,000 in car rentals, another  $2,000 in hotel charges, and approximately $2,951 in restaurant  charges—including a one-time catering charge of $1,455—primarily in  Hawaii and Texas.  In addition, he spent $1,119 on two cruises with  Royal Carribean cruise line.  Because the Army does not routinely  monitor cardholders’ transaction reports for abusive activity and  because this particular account was always paid in full, the abusive  activities were not detected for more than a year.  In February 2002,  while scanning travel card activities of all cardholders under her sphere  of responsibility, the APC became aware that the cardholder had retired.   The APC deactivated the cardholder’s account in March 2002.
A sergeant first-class (E-7) retired from the active duty National Guard  in February 2000, but continued to use the government travel card in  fiscal year 2001.  Subsequent to his retirement, the individual became a  state guard employee.  State employees are not entitled to hold federal  government travel cards.  Bank of America and National Guard records  indicated that the individual used the government travel card for on- base lodging and rental car charges related to official travel with the  state guard.  As of the time of our audit, more than 2 years after the  cardholder’s retirement, the cardholder’s account was still open,  although we noted that the account was not delinquent.
An APC told us that out processing procedures should include APC or  supervisor verification that the cardholder’s account was closed.  In fact,  her unit has established an informal procedure that has helped ensure that  APCs receive timely notification of a cardholder’s departure.  The  procedure involves the departing cardholder’s supervisor sending e-mails  to the cognizant APC notifying him or her of the date the service member is  leaving and to close the cardholder’s account as of that date.
We also found that the Army did not have procedures requiring periodic  comparisons between active travel card accounts and employees to ensure  that accounts of separated or retired employees are closed.  For example,  each Army unit we visited maintained records of retired, dismissed, and  separated employees and the respective dates of these actions.  However,  none of the APCs we interviewed compared these records against the list of  active accounts to identify accounts that should have been closed but were  not.  Periodic reconciliations of the two lists would have enabled the Army  to identify employees who had left and should no longer have had travel  cards.
section_title: Segregation of Duties Controls Were Compromised at One Installation
paragraphs: Adequate controls must be in place to ensure that no one individual can  control all key aspects of a travel transaction.  Such controls are key to  effectively reducing the risk of error or fraud at the four sites we audited.   Our observations and walk-throughs showed that proper segregation  occurred because no one individual was responsible for the major  functions associated with the voucher approval and payment process.   Specifically, we found the traveler and person approving the travel orders  were generally located at the installation, whereas a DFAS center prepared  the final vouchers and entered the data into the DOD travel payment  system, the Integrated Automated Travel System (IATS).  For example, in  the case of Ft. Drum, located in Watertown, New York, its vouchers were  processed and paid by the DFAS center in Orlando, Florida.  Further, we  found that no one individual at the DFAS centers was responsible for (1)  entering payment information into IATS and (2) auditing travel voucher  summaries for accuracy and completeness.
However, at the California National Guard, we did identify weaknesses that  compromised segregation of duties controls.  Specifically, controls were  not in place to prevent California National Guard members, who also  served as voucher examiners, from validating, approving, and auditing their  own final travel vouchers and submitting them to DFAS for payment.
In addition, weak controls over the California National Guard’s usernames  and passwords for “temporary” voucher examiners further increased the  risk that voucher examiners could prepare, validate, and receive payment  for erroneous or fraudulent travel vouchers without detection. Temporary  voucher examiners—those California National Guard members who are  employed as voucher examiners on a part-time or intermittent basis—were  given generic usernames and passwords for accessing IATS.  However,  according to the permanent travel voucher examiners we talked to, these  generic usernames and passwords for temporary voucher examiners were  well known to the permanent travel voucher examiners as well.
Consequently, any of the California National Guard’s permanent travel  voucher examiners could use one of these well-known generic usernames  and passwords to access IATS to enter, delete, or modify travel data in the  system—including data related to their own travel voucher processing and  payment—without detection.
section_title: Access Controls over Bank of America’s Travel Card System
paragraphs: Thousands of Bank of America and DOD employees had 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 a 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  user access levels include APC-level (APCs requiring access to travel data  for cardholders under their purview), individual-level (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  that they determined should not have had any level of 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 APC duties or after they may have been terminated or  transferred.  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 terminated or transferred or no longer had APC  responsibilities.  Over 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.
section_title: Statistical Tests of Key Control Activities
paragraphs: With the weak control environment and related program control  weaknesses we identified, it is not surprising that, as shown in table 6, we  found a significant percentage of failures in several of the key control  activities we statistically tested at the four Army locations we audited.  We  selected four key control activities to test related to basic travel transaction  and voucher processing.
Specifically, 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?
In accordance with TTRA and 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?
Appendix II includes the specific criteria we used to conclude on the  effectiveness of these controls.
The Army’s inability to establish effective controls in several of these key  control areas, particularly relating to timeliness of payment, contributed to  its high delinquency rate.  As discussed previously, for the four locations,  we estimate that the percentage of transactions during fiscal year 2001 that  represented personal use varied from 15 percent at one location to 45  percent at another location.
subsections: section_title: Controls over Travel Order Approval Were Generally Effective
paragraphs: Timely approval of the travel orders is the first step in ensuring that travel  is authorized.  At three of the four installations we audited, the controls  over travel order approval were effective.  We estimate that 0 to 3 percent  of transactions at these installations did not have documented evidence  that travel orders were approved prior to the beginning of travel.  At Fort  Bragg, Forces Command, travel order controls had an estimated 6 percent  failure rate associated with travel orders that were not approved prior to  travel.  The control breakdown we noted in our sample transactions  occurred when the travel took place prior to written approval of the travel  order.  For example, one traveler had travel duty from April 8, 2001, to April 19, 2001, but did not get his travel order approved until April 27, 2001.   According to Army officials, this often occurred because travelers  neglected to document the date of verbal travel authorization on their  written travel orders.
section_title: Controls over Travel Voucher Review and Accuracy Were Not Effective
paragraphs: Once the travel is complete, the traveler is 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 accurate and properly calculated.  At the four installations  audited, we estimate that about 7 percent to 42 percent of transactions  were associated with travel vouchers that were not accurate or were not  properly supported.  The California National Guard had an estimated  failure rate for voucher review that was two to six times higher than that of  the other three installations.  We found undetected instances of travel  voucher errors by travelers, voucher reviewers (both installation-level and  DFAS-level), and DFAS.
Travel voucher errors result in either over- or underpayments to the  traveler and create an additional administrative burden for Army and DFAS  when the traveler must file a supplemental voucher to claim amounts that  were not paid initially or when the initial travel vouchers are incomplete or  erroneous.  For example, according to DFAS Orlando officials, during fiscal  year 2001 DFAS Orlando returned an estimated 12,000 vouchers to Army  installations because of errors or omissions in the initial voucher packages  submitted to DFAS.  Further, delays in paying valid amounts to travelers  can result in delinquent accounts when the cardholder has not been fully  reimbursed by the time the monthly travel card bill is received.  In our  samples, we found that most errors were in the following categories.
Missing receipts – We found instances in which voucher packages did  not include all required receipts to support claims based on DOD and  Army regulations.  DFAS paid the vouchered amounts in these cases  despite the lack of receipts.  For example, for a Ft. Drum cardholder,  DFAS paid hotel charges on a voucher for which the cardholder did not  attach the required receipt.  At the California National Guard, we found  that a cardholder was paid for 4 nights of lodging when the receipt was  for 3 nights.
Errors in amounts paid – We found instances in which DFAS used an  incorrect per diem rate for lodging and meals and incidental expenses  to calculate the reimbursement amount, resulting in both over- and  underpayments to the traveler.  We also found that DFAS made errors in  calculating reimbursements for ATM fees and car mileage.  Most of  these errors were relatively small in terms of dollar amounts.  In one  instance, we found that DFAS underpaid a cardholder about $814.  In  this case, the cardholder, an E-8, master sergeant at Ft. Bragg, Special  Operations, filed a voucher package with required supporting  documentation for lodging, transportation, and other expenses totaling  about $814 incurred while on extended travel.   DFAS erroneously  excluded these expenses from its reimbursement calculation and  consequently understated the amount paid to the cardholder by this  amount.  While the cardholder paid his bill from Bank of America that  included these expenses, it was not until we brought this matter to the  attention of Army and DFAS officials that the cardholder was  reimbursed.  In another instance, we found that an E-5 cardholder at Ft.  Drum filed a travel voucher with DFAS Orlando claiming and receiving  reimbursement for taxi fares totaling $48.50.  However, according to the  related travel order, a government vehicle was provided.  After we  brought this matter to its attention, DFAS Orlando obtained a $48.50  reimbursement from the cardholder.  At the California National Guard,  we found that a cardholder’s per diem reimbursement was less than the  allowed amount, and the traveler was paid $75 for parking expense  when the receipt showed $86.
The California National Guard’s procedures for reviewing travel vouchers  differed from the other locations we audited in that the United States  Property and Fiscal Office (USPFO)—an organizational component of the  California National Guard—reviews all travel vouchers submitted by  California National Guard personnel for validity and accuracy before  submitting voucher payment requests to DFAS.  California National Guard  officials attributed the high error rate to staff shortages in the voucher  examination branch and difficulty in retaining high-quality personnel in  these low-paying positions.
For the other Army units we audited, DFAS was responsible for reviewing  the vouchers for accuracy and proper support prior to payment.  We visited  DFAS Orlando—the DFAS location responsible for processing travel  vouchers for two of our four test sites.  We found that DFAS Orlando made  some voucher processing errors, which officials at that location attributed,  at least in part, to the large volume of vouchers processed at that location,  the number of vacant positions, and the significant amount of overtime  needed to process vouchers and disburse funds within a 4- to 5-day time  frame.  For example, DFAS Orlando officials reported processing over  115,000 travel vouchers during fiscal year 2001, averaging approximately  11,000 vouchers per month, and had six vacancies that they were unable to  fill.  Also, in May 2002, DFAS Orlando reported 912 hours of overtime  associated with processing 13,422 of the estimated 17,500 travel vouchers  received during the month.
section_title: Travel Processing Timeliness Was a Significant Problem Resulting in Late Payments to Travelers
paragraphs: We tested two key areas where prompt action is needed to ensure that  travelers are reimbursed for valid expenses within required time frames.   First, DOD policy requires the traveler to submit a travel voucher within 5  days of return from travel.  We estimated significant failure rates for this  requirement at all four installations, ranging from 22 percent to 39 percent  of fiscal year 2001 transactions.  When this control failed in our sample  transactions, the delay in submitting a travel voucher ranged from 6 days to  as long as 228 days.  Numerous travelers took up to 3 weeks to submit  vouchers upon return from travel.  Installation officials told us that  travelers on extended travel for deployment to a war zone do not always  have an opportunity to file interim vouchers.  Also, the officials stated that  many travelers return from travel, only to leave within a day or 2 for annual  leave or another business trip and, therefore, do not have an opportunity to  submit their travel vouchers promptly.
Delays in filing travel vouchers cause delays in travel reimbursements,  which can ultimately result in delinquent accounts.  For example in one of  the sampled Ft. Bragg, Special Operations, transactions, the cardholder  was on extended travel and did not file an interim voucher.  This traveler’s  account became delinquent, but he paid the balance due after being  reimbursed.  In another instance, a member of the California National  Guard who completed travel in February 2001 did not complete a travel  voucher until mid-April 2001.  It took another 3 months for the voucher to  arrive at the USPFO facility responsible for processing it.  Although DFAS  paid the voucher 2 days after receipt of the payment request, the  cardholder’s account was delinquent for the 3 months.
Second, upon submission of a proper voucher by the employee, DOD has  30 days in which to make reimbursement without incurring late payment  fees and charges.  Once the approving official receives a properly  documented travel voucher, the 30-day payment period begins.  If payment  is not made in 30 days, the traveler is owed a late payment fee that is to be  calculated using, at a minimum, the Prompt Payment Act interest rate, as  required by TTRA and GSA regulations.  GSA’s regulations also require  the cardholder to be paid 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.
Failure rates for this control activity ranged from about 5 percent to 8  percent for three of the four installations we tested, which we considered  to be partially effective. Delays in these cases were generally attributed to  the review process at the installation, while DFAS generally made  payments within 7 days of receipt of the approved voucher package.   However, the fourth installation, the California National Guard, had an  estimated 61 percent of transactions that were associated with vouchers  that were not paid within the 30-day time frame.  Given the delays in initial  submission of the vouchers, as discussed previously, these additional  processing delays will result in travelers receiving payment well after they  receive their monthly travel card bills.  Unless travelers use personal funds  to pay the bills, many accounts will remain delinquent until payment is  received.  For example, we found that one Ft. Drum travel voucher was  submitted 34 days after travel ended and another Ft. Drum voucher was  paid 131 days after the travel ended.  A California National Guard  cardholder did not receive payment for a $3,554 voucher until 36 days after  he submitted his voucher.  While the cardholder paid Bank of America the  full amount due following receipt of his reimbursement, the cardholder’s  account was initially delinquent because it was not paid within the required  30-day time frame.
In another case we reviewed, an individual had planned to retire from the  Army and subsequently withdrew his retirement paperwork and was  reassigned to another location.  DFAS rejected the employee’s travel  vouchers for reimbursement of official travel expenses because its records  showed that he had retired.  At the time of our audit, approximately 9  months had elapsed since the cardholder first sought reimbursement from  DFAS, and he was still not paid.  The individual’s account was seriously  delinquent, his card was canceled, and he subsequently paid off his account  out of his own funds—since he had not yet been reimbursed.
With respect to the California National Guard, in many instances, USPFO  took more than 30 days from the date of receipt of the travel voucher to  send a request for voucher payment to DFAS.  USPFO officials attributed  these problems to the lack of qualified voucher examiners.
Contrary to TTRA and GSA regulations, DFAS did not pay cardholders the  required late payment fees and charges.   According to the DOD FMR, the  fees and charges are only paid if the traveler claims reimbursement by  filing a separate voucher claiming the fees and charges.  Currently, DFAS  does not have the systems and data needed to identify and pay applicable  fees and charges due to travelers who are not reimbursed within 30 days.
section_title: Conclusions
paragraphs: 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 Army 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  program has resulted in a significant level of delinquencies and charge-offs  of bad debts, and potentially fraudulent and abusive travel card activity.   This has resulted in millions of dollars of costs to the Army, including  higher fees, lost rebates, and substantial time pursuing and attempting to  collect delinquent travel card accounts.
DOD and the Army have taken positive steps to reduce the delinquencies  and charge-offs, including establishing a system of wage and retirement  payment offset for many employees, sending travel reimbursements  directly to the bank rather than the employee, and making management of  the travel program a priority for the Army commands.  These actions have  resulted in significant collections of previously charged-off and delinquent  accounts and improved relations with Bank of America.  DOD and the  Army have also proposed additional steps as reported in the June 27, 2002,  DOD Charge Card Task Force report to improve the controls over the travel  card program.  However, these Army 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 “front-end” or preventive controls.  To  effectively reform the travel program, DOD and the Army will need to work  to prevent potentially fraudulent and abusive activity and severe credit  problems with the travel card.  Preventive solutions include requiring use  of the split disbursement payment process by all employees; providing a  sufficient control infrastructure to effectively manage the program;  exempting individuals with histories of financial problems from required  use of travel cards; deactivating cards when employees are not on official  travel; and providing appropriate, consistent disciplinary action to  employees who commit fraud or abuse the travel cards.
section_title: Matter for Congressional Consideration
paragraphs: To reduce DOD’s travel card delinquency and charge-off rates, particularly  the Army’s, which are higher than those of any other executive branch  agency, the Congress should consider authorizing the Secretary of Defense  to require using employees’ travel allowances to pay the travel card issuer  directly for charges incurred using the travel card.  We believe that this  action would provide DOD the ability to require use of the split  disbursement payment process for all of its employees.
section_title: Recommendations for Executive Action
paragraphs: To strengthen the overall control environment and improve internal  controls for the Army’s travel card program, we recommend that the  Secretary of the Army 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.
subsections: section_title: Travel Card Issuance
paragraphs: We recommend that the Secretary of the Army establish specific policies  and procedures governing the issuance of individual travel cards to military  and civilian employees, including the following:  Evaluate the feasibility of extended use of credit checks for all travel  card applicants.
For credit check results currently obtained and additional future credit  checks, use the results to make decisions on travel card applicants.   Decisions on whether to issue a travel card should consider prior credit  problems (e.g., bankruptcy; convictions for writing bad checks; and  defaulted credit cards, home mortgages, and automobile loans).
Provide individuals with prior credit problems who are denied travel  cards with alternative means of travel funding.
Provide individuals with no prior credit histories with “restricted” travel  cards with low credit and ATM limits.
Develop procedures to periodically evaluate card usage and close  accounts of infrequent travelers, which will minimize exposure to fraud  and abuse.
Cancel accounts for current infrequent travelers as noted in the Charge  Card Task Force report.
Evaluate the feasibility of establishing a policy to activate and  deactivate cards on predetermined start and end dates, which are tied to  the cardholders’ authorized travel orders.  At a minimum, this policy  should focus on controlling travel card use for the “high-risk” enlisted  military personnel in the E-1 to E-6 grades.
Develop comprehensive, consistent Army-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.
section_title: Monitoring, Review, and Disciplinary Actions
paragraphs: We recommend that the Secretary of the Army establish the following  specific policies and procedures to strengthen controls and disciplinary  actions for improper use of the travel card:  Establish Army guidance on who should be given APC responsibilities  that considers (1) the knowledge, skills, and abilities required to carry  out these responsibilities effectively, (2) the time required to carry out  APC responsibilities on a day-to-day basis effectively, and (3) the length  of time an individual should be required to stay in the APC position in  light of time required to become proficient in the use of the tools relied  on to monitor card usage effectively.  Army should evaluate whether the  APC position should be full-time.
To avoid high APC turnover, evaluate the feasibility of maximizing the  use of civilian rather than military employees to serve in the role of APC.
Establish guidance on APC span of control responsibilities so that such  responsibilities are properly aligned with time available to ensure  effective performance.
Establish procedures to provide assurance that APCs receive training on  their APC responsibilities, including how to use EAGLS transaction  reports and other available data to monitor cardholder use of the travel  card—for example, reviewing account transactional histories to  ascertain whether transactions are incurred during periods of  authorized travel and appear to be appropriate travel expenses and from  approved MCCs.
Train APCs to review EAGLS reports to identify cardholders who have  written NSF checks for payment of their account balances, and refer the  employees for disciplinary action.
Review, in conjunction with Bank of America, individuals with APC- level access to EAGLS to limit such access to only those with current  APC duties.
Establish Army procedures detailing how APCs should carry out their  responsibility to monitor card usage for all cardholders assigned to  them.  Included in the procedures should be development of a data  mining program enabling APCs to scan a large number of transactions,  and target potentially inappropriate transactions for further review.
Establish a requirement for assessing performance of travel monitoring  and other APC duties as a rating factor on all APCs’ performance  evaluations.
Establish an Army requirement for cognizant APCs to retain records  documenting any cardholder’s fraudulent or abusive usage of the travel  card and require this information to be provided to the gaining APC  when the cardholder is transferred.
Establish appropriate, consistent Army-wide policy as a guide for taking  disciplinary actions with respect to fraudulent and abusive activity and  delinquency related to the travel card.
Refer any travel cardholders with secret or higher level security  clearances for whom financial problems related to the travel card are  detected to Army CAF for investigation as to whether the individuals  should continue to be entrusted with secret or higher clearances.
Assign responsibility and accountability over cardholders transferring  between Army units or locations, including cardholders currently in  “orphan” status.  Any accounts not assigned to an APC should be  immediately canceled.
Strengthen procedures for any employee discharging from service so  that all cards are obtained from the cardholders, accounts are closed,  and repayment of any outstanding debts is arranged.
Develop procedures to identify active cards of departed cardholders,  including comparing cardholder and payroll data.
section_title: Voucher and Payment Processes
paragraphs: We recommend that the Secretary of the Army, in partnership with the  Director, Defense Finance Accounting Service, revise the travel voucher  and payment process by developing a process to monitor and track travel  reimbursements that exceed the 30-day requirement so that individuals not  paid within the statutory period are paid late fees in accordance with the  law.
To resolve severe voucher process problems specific to one of the units we  audited, we recommend that the Commander of the California Army  National Guard take the following actions:  Evaluate travel card procedures from writing travel orders through  documenting expenses on the voucher and completing the  reimbursement process with a goal of reengineering these processes to  provide reasonable assurance that cardholder reimbursement is made  within the 30-day requirement.
Strengthen segregation of duties controls so that voucher examiners  cannot prepare, validate, and receive payment for erroneous or  fraudulent travel vouchers without detection.  Improved controls should  include eliminating the use of generic usernames and passwords for  accessing the travel system.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, which are reprinted in  appendix V, DOD concurred or partially concurred with all of our  recommendations.  DOD partially concurred with our recommendations  regarding (1) training APCs to refer cardholders who write NSF checks for  disciplinary actions, (2) establishing an Army-wide disciplinary action  policy for abusive travel card activity, and (3) developing a process to  identify travel reimbursements that exceed the 30-day requirement so that  individuals not paid within the statutory period are paid late fees in  accordance with the law.
Concerning our recommendation that APCs should be trained to refer  cardholders who write NSF checks for disciplinary action, DOD responded  that commanders of military members, not APCs, determine the  appropriate action when a cardholder has written an NSF check, and not  every case should be a referral for disciplinary action. DOD also stated the  Army intends to publish guidance that will require the APCs to notify  supervisors/commanders of incidents of abuse, misuse, delinquency, and  other events, including NSF checks.  This response appears to address the  intent of our recommendation.  We agree that APCs should be trained to  identify NSF checks and to report cardholders who write NSF checks to  the appropriate level of command for review and possible further action.   The supervisors and commanders would still maintain their discretion to  select the specific disciplinary action, if any, depending on the  circumstances of individual cases.
Regarding establishing Army-wide disciplinary action policy for abusive  travel card activity, DOD stated that the Army already has a strong policy in  place against theft, fraud, and other intentionally dishonest conduct on the  part of civilian employees and that it would be inconsistent with current  law for the Army to establish further mandatory requirements that impose  specific disciplinary actions.  With regard to military personnel, DOD stated  that disciplinary actions are addressed as a matter of command discretion.
We never contemplated that the policy would prescribe mandatory actions.   Rather, we intended the policy to be a guide of possible disciplinary actions  to be taken against cardholders.  This guidance would also serve as an  important internal control feature that clearly identifies the consequences  associated with improper and abusive travel card use and would serve as a  deterrent to such abuse.  Further, the policy could include a range of  actions that would be appropriate for various types of travel card misuse.   To eliminate any confusion concerning the intent of our recommendation,  we made a slight modification to the text of the recommendation.
We also recommended developing a system to identify travel  reimbursements that exceed the 30-day requirement so that individuals not  paid within the statutory period are paid late fees in accordance with the  law.  DOD agreed that the current systems for processing and computing  travel vouchers for the Army do not provide for automated means of  calculating interest due on vouchers exceeding the 30 days from the proper  submission date.  DOD also stated that the Defense Travel System (DTS)  currently being deployed automates the voucher submission process and  should reduce the instances where reimbursements extend beyond 30  days.  However, the DOD Office of Inspector General concluded in a recent  report that DTS remains at high risk of not being an effective solution in  streamlining the DOD travel management process and that it is not  expected to be deployed until fiscal year 2006.  This system has been under  development since 1998 with substantial schedule delays and cost overruns  as well as reductions in functionality. Based on this evaluation, we do not  consider DTS to be a timely or viable solution for identifying those  reimbursements outside of the 30-day requirement.  TTRA and GSA  regulations require that late fees be paid to those persons reimbursed  outside of the 30-day requirement.  TTRA imposes a duty on agencies to  pay the late fees and does not condition the payment of late fees on  travelers identifying late reimbursements and submitting claims for the  fees.  Until DTS is fully implemented and operational, we continue to  believe that DOD needs to develop an interim process to identify late  reimbursements and pay cardholders the appropriate fees in accordance  with the law.
In addition, in one area, although DOD concurred with our  recommendation, we do not believe that its response indicates full  agreement or understanding of the intent of the recommendation.   Specifically, with regard to our recommendation that credit check results  be used to make decisions on travel card applicants, DOD responded that  those with prior credit problems are issued restricted cards and that  mandatory use of the government travel card is required by TTRA.  This is  not correct.  Both the DOD FMR and TTRA provide for exemptions from  the mandatory use requirements under certain conditions, including  evidence of financial irresponsibility.  When an exemption is granted from  the mandatory use of the travel charge card, the use of personal funds,  including cash or personal charge card; travel advances; or Government  Travel Requests may be authorized for payment of travel expenses.  We  continue to believe that until the Army takes action to consider past credit  problems in determining whether to authorize issuing government travel  cards, it will continue to increase the risk that individuals will repeat a  pattern of fraud, abuse, and delinquency or nonpayment.  Our report  includes numerous examples of such individuals, including those who were  issued restricted cards.
Finally, in concurring with our recommendations regarding the lack of  segregation of duties and other voucher processing problems at the  California Army National Guard, DOD indicated that it had a number of  detective and compensating controls in place.  While these appear  responsive to our recommendations, we have not evaluated the  effectiveness of their implementation and therefore cannot determine  whether these measures will resolve the problems we identified.
As agreed with your offices, unless you announce the contents of this  report earlier, we will not distribute it until 30 days from its date.  At that  time, we will send copies to interested congressional committees; the  Secretary of Defense; the Under Secretary of Defense for Acquisition,  Technology, and Logistics; the Under Secretary of Defense (Comptroller);  the Secretary of the Army; the Director of the Defense Finance and  Accounting Service; the U.S. Property and Fiscal Officer, California Army  National Guard; 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.
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.
section_title: Background
paragraphs: 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 to reduce 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 during the fiscal year.
Under the current GSA master contract, the Department of Defense (DOD)  entered into a tailored task order with Bank of America to provide travel  card services to DOD and the military services, including the Army.  Table 7  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.
As shown in table 7, 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 7 also shows that the Army provided 432,460  individually billed cards to its civilian and military employees as of  September 2001.  These cardholders charged an estimated $619 million to  their travel cards during fiscal year 2001.
subsections: section_title: Travel Card Program Guidelines
paragraphs: The Travel and Transportation Reform Act of 1998 (Public Law 105-264)  expanded the use of government travel cards by mandating the use of 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 based on the volume of transactions incurred using the  card and on cardholders paying their monthly travel card bills on time.  To  help cardholders pay their monthly bills on time, the act also requires that  agencies reimburse cardholders for proper travel claims within 30 days of  submission of approved travel vouchers by the cardholders.  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 with their own  implementing regulations.
DOD issued its Financial Management Regulations (FMR), Volume 9,  Chapter 3, Travel Policies and Procedures, which supplements 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, the Army  provided informational pamphlets intended to assist its travelers: Pamphlet  55-16, Transportation and Travel:  Civilian Travel and Transportation  Permanent Change of Station Travel; Pamphlet 55-20, Temporary Duty  Travel:  Uniformed Services Personnel Travel and Transportation; and  Pamphlet 55-22, Civilian Travel and Transportation:  Temporary Duty  Travel.  In addition, some of the Army’s individual commands and units  have issued their own instructions supplementing GSA and DOD  guidelines.
section_title: The Army Travel Process
paragraphs: As shown in figure 5, the Army’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.
When an Army 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 6, the  application requires the applicant to provide pertinent information,  including full name and Social Security number, and identify whether he or  she is an active, reserve, or guard military member or a civilian employee of  the Army.  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 travel cards to all applicants for whom it receives completed  applications signed by the applicants, the applicants’ supervisors, and the  APCs.
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, Bank of America  will suggest to the service that the applicant receive a restricted card with a  credit limit of $2,500 instead of the standard card with a credit limit of  $10,000.  However, as shown in figure 6, the application allows the  employee to withhold permission for Bank of America to obtain a credit  report.  If this option is selected, Bank of America automatically issues a  restricted card to the applicant.
When cardholders leave the Army, they are required to contact their APCs  and notify them of their planned departure.  Based on this notification from  cardholders, the APCs are to terminate the cardholders’ accounts.
subsections: section_title: Travel Authorization
paragraphs: 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 amount of per diem and any cash  advances.  Further, the Army can limit the amount of authorized  reimbursement to military members based on the availability of lodging  and dining facilities at military installations.
section_title: Using the Travel Card for Official Travel Expenses
paragraphs: For authorized travel, travelers must use their cards to pay for allowable  expenses, such as hotels and rental cars.  The Army 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 individually billed travel charge cards 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 25-30 days  of the statement closing date.  If the cardholder does not pay his or her  monthly billing statement in full, and does not dispute the charges within  60 days of the statement closing date, the account is considered delinquent.
section_title: Travel Voucher Submission and Processing
paragraphs: 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 Army 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 a supervisor’s 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 voucher takes longer than 30 days, the Army  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.
For all Army units other than those in the Army National Guard, after the  supervisor approves a cardholder’s travel voucher package for payment, it  is sent to a DFAS location for processing and payment.  In the Army  National Guard, guard units process, review, and approve all vouchers at  that level before they are sent to DFAS for payment.  DFAS (or the guard  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. DFAS travel services supervisors audit 2  percent of vouchers under $2,500 and all vouchers $2,500 and greater.  In  addition, vouchers for amounts $20,000 and over are audited again by DFAS  Indianapolis travel services technicians before payment is disbursed.  If  problems with a 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 item is successfully processed through IATS, DFAS makes  payment to the cardholder or to Bank of America and the cardholder, if the  cardholder elected the split disbursement option whereby part of the  reimbursement is sent to Bank of America.
section_title: Monitoring Travel Card Transaction Activity
paragraphs: 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.
section_title: Managing Delinquent Cardholder Accounts
paragraphs: Both the Army 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,  the account is considered delinquent.  As summarized in figure 7, there are  specific actions required by both the Army and Bank of America based on  the number of days a cardholder’s account is past due.
The following is a more detailed explanation of the required actions by  Army and/or Bank of America with respect to delinquent travel card  accounts.    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 pre- suspension 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 by Bank of America 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 his or her 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  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  the same time, Bank of America is to send a pre-cancellation letter to the  cardholder. 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.    180 days past due—Bank of America is to send a “pre-charge off” or last  call letter to the cardholder informing him or her that Bank of America  will charge off the account and report the cardholder 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  credit-worthiness of an individual using credit bureau reports.  210 days past due—Bank of America is to charge off the delinquent  account and, if the balance is $50 or greater, report it to a credit bureau.
Some accounts are pursued for collection by Bank of America’s recovery  department, 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 timely pay his or her  account, through no fault of his or her own.  Under such circumstances, the  APC is to notify the Bank of America that the cardholder is in mission- critical status.  Activating this status precludes Bank of America 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.
section_title: Objectives, Scope, and Methodology
paragraphs: 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 Army.  Our assessment covered  the reported magnitude and impact of delinquent and charged-off Army  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 Army travel card transactions during fiscal  year 2001 to identify potentially fraudulent and abusive activity related  to the travel card;   the Army’s overall management control environment and the design of  selected Army 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, (6) segregation of duties to ensure  that no one individual can control all aspects of a travel transaction, and  (7) access  to 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 four Army units’ travel  activity, including (1) travel order approval, (2) accuracy of travel  voucher payments, (3) timely submission of travel vouchers by travelers  to the approving officials, and (4) timely processing and reimbursement  of travel vouchers by the Army and DOD.
We used as our primary criteria applicable laws and regulations, including  the Travel and Transportation Reform Act of 1998 (Public Law 105-264),  the GSA’s Federal Travel Regulation, and the DOD FMR, Volume 9, Travel  Policies and Procedures.  We also used as criteria our Standards for  Internal Control in Federal Government and our Guide to Evaluating  and Testing Controls Over Sensitive Payments.  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 seven areas reviewed.
To assess the magnitude and impact of delinquent and charged-off  accounts, we compared the Army’s delinquency and charge-off rates to  other DOD services and federal agencies.  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 Army individually billed travel card  transactions for audit.  Our data mining procedures covered the universe of  individually billed Army travel card activity during fiscal year 2001 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 Army, we obtained an understanding of the travel  process, including travel card management and oversight, by interviewing  officials from the Office of the Under Secretary of Defense (Comptroller);  the Department of the Army; DFAS; Bank of America; and GSA.  We  reviewed applicable policies and procedures and program guidance they  provided.  We visited four Army units to gain an understanding of the travel  process, including the management of travel card usage and delinquency.   We visited the DFAS Orlando location to gain an understanding of the  voucher review and payment process used for two of the four Army  locations we tested. 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.
We selected four Army locations for testing controls over travel card  activity based on the relative size of travel card activity at the 13 Army  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 two units from Army’s Forces Command  because that command represented approximately 19 percent of travel  card activity, 22 percent of the delinquent accounts, and 28 percent of  accounts charged off during fiscal year 2001 across the Army.  We also  selected an Army National Guard location because the Army National  Guard represented 13 percent of the total travel card activity, 22 percent of  the delinquent accounts, and 15 percent of charge-offs for fiscal year 2001.   Special Operations Command represents about 6 percent of Army’s charge  card activity, 5 percent of the delinquent accounts, and 4 percent of Army  travel card accounts charged off in fiscal year 2001.  Each of the units  within the commands was selected because of the relative size of the unit  within the respective command.
At each of the Army locations we audited we also used our review of  policies and procedures and the results of our understanding of travel  processes and other observations to assess the effectiveness of controls  over segregation of duties among persons responsible for preparing travel  vouchers, processing and approving travel vouchers, and certifying travel  voucher payments.   In addition, to ensure that work responsibilities were  properly segregated at the California National Guard so that no single  individual can perform or control all key aspects of computer-related  operations, we performed a limited review of security controls in place at  that location over access to DOD’s Integrated Automated Travel System  (IATS).  California National Guard personnel used this system to record  and process travel vouchers.  We interviewed managers, users, and  administrators of IATS at the California National Guard and DFAS’s  Financial Services Office.  We also conducted limited observations of the  IATS keying process at the California National Guard.
We also reviewed computer system access controls for 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 Army  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 Army travel card transactions.  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 four Army units we audited.  Each  sampled transaction was subsequently weighted in the analysis to account  statistically for all charged transactions at each of the four units, including  those that were not selected. Table 8 presents the sites selected and the  number of fiscal year 2001 transactions at each location.
We performed tests on statistical samples of travel card transactions at  each of the four case study sites to assess whether the system of internal  control 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 dates  of travel, (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 of transactions at the respective case study site only, not  to the population of travel card transactions for all Army 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.  Any point estimate between 5 and 10 percent would generate an  assessment of partially effective.  Tables 9 through 11 show (1) the results  of our tests of key attributes, (2) the point estimates of the failure rates for  the attributes, and (3) the two-sided 95 percent confidence intervals for the  failure rates for each attribute. Table 9 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 10 shows the results of our test for effectiveness of controls in place  over the accuracy of travel voucher payments.
Table 11 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 of the travel voucher.
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 the following officials on the details of our review, including our  objectives, scope, and methodology and our findings and conclusions:   DOD managers, including officials in DFAS; Army managers, including  Office of the Assistant Secretary of the Army (Financial Management and  Comptroller) officials; Army Forces Command and Special Operations  Command unit commanders; unit-level APCs; Army National Guard Bureau  management and the California National Guard Adjutant General; and  Bank of America officials.  We incorporated their comments where  appropriate.  With the exception of our limited review of access controls at  the California National Guard, we did not review the general or application  controls associated with the electronic data processing of Army travel card  transactions.  We conducted our audit work from December 2001 through  July 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 DOD comments on a draft of this report from the Under  Secretary of Defense (Comptroller) dated September 30, 2002, and have  reprinted those comments in appendix V.
section_title: Army Major Command Delinquency Rates
paragraphs: Table 12 shows the travel card delinquency rates for Army’s major  commands (and other Army organizational units at a comparable level)  that had outstanding balances over $1 million during the 2-year period  ending March 31, 2002.  The Army’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 amounts owed by the  command’s travel cardholders at a point in time.
section_title: Army Personnel Grade, Rank, and Associated Basic Pay Rates
paragraphs: Tables 13 and 14 show the grade, rank (where relevant), and the associated  basic pay rates for 2001 for Army’s military and civilian personnel,  respectively.  The basic 2001 pay rates shown exclude other considerations,  such as locality pay and any allowances for housing or cost of living.
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