State's Centrally Billed Foreign Affairs Travel: Internal Control Breakdowns and Ineffective Oversight Lost Taxpayers Tens of Millions of Dollars
Published: 2006-03-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The relative size of the Department of State's (State) travel program and continuing concerns about fraud, waste, and abuse in government travel card programs led to this request to audit State's centrally billed travel accounts. GAO was asked to evaluate the effectiveness of internal controls over (1) the authorization and justification of premium-class tickets charged to the centrally billed account and (2) monitoring of unused tickets, reconciling monthly statements, and maximizing performance rebates.
section_title: What GAO Found
paragraphs: Breakdowns in key internal controls, a weak control environment, and ineffective oversight of State's centrally billed travel accounts resulted in taxpayers paying tens of millions of dollars for unauthorized and improper premium-class travel and unused airline tickets. State's over 260 centrally billed accounts are used by State and other foreign affairs agencies to purchase transportation services, such as airline and train tickets. GAO found that between April 2003 and September 2004 State's centrally billed accounts were used to purchase over 32,000 premium-class tickets costing almost $140 million. Premium-class travel--primarily business-class airline tickets--represented about 19 percent of the tickets issued but about 49 percent of the $286 million spent on airline tickets with State's centrally billed account travel cards. GAO determined that this trend continued for fiscal year 2005. GAO found that 67 percent of this premium-class travel was not properly authorized, justified, or both. Because premium-class tickets typically cost substantially more than coach tickets, improper premium-class travel represents a waste of tax dollars. Most of these blanket premium-class travel authorizations were signed by subordinates who told us they couldn't challenge the use of premium-class travel by senior executives. Ineffective oversight and control breakdowns also contributed to problems with monitoring unused tickets, reconciling monthly statements, and maximizing performance rebates. Although federal agencies are authorized to recover payments made to airlines for tickets that they ordered but did not use, State failed to do so and paid for about $6 million for airline tickets that were not used or processed for refund. State was unaware of this problem before our review because it neither monitored travelers' adherence to travel regulations nor systematically identified and processed all unused tickets. State also failed to reconcile or dispute over $420,000 of unauthorized charges before paying its monthly bank invoice and instead deducted the amounts from its bill. Because these amounts were not properly disputed under the contract terms, State underpaid its monthly bills and was thus frequently delinquent. Handling questionable charges in this ad hoc manner sharply reduced State's eligible rebates. Overall, State earned only $700,000 out of a possible $2.8 million in rebates that could have been earned if it had properly disputed unauthorized charges and paid the bill in accordance with the contract.

section_title: Letter
paragraphs: This report responds to your request that we audit controls over the travel  paid for with the Department of State’s (State) over 260 centrally billed  travel accounts, which includes travel related to a number of foreign affairs  agencies (e.g., State and other federal agencies located at United States’  diplomatic missions abroad). State’s centrally billed travel process is used  predominantly by State employees; however, other government travelers  who also use State’s centrally billed accounts reimburse State for their  travel expenses. While State uses purchase orders and Government Travel  Requests (GTR) to pay for some airline tickets at overseas posts, as  requested, our analysis excluded all travel transactions that were not  procured through State’s over 260 centrally billed travel accounts.
State leads our government in conducting American diplomacy; its mission  is based on the Secretary of State’s role as the President’s principal foreign  policy adviser. State’s mission is to create a more secure, democratic, and  prosperous world for the benefit of the American people and the  international community. This mission is carried out through six regional  bureaus, each of which is responsible for a specific geographic region of  the world. State operates more than 260 embassies, consulates, and other  posts worldwide and has over 57,000 employees -– including Foreign  Service, civil service, and Foreign Service nationals. Additionally, State’s  posts support other U.S. government agencies, such as the Departments of  Commerce, Defense (DOD), and Homeland Security, which also use State’s  centrally billed accounts when overseas. In general, other agencies  overseas authorize their own travel and State processes the payments  based on their authorizations. In carrying out this mission, State manages  the second largest centrally billed travel card program in the federal  government, after DOD. About 70 percent of State’s and other foreign  affairs agencies’ travel is international or at least one flight segment in a  trip had an origin or destination outside the continental United States.  Comparatively, State and other foreign affairs agencies spent more on  premium-class travel than did DOD, both in terms of total dollars spent and  as a percentage of total airline travel.  In light of the relative size of State’s  program, and the concerns about fraud, waste, and abuse in government  travel card programs, you requested that we audit premium-class travel and  other centrally billed travel account activities. Federal travel regulations  define premium-class travel as any class of accommodation above coach  class, that is, first or business class.
The centrally billed travel accounts are used by State bureaus, overseas  posts, and other foreign affairs agencies to purchase transportation  services such as airline and train tickets, while the individually billed  accounts are used by individual travelers for lodging, rental cars, and other  travel expenses. For fiscal years 2003 and 2004, State incurred over   $400 million in expenses on its centrally billed and individually billed travel  accounts, with over $360 million charged to its centrally billed accounts.
Because State disburses funds directly to Citibank under a  governmentwide travel card contract for charges made to the centrally  billed accounts, the use of these accounts for improper transportation,  especially the use of the more expensive premium-class travel, results in  direct increased cost to the government. Governmentwide, General  Services Administration’s (GSA) Federal Travel Regulation, and sections  of the U.S. Department of State’s Foreign Affairs Handbook (FAH) and the  U.S. Department of State’s Foreign Affairs Manual (FAM), require that  travelers use coach-class accommodations for official domestic and  international air travel, except when a traveler is specifically authorized to  use premium class. The travel regulations also state that travelers on  official government travel must exercise the same standard of care in  incurring expenses that a prudent person would exercise when traveling on  personal business.
As you requested, the objective of our audit was to determine the  effectiveness of State’s internal controls over its centrally billed travel card  program and determine whether fraudulent, improper, and abusive travel  expenses exist. Specifically, we evaluated the effectiveness of internal  controls over (1) the authorization and justification process for premium- class tickets charged to State’s centrally billed travel accounts and   (2) State’s monitoring of unused tickets, reconciling monthly statements,  and maximizing performance rebates.
To meet our objectives, we (1) reviewed applicable laws, regulations, and  practices governing travel, including the use of centrally billed travel  accounts; (2) interviewed State officials on its travel policy and procedures,  including the use of centrally billed travel and under what circumstances  premium-class travel is authorized; (3) extracted premium-class and other  transactions from Citibank databases of charges made to State’s centrally  billed accounts for fiscal years 2003 and 2004; (4) tested a statistical sample  of premium-class transactions, 5) used data mining to identify additional  instances of improper premium-class travel based on the frequency and  dollar amount of premium-class travel, including premium-class travel by  senior executives; (6) compared data on unused tickets provided by  airlines to data provided by Citibank; and (7) conducted other audit work,  including visits to two overseas locations to evaluate the design and  implementation of key control procedures and activities. We performed our  audit work from September 2004 through November 2005 in accordance  with U.S. generally accepted government auditing standards. We performed  our investigative work in accordance with standards prescribed by the  President’s Council on Integrity and Efficiency. A detailed discussion of our  scope and methodology is presented in appendix I.
subsections: section_title: Background
paragraphs: State derives its authority to grant leave and travel reimbursements to its  foreign service employees from the Foreign Service Act of 1980. To  implement provisions of the act, the department issued the FAM and the  FAH. Travel by State’s civil service employees is generally governed by the  General Services Administration’s (GSA) Federal Travel Regulation (FTR),  but in some cases is also governed by the FAM. State’s general policy is for  its foreign and civil service employees to travel using coach-class  accommodations provided by common carriers. However, regulations  governing foreign service and civil service travel authorize the use of  premium-class travel under specific circumstances. Both foreign service  and civil service travel regulations require the agency head or his or her  designee to authorize first-class travel in advance. These regulations also  require the authorizing official at a post abroad or the executive director of  the funding bureau or office domestically to authorize premium-class travel  other than first class. Further, in September 2004, the Assistant Secretary of  State for Administration sent a memorandum to all State executive  directors emphasizing “that it is wrong to authorize premium-class travel  on a blanket basis” and “that a separate justification for premium-class  travel is required for each trip.”  Federal and State travel regulations  authorize premium-class accommodation when at least one of the  following conditions exists:  no space is available in coach-class accommodations,   regularly scheduled flights provide only premium-class   an employee with a disability or special need requires premium-class   security issues or exceptional circumstances,  travel lasts in excess of 14 hours without a rest stop,   foreign-carrier coach-class air accommodations are inadequate,   overall cost savings, such as when a premium-class ticket is less  expensive than a coach-class ticket or in consideration of other  economic factors,  transportation costs are paid in full through agency acceptance of  payment from a nonfederal source, or  required because of agency mission (e.g., courier).
The regulations also allow for the traveler to upgrade to premium-class  accommodations, at the traveler’s expense or by using frequent traveler  benefits, but the upgrade cannot be charged to the centrally billed account.
State has the second largest centrally billed travel card program in the  federal government. During fiscal years 2003 and 2004, State used 155  different centrally billed accounts-–143 international and 12 domestic-–to  purchase more than $360 million in transportation services, such as airline  tickets, train tickets, and bus tickets, for State and other foreign affairs  agencies. Each bureau has its own travel budget and is responsible for  obligating its travel expenses. The local travel-authorizing official or the  executive director of the funding office is responsible for determining the  necessity of travel, issuing the travel order, certifying the availability of  funds, and recording an obligation against a unit’s appropriated funds.
State’s travel management centers (TMC) make airline reservations, issue  airline tickets charged to the centrally billed account upon receipt of a  signed travel order, and perform a reconciliation between the tickets it  issued and tickets charged on the Citibank invoice. To complete this  reconciliation process, TMCs are responsible for associating each charge  with a specific travel order. The financial management officer (FMO) at  overseas posts and resource management’s Global Financial Operations in  Charleston, South Carolina, for domestic activity, are generally responsible  for reviewing a TMC’s monthly reconciliation, making appropriate changes,  and certifying or authorizing Citibank’s invoice for payment. Upon receipt  of the TMC’s reconciliation, billed transaction report (BTR), and supporting  files, State pays Citibank for the tickets purchased on the centrally billed  account. State also pays travelers for nontransportation costs claimed on  their individual travel voucher. Figure 1 shows the design of the processes  used to issue an airline ticket on centrally billed accounts and reimburse  travelers for travel expenses. It also explains the roles of different offices in  providing reasonable assurance that airline tickets charged to these cards  are appropriate and meet a valid government need.
section_title: Ineffective Controls over Authorization and Justification of Premium-Class Travel Led to Wasted Taxpayer Dollars
paragraphs: Premium-class travel accounted for almost half of travel expenditures  charged to State’s over 260 centrally billed accounts during most of fiscal  years 2003 and 2004, including domestic and overseas operations, and this  trend continued for fiscal year 2005. On the basis of our statistical sample,  we estimate that 67 percent of premium-class travel during April 2003  through September 2004 for State and other foreign affairs personnel was  improper--either not properly authorized or properly justified because of  breakdowns in key internal controls. Examples of breakdowns in key  controls include travelers flying premium-class travel when the travel  orders did not authorize premium-class travel; subordinates authorizing  their supervisors to take premium-class flights; and travel orders  authorizing premium-class travel using criteria of a total flight time of more  than 14 hours, even though the actual flight time, including layovers, was  less than 14 hours. Also, State’s diplomatic couriers used premium-class  travel even when it was not justified. In addition, we found that State’s top  executives, including under secretaries and assistant secretaries, often  used premium-class travel regardless of the length of the flight. Further,  senior State officials told us that the department offered premium-class  travel as a benefit to its employees, as part of their human capital initiative,  for all flights lasting over 14 hours, which is allowed by federal and State  regulations but is costly to taxpayers. However, State did not perform a  cost-benefit analysis before offering this benefit. In comparison, agencies— such as DOD—attempt to avoid the significant additional cost associated  with premium-class travel on flights lasting more than 14 hours by  encouraging employees to take a rest stop en route to their final  destination, saving hundreds, sometimes thousands, of tax dollars per trip.  Prior to 2002, State policy prohibited the use of premium-class  accommodations for permanent change of station travel even when the  duration of the travel exceeded 14 hours—a prohibition established by  many other agencies with staff stationed overseas. However in 2002, State  eliminated that prohibition.
subsections: section_title: Extent of Premium-Class Travel Is Significant
paragraphs: Between April 2003 and September 2004, State and other foreign affairs  agencies purchased over 32,000 airline tickets costing about $140 million  that contained at least one leg of premium-class travel for State and other  foreign affairs personnel using State’s centrally billed account travel cards.
In addition, we determined that premium-class travel continues to be  significant for fiscal year 2005.  As discussed later in this report, because  State does not obtain or maintain any information on premium-class travel,  it cannot monitor its proper use, identify trends, or determine alternate,  less expensive means of transportation. As shown in figure 2, premium- class travel represents about 19 percent of the tickets issued, and State’s  and other foreign affairs agencies’ spending on premium-class travel  represented about 49 percent of the $286 million spent on airfare charged  to the centrally billed accounts during the period April 2003 through  September 2004.  Our analysis excluded all travel transactions at overseas  posts that were not procured through the centrally billed travel accounts  because it was outside the scope of our request. State told us that at some  overseas posts travelers purchase airline tickets using Government Travel  Requests (GTR) and purchase orders. Further, the information State  provided for some tickets purchased with GTRs did not distinguish  between premium- and coach-class tickets.
section_title: Key Internal Controls over Premium Travel Were Ineffective
paragraphs: Breakdowns in key internal control activities led to significant numbers of  transactions lacking proper authorization and justification for premium- class travel. On the basis of our sample of premium transactions, an  estimated 67 percent of premium-class travel was not properly authorized,  justified, or both. Specifically, 39 percent of the premium-class airline  tickets charged to State’s centrally billed account from April 2003 through  September 2004 were not properly authorized. In addition, 28 percent of  premium-class transactions that were authorized were not justified in  accordance with either federal or State regulations. (See app. I for further  details of our statistical sampling test results.) Further, State did not  maintain accurate and complete data on the extent of premium-class travel  and thus had a lack of controls in place to oversee and manage this travel.  Each fiscal year State is required to report to GSA on first-class travel taken  by all State and other foreign affairs personnel. However, we found   23 roundtrip first-class tickets valued at more than $85,000, obtained for  State or other foreign affairs agencies, that were not reported by State to  GSA as required in fiscal years 2003 and 2004. Further, we saw no evidence  of external or internal audits of State’s centrally billed travel program.
subsections: section_title: Proper Authorization Did Not Exist
paragraphs: Requiring premium-class travel to be properly authorized is the first step in  preventing improper premium-class travel. Federal and State regulations  require premium-class travel to be specifically authorized. State travel  regulations specify that premium-class travel must be authorized in  advance of travel, unless extenuating circumstances or emergencies make  prior authorization impossible, in which case the traveler is required to  request written approval from the appropriate authority as soon as possible  after the travel. Using these regulations, we found that transactions failed  the authorization test in the following two categories: (1) the  documentation did not specifically authorize premium-class travel or a  blanket travel authorization was used to authorize premium-class travel  and (2) the travel order authorizing premium-class travel was not signed.
Premium-class travel was not specifically authorized. On the basis of  our statistical sample, we estimated that the travel orders and other  supporting documentation for 13 percent of the premium-class  transactions did not specifically authorize the traveler to fly premium class,  and thus the travel management center should not have issued the  premium-class ticket. We estimated that an additional 17 percent of the  transactions were authorized by a blanket authorization, including all  diplomatic courier travel. A blanket authorization is not an appropriate  vehicle for authorizing premium-class travel because federal and State  travel regulations require that all premium-class travel be authorized on a  trip-by-trip basis. In September 2004, State issued a memorandum to all  executive directors reminding them about the use of blanket orders,  emphasizing that it is wrong to authorize business-class travel on a blanket  basis and also reminding the executive directors that a trip-specific  justification must be provided for each business-class authorization.
Travel order was not signed. We estimated that 5 percent of premium- class transactions did not have signed travel authorizations. Ensuring that  travel orders are signed, and signed by an appropriate official, is a key  control for preventing improper premium-class travel. If the travel order is  not signed, or not signed by the individual designated to do so, State cannot  guarantee that the substantially higher cost of the premium-class tickets  was properly reviewed to ensure it represented an efficient use of  government resources.
section_title: Documentation of Valid Justification for Premium-Class Travel Often Did Not Exist
paragraphs: Another internal control weakness identified in the statistical sample was  that the justification used for premium-class travel was not provided, not  accurate, or not complete enough to warrant the additional cost to the  government. To determine whether premium-class travel was justified, we  looked at whether there was documented authorization and, if there was,  whether the authorization for premium-class travel was supported by a  valid reason. Thirty-nine percent of premium-class transactions were not  authorized and, therefore, could not have been justified. State asserts that  even if business-class authorization for some trips was not properly  documented, the premium travel was nevertheless justified so long as the  trips were in excess of 14 hours. However, without properly documented  authorization, we cannot assess the propriety of such travel  notwithstanding the 14-hour travel rule and therefore must conclude that it  was unjustified premium-class travel. In addition, 28 percent of premium- class transactions were authorized but were not supported by valid  justification.  Federal and State travel regulations provide that travel in  excess of 14 hours, without a rest stop en route or a rest period on arrival is  justification for premium class. We found premium travel included trips  with such rest stops for flights lasting under 14 hours.
Table 1 contains specific examples of both unauthorized and unjustified  travel from both our statistical sample and data mining work. These  examples illustrate the improper use of premium-class travel and a  resulting increase in travel costs. More detailed information about some of  the cases follows the table.
Traveler #1 flew from Washington, D.C., to Honolulu, Hawaii. The total  cost of the trip was $3,228. In comparison, the unrestricted government  fare from Washington, D.C., to Honolulu was $790. According to State  regulation, travelers using premium-class travel are not entitled to an  overnight rest stop en route. Furthermore, the travel was authorized by  a blanket premium-travel authorization signed by a subordinate of the  traveler and a separate trip authorization was not included to  specifically authorize this trip, as required. The travel authorization did  not provide specific justification for business-class travel and the travel  was not more than 14 hours. Therefore, the transaction failed  authorization and justification.
Travelers #2 and #3 traveled from Johannesburg to Asmara through  Frankfurt, at a cost of about $8,353 each, a total of $16,706. Although  they traveled business class for the entire trip, they were reimbursed for  a hotel room during the layover in Frankfurt on the return visit, at a cost  of about $171 each. According to State regulation, travelers using  premium-class travel are not entitled to a government-funded rest stop  en route. If the travelers had flown coach for this round trip and taken a  rest stop en route, the airfare would have cost about $2,921 and State  could have saved about $11,000 for the two tickets. One of these  travelers approved the travel authorizations for both himself and the  other traveler.
Traveler #4 flew first class from Washington, D.C., to Hawaii on a  blanket travel order that only authorized travel within Europe. Although  the travel was less than 14 hours, State provided no justification for first  class, and State did not report the first-class travel to GSA. We found  that State issued a first-class airline ticket to Hawaii using a blanket  travel authorization that authorized premium-class accommodations.  State issued the ticket to an unauthorized destination–Hawaii–because  the blanket travel order authorized travel to Europe and State’s travel  officials did not review the blanket authorization to ensure that the  travel authorization was current, valid, and the trip was to an authorized  destination. Because State did not follow its own policies for  authorization and review of travel, the government paid $4,155 for an  unauthorized trip.
section_title: Management Decisions to Offer Premium Travel as a Benefit
paragraphs: State’s management allowed top State and other foreign affairs executives  to use premium-class travel by approving blanket travel orders, similar to a  blank check. State also allowed premium-class travel as a benefit–without  considering less expensive alternatives–to other employees for flights  lasting over 14 hours and for permanent change of station travel, costing  taxpayers tens of millions of dollars.  Further, State’s practice is for  diplomatic couriers to use premium-class travel accommodations to escort  diplomatic pouches.
section_title: Executive Premium-Class Travelers
paragraphs: State’s top executives, including under secretaries and assistant  secretaries, often used premium-class travel regardless of the length of the  flight. Our data mining of frequent premium-class travelers showed that  many of these travelers were senior foreign affairs executives. On the basis  of this information, we expanded our data mining to include trips taken by  selected presidential appointees and SES-level foreign affairs staff to  determine if their travel was authorized and justified according to federal  and State regulations. In addition to the federal and State regulations, we  also applied the criteria set forth in our internal control standards and  sensitive payments guidelines in evaluating the proper authorization of  premium-class travel. For example, State travel regulations and policies do  not restrict subordinates from authorizing their supervisors’ premium-class  travel, a practice which our internal control standards consider to be  flawed. Therefore, a premium-class transaction that was approved by a  subordinate would fail the control test based on our internal control  standards. State and other foreign affairs agencies paid over $1 million for  269 premium-class tickets for flights taken by 17 foreign affairs executives  during April 2003 through September 2004. We found 65 tickets containing  business- and first-class segments costing about $300,000 that were under  14 hours. Most of these flights were to destinations within the United  States, South America, and Western Europe. Further, over $860,000 in  premium-class trips taken by executives were obtained using blanket  authorizations. For each premium-class trip, State regulation requires  specific authorization to fly premium class. In most cases, the blanket  travel orders authorized premium-class travel for an entire year and were  signed by subordinates. State officials told us that because the blanket  authorization allowed premium class, the executives obtained premium- class tickets even when the trip was under 14 hours. The subordinate  authorizers told us they could not challenge an under secretary or an  assistant secretary. Examples of premium-class trips associated with  improper accommodation and their additional cost to taxpayers are  included in figure 3 to illustrate the issues associated with executive  premium-class travel found through our data mining.
State also made a management decision to offer premium-class travel to its  employees as a benefit, resulting in increased costs to taxpayers. Although  State officials were aware that offering employees rest stops on longer  flights was often less expensive than premium-class travel, they offered the  more expensive premium-class travel to employees for all flights lasting  over 14 hours, which increased costs. For example, one individual in our  statistical sample flew premium-class roundtrip from Washington, D.C., to  Tel Aviv at a cost of over $6,000. Although the trip lasted over 14 hours, as  an alternative to paying the premium-class rates, State could have flown  this employee coach and paid the cost of an overnight rest stop in London,  for a total cost of about $2,300 (about $1,600 for the GSA contract airfare  and $700 in lodging and per diem expenses). Overall, this option could have  saved taxpayers over $3,700. State officials explained that they made these  decisions about premium-class travel to improve morale and retain highly  qualified foreign-service personnel. State officials also believed that, among  other factors, their decisions about premium-class travel for trips in excess  of 14 hours have led to increased morale, as reflected in “The Best Places to  Work” survey. However, State could not provide any empirical evidence  that showed a direct correlation that offering premium-class travel  increased its scores on the survey or increased retention of foreign-service  personnel, and could not provide evidence that travel was a metric in the  “Best Places to Work” survey. In contrast, agencies, such as DOD, attempt  to avoid the significant additional cost associated with premium-class  travel on flights lasting more than 14 hours by encouraging employees to  take a rest stop en route to their final destination, saving hundreds,  sometimes thousands, of tax dollars per trip. Finally, our testing showed  that all State employees, not just those in the foreign service that are  governed by State regulations, were authorized to use premium-class,  without constraint, when the trip was over 14 hours.
State also decided to offer premium-class travel to foreign service  employees for permanent change of station moves for all flights that  exceeded 14 hours, in accordance with federal and State regulations.  However, State’s decision resulted in increased costs to taxpayers.  Permanent change of station and similar moves accounted for about   $17 million (12 percent) of State’s and other foreign affairs agencies’  premium-class travel for April 2003 through September 2004. Prior to 2002,  State policy prohibited the use of premium-class accommodations for  permanent change of station travel, even when the duration of the travel  exceeded 14 hours—a prohibition established by many other agencies with  staff stationed overseas, including DOD. However, in 2002, State eliminated  that prohibition at a significant cost to taxpayers. We found numerous  examples in our statistical sample in which premium-class travel was  properly authorized, and as such these transactions were among the 33  percent of transactions that were considered to be properly authorized and  justified. However, it is important to note that because of State’s decision to  treat premium-class travel as a benefit, State did not consider having the  travelers take alternative, less expensive forms of travel.
subsections: section_title: Premium-Class Travel by Diplomatic Couriers
paragraphs: As mentioned, we did not evaluate whether couriers were necessary or appropriate or if  there were any security issues associated with courier service procedures. same travel regulations explained earlier as all State and other foreign  affairs employees.
We tested diplomatic courier transactions in our statistical sample of  premium-class transactions and performed data mining of fiscal year 2003  and 2004 transactions. In total, we tested over 20 diplomatic courier  premium-class transactions. We found control breakdowns similar to those  described above with blanket authorization and justification of courier  premium-class travel. Blanket travel orders were used to authorize  premium-class courier travel for all courier transactions that we tested but,  as stated, blanket orders do not specifically authorize premium travel as  required by State regulations. Although the Courier Service used mission  security requirements to justify premium-class travel by its couriers, we  found examples of premium-class travel when couriers were returning  empty-handed, commonly referred to as “deadheading.”  In response to  these findings, Courier Service officials acknowledged that the use of  premium class is not justified when couriers return empty-handed unless  the 14-hour rule applies. Courier Service officials also told us that couriers  may not know when they will be returning empty-handed until they arrive  at an airport and are told that the post did not complete the expected  outgoing pouch. By that time, they may not be able to downgrade their  return ticket to economy class because a foreign airline is unwilling to do  so, or time does not permit them to return to the gate to change their ticket.  However, the Courier Service did not indicate on the documentation that it  provided to us any attempts to downgrade their tickets in a deadheading or  any other situation where premium-class travel was not justified. Further,  the Courier Service Deputy Director told us that because there are still  some problems in this area, they routinely check courier trip reports to  identify and address any noncompliance.
We found that State’s Courier Service has begun to institute cost-saving  measures that, if expanded, could save taxpayer dollars. These measures  include the expanded use of cargo carriers (e.g., FedEx), which do not  require the couriers to purchase passenger tickets and charge lower freight  costs than the commercial airlines. Our analysis of a FedEx study  performed for the Courier Service showed that substantial air cargo  savings and benefits could be achieved through direct cargo flights with  multiple stops along a designated route. Although the Courier Service  initiated the use of cargo carriers in late 2004, expanding this approach to  the extent practical could achieve substantial savings. However, to achieve  the additional savings, the Courier Service would need to overcome foreign  mission resistance to meeting cargo aircraft outside of business hours.  According to Courier Service officials, foreign mission personnel have been  unwilling to meet air cargo shipments that arrive outside normal business  hours and at cargo airports outside city limits. According to State, Mexico  City has recently indicated a willingness to support cargo flight arrivals at  Toluca airport. Courier Service officials also told us that while all agencies  receiving diplomatic pouches should share responsibility for meeting and  taking custody of diplomatic pouch shipments, the burden has generally  fallen on State employees.
section_title: Lack of Oversight and Controls Led to Other Breakdowns
paragraphs: Ineffective oversight and breakdowns in controls also led to problems with  State’s other centrally billed travel activities. For example, although federal  agencies are entitled to recover payments made to airlines for tickets that  they ordered but did not use, State and other foreign affairs agencies paid  for about $6 million in airline tickets that were not used and not processed  for refund. We found paper and electronic unused tickets for both domestic  and international flights. State was unaware of this problem before our  audit because it did not monitor employees’ adherence to travel regulations  and did not have a systematic process in place for TMCs to identify and  process unused tickets. State also failed to reconcile or dispute over  $420,000 of unauthorized and potentially fraudulent charges before paying  its account. Instead of disputing these charges with Citibank, State simply  deducted the amounts from its credit card bill. This action had the  unanticipated consequence of substantially reducing the amount of rebates  that State would have been eligible to receive. Thus, State earned only  $700,000 out of a possible $2.8 million in rebates that could have been  earned if State disputed unauthorized charges and paid the bill in  accordance with the terms of the contract with Citibank.
subsections: section_title: Ineffective Controls and Monitoring Led to Numerous Unused Tickets
paragraphs: We asked for data on unused tickets purchased on State’s centrally billed  accounts from the top six domestic airlines—United, Continental,  American, Delta, Northwest, and U.S. Airways. All airlines except U.S.  Airways directly provided us electronic data on unused tickets. Data  provided by the five airlines and verified against Citibank’s data showed  that over 2,700 airline tickets with a face value of about $6 million  purchased with State’s centrally billed accounts were unused and not  refunded. The airline tickets State purchased, for State and other foreign  affairs personnel, through the centrally billed accounts are generally  acquired under the terms of the air transportation services contract that  GSA negotiates with U.S. airlines. Airline tickets purchased under this  contract have no advance purchase requirements, have no minimum or  maximum stay requirements, are fully refundable, and do not incur  penalties for changes or cancellations. Under this contract, federal  agencies are entitled to recover payments made to airlines for tickets that  agencies acquired but did not use.  While generally there is a 6-year  statute of limitation on the government’s ability to file an action for  financial damages based on a contractual right, the government also has  up to 10 years to offset future payments for amounts it is owed.
subsections: section_title: State Did Not Monitor Employee Adherence to Travel Regulations
paragraphs: During fiscal years 2003 and 2004, State did not implement controls to  monitor State’s and other foreign affairs employees’ adherence to travel  regulations requiring notification of TMC or the appropriate State officials  about unused tickets. Federal and State travel regulations require a traveler  who purchased a ticket using the centrally billed account either to return  any unused tickets purchased to the travel management center that  furnished the airline ticket or to turn in unused tickets immediately upon  arrival at their post to the administrative officer or, upon arrival in  Washington, D.C., to the executive officer of the appropriate managing  bureau or office. This notification of an unused ticket initiates a process to  submit requests to the airlines for refunds.
Figure 4 illustrates where control breakdowns can occur if travelers do not  adhere to State requirements. As shown, once a ticket is charged to the  centrally billed account and given to the traveler, State has no systematic  controls to determine independently if the ticket was used—or remains  unused—unless notified by the traveler. If the traveler does not report an  unused ticket, the ticket would not be refunded unless TMC monitored the  status of airline tickets issued electronically and applied for the refunds.
Figure 4 shows that the failure of the traveler to notify the appropriate  official of an unused paper ticket would result in the ticket being unused  and not refunded. Although bank data indicate that State received some  credits for airline tickets purchased, State did not maintain data in such a  manner as to allow it to identify the extent of unused tickets and to  determine whether credits were received.
State did not have a systematic process in place to monitor whether TMCs  were consistently identifying and filing for refunds on unused tickets. For  instance, State contractually required the domestic TMC to identify and  process all unused electronic tickets. In exchange, the TMC received a fee  for each refund received for an unused ticket. However, State did not  implement procedures to determine whether unused tickets were being  identified and credits were being received. Instead, State officials took the  TMC’s monthly report indicating only the total dollar amount of refunds  submitted to the airlines as evidence of contractual compliance. Unless  State implements control procedures to verify whether TMCs were  identifying and filing for refunds on the unused tickets consistently, State  cannot provide reasonable assurance that all requests for refunds resulted  in a credit to the government.
Even when a TMC had procedures in place to identify and process unused  electronic tickets, State was still unable to identify unused paper tickets.  For example, by fiscal years 2003 and 2004, State’s domestic TMC and  TMCs at both of the overseas locations we visited had the capability to  identify or search the databases of the airlines that participate in electronic  ticketing or to receive notification from the airlines of unused tickets, and  subsequently obtain refunds. However, even though the TMCs can identify  electronic tickets, they cannot independently identify paper tickets, which  are typically used for international travel.  State has not implemented a  systematic process to verify whether a significant portion of airline tickets  are unused, such as matching tickets issued by TMC with travel vouchers  submitted by travelers upon completion of their trip. Without such a  process State will not have reasonable assurance that tickets purchased  through the centrally billed accounts are used or refunded.
In addition to the $6 million dollars of unused tickets or trip segments we  identified using the airline data, we estimated that, based on the statistical  sample, 3 percent of premium-class airline tickets were unused and not  refunded. This 3 percent estimate is for premium-class tickets only and  excludes coach accommodations.
Table 2 contains specific examples of tickets that the airlines identified as  unused that we tested as a part of our statistical sample of premium class  transactions and data mining selections. Since these tickets were not used,  they resulted in waste and increased costs to taxpayers.
section_title: State Did Not Dispute Unauthorized Transactions and Lost Performance Rebates
paragraphs: State did not dispute over 320 unauthorized transactions, totaling over  $420,000, associated with its two primary domestic centrally billed  accounts during fiscal year 2003 and fiscal year 2004. TMCs reconcile  transactions on the monthly credit card invoice to the tickets issued by the  TMC and recorded in the airline reservation system. Disputes are typically  filed for transactions that neither the TMC nor State identified as having  issued or authorized. Tickets that do not match could occur for many  reasons, such as an airline charging the ticket to the wrong credit card  account, an individual fraudulently obtaining an airline ticket, or the  merchant or credit card vendor failing to provide enough information to  allow the transaction to match. State did not have processes or procedures  in place to file disputes for transactions that failed to reconcile between the  bank invoice and the computer reservation system. We provided State a list  of 219 travelers’ names associated with the over 320 unauthorized  transactions to verify that they were State employees or otherwise  authorized by State or other foreign affairs agencies to travel. According to  State, 38 of the 219 travelers were individuals for whom State had no  record of ever working for State as an employee, contractor, or being  authorized to travel as an invited guest. Thus, these transactions could be  potentially fraudulent charges. As for the remaining 181 travelers, State  informed us that while the airline tickets purchased were for individuals  who are either current or former State employees, contractors, or invited  guests, State has no evidence that the trips had been authorized. Thus,  these trips also could represent potentially fraudulent charges.
As a result of not disputing unauthorized charges and not paying its bill in  accordance with the contract, State faced the unanticipated consequence  of substantially reducing the amount of rebates that it would have been  eligible to receive. For example, if State had effectively managed the  domestic accounts and disputed these charges, State could have earned  over $1 million in rebates. Instead, State earned only about $174,000 in  performance rebates for its domestic accounts. In contrast, at two overseas  posts that we visited, State was properly disputing transactions. However,  as previously noted, State still did not effectively manage its centrally billed  accounts departmentwide and, consequently, earned only $700,000 out of a  possible $2.8 million in performance rebates from Citibank.
The contract that State entered into with Citibank to issue centrally billed  account travel cards enables State to earn performance rebates based on  how quickly State pays the monthly bill. To earn the performance rebate,  State must pay the bill within 30 calendar days from the statement date.  State earns the maximum performance rebate if it pays the centrally billed  account—less any disputed charges—on the statement date; for unpaid  bills, the amount of the rebate decreases each day thereafter. If State pays  the centrally billed account more than 30 days after the statement date,  State does not earn a performance rebate.
Throughout the audit period, State generally submitted payment for its  domestic centrally billed accounts within the 30 day window; however,  State frequently failed to pay the entire amount of the bill, leaving  potentially unauthorized charges unpaid, but not properly disputed.  During  fiscal years 2003 and 2004, State did not dispute any of the previously  mentioned over 320 unauthorized charges applied to its domestic centrally  billed accounts, and instead simply deducted the amounts due from its  credit card bill. If State had disputed these charges, Citibank would have  given State a 60-day grace period to investigate whether the charges were  appropriate and the disputed amounts would not have to be paid until the  investigation was completed. An average person cannot simply determine  which charges on their credit card bill they are going to pay but must notify  the bank of any unauthorized charges. Since State did not dispute the  charges, it was still liable for the amounts associated with these charges  and simply deducting them from the credit card bill did not relieve State of  its responsibility for these charges. Consequently, State was not only  paying for potentially fraudulent charges, but it also lost the performance  rebates it could have earned by promptly paying its monthly centrally billed  account bill.
section_title: Conclusion
paragraphs: The State department serves a critical role for the federal government and  in that role State and other foreign affairs employees are required to travel  extensively, often internationally. However, travel regulations state that  employees on official government travel must follow published  requirements and exercise the same standard of care in incurring expenses  that a prudent person would exercise when traveling on personal business.  Our work shows that travelers using State’s over 260 centrally billed travel  accounts often do not meet that standard, which has resulted in millions of  dollars of unnecessary costs to taxpayers. With the serious fiscal  challenges facing the federal government, agencies need to do everything  they can to operate as efficiently as possible. Improved management and  oversight of the State department’s centrally billed travel program would  save taxpayers tens of millions of dollars annually.
section_title: Recommendations for Executive Action
paragraphs: We are making the following 18 recommendations to improve internal  control over the authorization and justification of premium-class travel and  to strengthen the control environment as part of an overall effort to reduce  improper premium-class travel and unnecessary or inappropriate State  costs. Because of the substantial cost and sensitive nature of premium- class travel, we recommend that the Secretary of State direct the  appropriate officials to implement specific internal control activities over  the use of premium travel and establish policies and procedures to  incorporate federal and State regulations as well as guidance specified in  our Standards for Internal Control and our Guide for Evaluating and  Testing Controls Over Sensitive Payments. While a wide range of activities  can contribute to a system that provides reasonable assurance that  premium-class travel is authorized and justified, at a minimum, the internal  control activities should include the following:  Develop procedures to identify the extent of premium-class travel,  including all business-class travel, and monitor for trends and potential  misuse.
Develop procedures to identify all first-class fares so that State can  prepare and submit complete and accurate first-class travel reports to  GSA.
Require State to develop a management plan requiring that audits of  State’s issuance of premium-class travel are conducted regularly, and  the results of these audits are reported to senior management. Audits of  premium-class travel should include reviews of whether travel  management centers adhere to all governmentwide and State  regulations for issuing premium-class travel.
Periodically provide notices to travelers and supervisors/managers that  specifically identify the limitations on premium-class travel, the limited  situations in which premium-class travel may be authorized, and how  the additional cost of premium-class travel can be avoided.
Require that premium-class travel be approved by individuals who are at  least of the same grade as the travelers and specifically prohibit the  travelers themselves or their subordinates from approving requests for  premium-class travel.
Prohibit the use of blanket authorization for premium-class travel,  including management decisions offering premium-class travel as a  benefit to executives and other employees.
Encourage State department personnel traveling as a result of a  permanent change of station to take a rest stop en route to their final  destination to avoid the significant additional cost associated with  premium-class flights and thus save the taxpayer thousands of dollars  per trip.
Urge other users of State’s centrally billed travel accounts to take  parallel steps to comply with existing travel requirements.
To promote the economy and efficiency of Courier Service operations, we  recommend that the Secretary of State direct the Courier Service to take  the following actions:  Expand the use of cargo carriers, such as FedEx, to the extent  practicable.
Direct foreign missions to assure that organizations using diplomatic  courier services share responsibility for meeting and accepting air cargo  shipments of diplomatic pouches.
Clarify written policy to clearly state that diplomatic couriers must use  economy class accommodations when in a “dead-head” capacity unless  relevant exceptions (e.g., 14-hour rule) exist, and enforce the  requirement.
To recover outstanding claims on unused tickets, we recommend that the  Secretary of State initiate the following actions:   Immediately submit claims to the airlines to recover the $6 million in  fully and partially unused tickets identified by the airlines and discussed  in this report.
Work with the five airlines identified in this report and other airlines  from which State purchased tickets with centrally billed accounts to  determine the feasibility of recovering other fully and partially unused  tickets, the value of the unused portions of those tickets, and initiate  actions to obtain refunds.
To enable State to systematically identify future unused airline tickets  purchased through the centrally billed accounts, and improve internal  controls over the processing of unused airline tickets for refunds, we  recommend that the Secretary of State direct the appropriate personnel  within services and agencies to take the following actions:  Evaluate the feasibility of implementing procedures to reconcile airline  tickets acquired using the centrally billed accounts to travel vouchers in  the current travel system.
Enforce employees’ adherence to existing travel regulations requiring  notification of unused tickets.
Modify existing travel management center contracts to include a  requirement that the international travel management centers establish  a capability to systematically identify unused electronic tickets in their  computer reservation systems and file for refunds on the tickets  identified as unused.
Routinely compare unused tickets processed by the travel management  centers to the credits on the Citibank invoice.
To provide assurance of accurate and timely payments of the centrally  billed accounts and to maximize rebates, we recommend that the Secretary  of State establish procedures to ensure that all transactions on the Citibank  invoice are either paid in accordance with the contract or properly  disputed.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, State concurred with all 18 of  our recommendations and said that it is firmly committed to aggressive  stewardship of the taxpayers’ resources entrusted to the department.  However, State also commented that our report overstates the problem,  fails to identify improper travel conducted for other than official  government travel, identifies only a few instances of unjustified travel, and  implies incorrectly that State carelessly implemented business-class  regulations without regard to the increased cost. We disagree.
We do not agree with State’s position that we overstate the nature and  extent of its control breakdowns and ineffective oversight. State and other  foreign affairs travelers charged almost $140 million on premium-class  travel from April 2003 through September 2004. On the basis of our  statistical sample, 67 percent of premium-class travel was not properly  authorized, justified, or both. This failure rate and the associated dollars  spent on premium class travel shows that taxpayers lost tens of millions of  dollars on improper travel. For example, State issued premium-class  tickets to a family of four traveling from Washington to Moscow for a  permanent change of duty station. Although this trip was well under the  required 14 hours to justify premium-class travel, State purchased the  premium class accommodations for almost four times the cost of coach  seats. In addition to the waste exemplified here and elsewhere in our  report, taxpayers lost millions more because State failed to recover  payments made to airlines for tickets issued but never used and failed to  reconcile and dispute other charges properly. For example, State paid for a  premium-class ticket for roundtrip travel between New Mexico and  Ethiopia that was neither used nor refunded. These specific examples and  our overall analysis clearly show how ineffective oversight—not just  procedural problems—resulted in substantial waste of taxpayers’ dollars.
As our report clearly explains, we did not specifically question whether  travel charged to State’s centrally billed travel accounts were necessary.  Therefore, we purposely did not identify improper travel conducted for  other than official government travel and thus our report makes no  conclusions on this matter.
State’s position that our findings of improper travel are simply the result of  “procedural problems” and that “only a few instances” of travel were  conducted outside of the regulations are inconsistent with the facts. In this  regard, over half of the transactions we tested—not just a few instances— were not simply the result of procedural problems (e.g., not properly  authorized), they were unjustified because the travel was conducted  outside of the regulations. Over half of the travelers improperly flew  premium-class on trips lasting shorter than 14 hours or flew business class  and also took a rest stop, which is to be used in lieu of using premium-class  accommodations to economize travel. For example, one State traveler flew  premium-class between points in Europe on a trip lasting well short of   14 hours and also took an unjustified rest stop, which further added lodging  and subsistence expenses to the total cost of travel. Another traveler flying  short of 14 hours on a premium-class ticket enjoyed 3 nights of rest upon  her return. These and other examples of unjustified travel underscore  problems beyond what State says are simply “deficient procedural  protocols” and demonstrate how State’s ineffective oversight of premium- class travel resulted in substantial losses to taxpayers.
Finally, State takes exception with our characterization that it treated  premium-class travel as an employee benefit. This position, however, is in  stark contrast to the representations State made throughout our review.  For example, although State prohibits blanket authorizations for premium- class travel, many of State’s top executives consistently flew on blanket  travel orders improperly authorizing premium class from Washington to  numerous domestic and other destinations that were well below the 14  hours required to justify such travel. For example, one senior State  executive completed 45 premium-class trips costing $213,000, many of  which were under 14 hours, using a blanket travel order. These executive  travelers set a tone at the top that premium-class travel was in fact a benefit  to the traveler and not something that should be minimized or used  sparingly. In addition, during our review, State said that it indeed offered  premium-class travel as a benefit to its employees and that such travel  contributed to their improved employee feedback provided to “The Best  Places to Work” survey. However, State could not provide evidence that  travel was a metric in that survey. Moreover, regardless of the increased  cost associated with such moves, State began in 2002 and continues today  to offer premium-class travel for permanent change of station moves as a  benefit to its employees and their families. We believe these examples,  especially the top State executives who gave themselves the benefit of  flying premium class when federal law and regulations did not allow such  travel, demonstrate that the tone at the top of the department indicates that  premium-class travel is in fact a benefit, without specific regard to cost.  State’s comments are reprinted in appendix II.
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 State, the Director and Deputy Director of the Diplomatic  Courier Service, 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 me at (202) 512-7455 or kutzg@gao.gov if you or your staffs  have any questions concerning this report. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. Key contributors are listed in appendix III.
section_title: Objectives, Scope, and Methodology
paragraphs: This report responds to your request that we audit and investigate internal  controls over State’s centrally billed travel accounts, which include travel  related to the Department of State, other U.S. government agencies  principally engaged in activities abroad, and other domestic departments  and agencies with international operations. The objectives of our audit  were to determine the effectiveness of the Department of State’s internal  controls over its centrally billed travel card program and determine  whether fraudulent, improper, and abusive travel expenses exist.  Specifically we evaluated the effectiveness of State’s internal controls over  (1) the authorization and justification of premium-class tickets charged to  State’s centrally billed travel accounts and (2) monitoring unused tickets,  reconciling monthly statements, and maximizing performance rebates.
To assess the effectiveness of internal controls over State’s use of the  centrally billed accounts, we obtained an understanding of the travel  process, including premium-class travel authorization, unused ticket  identification, and overall travel card management and oversight, by  interviewing State officials from Resource Management, Travel and  Transportation Management Division; Diplomatic Security, Overseas  Building Operations; Educational and Cultural Affairs; U.S. Consulate,  Frankfurt, Germany and U.S. Embassy, Pretoria. We also interviewed key  officials from the American Express, Carlson Wagonlit, and Concorde  travel management centers. We reviewed General Services  Administration’s (GSA) Federal Travel Regulations (FTR) and State’s  Foreign Affairs Manual (FAM) and Foreign Affairs Handbook (FAH). We  reviewed State’s internal department notices and other travel-related  guidance. Finally, we conducted “walk-throughs” of the domestic and  overseas travel processes.
subsections: section_title: Evaluating the Effectiveness of Controls over Premium-Class Travel
paragraphs: We audited controls over the authorization and issuance of premium-class  travel during fiscal years 2003 and 2004. State’s credit card vendor,  Citibank, could not provide the first 6 months of fiscal year 2003   (October 2002–March 2003) level III data due to limitations in its archiving  capabilities. The level III data indicate whether a transaction is premium or  coach. Therefore, we used 18 months of data from April 2003 through  September 2004 to select a probability sample of premium-class  transactions and also used this same time period for our data mining and  analysis of premium-class transactions. Our assessment covered the  following:  The extent to which State used the centrally billed accounts to obtain  premium-class travel was determined.
Testing a statistical sample of premium-class transactions to assess the  implementation of key management controls and processes for  authorizing and issuing premium-class travel, including approval by an  authorized official and justification in accordance with regulations. We  also used data mining to identify other selected transactions throughout  the premium-class travel transactions to determine if indications of  improper transactions existed.
State’s management policy towards the use of premium-class travel was  determined.
subsections: section_title: Magnitude of Premium- Class Travel
paragraphs: To assess the magnitude of premium-class travel by State and other foreign  affairs agencies, we obtained from Citibank a database of fiscal years 2003,  2004, and 2005 travel transactions charged to State’s centrally billed and  individually billed travel card accounts. The databases contained  transaction-specific information, including ticket fares, codes used to price  the tickets—fare basis codes—ticket numbers, names of passengers, and  numbers of segments in each ticket. We reconciled these data files to  control totals provided by Citibank and to data reported by GSA on State’s  centrally billed account activities. We queried the database of positive debit  transactions (charges) for fare codes that corresponded to the issuance of  first- and business-class travel, identifying all airline transactions that  contained at least one leg in which State and other foreign affairs agencies  paid for premium-class travel accommodations.
We further limited the first- and business-class transactions to those  costing more than $750 because many premium-class tickets on intra- European flights cost less than $750 and the corresponding coach-class  tickets were not appreciably less. By eliminating from our population first-  and business-class transactions costing less than $750, we avoided the  possibility of identifying a large number of transactions in which the  difference in cost was not significant enough to raise concerns of the  effectiveness of the internal controls. The total number of transactions  excluded was 1,067, costing approximately $532,000. While we excluded  premium-class transactions costing less than $750, we (1) did not exclude  all intra-European flights and (2) potentially excluded unauthorized  premium-class flights. Limitations of the database prevented a more  precise methodology of excluding lower-cost first- and business-class  tickets.
section_title: Statistical Sampling and Data Mining
paragraphs: Table 3 summarizes the population of State and other foreign affairs  agencies’ airline travel transactions containing at least one premium-class  leg charged to State’s centrally billed accounts from April 2003 through  September 2004 and the subpopulation subjected to testing.
To assess the implementation of key controls over the authorization and  issuance of premium-class travel, we tested a probability sample of  premium-class transactions. In general, the population from which we  selected our transactions for testing was the set of positive debit  transactions totaling $750 or more for both first- and business-class travel  that were charged to State’s centrally billed accounts during April 2003  through September 2004. Because our objective was to test controls over  travel card expenses, we excluded credits and miscellaneous debits (such  as fees) that would not have been for ticket purchases from the populations  tested.
We further limited the population of first- and business-class transactions  to those without a matching credit. By eliminating transactions with  matching credits, we avoided selecting a large number of transactions in  which the potential additional cost of the premium-class ticket was  mitigated by a credit refund so as not to raise concerns about the  effectiveness of the internal controls. The total number of transactions  excluded was 2,799, totaling approximately $11.7 million. While we  excluded premium-class transactions with a matching credit, we did not  exclude all transactions with a matching credit because sometimes the data  did not always identify the fare basis codes to allow us to determine if the  travel was premium or coach.
To test the implementation of key control activities over the issuance of  premium-class travel transactions, we selected a probability sample of  transactions. Specifically, we selected 107 premium-class transactions  totaling about $467,000. For each transaction sampled, we requested that  State provide us the travel order, travel voucher, travel itinerary, and other  related supporting documentation. We used that information to test  whether documentation existed that demonstrated that State had adhered  to key internal controls over authorizing and justifying premium-class  tickets. On the basis of the information State provided, we determined  whether a valid official approved the premium-class travel and whether the  premium-class travel was justified in accordance with State regulations. We  also applied criteria set forth in our internal control standards and sensitive  payments guidelines in evaluating the proper authorization of premium- class travel. For example, while State travel regulations and policies do not  address subordinates authorizing their supervisors’ premium-class travel,  our internal control standards consider such a policy to be flawed;  therefore, a premium-class transaction that was approved by a subordinate  would fail the control test. The results of the samples of these control  attributes can be projected to the population of transactions at State and  other foreign affairs agencies as a whole, but not to individual bureaus or  posts.
With our probability sample, each transaction in the population had a  nonzero probability of being included, and that probability could be  computed for any transaction. Each sample element was subsequently  weighted in the analysis to account statistically for all the transactions in  the population, including those that were not selected. Because we  followed a probability procedure based on random selections, our sample  is only one of a large number of samples that we might have drawn. Since  each sample could have provided different estimates, we express our  confidence in the precision of our particular sample’s estimates as 95- percent confidence intervals (e.g., plus or minus 10 percentage points.)   These are intervals that would contain the actual population value for 95- percent of the samples we could have drawn. As a result, we are 95-percent  confident that each of the confidence intervals in this report will include  the true values in the study population. All percentage estimates from the  sample of premium-class air travel have sampling errors (confidence  interval widths) of plus or minus 10 percentage points or less. Table 4  summarizes the premium-class statistical sample results.
In addition to our statistical sample, we selected other transactions  identified by our data mining efforts for review. Our data mining identified  individuals who frequently flew using first- or business-class  accommodations. For data mining transactions, we also requested that  State provide us the travel order, travel voucher, travel itinerary, and any  other supporting documentation that could provide evidence that the  premium-class travel was properly authorized and justified in accordance  with State policies. If the documentation provided indicated that the  transactions were proper and valid, we did not pursue the matter further.  However, if the documentation was not provided, or if it indicated further  issues related to the transactions, we obtained and reviewed additional  documentation about these transactions.
section_title: High-Level Officials
paragraphs: Our initial data mining efforts identified executives that frequently flew  first and business class. On the basis of our findings, we expanded our  selection of high-level officials to include most of State’s top executives,  including presidential appointees and senior executives. We evaluated  these transactions in the same manner as described above.
section_title: Diplomatic Couriers
paragraphs: Based on the statistical sample of premium class transactions, we estimate  that 6 percent of the transactions in the sample population represent travel  by diplomatic couriers. We also identified courier transactions by data  mining for travelers that frequently flew first and business class. We found  six courier transactions in our statistical sample and an additional 16  transactions identified during data mining for proper authorization and  justification. We reviewed pertinent laws, federal regulations, and State  department policies and procedures and interviewed current and former  Diplomatic Courier Service staff. We also conducted an on-site inspection  of classified pouch procedures at the Logistics Operations Center and  observed the FedEx process for inventory, pouching, and packaging of  classified materials for shipment to London, Paris, and Frankfurt. We did  not have authorization to open, inspect, and verify that classified pouches  contained only classified materials. Also, we did not observe and assess  courier procedures at foreign airports related to accessing the tarmac to  take custody of outgoing and incoming diplomatic pouch materials. During  the course of our work, we interviewed Department of State Inspector  General, Diplomatic Courier Service, and Administrative Logistics  Management officials and Department of Homeland Security officials  responsible for customs and border protection.
section_title: Evaluating the Effectiveness of Controls over Other Centrally Billed Account Activities
paragraphs: We also audited the controls over other centrally billed account activities,  including the identification and processing of unused tickets and disputing  of unauthorized transactions, during fiscal years 2003 and 2004. Our  assessment covered  the magnitude of centrally purchased tickets that were not used and not  processed for a refund, and  the extent of unauthorized transactions that were not disputed and of  the rebates lost, as a result.
To assess the internal controls over these other CBA activities, we first  applied the fundamental concepts and standards set forth in our Standards  for Internal Control in the Federal Government to the practices followed  by these units to manage unused tickets and to dispute transactions that  did not match or that the reconciliation process determined were  unresolved. Because we determined that controls over unused tickets were  ineffective, we did not assess these controls.
section_title: Magnitude of Unused Tickets
paragraphs: To assess the magnitude of tickets charged to the centrally billed accounts,  which were unused and not refunded, we requested that the six airlines  that State and other foreign affairs agencies used most frequently provide  us with data relating to tickets State and other foreign affairs agencies  purchased during fiscal years 2003 and 2004 that were unused and not  refunded. These six airlines—American, Delta, Northwest, Continental,  United, and U.S. Airways—together accounted for about 80 percent of the  value of total airline tickets State and other foreign affairs agencies  purchased. To obtain assurance that the tickets the airlines reported as  unused represented only airline tickets charged to State centrally billed  accounts, we compared data provided by the airlines to transaction data  provided by Citibank. Because State does not track whether tickets  purchased with centrally billed accounts were used, we were unable to  confirm that the population of unused tickets that the airlines provided was  complete in that it included all State and other foreign affairs agencies’  tickets that were unused and not refunded.
While American, Delta, Northwest, and United provided data that allowed  us to identify the centrally purchased tickets that were fully unused and not  refunded and partially used and not refunded, Continental could only  provide data on fully unused and not refunded tickets and U.S. Airways did  not provide any data. Because none of the airlines provided data sufficient  for calculating the exact unused value (residual value), we were limited to  reporting the amount charged to the centrally billed accounts related to  both fully unused and partially unused tickets.
section_title: Extent of Unauthorized Transactions Not Disputed
paragraphs: To determine the extent of airline tickets that did not reconcile between the  tickets issued by State’s travel management center and the Citibank invoice  of tickets purchased on the centrally billed account, we (1) obtained  unresolved transaction reports for State’s largest domestically managed  centrally billed accounts and (2) verified that the transactions were  charged to a State centrally billed account using the Citibank transaction  data.
section_title: Magnitude of Rebates Lost
paragraphs: To identify the potential rebates lost on State’s centrally billed accounts,   we requested that Citibank provide (1) the total amount of rebates earned  by State on its centrally billed account program for fiscal year 2003 and  fiscal year 2004, (2) the volume of transactions used by Citibank to  compute the rebate amounts, and (3) the rebate pricing schedule Citibank  used to determine the amount of rebates. Using the volume of transactions  and the rebate pricing schedule provided by Citibank, we calculated the  highest potential rebate that State could have earned on the centrally billed  account program. We then compared the potential rebate amounts to the  actual rebates earned.
section_title: Data Reliability Assessment
paragraphs: We assessed the reliability of the Citibank centrally billed account data by  (1) performing various testing of required data elements, (2) reviewing  existing information about the data and system that produced them, and  (3) interviewing Citibank officials knowledgeable about the data. In  addition, we verified that totals from the databases agreed with the  centrally billed account activity reported by GSA. We determined that data  were sufficiently reliable for the purposes of our report.
To assess the reliability of the unused ticket data provided to us by  American, Continental, Delta, Northwest, and United Airlines, we   (1) consulted airline officials knowledgeable about the data and   (2) performed testing on specific data elements. In addition, we validated  that the tickets reported as unused by each airline represented tickets  centrally purchased by State by comparing each airline’s data to the  Citibank centrally billed account. We also reviewed the 2003 and 2004  Notes to the Consolidated Financial Statements for each airline to verify  that amounts related to unused tickets were included as a liability. We  concluded that the data were sufficiently reliable for the purposes of this  report.
section_title: Comments from the Department of State
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: Key contributors to this report include Cindy Barnes, Felicia Brooks,  Norman Burrell, Beverly Burke, Jennifer Costello, Francine DelVecchio,  Abe Dymond, Aaron Holling, Jason Kelly, John V. Kelly, Andrea Levine,  Barbara Lewis, Jenny Li, Katherine Peterson, Mark Ramage, John Ryan,  Sidney H. Schwartz, and Michael C. Zola.