DOD Travel Cards: Control Weaknesses Led to Millions in Fraud, Waste, and Improper Payments
Published: 2004-06-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In November 2003, GAO testified on the significant level of improper premium class travel purchased with centrally billed accounts. These findings led to concerns over the Department of Defense's (DOD) overall management of the centrally billed account program. At the request of this Committee, Senator Grassley, and Representative Schakowsky, GAO performed work to determine whether DOD controls were adequate to protect the centrally billed accounts from fraud, waste, and abuse. This testimony focuses on whether DOD (1) paid for airline tickets that it did not use and did not process for refund, (2) improperly reimbursed travelers for the cost of airline tickets paid for with centrally billed accounts, and (3) adequately secured access to centrally billed accounts against improper and fraudulent use. This testimony also addresses the internal control breakdowns that led to instances of fraud, waste, and abuse and DOD's corrective actions. In two companion reports issued today, DOD concurred with the 31 recommendations GAO made-- including moving to a well- managed individually billed account program--to improve the management of unused tickets, recover the value of outstanding unused tickets, prevent and detect improper payments, reduce the risk that airline tickets are issued on invalid travel orders, and improve security over the centrally billed accounts.
section_title: What GAO Found
paragraphs: A weak control environment and breakdowns of key controls over the centrally billed accounts led to millions of dollars wasted on unused airline tickets, reimbursements to travelers for improper and potentially fraudulent airline ticket claims, and issuance of airline tickets based on invalid travel orders. In some instances where the centrally billed accounts were compromised, DOD did not pay for the airline tickets because DOD disputed those charges. However, not all DOD units disputed unauthorized charges. As a result, DOD is vulnerable to paying for fraudulent charges. A major contributing factor to these problems is that DOD's travel order, ticket issuance, and travel voucher systems are not integrated, and DOD had not designed compensating procedures to reconcile data in these systems. Thus, DOD was unable to detect instances where (1) the absence of a travel voucher might indicate that an airline ticket was unused, (2) travelers improperly claimed reimbursement for tickets they did not purchase, and (3) an authorized individual did not approve the travel order submitted to obtain an airline ticket. Other causes are excessive reliance on DOD travelers to report unused tickets, inadequate voucher review, and weak centrally billed account safeguards.

section_title: Letter
paragraphs: Thank you for the opportunity to discuss the Department of Defense’s  (DOD) management of its centrally billed accounts.  This testimony is a  continuation of previous work we performed on weaknesses in controls  over DOD’s premium class travel acquired using the centrally billed travel  accounts.  Our two related reports, released today and developed at the  request of this Committee, Senator Grassley, and Representative  Schakowsky, describe additional problems we identified in DOD’s controls  over the centrally billed accounts. These weaknesses, and other  weaknesses we had previously reported upon related to DOD’s  management of the individually billed accounts, are illustrative of DOD’s  long-standing financial management problems, which are pervasive,  complex, and deeply rooted in virtually all business operations. Such  problems led us in 1995 to put DOD financial management on our list of  high-risk areas—those that are highly vulnerable to fraud, waste, and  abuse—a designation that continues today.
The centrally billed accounts are used by most DOD services and units to  purchase transportation services such as airline and train tickets, facilitate  group travel, and procure other travel-related expenses.  In contrast, the  individually billed travel accounts are used by individual travelers primarily  for lodging, rental cars, and other travel expenses.  Further, unlike the  individually billed travel accounts, where travelers are responsible for all  charges and for remitting payments for the monthly bill, charges for  centrally billed accounts are billed directly to the government for payment.   For fiscal years 2001 and 2002, DOD travelers incurred $7.1 billion in  expenses on the centrally billed and individually billed travel card  accounts, with about $2.8 billion related to the use of centrally billed  accounts.
Today, we will share our perspective on whether DOD (1) paid for airline  tickets that it did not use and did not process for refund, (2) improperly  reimbursed travelers for the cost of airline tickets paid for using centrally  billed accounts, and (3) adequately secured access to the centrally billed  accounts against improper and fraudulent use.  We will also address the  internal control breakdowns that led to these instances of fraud, waste, and  abuse and DOD’s corrective actions.
subsections: section_title: Millions of Dollars Wasted on Airline Tickets that Were Unused and Not Refunded
paragraphs: Our analysis of limited airline data found that DOD had purchased millions  of dollars in airline tickets that it did not use and did not process for refund.   Because DOD did not maintain data on unused tickets, DOD was not aware  of this problem prior to our audit.  Further assessment of the data indicated  that it is possible that since 1997, DOD purchased more than $100 million in  airline tickets with its centrally billed accounts that it did not use and did  not process for refunds.
As shown in table 1, data provided by five of DOD’s most frequently used  airlines showed that about 58,000 tickets with a value of $21.1 million were  purchased with DOD’s centrally billed accounts but were unused and not  refunded.  DOD was not aware of these unused tickets and did not know  their number or dollar value.  The $21.1 million we identified included more  than 48,000 tickets valued at $19.2 million that were fully unused, and $1.9  million in the unused (residual) value of about 10,000 partially used  tickets, that is, at least one leg had not been used.  These tickets were  primarily acquired during fiscal years 2001 and 2002, although some were  also purchased during fiscal years 1999, 2000, and 2003.
In addition to the known, unused value of $21.1 million, DOD also failed to  claim refunds on an additional 81,000 partially unused tickets purchased at  more than $62 million, of which the residual value is unknown.  This is  because Delta, Northwest, and United airlines, which provided us with  these data, informed us that their ticket data are not maintained in a format  that would allow them to easily quantify the remaining unused value.
The data the five airlines provided in response to our request for fiscal  years 2001 and 2002 unused ticket data were not uniform, complete, or  consistent.  For example, while American, Delta, Northwest, and United  provided some data on partially unused tickets, US Airways did not provide  any.  Further, while Delta, Northwest, and United provided data on the total  purchase price of tickets that were partially unused, American Airlines was  the only airline that provided data on the purchase price and unused value  of its partially unused tickets.  The airlines cited difficulties with accessing  their historical files as the reason for not being able to fully respond to our  request.  The airlines pointed out that to provide additional information,  they would have had to access information that had been stored in archived  computer files, and in some instances, the computer files had been  eliminated and the only documentation that remained were paper records  of the flights.
Also as we reported previously, DOD’s failure to monitor premium class  travel had resulted in more than 70 percent of premium class travel being  unauthorized and unjustified, and thus increased cost to taxpayers.   Although we found that the vast majority of the wasted airline tickets were  for coach class travel, the most egregious examples of waste related to  premium class tickets costing thousands of dollars that DOD—and thus the  taxpayers—paid for that were not used and therefore provided no benefit  to the government or the taxpayers.  For example, United Airlines reported  that a Navy traveler used the centrally billed account to purchase a round- trip business-class ticket costing $9,800 from Washington D.C., to  Canberra, Australia.  Table 2 shows examples of first and business class  tickets purchased for travel through December 2002 that were identified as  unused—and were not refunded—as of October 2003.
Based on further assessment of the limited airline data, we determined that  it is possible that DOD purchased at least $100 million in airline tickets that  were unused and not refunded since 1997, the oldest year for which  centrally billed account data were available.  This amount is derived by  using data provided by the airlines for fiscal year 2002 to calculate the total  value of unused tickets as a percentage of total tickets purchased using the  centrally billed accounts, and applying the resulting percentage to the  almost $8 billion in total value of tickets purchased with a centrally billed  account since 1997.  Federal agencies are authorized to recover payments  made to airlines for tickets that agencies acquired but did not use.   Consequently, DOD might be entitled to recover the value of the unused  and unrefunded tickets from the airlines.
Because DOD did not maintain data on unused tickets, DOD would have to  rely on the airlines to provide the relevant data needed to claim refunds.   While the airlines provided us with at least 1 year of the data we requested,  some airline representatives expressed concerns about the feasibility and  costs of providing additional unused ticket data.  However, unused tickets  from these 5 airlines and the more than 85 other airlines that DOD uses  represent a potentially substantial government claim.  To assist DOD in  claiming refunds or converting the unused tickets to future use, we  provided DOD with a list of the unused ticket information we received from  the airlines in December 2003.  As will be discussed in further detail below,  DOD has taken actions to request repayment of the over $21 million in  known unused tickets from the airlines.
section_title: Reimbursements for Improper and Potentially Fraudulent Airline Ticket Claims Could Total Millions of Dollars
paragraphs: We found that breakdown in internal controls resulted in numerous  instances during fiscal years 2001 and 2002 where DOD travelers submitted  improper claims and subsequently received improper reimbursements for  airline tickets they did not purchase.  Requesting reimbursement for items  that the traveler did not pay for may violate the False Claims Act and be  punishable by imprisonment or a monetary fine, or both.  Although  limitations in DOD data prevented us from accurately estimating the  magnitude of these improper reimbursements, our data mining of limited  DOD data indicated that the potential improper claims could total more  than $8 million dollars.
subsections: section_title: Magnitude of Potentially Improper Payments
paragraphs: During fiscal years 2001 and 2002, DOD spent over $10.8 billion on travel  and transportation expenses for DOD military and civilian personnel, of  which about $2.8 billion were charged to the centrally billed accounts, and  the remaining $8 billion through voucher settlement.  However, significant  limitations related to DOD travel and transportation data prevented us  from accurately estimating the magnitude of improper payments DOD  made to travelers for improper and potentially fraudulent claims travelers  filed for airline tickets that DOD—and not the traveler—purchased.   Specifically, travel voucher data received from the Army, Navy, and Marine  Corps covered only about $4.5 billion of the $8 billion in total travel  voucher expenses.  Despite these limitations, our data mining of about 50  percent of voucher data identified about 27,000 travel claims totaling over  $8 million for which DOD made potentially improper reimbursements to  travelers for airline tickets that had actually been paid for using DOD  centrally billed accounts.  Although we were unable to obtain Air Force  data in a format that would help us identify instances of improper  payments, the Air Force Audit Agency reported that the Air Force also  improperly paid travelers for the cost of airline tickets purchased with  centrally billed accounts and estimated that the improper payments cost  the Air Force $6.5 million over 6 years.
section_title: Results of Improper Payment Testing
paragraphs: To determine whether DOD improperly paid travelers for the airline tickets  purchased with centrally billed accounts, we tested 204 travel claims  selected from the 27,000 potentially improper travel claims we identified  through data mining.  We selected the 204 travel claims containing about  $154,000 in potentially improper payments using a nonrepresentative  methodology.  Our tests—which consisted of reviewing what the travelers  claimed as reimbursable expenses, what DOD paid, and what was  purchased using the centrally billed accounts—confirmed that DOD made  123 improper payments totaling more than $97,000 to 91 travelers.  Fifteen  of the 123 improper payments had been identified prior to our audit  because the travelers voluntarily notified DOD of the improper payments,  or because DOD found that the payments were improper through its own  voucher audits.  Further, in response to our audit, DOD collected more than  $42,500 from 46 travelers for 63 improper airfare payments, and is in the  process of recovering the remaining improper payments  We found that improper payments fell into two categories.  The first  category, which is linked to DOD’s unused ticket problem, comprises 15  instances totaling almost $16,000.  In these instances, DOD and the traveler  each purchased one airline ticket for the same travel, and DOD properly  reimbursed the traveler for the airline ticket used and charged to the  traveler’s individually billed account.  However, lack of reconciliation  procedures, which I will discuss in further detail below, resulted in DOD  not being able to detect that a payment for an airline ticket purchased and  paid for by the traveler corresponded to an unused airline ticket purchased  with a centrally billed account.
The second, and more typical, category of improper payments were made  to 76 travelers for airline tickets they simply did not purchase.  Only 4  travelers notified the Defense Finance and Accounting Service—and made  restitution—on the improper payments prior to our audit.  The remaining  improper payments would also be fraudulent if the travelers intentionally  filed false claims.
section_title: Examples of Improper Payments
paragraphs: Travelers who had not purchased airline tickets should not have requested  reimbursements, nor should DOD have paid the travelers for the cost of the  airline tickets.  Knowingly requesting reimbursement for items that the  traveler did not pay for may violate the False Claims Act and be punishable  by imprisonment or a monetary fine, or both.  Although most of the 76  travelers we identified submitted improper claims once, several travelers  we identified repeatedly submitted claims for airline tickets they did not  purchase, which could indicate an intent to defraud the government.  For  example: A GS-15 submitted claims—and received payments—for 13 airline  tickets totaling almost $10,000 that he did not purchase.  One of these  claims was for an international ticket costing more than $3,500.  Despite  receiving almost $10,000 over a 9-month period, the traveler informed us  that he did not notice that he had received payments for expenses he did  not incur.
Despite six notifications by DFAS from March 2001 to July 2002 that his  vouchers contained improper airfare claims, a GS-13 acquisition  specialist continued to submit false airfare claims from August 2002 to  June 2003.  This employee ultimately received $3,600 in payments for six  improper claims.  To circumvent proper review of his vouchers, the  traveler scribbled his own name as the approving official and approved  his own voucher.  The traveler also took other questionable actions  related to travel.  For example, the traveler used the individually billed  travel card to obtain two unrestricted coach class tickets for family  members to fly to Germany.  These unrestricted coach class tickets were  normally priced at $2,800 each compared to the reduced government  rate of $546 per person, which the traveler was able to obtain by using  the individually billed card.  The traveler also rented luxury vehicles— Mercedes Benz and Lincoln Navigator—while on government travel,  typically at a rental rate of more than $100 a day.
Another traveler, an E-9, represented to us that he knew that he received  $1,400 in payments for two airline tickets he did not purchase.  The  traveler did not take actions to notify DFAS of the overpayment.  The  traveler kept the payment until our audit.
Because of potential fraud, we have referred these cases to the DOD Office  of Inspector General for further inquiry, and potential referral to the  appropriate U.S. Attorney for further consideration.
section_title: Inadequate Security over the Centrally Billed Accounts Increased Risk of Fraud and Abuse
paragraphs: We also found that inadequate security resulted in improper and fraudulent  use of the centrally billed accounts.  Specifically, DOD did not adequately  protect the centrally billed accounts from being used to purchase airline  tickets based on fictitious travel orders and from being compromised and  used for personal gain.  These weaknesses exposed the centrally billed  accounts to increased risk of fraud and abuse.
subsections: section_title: Airline Ticket Purchased Based on Fictitious Travel Order
paragraphs: We found that DOD allowed the centrally billed accounts to be used for  payment of airline tickets without verifying the validity of the travel order.   Consequently, we performed additional work during fiscal year 2004 to  determine whether our concerns were warranted, or whether DOD could  detect instances where invalid travel orders are used to obtain airline  tickets.  Our tests were also designed to determine whether current DOD  controls could detect a ticket that is partially unused, and process that  ticket for refund.
Our work involved creating, in February 2004, a fictitious travel order using  fictitious names for the traveler and approving official.  We had a GAO  employee sign the travel order as the approving official using the fictitious  name.  We called a commercial travel office (CTO) assigned to one of the  locations where we performed our testing and requested that they  purchase a round trip airline ticket from Washington, D.C., to Atlanta, Ga.   Upon receiving a faxed copy of our fictitious order, the CTO issued the  airline ticket and charged it to a centrally billed account.  The CTO then  notified us that the ticket was issued and on the day of the scheduled flight,  we went to the airline’s ticket counter at the airport and picked up a  boarding pass for the outbound flight from Washington, D.C., to Atlanta  (see fig. 1).
Two months later, we obtained and reviewed the Bank of America invoice  for the centrally billed account the CTO used to purchase the unauthorized  ticket.  The documentation indicated that DOD made payment to Bank of  America without being aware that the travel order was fictitious, or that it  had issued an airline ticket based on a fictitious travel order.  Because it did  not verify that the travel order was valid, DOD allowed its system to create  an obligation to pay for the ticket.  Further, DOD had not by that time  detected that the return portion of the airline ticket was unused.   Consequently, DOD had not processed a refund for the unused portion.   After we informed DOD about the airline ticket that we obtained using the  fictitious travel order, DOD requested and received a refund from the  airline for the ticket we obtained.
section_title: Centrally Billed Accounts Were Compromised and Used Fraudulently
paragraphs: During fiscal years 2001 and 2002, some DOD centrally billed accounts  were compromised and fraudulently used for personal gain.  We detected  these fraudulent activities by reviewing Bank of America data and making  inquiries of DOD officials.  In many instances, DOD had detected the  fraudulent transactions, and did not incur losses, because it disputed these  transactions with the Bank of America.  For example:   Between August 2001 and March 2002, a Navy seaman used the centrally  billed accounts to purchase over 70 tickets totaling more than $60,000.   The 70 unauthorized tickets were identified by the CTO as unauthorized,  that is, tickets they did not issue while reconciling tickets they had  issued to the Bank of America invoices.  According to the Naval  Criminal Investigative Service (NCIS), to which this case was referred,  the seaman called the airlines and purchased the tickets by giving them  the centrally billed account numbers, which he found printed on his  travel itineraries.  Some of the 70 airline tickets were obtained for the  seaman’s own travel, but in many instances the tickets were sold at a  discounted rate to other Navy personnel and their family members.
Similarly, a Marine Corps corporal used the centrally billed account  number printed on his itinerary to fraudulently purchase, through the  internet, 11 airline tickets and a hotel accommodation totaling $3,360  between July and October 2000.  The charges were identified as  unauthorized by the CTO during the reconciliation process, and  disputed with Bank of America.
In the above cases, DOD identified and disciplined the military personnel  and did not incur financial losses.  This is because, in both cases, DOD  officials filed disputes with Bank of America upon receiving notification  from the CTO that they had no record of having issued the airline ticket or  making the hotel accommodation, and thus the transactions appeared to be  unauthorized.  Monitoring of the disputes also helped DOD officials  conclude that the transactions were fraudulent, and resulted in Bank of  America reimbursing DOD for the fraudulent transactions.
The examples above indicated the importance of identifying unauthorized  transactions and filing disputes.  However, our audit also found that not all  DOD offices filed disputes.  During fiscal years 2001 and 2002, 5 of the 11  units we visited did not file disputes.  Other DOD units that did file disputes  did not do so consistently.  Although some transactions that appeared to be  unauthorized could ultimately be traced to tickets actually purchased by  DOD, other unauthorized transactions occurred because the centrally  billed accounts were compromised and used fraudulently.  Without  disputing or researching centrally billed account transactions that appear  to be unauthorized, DOD is exposed to significant risks that centrally billed  accounts would be compromised, similar to the two cases discussed above,  but without detection.
section_title: Weaknesses in Design and Implementation of Key Internal Controls Contributed to Fraud, Waste, and Abuse
paragraphs: We found that the lack of interface among DOD’s primary travel systems— travel order, ticket issuance, and travel voucher—was the common  underlying cause and major contributing factor that allowed the fraud,  waste, and abuse we identified to occur without detection.  DOD had  intended that the Defense Travel System (DTS) would address this  fundamental weakness; however, DTS had experienced cost and schedule  delays.  In the interim, DOD had either not designed adequate  compensating procedures, such as reconciliation of data from these  systems, or had not effectively implemented procedures it had in place,  such as verifying the validity of all travel orders before paying Bank of  America for airline ticket charges.  Other weaknesses that contributed to  the fraud, waste, and abuse we identified above included excessive reliance  on travelers to report unused tickets, lack of adequate supervisory review  of travel claims, and inadequate safeguards of centrally billed account  numbers.
subsections: section_title: Lack of Integrated Travel Systems and Effective Compensating Procedures Contributed to Fraud, Waste, and Abuse
paragraphs: DOD’s travel systems—specifically the travel order, obligations, ticket  issuance, and travel voucher processing—are not integrated.  DOD’s  current travel systems do not have the ability to route only valid travel  orders to the CTO for ticket issuance, or routinely match travel vouchers to  tickets issued through the centrally billed accounts before making voucher  or centrally billed account payments.  We also found that DOD had not  designed controls, or implemented effective controls, to compensate for  these system weaknesses.
We found that DOD had not designed other procedures to link or reconcile  tickets issued using the centrally billed accounts to the voucher system.  A  link or reconciliation between these two types of data would assist DOD in  preventing or detecting both unused tickets and improper payments.  For  example, if DOD compared ticket issuance and voucher data, DOD could  detect instances where a lack of a travel voucher might indicate that the  ticket was unused.  Further follow-up would confirm that a number of  these tickets are unused and therefore, could result in actions to claim a  refund on those tickets.  Without reconciling these two types of records,  DOD cannot obtain reasonable assurance that centrally billed account  charges represent airline tickets that are eventually used.  Reconciliation  would also enable DOD to detect instances where a traveler submitted a  claim for airfare for which a corresponding ticket was issued using the  centrally billed accounts.  In these instances, if the traveler submitted  evidence that he bought another airline ticket, DOD would detect that the  airline ticket purchased with the centrally billed account was unused, or, if  such evidence was not submitted, that the airfare claim should be rejected.
We also found that, in instances where DOD designed compensating  procedures to address lack of system integration, DOD did not effectively  implement these procedures.  As mentioned previously, DOD travel  systems did not have the ability to route only valid travel orders to the CTO  for ticket issuance.  Without this capacity, DOD was unable to detect from  its systems instances where a travel order was not approved by an  authorized individual and should not be used as the basis for airline ticket  issuance and payment. One compensating procedure would involve DOD  providing the CTOs with a list of approving officials, or these officials’  signature cards, to aid in determining the validity of the travel orders the  CTO received before tickets are issued.  DOD had chosen not to implement  this front-end procedure, electing instead to focus on back-end procedures.   However, our work found flaws in DOD implementation of these back-end  procedures.
The back-end procedure requires that DOD verify that an obligation exists  for each airline ticket charged on the centrally billed accounts—a process  called prevalidation—before payment is made to the Bank of America.   This procedure is intended to provide DOD with assurance that, prior to  payment of the Bank of America invoice, airline ticket charges on the  centrally billed accounts are supported by valid travel orders.  By verifying  that an obligation exists for the travel order that authorizes each airline  ticket charged on the Bank of America’s invoice, the prevalidation process  could identify instances where obligations have not been established,  which could indicate that the travel order might not be valid, such as the  fictitious order we faxed to DFAS to obtain the airline ticket we described  previously.
However, the Financial Management Regulations (FMR) allows DFAS— DOD’s disbursing organization—to record a new obligation, or increase an  existing obligation, up to $2,500 for transactions that fail prevalidation if  DFAS is in possession of a valid obligating document.  The FMR also  defines a valid obligating document to include a travel order.  Thus, if  DFAS receives a travel order from the CTO, DFAS is not required to  determine the validity of the travel order if the airline ticket charge is less  than $2,500.  However, as discussed previously, the CTOs forwarded the  travel orders to DFAS without verifying that these orders were valid.   Therefore, DFAS does not have reasonable assurance that the obligations it  creates based on the travel orders the CTO provided were approved by  individuals who have the authority to authorize the travel.  As our  investigative work demonstrated, failure to determine the validity of all  travel orders for which a corresponding obligation had not been created  resulted in DOD creating an obligation to pay for the airline ticket we  obtained based on the fictitious travel order.
DOD officials informed us that DTS, currently being developed to replace  the more than 30 travel systems now operating within the department, will  provide an integrated process of preparing travel orders and making travel  arrangements, including airline reservations, and filing and paying travel  vouchers.  According to these officials, it will also include a capability to  routinely match travel vouchers to tickets issued through the centrally  billed accounts.  DTS was originally scheduled to be fully operational in  2002, but has experienced cost and schedule delays.  According to the  program management office, DTS will be operational for about 80 percent  of DOD personnel in 2006.
section_title: Excessive Reliance on Travelers to Report Unused Tickets
paragraphs: Another contributing factor to unused and unrefunded tickets is DOD’s  excessive reliance on travelers to report unused tickets to the CTOs.   Appropriate reporting of unused tickets is needed to help DOD request  refunds in a timely manner so that scarce resources are returned to the  government.  DOD travel and financial management regulations require  that travelers notify the appropriate CTO when a ticket is unused and to  return the unused ticket to the CTO for refund.  According to bank data,  DOD received credits amounting to about 9 percent of the airline tickets  purchased through the CTOs during fiscal years 2001 and 2002, indicating  that some DOD travelers followed the unused ticket requirements.   However, DOD did not implement control procedures to systematically  determine the extent to which DOD travelers adhered to the unused ticket  requirements, and to identify instances in which they did not.
We identified a number of control breakdowns due to excessive reliance on  travelers to notify DOD of unused tickets.  Figure 2 illustrates the many  ways in which a ticket can be unused and not refunded.  Internal control  breakdown 1 could occur if the traveler does not notify the CTO of an  unused paper ticket.  Control breakdown 2 occurs if the ticket is electronic,  but the CTO had not implemented a system to monitor the ticket databases  maintained by the airlines to determine whether the ticket is unused.   Control breakdown 3 occurs if the CTO does not consistently monitor  unused tickets, and therefore could not identify all unused tickets.  Control  breakdown 4 occurs if the CTO identifies or is notified of an unused ticket,  but fails to process a refund.  Finally, breakdown 5 occurs in the event that  the CTO or the government travel office (GTO) does not track the status of  refunds from the airlines, and therefore was not aware that a refund was  not given.
section_title: Inadequate Voucher Review Contributed to Improper Payments
paragraphs: We found that some improper and potentially fraudulent payments for  airline tickets could be prevented if DOD approving officials conducted  adequate review of the travel vouchers and the supporting documentation  before authorizing the vouchers for payment.  DOD’s financial management  regulations require that approving officials review travel vouchers for  accuracy before authorizing them for payment.  Many of the airline receipts  submitted as supporting documentation for the improper claim clearly  showed that the airline ticket was purchased using the centrally billed  accounts.  In these instances, if the approving officials had conducted  careful review of the travel vouchers and supporting documentation, the  official would have noted that the traveler was not entitled to the travel  reimbursement.  Further, the reviewing officials should have been  knowledgeable that local and component policy called for centrally billed  accounts to be used to purchase the airline tickets that were claimed as a  reimbursable expense on the vouchers.
section_title: Lack of Physical Safeguards Exposed Centrally Billed Accounts to Fraudulent Activities
paragraphs: DOD was exposed to fraudulent activities because DOD did not adequately  safeguard the centrally billed account numbers.  These accounts require  safeguarding because stolen account numbers can be used fraudulently for  personal gain.  We determined that a major contributing factor to DOD’s  accounts being compromised was that many DOD units did not adequately  protect centrally billed account numbers.  Of the 11 CTOs we visited to  observe control procedures and conduct statistical sampling, 8 printed the  centrally billed account credit card number used to purchase the airline  ticket on the trip itinerary that was given to each traveler along with the  airline ticket.  In these instances, the CTOs could have safeguarded these  accounts by limiting the accounts’ identity to the last four digits or simply  not printing the account number on the traveler’s copy of the itinerary.  In  fiscal year 2003, some CTOs improved their safeguards of the centrally  billed account numbers by printing only the last four digits of the credit  account number.  However, not all CTOs have implemented this safeguard.   We also found that copies of these itineraries were maintained at CTO  offices that were accessible to any traveler who required assistance with  travel reservations.  Further, at the Pentagon, the GTO stored the  reconciliation packages in boxes with the centrally billed account numbers  prominently written on the outside of the boxes in an office that was not  secured.  Failure to safeguard centrally billed account numbers creates  unnecessary risks that expose the government to fraudulent activities.
section_title: Corrective Actions Related to DOD’s Management of the Travel Card Programs
paragraphs: During fiscal years 2002 and 2003, we issued a series of testimonies and  reports that focused on problems that the Army, Navy, and Air Force had  in managing the individually billed travel card accounts.  These testimonies  and reports showed high delinquency rates and significant potential fraud  and abuse related to DOD’s individually billed travel card program.   However, in a recent report concerning control weaknesses with DOD  travel we recognized improvements that DOD has made in the management  of the individually billed accounts.  These improvements point to the  possibility of using this program as the principal means of acquiring tickets,  thereby reducing the government’s risk of losses arising from the use of  centrally billed accounts.
In response to our testimonies and reports on the individually billed  accounts, the Congress took actions in the fiscal year 2003 appropriations  and authorization acts and the fiscal year 2004 authorization act  requiring (1) the establishment of guidelines and procedures for  disciplinary actions to be taken against cardholders for improper,  fraudulent, or abusive use of government travel cards; (2) the denial of  government travel cards to individuals who are not creditworthy; (3) split  disbursements for paying a portion of the expenses claimed on a travel  voucher directly to the credit card bank and the remainder to the  cardholder; and (4) offset of delinquent travel card debt against the pay or  retirement benefits of DOD civilian and military employees and retirees.
DOD has implemented many of the legislatively mandated improvements— most notably the implementation of split disbursements and salary offsets  and the reduction in the numbers of individuals with access to the travel  cards.  According to Bank of America, the delinquency rates we noted in  our prior reports at the Army, Navy, and Air Force have decreased.  For  example, the monthly delinquency rate at the Navy had decreased from an  average of about 11 percent during fiscal year 2002 to an average of less  than 7 percent in fiscal year 2003.  Similarly, during that same period, the  Army’s average monthly delinquency rate decreased from about 14 percent  to an average of about 9 percent.  Although these rates are still  substantially above the agency goal of 4.5 percent, the proper  implementation of split disbursements should continue to reduce these  delinquency rates.
The use of a well-controlled individually billed account travel program as  the principal mechanism for acquiring airline tickets will help limit the  government’s financial exposure by reducing the magnitude of unused  tickets and improper payments, and preventing improper and fraudulent  use from inadequate security over centrally billed accounts.  However, the  use of the individually billed accounts to acquire airline tickets would only  minimize, not eliminate, the necessity of implementing internal controls  over the centrally billed account program.  DOD would still need to  maintain a centrally billed account structure to purchase airline tickets for  travelers who have been denied individually billed accounts, infrequent  travelers whose individually billed credit cards have been canceled, and  new employees who have not yet acquired individually billed accounts.
In addition, DOD has taken actions to improve management of its centrally  billed account travel program based on the results of our premium class  travel and unused airline ticket reports.  Specifically, DOD commissioned a  task force to establish policies and procedures intended to help prevent  unauthorized use of premium class travel.  The March 16, 2004, report by  the premium class task force contained corrective actions in the areas of  policy and controls of travel authorization, ticket issuance, and internal  control oversight to address our recommendations.  Many of the task  force’s recommendations have been implemented.
In the area of unused tickets, DOD issued claim letters in late February to  five airlines requesting repayment of the over $21 million in known unused  tickets and programmed letters for claims against other airlines.  The  responses from the airlines have been varied.  One airline indicated that  they needed further information to process refunds, while another airline  informed DOD that it may not be able to accommodate DOD’s refund  claims due to its weak financial position.  To date, DOD has not exerted its  rights afforded by federal law to offset payments due to the airlines for  the amount of unused tickets.  As a result, to date none of the potentially  over $21 million of unused ticket money has been returned to DOD by the  airlines.
section_title: Conclusion
paragraphs: The millions of dollars wasted on unused airline tickets, improper  payments, and fraudulent activities provide another example of why DOD  financial management is one of our “high-risk” areas, with DOD highly  vulnerable to fraud, waste, and abuse.  While DOD has acknowledged the  control weaknesses we identified and has taken actions to address some of  these weaknesses, DOD needs to take a more active role in identifying and  resolving control weaknesses.  In each case identified in our two most  recently issued reports, DOD officials acknowledged that they were not  aware of these significant and long-standing control breakdowns prior to  our audit.  DOD must proactively identify control weaknesses and  implement a system of internal controls that provide reasonable assurance  to both DOD senior management and the taxpayers that the billions of  dollars in travel expenses paid for with centrally billed accounts are spent  prudently.  As our nation continues to be challenged with growing budget  deficits and increasing pressure to reduce spending levels, it is important  that DOD improve its management of the travel program, which will save  millions of dollars annually.
Madam Chairman and Members of the Committee, this concludes my  prepared statement. I would be pleased to respond to any questions that  you may have.
For further information regarding this testimony, please contact Gregory D.  Kutz at (202) 512-9505 or kutzg@gao.gov, John J. Ryan at (202) 512-9587 or  ryanj@gao.gov, John V. Kelly at (202) 512-6926 or kellyj@gao.gov, or Tuyet- Quan Thai at (206) 287-4889 or thait@gao.gov.
Individuals making key contributions to this testimony included Beverly  Burke, Matthew Brown, Francine DelVecchio, Aaron Holling, Jeffrey  Jacobson, Barbara Lewis, Julie Matta, Kristen Plungas, and Sidney H.  Schwartz.
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