Travel Cards: Air Force Management Focus Has Reduced Delinquencies, but Improvements in Controls Are Needed
Published: 2002-12-20T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Poor oversight and management of the Department of Defense (DOD) travel card program has led to high delinquency rates costing DOD millions in lost rebates and increased ATM fees. As a result, Congress asked GAO to report on (1) the magnitude, impact, and cause of delinquencies, (2) the types of fraudulent and abusive uses of travel cards, and (3) the effectiveness of internal controls over DOD's travel card program. GAO previously reported on travel card management at the Air Force.
section_title: What GAO Found
paragraphs: Air Force management has reduced travel card delinquencies through greater command attention and the use of travel card audits to identify problems and needed corrective actions. As of March 2002, the Air Force delinquency rate on average was about 5 percentage points lower than the rest of DOD and 1 percentage point higher than the federal civilian agencies. The Air Force's overall delinquency and charge-off problems were primarily associated with lower paid, low- to midlevel enlisted military personnel. Despite these improvements, a weak control environment contributed to significant abuse and potential fraud. For example, many of the problem cases identified were due to ineffective controls over the issuance and cancellation of travel cards and weaknesses in the assignment and training of agency program coordinators. During the period of our review, over 400 Air Force cardholders committed potential bank fraud by writing three or more nonsufficient fund (NSF) checks to Bank of America. Also, many cardholders used their cards for inappropriate purchases, such as cruises and event tickets. A significant relationship also existed between potential travel card fraud, abuse, and delinquencies and individuals with substantial credit history problems. Some cardholders had personal accounts placed in collection while others had filed bankruptcies prior to receiving government travel cards. Also, the issuance of the travel cards to virtually everyone who applied for them compounded these problems. GAO found documented evidence of disciplinary actions in less than half of the cases reviewed where cardholders wrote NSF checks, or their accounts were charged off or placed in salary offset. GAO also found that over half of the cases reviewed involved individuals who still had secret or top-secret security clearances. Other control weaknesses related to the Air Force's failure to provide the necessary agency program coordinator training, and infrequent or nonexistent monitoring of travel card activities. The recently enacted fiscal year 2003 Defense appropriations and authorization acts require the Secretary of Defense to establish guidelines and procedures for disciplinary actions and to deny issuance of travel cards to individuals who are not creditworthy.

section_title: Letter
paragraphs: In fiscal year 2001, the Air Force had about 500,000 individually billed travel  card accounts, and about $831 million in related travel card charges.  In  contrast to the purchase card program, where charges are billed directly to the  government for payment, the individually billed travel cardholder is directly  responsible for all charges incurred on his or her travel card account and  for remitting payments on the monthly bill.  The cardholder is expected to  use the government travel card only for valid expenses related to official  travel and to submit a properly documented voucher to get reimbursed by  the Air Force for valid expenses.  The intent of the travel card program was  to improve convenience for the traveler and to reduce the government’s  costs of administering travel.  If properly controlled, the travel card would  provide an efficient and effective method for administering the travel  program.  Appendix I provides additional background information on the  Air Force’s travel card program.
We performed our work in response to your request for a comprehensive  examination of the Department of Defense’s (DOD) and the military  services’ purchase and travel card programs.  We have previously testified  and reported on the Army’s and Navy’s controls over their travel card  programs.  This report provides details and results of our Air Force travel  card audit.  The objectives of our audit of the Air Force’s travel card  program were to determine, for fiscal year 2001 and the first 6 months of  fiscal year 2002, (1) the reported magnitude and impact of delinquent and  charged-off Air Force travel card accounts, along with an analysis of  related causes, (2) the effectiveness of the overall control environment and  key internal controls for the Air Force’s travel program, (3) whether  indications existed of potentially fraudulent and abusive activity related to  the Air Force travel cards, and (4) whether abusive activity associated with  the travel card is effectively linked to disciplinary actions and security  clearances.  To achieve these objectives, we analyzed Air Force account  delinquency and charge-off information and compared it to non-Air Force  DOD components and federal civilian agencies.  We reviewed the adequacy  of DOD and Air Force policies and procedures related to travel card use  and tested the effectiveness of key internal control activities at three Air  Force installations.  We also used data mining and analytical procedures to  identify and examine potentially fraudulent and abusive travel card activity.   Appendix II provides details of our objectives, scope, and methodology.
We selected the three installations we audited by first identifying the three  Air Force Commands with the largest number of travel card transactions,  payments, and delinquencies.  We then identified one Air Force installation  within each of the three commands based on the magnitude of travel card  transactions, payments, and delinquencies.  Appendix III presents data on  delinquency rates by major command.  We tested key control activities,  including documented evidence of travel authorization, accurate travel  voucher processing, timely submission of the travel voucher by the  employee, and timely payment of the travel reimbursement to the  employee.  Our statistical sample test results can be projected only to the  individual installations where we performed the testing and cannot be  projected to the command level or to the Air Force as a whole.  We used  data mining procedures across the universe of individually billed Air Force  travel card activity to identify potentially fraudulent and abusive travel card  activity, based on the nature, amount, merchant, and other identifying  characteristics of the transactions.  While we identified numerous  examples of potentially fraudulent and abusive travel card activity, our  work was not designed to identify, and we cannot determine, the extent of  potentially fraudulent and abusive activity.
We conducted our audit work from January 2002 through mid-November  2002 in accordance with U.S. generally accepted government auditing  standards, and we performed our investigative work in accordance with  standards prescribed by the President’s Council on Integrity and Efficiency.
subsections: section_title: Lower Air Force Travel Card Delinquencies and Charge-offs
paragraphs: Air Force travel card delinquency rates and amounts charged off were  substantially lower than non-Air Force DOD components, and  delinquencies were about 1 percent higher than non-DOD federal civilian  agencies.  Cumulative Air Force charge-offs since the inception of the  travel card program with Bank of America in November 1998 are  approximately $11.6 million, the lowest of the three services.  Our analysis  of available data showed that the travel cardholder’s rank and pay rate are  strong predictors of delinquency problems.  We found that the Air Force’s  delinquency and charge-off problems are primarily associated with low and  mid-level enlisted military employees.  As discussed in following sections  of this report, improvements in the Air Force’s overall control environment  improved Air Force delinquency rates, but DOD’s overall high delinquency  and default rates resulted in contentious relations with Bank of America.
The bank threatened to end its participation in the program, but eventually  agreed to contract modifications that included increased fees.  Past  delinquencies and charge-offs have cost the Air Force, the federal  government, and the taxpayers thousands of dollars in lost rebates, and  substantial resources spent pursuing and collecting on past due accounts.   We also estimate that contract modifications will cost the Air Force  millions of dollars in the future due to higher fees.
The Air Force has taken a number of positive actions to address its  delinquency and charge-off rates, and data for the first half of fiscal year  2002 show a significant drop in charged-off accounts.  For example, this  reduction is, in part, attributable to a salary and military retirement offset  program—similar to garnishment—which was initiated in November 2001.   Other Air Force actions included encouraging the use of the split  disbursement payment process, in which the Defense Finance and  Accounting Service (DFAS) sends a portion of the traveler’s reimbursement  directly to the bank rather than the cardholder, and increased management  attention and focus on the delinquency issue.  However, except for split  disbursements, Air Force actions primarily address the symptoms or back- end result of delinquency and charge-offs after they have already occurred.   As noted in the following sections of this report, additional emphasis on  front-end management of the travel card program, such as more selective  procedures for issuing the cards and overseeing the proper use of the  cards, could further improve the Air Force travel card program.
subsections: section_title: The Air Force’s Delinquencies and Charge- offs
paragraphs: As of March 31, 2002, approximately 8,000 Air Force cardholders had over  $5 million in delinquent debt.  Over the last 2 years, Air Force delinquency  rates fluctuated from 5 to 11 percent and on average were about 5  percentage points less than the Army’s and the Navy’s and 1 percentage  point higher than non-DOD federal civilian agencies.  The Air Force has set  a goal of no more than a 4 percent delinquency rate.  As discussed later,  greater emphasis on commander responsibility and accountability,  contributed, at least in part, to lower Air Force delinquency rates.  Figure 1  compares delinquency rates among the Air Force, Non-Air Force DOD, and  the 23 largest civilian agencies.
In addition, as shown in figure 2, Air Force travel card delinquency rates for  the eight quarters ending March 31, 2002, were significantly less than Army  and Navy travel card delinquency rates.
Further analysis revealed that Air Force travel card delinquency rates have  decreased from 16.9 percent as of December 31, 1999 to 6.0 percent as of  March 31, 2002.  Table 1 shows the decrease in Air Force delinquency rates  since December 1999, as well as the cyclical nature of Air Force travel card  delinquency rates.
Since the inception of the travel charge card task order between DOD and  Bank of America on November 30, 1998, Bank of America has charged off  about 9,000 Air Force travel card accounts with nearly $11.6 million of bad  debt.  While not an excellent track record, it is lower than the Army’s  approximate 23,000 charged-off accounts valued at nearly $34 million and  Navy’s approximate 13,800 charged-off accounts valued at nearly $16.6  million.  Task order modifications during fiscal year 2001 allowed Bank of  America to institute a salary offset provision against DOD military  personnel whose travel card accounts were previously charged off or were  more than 120 days past due.  Table 2 provides a comparison of cumulative  charge-offs and delinquencies by military service as of March 31, 2002.
section_title: Rank, Grade, and Pay Rates Are Correlated to Delinquency and Charge-off Problems
paragraphs: Our analysis showed a correlation between certain demographic factors  and high delinquency and charge-off rates.  Available data showed that the  travel cardholder’s rank or grade (and associated pay) is a strong predictor  of delinquency problems.  As shown in Figure 3, Air Force delinquency and  charge-off problems are primarily associated with low- and midlevel  enlisted military personnel in grades E-1 (airman) to E-6 (technical  sergeant), with relatively low incomes and little experience in handling  personal finances.  Appendix IV presents information on military and  civilian grades and pay rates.
Available data indicate that military personnel grades E-1 to E-6 account for  about 69 percent of all Air Force military personnel.  These enlisted  military personnel have basic pay levels ranging from $11,500 to $27,600.
These individuals were responsible for 41 percent of the total outstanding  Air Force travel card balances as of September 30, 2001.
Figure 4 compares the delinquency rates by military grade and civilian  personnel to the average Air Force delinquency rate as of September 30,  2001.  As shown, the delinquency rates were as high as 15.7 percent for E-1  to E-3 and 9.9 percent for E-4 to E-6, compared to the Air Force overall  delinquency rate of 6.2 percent.  These rates were markedly higher than the  rates for officers, which was 2.4 percent.  These rates were also  substantially higher than that of Air Force civilians, which at 3.6 percent  was 1.4 percentage points lower than the federal civilian agencies rate  shown in figure 1.
The delinquency rate for military personnel in grades E-4 to E-6 in  particular had an important negative impact on the Air Force’s delinquency  rate.  Specifically, these are senior airmen to technical sergeants in the Air  Force.  Pay levels for these personnel, excluding supplements such as  housing, range from $18,600 to $27,600.  As shown by Bank of America  data, personnel in grades E-4 to E-6 accounted for 37 percent of the total  Air Force outstanding balance.  High delinquency rates for the E-1 through  E-6 grades combined with their extensive use of the travel card have a  significant impact on the Air Force wide delinquency rate.
Figure 5 shows Air Force fiscal year 2001 charge-offs.   Charge-off amounts  of about $2.6 million for military personnel in grades E-1 through E-6  accounted for 79 percent of the $3.3 million in total Air Force charge-offs in  fiscal year 2001.
An Air Force travel card program official told us that a major factor of the  service’s travel card delinquencies relates to first-term enlisted personnel.  An Air Force member can normally attain the E-4 grade within 3-1/2 years  in his or her first term.  According to Air Force data, over half of the  personnel in grades E-1 to E-6 are in grades E-4 and below.  The official  commented that if the members are not committed to an Air Force career  and plan to serve only one tour, temptation exists to misuse the card before  they separate from the Air Force.  In addition, as discussed below, the Air  Force did not exempt personnel with poor credit histories from required  use of travel cards.  Consequently, these low and mid-level enlisted military  personnel are often issued travel cards even though they may already be in  serious financial trouble and, therefore, may not have been appropriate  credit risks.
section_title: Five Major Air Force Commands Account for Majority of Delinquencies
paragraphs: As shown in table 3, five Air Force major commands accounted for about  63 percent of the Air Force travel card delinquencies as of March 31, 2002.
Air Force National Guard and Air Force Reserve Command officials  attributed their high delinquent balances to the recent activation of guard  and reserve forces, the associated increase in travel card use, and  inadequate employee training on travel voucher preparation.  In addition,  the officials explained that National Guard and Reserve forces that report  to duty intermittently may not become aware of problems with travel  voucher accuracy and late submission of payment vouchers until they  report for their next duty assignment—several days to a month after a  problem has occurred.  Further, the officials told us that many of their  members have not been trained on proper travel voucher preparation  procedures, and controls over travel card use and payment of travel card  bills are weak.  One reserve official cited the lack of specific guidance for  disciplinary action in DOD’s Financial Management Regulation as a  contributing factor.
According to Air Force officials, the Air Combat Command, Air Force  Materiel Command, and Air Mobility Command have all experienced  significant increases in travel and deployments since September 11, 2001.   Our audit work showed instances in which extended travel and back-to- back deployments resulted in delays in travel voucher preparation and  submission.  To reduce delinquencies associated with late payment of  travel card bills by deployed units, the Air Force has emphasized the use of  the split disbursement payment process and interim travel vouchers.
section_title: Delinquency and Charge-off Rates Have Resulted in Increased Costs to the Government
paragraphs: Delinquencies and charge-offs within DOD have resulted in increased costs  to the Air Force and the other services.  In fiscal year 2001, DOD entered  into an agreement with Bank of America to adjust the terms of its travel  card contract.  DOD agreed to increased fees and a change in rebate  calculation.  These changes cost the Air Force about $350,000 in lost  rebates on individually billed accounts and centrally billed accounts in  fiscal year 2001, and could cost an estimated $1.6 million in increased ATM  fees annually.  Other costs are real but not easily measurable, such as the  increased administrative burden to the Air Force to identify and address  delinquent accounts.
subsections: section_title: Dispute Between Contractor and DOD
paragraphs: Unexpectedly high defaults by DOD’s travel cardholders resulted in a 5- month legal dispute with Bank of America over the continuation of the  travel card contract.  In 1998, under the provisions of the General Services  Administration’s (GSA) master contract with Bank of America, DOD  entered into a tailored task order with Bank of America to provide travel  card services for a period of 2 years, ending November 29, 2000.  Under the  terms of the task order, DOD had three 1-year options to unilaterally renew  the contract.  On September 29, 2000, prior to the expiration of the initial  task order, DOD gave notice to Bank of America that it intended to exercise  its option to extend the task order for an additional year.  In November  2000, Bank of America contested the provisions of the DOD task order with  the GSA contracting officer.  Bank of America claimed that the task order  was unprofitable due to required “contract and program management  policies and procedures” associated with higher-than-anticipated credit  losses, including an estimated 43,000 DOD employees had defaulted on  more than $59 million in debts.  Consequently, in April 2001, the master  contract and the related DOD tailored task order for travel card services  were renegotiated.  Specifically, Bank of America was able to increase its  revenue by instituting additional fees, such as higher cash advance and late  payment fees; offsetting credit losses against rebates as explained later;  facilitating the collection of delinquent and charged off amounts through  salary and military retirement pay offset; and encouraging DOD personnel  participation in split disbursements, in which the government sends part or  all of the travel voucher reimbursements to Bank of America directly.
section_title: Effect of Increased Fees
paragraphs: One of the terms of the renegotiated task order was that, effective August  10, 2001, the travel card cash advance fee would be increased from 1.9  percent to 3 percent, with a minimum fee of $2.  The Air Force reimburses  all cash advance fees related to authorized cash withdrawals.  We estimate  that this contract modification will result in approximately $1.6 million of  increased costs to the Air Force each year.  Our estimate was made by  applying the new fee structure that went into effect in mid-August 2001 to  cash advances made during fiscal year 2001.  Other fee increases agreed to  in the renegotiation, such as the fee for expedited travel card issuance, will  also result in additional cost to the Air Force.
section_title: Delinquent Account Payment Affects Rebates to the Air Force
paragraphs: The GSA master contract modification also changed the rebate calculation,  making it imperative that the Air Force (and the other services) improve  their payment rates to receive the full benefits of the program.  Under the  GSA master contract, credit card companies are required to pay a quarterly  rebate, also known as a refund, to agencies and GSA based on the amount  charged to both individually billed and centrally billed cards.  The rebate to  the agency is reduced, or eliminated, if significant numbers of an agency’s  individual cardholders do not pay their accounts timely.  Specifically, credit  losses or balances that reach 180 calendar days past due reduce the rebate  amounts.  Effective January 2001, the contract modification changed the  way that rebates are calculated and how credit losses are handled.  If the  credit loss of an agency’s individually billed travel card accounts exceeds  30 basis points—or 30 one-hundredths of a percent (.003)—of net sales on  the card, the agency is assessed a credit loss fee, or rebate offset, against  the rebate associated with both individually billed and centrally billed  travel card accounts.
This credit loss fee, or rebate offset, which resulted solely from individually  billed account losses, significantly affected the amount of rebate the Air  Force received as a result of combined individually and centrally billed net  sales in fiscal year 2001.  In fiscal year 2001, the Air Force collected about  $1.4 million of the $1.8 million in rebates that we estimated it would have  received, based on fiscal year 2001 dollar volume if the individually billed  account payments had been timely.
Other costs, such as the administrative burden of monitoring delinquent  accounts, are harder to measure, but no less real.  For example, employees  with delinquent accounts must be identified, counseled and disciplined,  and their account activity closely monitored.  In addition, employees with  financial problems who have access to sensitive data may pose a security  risk, as discussed later in this report.
section_title: Air Force Charge-offs Have Decreased
paragraphs: In addition to having the lowest net charge-off amount of the three  services, $6.9 million, the quarterly dollar amount of Air Force accounts  charged off has decreased substantially.  As shown in figure 6, at the start  of fiscal year 2001, the charged off balance greatly exceeded the recovery  amount.  Starting in the third quarter of fiscal year 2001, the amount  charged off started to decline so that in the first quarter of fiscal year 2002,  recoveries, for the first time, exceeded the amounts being charged off.   Recoveries also exceeded charge-offs in the second quarter of fiscal year  2002.  The institution of the salary and military retirement offset program  has contributed to the reduction in Air Force travel card charge-offs,  primarily by eliminating the need to charge off past due balances by  transferring these balances to the salary off-set program.
Starting in fiscal year 2002, DOD began to offset the retirement benefits of  military retirees and the salaries of certain civilian and military employees  against the delinquent and charged off balances on travel card accounts.   The DOD salary offset program implements a provision of the Travel and  Transportation Reform Act of 1998 (TTRA) that allows any federal agency,  upon written request from the travel card contractor, to collect by  deduction from the amount of pay owed to an employee (or military  member) any amount of funds the employee or military member owes on  his or her travel cards as a result of delinquencies not disputed by the  employee.  The salary and military retirement offset program was  implemented DOD-wide.
The offset program came into being as part of the task order modification.   Between April and August 2001, DOD and the Bank of America worked  together to establish program protocols.  Starting in August 2001, the Bank  of America sent demand letters to cardholders whose accounts were more  than 90 days delinquent.  The Defense Finance and Accounting Service  processed the initial offsets of delinquent accounts in October 2001 in the  various DOD pay systems.  The first deductions were made from the  November pay period and paid to Bank of America starting December 2001.   Figure 6 illustrates the initial impact salary offset had in the first quarter of  fiscal year 2002.  The Bank of America can also use the offset program to  recover amounts that were previously charged off.  January 2002 was the  first month in which Bank of America requested offsets for such accounts.   The effect, shown in figure 6, was recoveries amounting to over three times  more than charge-offs for the second quarter of fiscal year 2002.
The offset program works as follows.  When an account is 90 days  delinquent, Bank of America may send a demand letter to the individual  cardholder requesting payment in full within 30 days.  The demand letter  specifies that salary offsets will be initiated if payment is not made in full  within 30 days.  The cardholder may negotiate an installment agreement or  dispute the charges with the bank.  The cardholder has a right to review all  records such as invoices and to request a hearing if the bank’s disposition  of the dispute is not satisfactory.
After the 30 days have elapsed, if payment is not made and the cardholder  does not dispute the debt, the bank includes the account in the list of  accounts that it sends to DFAS requesting offsets.  Individuals in the  following categories may not be accepted for offset.
Civilian employees in bargaining units that have not agreed to the salary- offset program do not qualify for the program.  According to a DFAS  official, 1,002 of 1,227 DOD bargaining units had agreed to participate in  the program as of July 2002.
Individuals with debts to the federal government or other garnishments  already being offset at 15 percent of disposable pay are considered to be  in protected status and are not eligible for the offset program.
Individuals who cannot be located in the various payroll and military  retirement (active, reserve, retired military, or civilian) systems cannot  be accepted for offset.
Civilian retirees.  The authorizing statutes for both the Civil Service  Retirement System and the Federal Employee’s Retirement System in  effect at the time of our audit specified that retirement benefits may be  offset only to the extent expressly authorized by federal statutes.  TTRA,  Section 2, provided authority to offset salaries of “employees” of  agencies but does not provide such authority for civilian employee  retiree annuitants.
Once an individual is accepted for offset, the related debt is established in  the appropriate pay system and DFAS can deduct up to 15 percent of  disposable pay.  Disposable pay is defined in GSA’s Federal Travel  Regulation as an employee’s compensation remaining after the deduction  from an employee’s earnings of any amounts required by law to be withheld  (e.g., tax withholdings and garnishments).  The amounts collected are paid  to the bank on a monthly basis for military personnel and retirees and  biweekly for civilian personnel.  It takes approximately 2 months from the  time an offset is initiated to the first bank payment.
According to DFAS, from October 2001 through July 2002, Bank of America  referred 53,462 DOD-wide cases with debt of $77.5 million to DOD for  offset.  DOD accepted and started offset for 74 percent of the cases and 69  percent of the debt amounts referred.   The number and debt amount of Air  Force-specific cases forwarded by Bank of America were not available.   From November 2001 through July 2002, DFAS collected $2.7 million from  active and retired Air Force military personnel through the offset program.   During the same period, DOD collected $1.6 million from all DOD civilian  employees.  However, DFAS was unable to provide this amount by military  service.
section_title: Improved Travel Card Control Environment Contributed to Reduced Delinquencies
paragraphs: We found that Air Force management encouraged a culture that  emphasized the importance of integrity and ethical values and was involved  in monitoring travel card delinquencies.  According to travel card program  officials and documentation we obtained, Air Force officials, from the Vice  Chief of Staff to wing commanders, have strongly emphasized for the past 2  to 3 years that the travel card program is a “commander’s program” and  commanders are responsible for managing their delinquency rates.  They  explained that officials throughout the Air Force chain of command have  monitored travel card delinquency rates and discussed the topic at their  respective staff meetings.  Documentation we obtained confirmed the use  of detailed statistical reports to monitor installation-level delinquencies.   Commanding officers are holding unit commanders with excessive  delinquency rates accountable to make improvements to reduce  delinquencies.   Travel card delinquency statistics are discussed at  command staff meetings, and unit commanders are held accountable for  reducing their delinquencies.  The importance of the tone at the top cannot  be overstated.
Other factors contributing to the reduction in Air Force delinquency rates  include the following.
Air Force emphasis on financial management training.  Each Air  Force installation has a Financial Services Office with a trained financial  management staff that oversee the travel card program.  The Air Force  also provides personal financial training to all inductees, which includes  developing personal budget plans, balancing checkbooks, preparing tax  returns, and financial responsibility.  The training also covers  disciplinary action and consequences for financial irresponsibility by  service members.  The Air Force also provides financial counseling and  training classes through the Family Services Centers at each base and  contracts for professional counselors and trainers.
Travel card program audits.  The Assistant Secretary of the Air Force  (Financial Management and Comptroller) requested Air Force Audit  Agency audits of the travel card program, which resulted in  recommendations to management and resultant program  improvements.  According to a DOD Inspector General report, the Air  Force Audit Agency issued 27 audit reports on the travel card program  from fiscal year 1999 through fiscal year 2001.  For example, in April  2001, the Air Force Audit Agency issued an audit report on Travis Air  Force Base (AFB), one of the sites we audited.  The report identified  numerous systemic problems, including inadequate agency program  coordinator (APC) oversight due to insufficient training, which resulted  in unauthorized transactions not being identified.  The Air Force Audit  Agency made numerous recommendations for corrective actions, and  our audit work showed that Travis AFB had taken actions on many of  them.
DOD and Air Force initiatives.  In March 2000, Air Force travel card  delinquency rates were in the double digits—10.2 percent—similar to  the Army and Navy delinquency rates.   The Air Force initiated a  number of actions in the fall of 2000 to reduce its delinquency rate.  For  example, in December 2000, Air Force headquarters sent an E-mail  message to travel card APCs asking them to (1) promote the split  disbursement payment process, (2) turn off accounts for infrequent  travelers, (3) use Bank of America Electronic Account Government  Ledger System (EAGLS) reports to monitor and detect problem  accounts, (4) include procedures to deactivate the travel card when a  member changes duty location, and (5) correct discrepancies between  organizational codes assigned to cardholder accounts and their current  assigned units to ensure accurate reporting and effective monitoring of  accounts.  As an aid in correcting organizational coding, the E-mail  included a directory for APCs to use to resolve problems with accounts  that were incorrectly assigned to them—referred to as “orphan”  accounts—by identifying where those accounts should be properly  assigned.
Further, in response to June and September 2001 DOD policy  memorandums to heads of military departments, the Air Force  identified 100,000 travel cards for cancellation due to lack of use.   According to an Air Force headquarters official, approximately 90,000  travel cards were cancelled in October 2001.  In addition, salary offset  procedures were implemented in November 2001, resulting in a  significant decrease in charged-off accounts in the first 6 months of  fiscal year 2002.  Also in November 2001, the Air Force Comptroller  issued a letter to all major commands, highlighting the use of the split  disbursement payment process and interim vouchers as options for  preventing delinquent balances when members are on long-term  deployments.  According to Bank of America data, the Air Force  increased the number of payments remitted to Bank of America via the  split disbursement payment process from 20,487 payments, or 17  percent of all payments, totaling $12 million in October 2000, to 54,337  payments, or 39 percent of all payments, totaling $44 million in June  2002.  Officials at the sites we audited told us that they emphasized that  cardholders use the split disbursement payment process.  For example,  Hill Air Force Base comptroller personnel told us that they have  increased use of the split disbursement payment process from 23  percent during the fourth quarter of fiscal year 2001 to 35 percent  during the third quarter of fiscal year 2002.  In addition, as of September  17, 2002, Travis AFB implemented a new policy that made the split  disbursement process the default, or automatic, payment method for all  active duty military employees who use the government travel card  with the provision that if an employee chooses not to use the split  disbursement payment method, approval from the unit commander or  first sergeant is required.
section_title: Further Improvements in Controls Are Needed
paragraphs: While the Air Force has made improvements in its control environment that  have resulted in lower delinquency rates than the Army’s and the Navy’s,  additional improvements could further reduce Air Force delinquency rates.   In addition, similar to our Army and Navy findings, control environment  weaknesses contributed to significant potential fraud and abuse of the Air  Force travel card.  Many of the problem cases that we reviewed were due  to ineffective controls over the issuance of travel cards and the transfer or  cancellation of accounts when individuals moved to other duty locations,  separated, or retired.  We also found that improvements are needed in the  assignment and training of APCs.
subsections: section_title: Inadequate Controls over Travel Card Issuance
paragraphs: The Air Force’s ability to prevent potentially fraudulent and abusive  transactions that can eventually lead to additional delinquencies and  charge-offs is significantly weakened if individuals with histories of  financial irresponsibility are permitted to receive travel cards.  Although  the DOD policy provides that all DOD personnel are to use the travel card  to pay for official business travel, the policy also provides that exemptions  may be granted under a number of circumstances, including financial  irresponsibility.  However, DOD’s policy is not clear as to what level of  financial irresponsibility by a travel card applicant would constitute a basis  for such an exemption.  The Air Force’s practice is to facilitate the issuance  of travel cards—with few credit restrictions—to all applicants regardless of  whether they have histories of credit problems. We found no evidence that  the Air Force exempted any individuals or groups from required  acceptance and use of travel cards, even those with histories of severe  credit problems.
DOD’s Financial Management Regulation provides that credit checks be  performed on all travel card applicants, unless an applicant declines the  conduct of a credit check.   In July 1999, Bank of America began  conducting credit checks on DOD travel card applicants and used the  resulting information as a basis for determining the type of account— restricted or standard—it would recommend for new DOD travel  applicants.
DOD policy also permits APCs to raise the credit and ATM limits on  restricted cards based on travel requirements.  Our analysis of credit  application scoring models and credit risk scores used by major credit  bureaus confirmed that applicants with low credit scores due to histories  of late payments are poor credit risks.  Credit bureau officials told us that if  their credit rating guidelines for decisions on commercial credit card  application approvals were used to make decisions on travel card  applicants, a significant number of low- and mid-level enlisted Air Force  cardholders would not even qualify for the restricted limit cards.  A credit  history showing accounts with collection agency action or charge-offs  poses an even higher credit risk.  Any of these problems can be a reason for  denying credit in the private sector.  However, in DOD, individuals with no  credit history, or little credit history, are generally issued restricted cards  with lower credit limits.
Credit industry research and the results of our work demonstrate that  individuals with previous late payments are much more likely to have  payment problems in the future.  As discussed in this report, many of the  Air Force travel cardholders that we audited who wrote numerous NSF  checks, had severe prior financial problems, including accounts charged  off, histories of delinquencies and charge-offs relating to other credit cards,  and accounts in collection, or numerous bankruptcies.
DOD Financial Management Regulation, Volume 9, Chapter 3.  The regulation further  provides that individuals who do not consent to a credit check may only receive a restricted  card.
In response to similar findings in our audit of the Army travel card program  and an amendment proposed by Senators Byrd and Grassley, the Congress  included a provision in the Department of Defense Appropriations Act for  fiscal year 2003 requiring the Secretary of Defense to evaluate whether an  individual is creditworthy before authorizing the issuance of any  government charge card.  If effectively implemented, this requirement  should improve delinquency rates and reduce potential fraud and abuse.
section_title: Inadequate Controls over Travel Card Transfer or Cancellation
paragraphs: We found numerous examples in which the APCs failed to deactivate or  close accounts when cardholders retired, were dismissed, or separated  from the service, or the APCs failed to take the proper action to transfer  accounts when employees were reassigned to other Air Force locations.   The Air Force lacks sufficient guidance and management focus in this area.   DOD’s Financial Management Regulation requires APCs to terminate  travel cards when cardholders die, retire, or are dismissed or separated  from DOD.  Bank of America has issued procedural guidance for  transferring and terminating cardholder accounts.  However, we found  instances in which failure to follow these procedures—specifically with  respect to travel card transfer and termination—resulted in travel card  abuses and charge-offs.  The cardholders benefited by using the travel  cards to purchase a variety of goods and services for their personal use.   Some did not pay their monthly bills, thereby essentially obtaining personal  items for no cost.  The following examples illustrate the effect of not taking  appropriate actions to transfer, deactivate, or close travel card accounts.
A Langley AFB APC failed to close an enlisted member’s account after  the individual left the service.  The member left the service in January  2001, but continued to use his card until March 2001.  Because the card  was not canceled immediately upon the member’s separation, the  account remained open with a $5,000 credit limit allowing the member  to charge unauthorized ATM withdrawals and purchases.  The member  was not disciplined because he had already left the service.  The APC  stated that she was not aware of the misuse of the travel card until the  account was charged off in April 2002 with an unpaid balance of $3,729.
At Hill AFB, a senior airman (E-4) transferred to Yokota Air Base, Japan,  in July 2001.  The APC was unaware that the individual had transferred  until his travel card account appeared as delinquent on the Bank of  America reports.  The APC deactivated the card in September 2001 and  made repeated, unsuccessful attempts to contact the individual and the  APC at Yokota Air Base.  In January 2002, Bank of America placed the  account totaling $1,918 in salary offset.  Although the individual had  continued to appear on Hill AFB delinquency reports, Hill AFB officials  could not take any disciplinary action because the individual was no  longer assigned to them.  The account was eventually transferred from  Hill to Yokota Air Base in March 2002.  According to EAGLS data, the  individual issued two nonsufficient fund (NSF) checks to Bank of  America in March and April 2002 in payment of his account.  Bank of  America closed the account in June 2002.
Brooks AFB travel card officials failed to cancel the travel card account  when a civilian employee (GS-13) separated from the service in January  2000 and began working for a private contractor.  The civilian continued  to use his travel card after separation, charging over $17,000 in  unauthorized purchases.  The charges included approximately $1,000 in  cash advances and several charges for an on-line dating service.  The  cardholder was not disciplined for the abuse because he had separated  from the service.  Information from EAGLS shows that the account was  closed on September 13, 2002, and as of October 25, 2002, the account  had an unpaid balance of approximately $1,600, which had not yet been  charged off.
section_title: Insufficient Commitment to Human Capital Practices
paragraphs: We found a lack of emphasis on APC training and inadequate monitoring of  APC training at two of our three case study locations—Nellis AFB and  Travis AFB.  As in our Army and Navy travel card audits, we found that Air  Force APCs had excessive responsibilities.  For example, APC duties were  being assigned as collateral duties and certain APCs were responsible for  as many as 1,200 accounts.  We also found excessive turnover associated  with military APCs at Nellis AFB and Travis AFB.
GAO’s internal control standards state that management’s commitment to  competence and good human capital practices are critical factors in  establishing and maintaining a strong internal control environment.   Specifically, our standards state that management should identify  appropriate knowledge and skills required for various jobs and should  provide needed training.  The standards also state that establishing  appropriate human capital practices, including hiring, training, evaluating,  counseling, and disciplining personnel, is another critical control  environment factor.
subsections: section_title: Lack of Emphasis and Inadequate Monitoring of APC Training
paragraphs: The emphasis on APC training varied across the three case study sites.   Nellis AFB did not have a control mechanism in place to help ensure that  all APCs received appropriate training and Travis AFB did not train APCs in  a timely manner.  Specifically, Travis AFB APCs told us that they did not  receive timely training on how to access and use Bank of America EAGLS  data to monitor travel card activity when they were assigned APC duties.   However, we determined that Hill AFB had a mechanism in place to  monitor APC training, and it provided that training in a timely manner.
DOD policy provides that travel card training materials are to be  distributed throughout the department and that APCs are to be informed of  policy and procedural changes relating to the travel card program.   However, neither DOD nor Air Force-wide procedures detail requirements  for the extent, timing, and documentation of travel program training for  APCs.  APCs are not required to receive training on the duties of the  position or on how to use available Web-based tools and reports from Bank  of America before they assume their APC duties.  The lack of emphasis on  training could negatively impact APCs’ ability to monitor delinquencies and  promptly detect and prevent potentially fraudulent and abusive activities.
section_title: Excessive APC Turnover and Responsibilities
paragraphs: As in our Army and Navy work, we determined that most Air Force APC  duties were usually given to military personnel.  As a result, APC positions  usually have high turnover rates which, in many cases, have resulted in less  effective performance of APC duties, such as monitoring cardholder travel  card activity.  For example, at Nellis AFB, the average length of assignment  for APCs was approximately 12 months, and at Travis AFB assignments for  military APCs were generally from 12 to 15 months.  In addition, a Pacific  Air Force official reported that during a recent 3-month period, one base  experienced turnover in 18 of its 30 APC positions.  In contrast, at Hill AFB,  where most of the APCs were civilians, the average term for civilian APCs  was approximately 20 months.
Further, we found that Air Force APC duties at the locations we audited  were “other duties as assigned.”  The primary duties for certain APCs that  we interviewed included data systems management and aircraft  maintenance.  As prescribed by the DOD Financial Management  Regulation, APCs “are responsible for the day-to-day operations of the  DOD Travel Card Program.”   Volume 9, Chapter 3 of the DOD Financial  Management Regulation provides that APCs are responsible for a variety  of key duties, including establishing and canceling cardholder accounts,  tracking cardholder transfers and terminations, monitoring and taking  appropriate actions with respect to account delinquencies, interacting with  the bank, and fielding questions about the program from both cardholders  and supervisors.  APCs are also required to notify commanders and  supervisors of all travel card misuse so they can take appropriate actions.   Several APCs that we interviewed told us they did not receive training on  the full range of their APC duties until at least six months after they were  assigned APC responsibilities.  The APCs also told us they were not trained  in using EAGLS until six months or more after they were assigned APC  responsibilities.
In addition to the part-time nature of APC duties, the number of travel  cardholders assigned to APCs can result in excessive span of control,  which impacts an APC’s ability to effectively perform monitoring and  oversight.  If the span of control is excessive, APCs may not be able to  provide the necessary oversight to prevent the misuse of the travel cards.   Table 4 shows the average span of control and incidences of APCs with a  span of control greater than 100 cardholders.
As shown in table 4, average APC span of control ratios varied at our case  study locations.  We also found that a high percentage of APCs had a span  of control that exceeded Bank of America guidelines of 100 cardholders per  APC.  While we did not evaluate the guidance provided by Bank of America,  we believe that one APC cannot effectively carry out all necessary  management and oversight responsibilities if he or she, even working full- time, has responsibility for hundreds of cardholders.
section_title: Access Controls over Bank of America’s Travel Card System
paragraphs: Thousands of Bank of America and DOD employees had access to Bank of  America’s travel card transaction data system, known as EAGLS.   Computer system access controls are intended to permit authorized users  to access the system to perform their assigned duties and preclude  unauthorized persons from gaining access to sensitive information.  Access  to EAGLS is intended to be limited to authorized users to meet their  information needs and organizational responsibilities.  Authorized EAGLS  users include both customers (APCs requiring access to travel data for  cardholders under their purview and individual travelers requiring access  to their own travel transaction histories) and Bank of America employees  who may be granted one of five different levels of access depending on  their assigned duties.  The highest level of Bank of America employee  access to EAGLS is the “super user” level. According to Bank of America  security officials, this level of access—which provides users the ability to  add, delete, or modify anything in the system, including creating accounts  and editing transaction data in the system—should be granted to as few  individuals as possible.
We found that 1,127 Bank of America employees had some level of access  to the EAGLS system, including 285 with super user level access.  After we  brought this matter to the attention of Bank of America security officials,  they reviewed employee access and deactivated access for 655 employees  that they determined should not have had any level of access.  Further,  Bank of America has since initiated periodic reviews to ensure that it  maintains appropriate levels of employee access.
In addition, DOD employees retained APC access to EAGLS after  relinquishing their APC duties or after they may have been transferred or  terminated.  In a 2000 survey of 4,952 individuals with APC-level access to  EAGLS, DOD found that approximately 10 percent could not be located  and may have been transferred or terminated or no longer had APC  responsibilities.  Because of concern that many of these accounts should  be deactivated, Bank of America has begun a review to determine if DOD  employees with APC-level access no longer have APC responsibilities or  have left the service.
section_title: Statistical Tests of Key Control Activities
paragraphs: Of the four key control activities associated with the fiscal year 2001 travel  payment process that we tested, we found breakdowns associated with a  lack of documentation to support the accuracy of travel reimbursements at  all three locations and significant breakdowns in controls at two locations  related to requirement for employees to submit vouchers within 5 days of  completing travel.  On a positive note, we found that travel vouchers were  almost always paid within 30 days of submission.  As a result, we ruled out  late payment of travel vouchers as a contributing factor to travel card  delinquencies at the three Air Force locations we audited.  Our test results  also showed that most travel charges were supported by approved travel  orders, indicating minimal personal use—2 percent or less—of the travel  card.  This is considerably lower than the Army sites we audited, where we  estimated that personal charges were as high as 45 percent at one location.   It is also significantly lower than the Navy sites we audited, where we  estimated that personal charges were as high as 26 percent at one location.   However, as discussed later in this report, our overall Air Force data mining  found several instances of personal use of the government travel card.
Table 5 below shows the results of our statistical sampling tests.  Appendix  II includes the specific criteria we used to conclude on the effectiveness of  these controls.
subsections: section_title: Controls over Travel Voucher Review and Accuracy
paragraphs: We found a lack of required receipts for hotel and rental car costs in the  voucher packages associated with a number of transactions in our sample,  indicating that these expenses should not have been reimbursed to the  employees.  For the three units we audited, Air Force Financial Services  Offices were responsible for processing vouchers to ensure that only  authorized, properly supported travel charges were reimbursed and that  the expenses claimed were accurately calculated.  In our samples, we  found that most errors were in the following categories.
Missing receipts – At all three case study locations, we found the  majority of errors related to instances in which voucher packages did  not include all required receipts to support claims,  based on DOD  regulations.  For example, a Nellis AFB cardholder was paid for over  $700 in lodging costs on a voucher for which required receipts were not  attached to the copy of the travel voucher we reviewed.  The Nellis AFB  Comptroller told us that he believed the receipts were most likely lost  between the processing of the voucher at Nellis AFB and the filing of the  voucher at the Defense Finance and Accounting Service (DFAS) in  Denver.  DFAS Denver officials stated that all of the receipts in the  voucher package were copied for our review.  We were unable to  determine whether the missing receipts may have resulted from poor  record retention by DFAS Denver or erroneous payments of expenses  without required receipts.  In either case, the process for obtaining and  retaining required receipts was inadequate.
Errors in amounts paid – We found instances at all three case study  locations in which Financial Services Office personnel used incorrect  per diem rates for lodging and meals and incidental expenses to  calculate the reimbursement amount, resulting in overpayments to the  traveler.
section_title: Controls over Timely Voucher Submission
paragraphs: Two of the case study sites we audited—Travis AFB and Hill AFB—had  ineffective controls for ensuring that vouchers were submitted in a timely  manner.  DOD policy requires the traveler to submit a travel voucher within  5 days of return from travel.   The failure rates we identified involved late  submission of vouchers ranging from 8 to 87 days.  Late submission of a  travel voucher increases the likelihood that travel card bills could become  due before the employee receives a reimbursement for travel expenses.
section_title: Other Control Weaknesses Identified
paragraphs: Some of the transactions in our statistical sample could not be evaluated  for key control attributes due to data management problems, which  represent additional control weaknesses.  These weaknesses included data  entry errors, such as incorrect social security numbers, and organizational  coding problems related to “orphan” accounts—accounts that fell into  limbo because transferring units did not deactivate travel card accounts  when cardholders transferred to new Air Force units and the cardholders  did not check in with the gaining unit APCs to ensure that their travel card  accounts were coded to their new unit organization codes.  When the  account of a transferring cardholder falls into this limbo status, the losing  unit continues to receive reports on the account status, but has no control  over the cardholder, and the gaining unit’s reports contain no information  on the cardholder’s account status.  Based on our Nellis AFB statistical  testing, we estimated that approximately 2 percent of the fiscal year 2001  transactions were affected by data entry problems and another 4 percent  were orphan accounts.
We estimated that approximately 1 percent of the Hill AFB transactions and  5 percent of the Travis AFB transactions were associated with orphaned  accounts.  Our testing did not identify any data entry problems at either Hill  AFB or Travis AFB.
section_title: Electronic Data Processing Control Weaknesses in IATS
paragraphs: Our limited review of selected travel system controls at the three case  study locations found problems in key systems controls, including access  controls, segregation of duties, and transaction histories.  Travel vouchers  that we examined at the three test locations were processed through the  Integrated Automated Travel System (IATS), DOD’s primary travel voucher  processing system.  Air Force Audit Agency’s February 2002 report on IATS  controls identified similar problems at 10 other Air Force locations.
Because the IATS performs all processing functions from initiating travel  account records through disbursing travel pay, it is critical that system  controls are in place to protect against fraudulent payments. Access  controls for computer systems must be designed to provide protection  against unauthorized access to computer resources.  One form of access  controls is the use of password cracker programs to test the effectiveness  of passwords currently in use.  These programs were not being used at the  three sites, therefore making passwords vulnerable.  Another control,  required by Air Force Manual 33-223, Identification and Authentication, is  that individual passwords are to be revised every 90 days.  However, we  found that this requirement was not implemented at one of our three case  study locations, and supervisors at Nellis AFB did not follow up to  determine if password change instructions were followed.
We also found a lack of appropriate segregation of duties resulting in  access to incompatible duties in IATS at all three of our test locations.   Users should have access only to data and system functions required to  accomplish their stated responsibilities and they should not have the ability  to perform duties incompatible with their assigned responsibilities.  We  found that IATS users at all three case study locations had conflicting levels  of access and, as a result, were able to not only create travel vouchers, but  also to update and audit the same records.  For example, our review of  access privileges at Hill AFB found that assigned privileges for four users  afforded them the ability to perform duties such as creating, updating, and  auditing travel vouchers.
After we called this problem to the attention of the IATS manager, he  immediately revised user access levels to ensure that auditors could not  also create and update travel voucher information.  According to the Air  Force Audit Agency report issued in February 2002, this problem is  attributable in some measure to an inherent weakness in the software  design.  Although IATS contains various levels of privileges that can be  assigned to individual users, the software design does not effectively limit  access to preclude the assignment of incompatible access privileges.
In addition, we found that travel voucher data in IATS did not include  transaction histories or audit trails.  This problem also was identified by the  Air Force Audit Agency as a systemic problem.  Because IATS software  design does not provide the capability to track changes, it is impossible to  obtain transaction histories to determine whether changes were made, or  who may have made changes, to a particular voucher.  This makes the  system vulnerable to individuals who could use inappropriate IATS access  to create a fictitious travel voucher, process a payment, and subsequently  delete the travel record.  According to the Air Force Audit Agency report,  this problem is being addressed in the design of WINIATS.  WINIATS, a  Windows-based software application--is targeted to replace IATS in June  2003.
section_title: Potentially Fraudulent and Abusive Travel Card Activity
paragraphs: Our work identified numerous instances of potentially fraudulent and  abusive activity associated with the Air Force’s travel card program during  fiscal year 2001 and the first 6 months of fiscal year 2002, similar to the  types of cases we found in our Army and Navy work.  For purposes of this  report, we characterized as potentially fraudulent those cases where  cardholders might have committed bank fraud by writing three or more  NSF checks or by writing checks on closed accounts to pay their Bank of  America bills.
We considered abusive travel card activity to include (1) personal use of  the cards—any use other than for official government travel—regardless of  whether the cardholders paid the bills and (2) cases in which cardholders  were reimbursed for official travel and then did not pay Bank of America  and thus benefited personally.   In addition, some of the travel card activity  that we categorized as abusive may be fraudulent if it can be established  that the cardholder violated any element of federal or state criminal codes.   Failure to implement controls to reasonably prevent such transactions can  increase the Air Force’s vulnerability to additional delinquencies and  charge-offs.
subsections: section_title: Potentially Fraudulent Transactions
paragraphs: During the 18-month period covering fiscal year 2001 and the first half of  fiscal year 2002, over 6,300 individuals wrote nonsufficient fund (NSF)  checks, or “bounced checks,” to Bank of America as payment for their  travel card bills, including over 400 individuals who wrote three or more  NSF checks— potentially fraudulent acts. Potentially fraudulent NSF  cases identified in our work include one individual who had charged over  $13,000 to the travel card account and wrote seven NSF checks to Bank of  America.  The Air Force court-martialed the individual and imposed a 90- day confinement.  Table 6 includes details on 10 individuals who committed  potentially fraudulent acts by writing three or more NSF checks to pay  their travel card accounts.
Of the ten cardholders included in table 6, six had significant credit  problems prior to card issuance, such as charged-off credit card accounts  and automobile loans, bankruptcies, and referrals to collection agencies for  unpaid bills.  The following provides detailed information on some of these  cases.
Cardholder #1 was a reservist technical sergeant (E-6) who served one  weekend each month.  Bank of America records showed that the travel  card account was opened on December 22, 1999, and that the individual  subsequently wrote three NSF checks totaling $3,214 in payment of his  travel card bills.  In addition, the individual forged a check in the amount  of $260.  The individual’s account was closed on January 9, 2002, and an  unpaid balance of $6,666 was charged off.  The individual’s credit report  showed that he had credit problems prior to issuance of the government  travel card, including repossession of an automobile and a charged-off  account.
Bank representatives had numerous conversations with the individual  about his account.  We found that the individual’s travel card account  was included on monthly delinquency reports. Bank of America  ultimately charged off the travel card account.  The individual was  discharged from the Air Force under “Other Than Honorable  Conditions” for failure to pay his military travel card bills on time and  using his travel card for unauthorized purposes.
Cardholder #2 was an airman (E-3) at Tinker AFB, Oklahoma.  Bank of  America records showed that the individual’s account was opened on  August 25, 2000, and that the individual subsequently wrote seven NSF  checks totaling $23,137 in payment of her travel card bills.  The  individual submitted NSF checks, which made the account appear to  have available credit—a practice known as “boosting”— thus enabling  the individual to make cash withdrawals and additional purchases.   Bank of America records also showed that bank representatives had  numerous conversations with the individual about her travel card debt.   The individual’s account was placed in the salary-offset program on  March 19, 2001, with monthly payments of $169.  The travel card  account was closed on July 18, 2002, and an unpaid balance of $13,908  was charged off.   The individual’s credit report showed that the  individual did not have credit problems prior to the issuance of the  travel card.
Bank of America notified the squadron about the NSF checks issued in  payment of the individual’s travel card account.  A subsequent Air  Force investigation identified numerous abuses of the travel card,  including multiple uses of the card in 1 day for personal ATM  withdrawals, and 187 other instances of misuse totaling approximately  $13,700, including personal purchases at vendors such as Victoria’s  Secret.  These findings resulted in the individual being court-martialed,  fined $5,000, and initially sentenced to confinement on the base for  about 135 days; however, the base commander reduced the sentence to  less than 90 days due to the cardholder’s pregnancy.
Cardholder #3 was a technical sergeant (E-6) stationed at Wright- Patterson AFB, Ohio, and was the APC for his unit.  Bank of America  records showed that the individual’s account was opened on October 10,  1998, and that the cardholder subsequently wrote three NSF checks  totaling $6,235.  The individual’s travel card account was closed on May  3, 2002, and an unpaid balance of $7,679 was charged off.  The bank’s  customer contact log indicates that bank representatives had numerous  conversations with the individual about the delinquent account.  The  individual’s credit report showed significant credit problems prior to the  individual receiving the travel card.
Bank of America notified the squadron that the individual had  submitted several NSF checks to Bank of America.  According to an Air  Force official, the problems reported by the bank were especially  disturbing because the individual was a trusted combat veteran with  many years of service, who also functioned as the squadron’s APC.  An  Air Force investigation of the individual’s travel card abuses revealed  that the individual (1) made approximately $6,000 in personal,  nonauthorized charges, (2) submitted a $4,500 NSF check to the bank  to boost the amount of available credit on his account to permit  additional cash advances, and (3) unrelated to his travel card abuses,  the individual also stole checks in the amount of $7,500 from the U.S.  mail.  The individual was court-martialed for travel card abuse and theft  of U.S. mail and sentenced to 1 year in jail, reduced in pay grade to E-1,  and discharged from the military for “financial difficulties.”
Cardholder #4 was an airman (E-3) reservist assigned to March AFB,  California, who was also a full-time DOD employee (GS-9) in a position  involving similar work.  Our analysis of Bank of America records  showed that the individual obtained two travel card accounts during  two different periods.  The individual issued NSF checks and other  checks to Bank of America on closed accounts in payment of both travel  card accounts.  The first account, which was opened in January 2000,  was closed in February 2001 with an unpaid balance of $4,771 that was  subsequently charged off.  Air Force officials told us that the individual  obtained the second account in October 2001 by having a different  superior officer, who was unaware of the previous travel card account,  sign the application for the new card.  The individual fraudulently used a  relative’s social security number to apply for the second travel card  account.  In payment of his second travel card account, the individual  wrote seven checks to Bank of America, consisting of four NSF checks  totaling $7,131, on an open bank account and three checks totaling  $19,225 on a closed bank account.  The cardholder used NSF checks to  make large payments, which enabled him to boost his available balance  and permit cash withdrawals from the account.  An Air Force official  stated he was unaware of the problem because the NSF checks masked  the delinquency problem. The individual’s second travel card account  was closed on June 3, 2002, and an unpaid balance of $12,665 was  charged off.  Bank of America’s customer contact log indicates that its  representatives had numerous conversations with the individual about  this account.
The cardholder resigned his civilian DOD position and was charged  with (1) identity theft related to the use of his relative’s social security  number, (2) being absent without leave, (3) failure to participate in  monthly training, and  (4) financial irresponsibility related to personal  use of the government card when not on military orders.  The individual  was in the process of being discharged from his military E-3 reservist  position in October 2002.  The individual’s credit report showed he had  several credit problems, including bankruptcies and a charge-off prior  to his receiving a government travel card.
Cardholder #5 was a Virginia state employee assigned to the Air  National Guard in Richmond, Virginia.  Bank of America records  showed that the individual’s account was opened on March 18, 1999.   The individual wrote four NSF checks totaling $2,818 and stopped  payment on two checks totaling $3,230 to Bank of America.  The  individual’s travel card account was closed on November 26, 2001, and  an unpaid balance of $2,127 was charged off.  The cardholder paid off  the account on June 17, 2002.  Bank of America records indicate that  bank representatives had numerous conversations with the cardholder  about this account.  The individual’s credit report did not show any  significant credit problems prior to issuance of the card.
The current APC, who assumed that role in July 2001, determined the  individual was delinquent on his government travel card account when  he reviewed Bank of America delinquency reports.  The APC referred  the matter to the individual’s unit commander who subsequently  counseled the individual on “multiple” occasions regarding the card’s  use and delinquency.  The APC told us that because the individual was a  state employee and not a member of the Air National Guard, the  individual was not eligible for the Air Force travel card and should not  have been granted a card.
section_title: Analysis of Abusive Travel Card Use
paragraphs: We also found numerous examples of Air Force personnel misusing and  abusing their government travel cards by making transactions that were  clearly not for the purpose of government travel, similar to those we  reported in our Army and Navy reports.  As discussed further in appendix  II, we used data mining procedures to identify transactions that we  believed to be potentially fraudulent or abusive based upon the nature,  amount, merchant, and other identifying characteristics of the transaction.   As a result of these procedures, we found instances in which cardholders  abused their travel cards by purchasing a wide variety of personal goods or  services that were unrelated to official government travel.  As shown in  table 7, we were able to determine that during an 18-month period, Air  Force cardholders charged approximately $31,000 to purchase admission  to entertainment events, such as NFL football games and a Janet Jackson  concert.  We also identified travel card transactions totaling approximately  $14,000 for gambling; $31,000 for cruise packages; and $32,000 coded as  purchases at gentlemen’s clubs, which provide adult entertainment.  The  examples shown in table 7 include both instances where the cardholders  paid their bills and where they did not.
Our investigative work showed that gentlemen’s clubs were sometimes  used to convert the travel card to cash by supplying cardholders with  actual cash or “club cash” for a 10 percent fee.  To illustrate, an Air Force  employee that charged $440 to their government travel card at one of these  clubs, would receive $400 in cash.  Such charges are processed by the  establishment’s merchant bank, and authorized by Bank of America, in part  because the merchant category code (MCC),which identifies the nature  of the transactions and is to be used by Bank of America to block improper  purchases, are circumvented when the establishments reported the  charges as restaurant, dining, or bar charges.  Subsequently, the club would  receive payment for a $440 restaurant charge.
Examples of Travel Card Abuse  We found cases where individuals used their travel cards for both official  and personal reasons, but failed to pay their accounts, thereby resulting in  accounts that were charged off and/or included in salary offset and fixed  payment plans.  Table 8 provides examples of those cases.
The following examples include details of cases summarized in table 8.
Cardholder #1 is a staff sergeant (E-5) in the Idaho Air National Guard  who is employed full-time as a juvenile counselor at a county  correctional facility.  The cardholder told our investigators that from  December 22, 2000, to February 19, 2001, his wife used his government  travel card without his knowledge or consent.  Bank of America records  showed that transactions for the above period totaled over $13,000, of  which over $10,000 was for on-line gambling charges and another $3,000  was for ATM withdrawals.  There were also several credits to the  cardholder’s account totaling over $5,000 from his wife’s gambling  winnings.  The cardholder’s wife admitted to a gambling addiction and  to using their personal bank debit card and her husband’s government  travel card to fund her addiction.
Upon discovering his wife’s abusive use of his government travel card,  the cardholder immediately briefed his commanding officer, who  informed the APC, and the account was closed.  The cardholder also  contacted Bank of America to work out a payment plan for the debt but  no agreement could be reached.  As a result of his inability to pay the  debt incurred by his wife, the cardholder filed for Chapter 7  bankruptcy.  On September 3, 2001, Bank of America charged off an  unpaid balance of $7,258 on the cardholder’s travel card account.  To  date, no criminal charges have been initiated against the cardholder’s  now ex-wife.
In researching this case, we noted that although DOD has requested  that Bank of America block certain merchant category codes to help  prevent improper travel card transactions, such as transactions for on- line gambling at www.PROCCY, merchants are able to circumvent such  restrictions by assigning permissible merchant codes to otherwise  improper transactions.  For example, in this case, to mask gambling  activity, the on-line gambling establishments with whom the  cardholder’s wife dealt used the merchant category codes for  “Miscellaneous and Specialty Retail Stores” and “Professional  Services—Not Elsewhere Classified” instead of the merchant category  code for “Betting—Including Lottery, Gaming Chips, Track Wagers.”   However, these establishments credited the wife’s winnings to the  cardholder’s account using the merchant category code for “Betting— Including Lottery, Gaming Chips, Track Wagers.”  Active monitoring by  the APC of ongoing travel card activity would have helped detect the  problem transactions sooner.
Cardholder #2 was a highly skilled technical sergeant (E-6) at Travis  AFB, California, who held a secret clearance and worked on C-5 aircraft,  large cargo aircraft designed for airlifting weapons and supplies.  Our  discussions with base officials and our review of the cardholder’s  personnel file and credit report revealed that the cardholder had several  credit card delinquencies prior to issuance of the travel card.  In March  1998, prior to being assigned to Travis AFB, the cardholder had received  an Article 15 for wrongfully using his American Express government  travel card for personal gain and blaming the misuse of the travel card  on another family member.
In March 2001, when the individual transferred to Travis AFB, his new  APC noted that the individual’s travel card account had a past due  balance of $2,257.  The APC reported this information to the  cardholder’s unit commander.  At that time, the account was suspended  and Bank of America closed and canceled the cardholder’s account a  week later.  However, Travis AFB officials told us that they asked Bank  of America to keep the individual’s travel card account open so that he  could travel where necessary to make repairs to downed C-5 aircraft.   The officials told us that the cardholder was one of a few experts who  could supervise repairs on the C-5 aircraft.  According to the officials,  when problems arose with the aircraft, repairs had to be made  immediately to get the plane back in the air.
On April 16, 2001, the unit commander counseled the cardholder and  gave him a letter of reprimand for nonpayment of his travel card bill.   On June 25, 2001, the cardholder received another Article 15 for failure  to pay his “Military Star Account” with the base Army and Air Force  Exchange Service (AAFES) store.  Both Article 15s and the letter of  reprimand contained statements indicating that this behavior would  not be tolerated.  It is apparent that this statement on the documents  did not deter the individual from being delinquent, nor did the officials  abide by these statements.
During the fall of 2001, Air Force investigators were notified that  personal protective gear, including body armor and biochemical and  biological protective masks, was missing from C-5s arriving in  Afghanistan.  The cardholder came under suspicion as one of a few  individuals with access to C-5 aircraft.  During the ensuing investigation  involving the individual, his security badge was revoked and he had to  be escorted to and from his worksite.  Shortly thereafter, Air Force  investigators videotaped the individual selling military protective gear  in a town near the base, and the individual was arrested and charged  with theft and sale of government property.  Investigators determined  that the individual was addicted to gambling and had used his  government travel card reimbursements and the proceeds from the sale  of stolen government property to finance his gambling habit.  In  January 2002, the individual was court-martialed, and in March 2002, he  was convicted of theft and sale of $50,000 in government property and  was dishonorably discharged.  He was sentenced to a 5-year jail term.   Air Force investigative and legal officials told us that the individual’s  failure to pay his travel card debt was considered in the sentencing  decision.
If Travis AFB officials had acted sooner to cancel the technical  sergeant’s travel card account, revoke his security clearance, and  discharge him from the service, they may have prevented the theft of  critical protective gear needed by troops deployed in Afghanistan.
subsections: section_title: Travel Card Abuse Where Cardholders Paid Their Bank of America Bills
paragraphs: Further, we found examples where individuals used their government  travel cards for personal use on purchases of items, such as computers,  entertainment, college tuition, and jewelry, but kept their accounts current  by paying their travel card bills in a timely manner.  We considered these  purchases to be abusive travel card activity because the travel card may  only be used for official government travel expenses.  Personal use of the  travel card may increase the risk of charge-offs, which are costly to the  government and the taxpayer.  In addition, instances of personal use are  indicative of internal control breakdowns, such as the failure of the APCs  to monitor travel card activities.  Table 9 provides details on 10 cases where  the cardholders made personal purchases but paid their accounts.
The instances illustrated in this report clearly represent abusive use of the  government travel card.  Air Force personnel are informed that these types  of transactions are not permitted.  All Air Force cardholders are required to  sign a statement of understanding that the card is to be used only for  authorized official government travel expenses.
section_title: Abusive Activity Not Effectively Linked to Disciplinary Action and Security Clearances
paragraphs: Air Force policy provides commanders with a wide variety of disciplinary  options for addressing misconduct by service members.  The means of  discipline include counseling, oral and written reprimands, creating an  unfavorable information file, issuing Article 15s, and court-martial.  The  policy leaves the means of discipline and the actual punishment to the  discretion of the individual commander based upon the facts of each case.   However, for the cases involving 58 cardholders whose accounts involved  NSF checks, charge-offs, or salary offsets, we found documented evidence  of disciplinary actions in only 19 cases.  Our analysis of cases where travel  card accounts had been charged off, were in salary offset, or involved NSF  checks showed that when the Air Force took disciplinary actions, those  actions ranged from counseling to court-martial and discharge from the  service.  In certain cases where documentation of disciplinary actions was  not available, Air Force officials told us that verbal counseling had been  provided, but was not documented.  In other cases where documentation  was not available, Air Force officials claimed that disciplinary actions had  been taken, but records had not been retained because the individuals had  transferred or left the service.  At Hill AFB, most of the cases we reviewed  involved civilians.  Air Force Instruction 36-704, Discipline and Adverse  Actions, provides guidance on disciplinary action for civilians who fail to  honor valid debts or legal obligations.  However, the guidelines limit  disciplinary action to reprimands, even after the third offense.
In addition, we found that 32 of the 58 most severe abusers of the travel  card still had secret or top secret clearances in August 2002.  According to  Air Force Instruction 31-501, Personnel Security Program Management,  military units are responsible for maintaining unfavorable information files  on individuals, and are supposed to notify the central security facility of  instances of financial irresponsibility or other behavioral problems that  may affect an individual’s security clearance.  However, we determined that  the Air Force does not have consistent procedures in place to link travel  card account delinquencies or charge-off status to an individual’s security  clearance. Some of the Air Force personnel holding security clearances  who have had difficulty paying their travel card bills may present security  risks to the Air Force.  We have referred the names of these individuals to  the Air Force Central Adjudication Facility for appropriate evaluation.
Linking disciplinary actions and security clearances to misuse of travel  cards was recently addressed by the fiscal year 2003 Defense  Appropriations Act.  In addition to requiring the Secretary of Defense to  establish guidance and procedures for disciplinary actions, section 8149(c)  of the act states that such actions may include (1) review of the security  clearance of the cardholders in cases of misuse of the government travel  card, and (2) modification or revocation of the security clearance in light of  such review.
section_title: Recent Actions
paragraphs: Since March 2002, DOD and the Air Force have taken additional actions to  reduce delinquencies in the travel card program.  For example, the DOD  Comptroller established a Charge Card Task Force to address management  issues related to DOD’s purchase and travel card programs.  The task force  issued its final report on June 27, 2002, which called for additional actions  to improve the controls over the travel card program.  However, to date,  many of the actions that DOD has taken primarily address the symptoms  rather than the underlying causes of the problems with the program.   Specifically, actions to date have focused on dealing with accounts that are  seriously delinquent, which are “back end” or detective controls rather  than preventive controls.
On September 27, 2002, the Air Force Assistant Secretary for Financial  Management (Comptroller) issued a memorandum emphasizing travel card  management tools and policy updates to assist local commanders in the  detection of travel card misuse.  Specifically, the memorandum (1) directed  that travel cards that have had no activity within the last 12 months be  canceled, (2) emphasized that program coordinators should use new  EAGLS exception reports to help identify suspicious card activity that may  indicate abuse or potential delinquency problems before they appear on  delinquency reports, and (3) noted that the Air Force is conducting a  thorough review of MCCs to ensure that cards cannot be used at  establishments that are not travel related.  In addition, Air Force officials  told us they also are considering contracting for data mining services to  support their oversight of the travel card program.
The Congress has recently addressed several of the key issues we identified  in our Army and Navy work.  Section 8149(b) of the Department of Defense  Appropriations Act, 2003, requires creditworthiness evaluations of all  potential cardholders and guidelines and procedures for disciplining  individuals for fraudulent and abusive use of government travel cards.   Further, section 1008(a) and (b) of the Bob Stump National Defense  Authorization Act for Fiscal Year 2003 provides authority for the Secretary  of Defense to require (1) use of the split disbursement process, where any  part of a DOD employee’s or service member’s travel reimbursement is paid  directly to the travel card-issuing bank, and (2) deductions of prescribed  amounts from salary and retirement pay of DOD employees or service  members who have delinquent travel card balances and payment of those  amounts to the travel card-issuing bank.
section_title: Conclusions
paragraphs: The intent of the travel card program was to improve convenience for the  traveler and to reduce the government’s costs of administering travel.   Since implementation of the travel card as part of its travel program, the  Air Force changed its management strategies to oversee the use of  government travel cards.  What once was a weak internal control  environment in the travel program has been strengthened, resulting in a  decrease in delinquency rates and charge-offs of bad debts.  Despite these  efforts, the Air Force continues to experience potentially fraudulent and  abusive travel card activity.
Air Force and DOD actions addressed many areas in the program needing  improvements. However, DOD and the Air Force will need to implement  further improvements to more effectively prevent potentially fraudulent  and abusive activity and further reduce severe credit problems associated  with the travel card.  A focus on additional “front-end” or preventive  controls will be paramount.  In this regard, section 8149(c) of the fiscal year  2003 DOD Appropriations Act requires creditworthiness evaluations of all  potential cardholders and guidelines and procedures for disciplining  individuals for fraudulent and abusive use of government charge cards.
section_title: Recommendations for Executive Action
paragraphs: To strengthen the overall control environment and improve internal control  for the Air Force’s travel card program, we recommend that the Secretary  of the Air Force take the following actions.  We also recommend that the  Under Secretary of Defense (Comptroller) assess the following  recommendations and, where applicable, incorporate them into or  supplement the DOD Charge Card Task Force recommendations to  improve travel card policies and procedures throughout DOD.
subsections: section_title: Travel Card Issuance
paragraphs: We recommend that the Secretary of the Air Force establish specific  policies and procedures governing the issuance of individual travel cards to  military and civilian employees, including the following.
In accordance with recently enacted legislation, provide individuals who  have no prior credit histories “restricted” travel cards with low credit  and ATM limits.
Develop procedures to periodically evaluate the frequency of  cardholders’ travel card use and close accounts of infrequent travelers  in order to minimize exposure to fraud and abuse.  In conjunction with  the periodic reviews, cancel accounts for current infrequent travelers as  noted in the Charge Card Task Force report.
Evaluate the feasibility of activating and deactivating travel cards,  regardless of whether they are standard or restricted cards, so that they  are available for use only during the period authorized by the  cardholders’ travel orders.  At a minimum, this policy should focus on  controlling travel card use by “high-risk” enlisted military personnel in  the E-1 to E-6 grades.
Develop comprehensive, consistent Air Force-wide initial training and  periodic refresher training for travel cardholders that focuses on the  purpose of the program and appropriate uses of the card.  The training  should emphasize the prohibitions on personal use of the card, including  gambling, personal travel, and adult entertainment.  Such training  should also address the policies and procedures of the travel order,  voucher, and payment processes.  For entry-level personnel, the training  should also include information on basic personal financial  management techniques to help avoid financial problems that could  affect an individual’s ability to pay his or her travel card bill.
section_title: Monitoring and Review Actions
paragraphs: We recommend that the Secretary of the Air Force establish the following  specific policies and procedures to strengthen controls to address  improper use of the travel card.
Establish guidance regarding the knowledge, skills, and abilities  required to carry out APC responsibilities effectively.
Establish guidance on APC span of control responsibilities so that such  responsibilities are properly aligned with time available to ensure  effective performance.  Determine whether certain APC positions  should be staffed on a full-time basis rather than as collateral duties.
Establish Air Force-wide procedures to provide assurance that APCs  receive training on their APC responsibilities, including requirements  for monitoring cardholders’ travel card use.  The training should include  how to use EAGLS transaction reports and other available data to  monitor cardholder use of the travel card—for example, reviewing  account transactional histories to ascertain whether transactions are  incurred during periods of authorized travel and appear to be  appropriate travel expenses and are from approved MCCs.
Require agency program coordinators to review EAGLS reports to  identify cardholders who have written NSF checks for payment on their  account balances and refer this data to the employee’s immediate  supervisor.
Review, in conjunction with Bank of America, APC-level access to  EAGLS to limit such access to only those individuals with current APC  duties.
Establish Air Force procedures detailing how APCs should carry out  their responsibility to monitor travel card use for all cardholders  assigned to them.  Include in the procedures the development of a data  mining program that would enable APCs to easily identify potentially  inappropriate transactions for further review.
Enforce controls for canceling accounts after employees transfer to  other units to avoid “orphan” accounts that are not subject to effective  management oversight.
Require cognizant APCs to retain records documenting any cardholder’s  fraudulent or abusive use of the travel card and require that this  information be provided to the gaining APC when the cardholder is  transferred.
Review records of individuals whose accounts had been charged off or  placed in salary offset to determine whether they have been referred to  Air Force Central Adjudication Facility for a security review.
Strengthen procedures regarding employees leaving the service to  assure that all travel card accounts are deactivated or closed and that  repayment of any outstanding debts is arranged.  Perform a review to  determine that these procedures are implemented effectively and that  accounts of departed cardholders are deactivated or closed in a timely  manner.
Develop procedures to identify active cards of departed cardholders,  including comparing cardholder and payroll data.
section_title: Agency Comments and Our Evaluation
paragraphs: In oral comments on a draft of this report, DOD and the Air Force  concurred on all 16 of our recommendations and stated that it had taken  actions or had actions underway to address many of them.  For example,  with respect to actions completed, DOD stated that the Air Force recently  implemented procedures to (1) evaluate the frequency of cardholder travel  card use and close travel card accounts that were not used in the past year  and (2) work with Bank of America to perform semi-annual reviews of  travel card use.  With respect to actions underway, (1) the Air Force has  started a project to evaluate the feasibility of deactivating travel cards so  that they are available for use only during periods of authorized travel and  (2) DOD is evaluating travel card training and developing revised policy  requirements for APC span of control and travel card management  responsibilities.
As agreed with your offices, unless you announce the contents of this  report earlier, we will not distribute this report until 30 days from its date.   At that time, we will send copies to interested congressional committees;  the Secretary of Defense; the Under Secretary of Defense (Comptroller);  the Secretary of the Air Force; the Assistant Secretary of the Air Force for  Financial Management (Comptroller); the Director of the Defense Finance  and Accounting 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 Gregory D. Kutz at (202) 512-9505 or kutzg@gao.gov, John J.  Ryan at (202) 512-9587 or ryanj@gao.gov, or Gayle L. Fischer at (202) 512- 9577 or fischerg@gao.gov, if you or your staffs have any questions  concerning this report.  Major contributors to this report are acknowledged  in appendix V.
section_title: Background
paragraphs: In 1983, the General Services Administration (GSA) awarded a  governmentwide master contract with a private company to provide  government-sponsored, contractor-issued travel cards to federal  employees to be used to pay for costs incurred on official business travel.   The intent of the travel card program was to provide increased  convenience to the traveler and lower the government’s cost of travel by  reducing the need for cash advances to the traveler and the administrative  workload associated with processing and reconciling travel advances.  The  travel card program includes both individually billed accounts—accounts  held and paid by individual cardholders—and centrally billed accounts that  are used to purchase transportation or are used for the travel expenses of a  unit and are paid directly by the government.  As of the end of fiscal year  2001, over 2.1 million individually billed travel cards were issued to federal  government travelers.  These travel cardholders charged $3.6 billion during  the same fiscal year.
Under the current GSA master contract, the Department of Defense  entered into a tailored task order with Bank of America to provide travel  card services to DOD and the military services, including the Air Force.   Table 10 provides the number of individually billed travel cards outstanding  and related dollar amount of travel card charges by DOD and its  components in relation to the total federal government.
As shown in table 10, DOD accounts for about 1.4 million, or 66 percent, of  the total number of the individually billed travel cards issued by the entire  federal government, and DOD’s cardholders charged about $2.1 billion, or  about 59 percent of the federal government’s travel card charges during  fiscal year 2001.  Table 10 also shows that the Air Force provided 501,306  individually billed cards to its civilian and military employees as of  September 2001.  These cardholders charged an estimated $831 million to  their travel cards during fiscal year 2001.
subsections: section_title: Travel Card Program Guidelines
paragraphs: The Travel and Transportation Reform Act of 1998 (Public Law 105-264)  expanded the use of government travel cards by mandating the use of the  cards for all official travel unless specifically exempted.  The act is  intended to reduce the overall cost of travel to the federal government  through reduced administrative costs and by taking advantage of rebates  from the travel card contractor.  The act requires that agencies reimburse  cardholders for proper travel claims within 30 days of submission of  approved travel vouchers by the cardholders.  Further, the act allows, but  does not require, agencies to offset a cardholder’s pay for amounts the  cardholder owes to the travel card contractor as a result of travel card  delinquencies not disputed by the cardholder.  The act calls for GSA to  issue regulations incorporating the requirements of the act.
GSA incorporated the act’s requirements into the Federal Travel  Regulation.   The Federal Travel Regulation governs travel and  transportation and relocation allowances for all federal government  employees, including overall policies and procedures governing the use of  government travel cards.  Agencies are required to follow the requirements  of GSA’s Federal Travel Regulation, but can augment these regulations  with their own implementing regulations.
DOD issued its Financial Management Regulation (FMR), Volume 9,  Chapter 3, “Travel Policies and Procedures,” to supplement GSA’s travel  regulations.  DOD’s Joint Travel Regulations, Volume 1, “Uniformed  Service Members,” and Volume 2, “Civilian Personnel,” refer to the FMR as  the controlling regulation for DOD’s travel cards.
section_title: Air Force Travel Process
paragraphs: As shown in figure 7, the Air Force’s travel card management program for  individually billed travel card accounts encompasses card issuance, travel  authorization, cardholders charging goods and services on their travel  cards, travel voucher processing and payment, and managing travel card  usage and delinquencies.
subsections: section_title: Travel Card Issuance and Termination
paragraphs: When an Air Force civilian or military employee or the employee’s  supervisor determines that he or she will need a travel card, the employee  contacts the unit’s travel card agency program coordinator (APC) to  complete an individually billed card account application form.  As shown in  figure 8, the application requires the applicant to provide pertinent  information, including full name and social security number, and indicate  whether he or she is an active, reserve, or a civilian employee of the Air  Force.  The applicant is also required to initial a statement on the  application acknowledging that he or she has read and understands the  terms of the travel card agreement and agrees to be bound by these terms,  including a provision acknowledging that the card will be used only for  official travel.  The APC is required to complete the portion of the  member’s application concerning who will be responsible for managing the  use and delinquencies related to the card.  Bank of America is required to  issue a travel card to all applicants for whom it receives completed  applications signed by the applicants, the applicants’ supervisors, and the  APCs.
Bank of America issues travel cards with either a standard or restricted  credit limit.  If an employee has little or no credit history or poor credit  based on a credit check performed by Bank of America, Bank of America  may suggest to the service that the applicant receive a restricted credit  limit of $2,000 instead of the standard credit limit of $5,000.  However, as  shown in figure 8, the application allows the employee to withhold  permission for Bank of America to obtain credit reports.  If this option is  selected, Bank of America automatically issues a restricted credit limit  card to the applicant.
Before cardholders leave the Air Force, they are required to contact their  APCs and notify them of their planned departure.  Based on this  notification from the cardholders, the APCs are to deactivate or terminate  the cardholders’ accounts.
section_title: Travel Authorization
paragraphs: When a cardholder is required to travel for official government purposes,  he or she is issued a travel order authorizing travel.  The travel order is  required to specify the timing and purpose of the travel authorized.  For  example, the travel order is to authorize the mode of transportation, the  duration and points of the travel, and the amounts of per diem and any cash  advances.  Further, the Air Force can limit the amount of authorized  reimbursement to military members based on the availability of lodging  and dining facilities at military installations.
section_title: Using the Travel Card for Official Travel Expenses
paragraphs: For authorized travel, travelers must use their cards to pay for allowable  expenses such as hotels, rental cars, and airfare.  The travel card can also  be used for meals and incidental expenses or cash can be obtained from an  automatic teller machine.
When the travel card is submitted to a merchant, the merchant will process  the charge through its banking institution, which in turn charges Bank of  America.  At the end of each banking cycle (once each month), Bank of  America prepares a billing statement that is mailed to the cardholder for  the amounts charged to the card.  The statement also reflects all payments  and credits made to the cardholder’s account.  Bank of America requires  that the cardholder make payment on the account in full within 30 days of  the statement closing date.  If the cardholder does not pay his or her  monthly billing statement in full, and does not dispute the charges within  60 days of the statement closing date, the account is considered delinquent.
section_title: Travel Voucher Submission and Processing
paragraphs: Within 5 duty days of return from travel, the cardholder is required to  submit a travel voucher claiming legitimate and allowable expenses  incurred while on travel.  Further, the standard is for the cardholder to  submit an interim voucher every 30 days for extended travel of more than  45 days.  The amount that cardholders are reimbursed for their meals and  incidental expenses and hotels is limited by geographical rates established  by GSA.
Upon submission of a proper voucher by the cardholder, DOD has 30 days  in which to make reimbursement without incurring late payment fees.   Cardholders are required to submit their travel vouchers to their  supervisors or other designated approving officials who must review the  vouchers and approve them for payment.  If the review finds an omission or  error in a voucher or its required supporting documentation, the approving  official must inform the traveler of the error or omission.
After the supervisor approves a cardholder’s travel voucher package for  payment, the voucher-processing unit at the location to which the  cardholder is assigned processes it.  The voucher-processing unit enters  travel information from the approved voucher into DOD’s Integrated  Automated Travel System (IATS).  IATS calculates the amount of per diem  authorized in the travel order and voucher and the amount of mileage, if  any, claimed by the cardholder.  In addition, any other expenses claimed  and approved are entered into IATS.  If problems with the voucher are  found during the initial entry of the information into IATS or during audits  after the initial entry, the voucher can be rejected and returned to the  cardholder for correction.  Once the vouchers are processed and possibly  audited, they are sent to DFAS for payment to the cardholder or to Bank of  America and the cardholder, if the cardholder elected to use the split  disbursement payment process whereby part of the reimbursement is sent  directly to Bank of America.  If the payment of the approved proper  voucher takes longer than 30 days, DOD is required to pay the cardholder a  late payment fee plus an amount equal to the amount Bank of America  would have been entitled to charge the cardholder had the cardholder not  paid the bill by the due date.
section_title: Monitoring Travel Card Transaction Activity
paragraphs: In addition to controlling the issuance and credit limits related to the travel  card, APCs are also responsible for monitoring the use of and  delinquencies related to travel card accounts for which they have been  assigned management responsibility.  Bank of America’s Web-based  Electronic Account Government Ledger System (EAGLS) provides on-line  tools that are intended to assist APCs in monitoring travel card activity and  related delinquencies.  Specifically, APCs can access EAGLS to monitor  and extract reports on their cardholders’ travel card transaction activity  and related payment histories.
section_title: Managing Delinquent Cardholder Accounts
paragraphs: Both the Air Force and Bank of America have a role in managing travel  card delinquencies under GSA’s master contract.  While APCs are  responsible for monitoring cardholders’ accounts and for working with  cardholders’ supervisors to address any travel card payment delinquencies,  Bank of America is required to use EAGLS to notify the designated APCs if  any of their cardholders’ accounts are in danger of suspension or  cancellation.  When Bank of America has not received a required payment  on any travel cardholder’s account within 60 days of the billing statement  closing date, it is considered delinquent.  As summarized in figure 9, there  are specific actions required by both the Air Force and Bank of America  based on the number of days a cardholder’s account is past due.
The following is a more detailed explanation of the required actions by the  Air Force and/or Bank of America with respect to delinquent travel card  accounts.    45 days past due—Bank of America is to send a letter to the cardholder  requesting payment.  Bank of America has the option to call the  cardholder with a reminder that payment is past due and to advise the  cardholder that the account will be suspended if it becomes 60 days past  due.  55 days past due—Bank of America is to send the cardholder a  presuspension letter warning that Bank of America will suspend the  account if it is not paid.  If Bank of America suspends a travel card  account, the card cannot be used until the account is paid.  60 days past due—The APC is to issue a 60-day delinquency notification  memorandum to the cardholder and to the cardholder’s immediate  supervisor, informing them that the cardholder’s account has been  suspended due to nonpayment.  The next day, a suspension letter is to  be sent by Bank of America to the cardholder providing notice that the  card has been suspended until payment is received.  75 days past due—Bank of America is to assess the account a late fee.
The late fee charged by Bank of America was $20 through August 9,  2001.  Effective August 10, 2001, Bank of America increased the late fee  to $29 under the terms of the contract modification between Bank of  America and DOD.  Bank of America is allowed to assess an additional  late fee every 30 days until the account is made current or charged off.  90 days past due—The APC is to issue a 90-day delinquency notification  memorandum to the cardholder, the cardholder’s immediate supervisor,  and the company commander (or unit director).  The company  commander is to initiate an investigation into the delinquency and take  appropriate action, at the company commander’s discretion.  At the  same time, Bank of America is to send a “due process letter” to the  cardholder providing notice that the account will be canceled if  payment is not received within 30 days unless he or she enters into a  payment plan, disputes charge(s) in question, or declares bankruptcy.  120 days past due—The APC is to issue a 120-day delinquency  notification memorandum to the cardholder’s commanding officer.  At  126 days past due, the account is to be canceled by Bank of America.   Beginning in October 2001, once accounts were 120 days past due, Bank  of America began sending files to DFAS listing these accounts for salary  offset.    150 days past due—The point at which DFAS generally initiates action  for salary offset.  180 days past due—Bank of America is to send a “precharge-off” or last  call letter to the cardholder informing him or her that Bank of America  will charge-off the account and report the cardholder to a credit bureau  if payment is not received.  A credit bureau is a service that reports the  credit history of an individual.  Banks and other businesses assess the  credit-worthiness of an individual using credit bureau reports.    210 days past due—Bank of America is to charge off the delinquent  account and, if the balance is $50 or greater, report it to a credit bureau.
Some accounts are pursued for collection by Bank of America’s recovery  department; others are sent to attorneys or collection agencies for  recovery.  The delinquency management process can be suspended when a  cardholder’s APC informs Bank of America that the cardholder is on  official travel and is unable to submit vouchers and pay his or her account  in a timely manner, through no fault of his or her own.  Under such  circumstances, the APC is to notify the Bank of America that the  cardholder is in “mission-critical” status.  By activating this status, the Bank  of America is precluded from identifying the cardholder’s account as  delinquent until 45 days after such time as the APC determines the  cardholder is to be removed from mission-critical status.  According to  Bank of America, approximately 800 to 1,000 cardholders throughout DOD  were in this status at any given time throughout fiscal year 2001.
section_title: Objectives, Scope, and Methodology
paragraphs: Pursuant to a joint request by the Chairman and Ranking Minority Member  of the Subcommittee on Government Efficiency, Financial Management  and Intergovernmental Relations, House Committee on Government  Reform, and the Ranking Minority Member of the Senate Committee on  Finance, we audited the controls over the issuance, use, and monitoring of  individually billed travel card accounts and associated travel processing  and management for the Department of the Air Force.  Our assessment  covered  the reported magnitude and impact of delinquent and charged off Air  Force travel card accounts for fiscal year 2001 and the first 6 months of  fiscal year 2002, along with an analysis of causes and related corrective  actions;  an analysis of the universe of Air Force travel card transactions during  fiscal year 2001 and the first 6 months of fiscal year 2002 to identify  potentially fraudulent and abusive activity related to the travel card;   the Air Force overall management control environment and the design  of selected Air Force travel program management controls, including  controls over (1) travel card issuance, (2) agency program coordinators  (APC) capacity to carry out assigned duties, (3) limiting card activation  to meet travel needs, (4) transferred and “orphan” accounts, (5)  procedures for terminating accounts when cardholders leave military  service, and (6) access to Bank of America’s travel card database; and  tests of statistical samples of transactions to assess the implementation  of key management controls and processes for three Air Force units’  travel card activity including (1) travel order approval, (2) accuracy of  travel voucher payments, (3) the timely submission of travel vouchers  by travelers to the approving officials, and (4) the timely processing and  reimbursement of travel vouchers by the Air Force and DOD.
We used as our primary criteria applicable laws and regulations, including  the Travel and Transportation Reform Act of 1998 (Public Law 105-264),  the General Services Administration’s (GSA) Federal Travel Regulation,  and the Department of Defense (DOD) Financial Management  Regulation, Volume 9, “Travel Policies and Procedures.”  We also used as  criteria our Standards for Internal Control in Federal Government and  our Guide to Evaluating and Testing Controls Over Sensitive Payments.   To assess the management control environment, we applied the  fundamental concepts and standards in our internal control standards to  the practices followed by management in the six areas reviewed.
To assess the magnitude and impact of delinquent and charged-off  accounts, we compared the Air Force’s delinquency and charge-off rates to  those of other DOD services and federal civilian agencies.  We also  analyzed the trends in the delinquency and charge-off data from the third  quarter of fiscal year 2000 through the first half of fiscal year 2002.
In addition, we used data mining to select Air Force units for audit and  identify individually billed travel card transactions for further analysis.  Our  data mining procedures covered the universe of individually billed Air  Force travel card activity during fiscal year 2001 and the first six months of  fiscal year 2002 and identified transactions that we believed were  potentially fraudulent or abusive.  However, our work was not designed to  identify, and we did not determine, the extent of any potentially fraudulent  or abusive activity related to the travel card.  In performing our data  mining, we obtained and analyzed information on travel card account  status and credit history, security clearance, and disciplinary action.
To assess the overall control environment for the travel card program at the  Department of the Air Force, we obtained an understanding of the travel  process, including travel card management and oversight, by interviewing  officials from the Office of the Undersecretary of Defense, Comptroller;  Department of the Air Force; Defense Finance and Accounting Service  (DFAS); Bank of America; and GSA.  We reviewed applicable policies,  procedures, and program guidance they provided.  We visited three Air  Force units to “walk through” the travel process, including the  management of travel card use and delinquency.  Further, we contacted one  of the three largest U.S. credit bureaus to obtain credit history data and  information on how credit-scoring models are developed and used by the  credit industry for credit reporting.
At each of the Air Force locations we audited we also used our review of  policies and procedures and the results of our “walk-throughs” of travel  processes and other observations to assess the effectiveness of controls  over segregation of duties among persons responsible for issuing travel  orders, preparing travel vouchers, processing and approving travel  vouchers, and certifying travel voucher payments.
We performed a limited review of access controls for travel voucher  processing at our three case study locations.  We did not assess electronic  signature controls over the electronic data processing of Air Force travel  card transactions.  We also reviewed computer system access controls for  the Electronic Account Government Ledger System (EAGLS)—the system  used by Bank of America to maintain DOD travel card data.  To determine  whether access controls for EAGLS were effective, we interviewed Bank of  America officials and observed EAGLS functions and capabilities.
To test the implementation of key controls over individually billed Air  Force travel card transactions processed through the travel system— including the travel order, travel voucher, and payment processes—we  obtained and used the Bank of America database of fiscal year 2001 Air  Force travel card transactions to review random samples of transactions at  three Air Force locations.  Because our objective was to test controls over  travel card expenses, we excluded credits and miscellaneous debits (such  as fees) from the population of transactions used to select random samples  of travel card transactions to review at each of three Air Force units we  audited.  Each sampled transaction was subsequently weighted in the  analysis to account statistically for all charged transactions at each of the  three units, including those that were not selected.  We did not verify the  accuracy of the data in the Air Force travel card database.
We selected three Air Force case study locations for testing controls over  travel card activity by first selecting three large commands based on the  number of travel card accounts, outstanding balances, and delinquencies.   The three commands we selected accounted for about 38 percent of the  total number of Air Force travel card accounts, 41 percent of the  outstanding balance of travel card charges, and about 33 percent of the  travel card delinquencies.  We selected one installation from each of these  commands for detailed testing based on the volume of travel card activity  and delinquencies.  Table 11 presents the sites selected and the number of  fiscal year 2001 transactions at each location.
We performed tests on statistical samples of travel card transactions at  each of the three case study sites to assess whether the system of internal  controls over the transactions was effective, as well as to provide an  estimate of the percentage of transactions by unit that were not for official  government travel.  For each transaction in our statistical sample, we  assessed whether (1) there was an approved travel order prior to the trip,  (2) the travel voucher payment was accurate, (3) the travel voucher was  submitted within 5 days of the completion of travel, and (4) the travel  voucher was paid within 30 days of submission of an approved travel  voucher.  We considered transactions not related to authorized travel to be  abuse and incurred for personal purposes.  Although we projected the  results of our samples of these control attributes, as well as the estimate  for personal use—or abuse—related to travel card activity to the  population of transactions at the respective case study locations, the  results cannot be projected to the population of Air Force transactions or  the installations as a whole.
Tables 12 through 15 show (1) the results of our tests of key control  attributes, (2) the point estimates of the failure rates for the attributes,   (3) the two-sided 95 percent confidence intervals for the failure rates for  each attribute, (4) our assessments of the effectiveness of the controls, and  (5) the relevant lower and upper bounds of a one-sided confidence interval  for the failure rate.  All percentages in these tables are rounded to the  nearest percentage point.  We use one-sided confidence bounds to classify  the effectiveness of a control activity.  If the 1-sided lower bound does not  exceed 5 percent, then the control activity is effective.  If the 1-sided lower  bound exceeds 10 percent, then the control is ineffective.  Otherwise, we  say that the control is partially effective.  Partially effective controls may  include those for which there is not enough evidence to assert either  effectiveness or ineffectiveness.  For example, if we were 95 percent  confident that the 1-sided lower bound of a failure rate for a particular  control is 3 percent, we would categorize that control activity as “effective”  because 3 percent is less than the 5 percent standard.  Similarly, if we were  95 percent confident that the 1-sided upper bound of a failure rate for a  particular control is 72 percent, we would categorize that control as  “ineffective” because 72 percent is greater than the 10 percent standard.
Table 12 shows the results of our test of the key control related to the  authorization of travel—approved travel orders were prepared prior to  dates of travel.
Table 13 shows the results of our test for effectiveness of controls in place  over the accuracy of travel voucher payments.  Our test work included  determining whether (1) the travel voucher information was consistent  with dates and locations of travel authorized on the related travel order,  (2) per diem was paid in the proper amount, and (3) transactions for  lodging, air fare, and other expenses over $75 were supported by required  receipts.
Table 14 shows the results of our tests of key controls related to timely  processing of claims for reimbursement of expenses related to government  travel—timely submission of the travel voucher by the employee.
Table 15 shows the results of our tests of key controls related to timely  processing of claims for reimbursement of expenses related to government  travel—timely travel voucher approval and payment processing.  To  determine if cardholders were reimbursed within 30 days, we used the  DFAS payment dates.  We did not independently validate the accuracy of  these reported payment dates.
We briefed DOD managers, including DFAS officials in DOD’s Office of the  Under Secretary of Defense (Comptroller) and Air Force officials in the  office of the Assistant Secretary of the Air Force (Financial Management  and Comptroller); and unit commanders; comptrollers; and installation  agency program coordinators on the details of our audit, including our  findings and their implications.  On November 26, 2002, we requested  comments on a draft of this report.  We received oral comments on  December 17, 2002, and have summarized those comments in the “Agency  Comments and Our Evaluation” section of this report.  We conducted our  audit work from January 2002 through mid-November 2002 in accordance  with U.S. generally accepted government auditing standards, and we  performed our investigative work in accordance with standards prescribed  by the President’s Council on Integrity and Efficiency.
section_title: Air Force Major Command Delinquency Rates
paragraphs: Table 16 shows the travel card delinquency rates for Air Force’s major  commands (and other Air Force organizational units at a comparable level)  that had outstanding balances over $1 million during the 2-year period  ending March 31, 2002.  Commands with a March 31, 2002, balance  outstanding under $1 million have been combined into “all other  commands.”  The Air Force’s commands and other units are listed in  descending order based on their respective delinquency rates as of   March 31, 2002.
Table 17 shows outstanding balances and delinquency rates by major  command listed in descending order of outstanding balances as of March  31, 2002.
section_title: Air Force Personnel Grade, Rank, and Associated Basic Pay Rates
paragraphs: Tables 18 and 19 show the grade, rank (where relevant), and the associated  basic pay rates for 2001 for Air Force’s military and civilian personnel.  The  basic 2001 pay rates shown exclude other considerations such as locality  pay and any allowances for housing or cost of living.
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: Staff making key contributions to this report include:  Mario L. Artesiano,  Paul S. Begnaud, Bertram J. Berlin, Fannie M. Bivins, Francine M.  DelVecchio, Donald H. Fulwider, C. Robin Hodge, Woodward H. Hunt,  Jeffrey A. Jacobson, Jr., Jonathan T. Meyer, Sue Piyapongroj, John R. Ryan,  Sidney H. Schwartz, Robert A. Sharpe, Bennet E. Severson, and Lisa M.  Warde.
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