Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse
Published: 2002-12-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Poor oversight and management of DOD's travel card program has led to high delinquency rates, costing DOD millions in lost rebates and increased ATM fees. As a result, the Congress asked GAO to report on (1) the magnitude, impact, and cause of delinquencies, (2) the types of fraudulent and abusive uses of the travel card, and (3) the effectiveness of internal controls over DOD's travel card program. GAO previously reported on travel card management at the Army. This report focuses on travel card management at the Navy, including the Marine Corps.
section_title: What GAO Found
paragraphs: As of March 31, 2002, over 8,000 Navy cardholders had $6 million in delinquent debt. For the prior 2 years, the Navy's average delinquency rate of 12 percent was nearly identical to that of the Army, which had the highest federal agency delinquency rate. Since November 1998, Bank of America had charged off nearly 14,000 Navy accounts totaling almost $17 million, and placed many more in a salary offset program similar to garnishment. During the period covered under this review, over 250 Navy personnel might have committed bank fraud by writing three or more nonsufficient fund (NSF) checks to Bank of America. In addition, as shown in the table, many cardholders abusively used the card for inappropriate purchases including prostitution and gambling without Navy management being aware of it. Many of these purchases were made when individuals were not on travel. The Navy's overall delinquency and charge-off problems were primarily associated with lower-paid, low-to midlevel enlisted military personnel. A significant relationship also existed between travel card fraud, abuse, and delinquencies and individuals with substantial credit history problems. For example, some cardholders had accounts placed in collections while others had filed bankruptcies prior to receiving the card. The Navy's practice of authorizing issuance of the travel card to virtually anyone who asked for it compounded these problems. We also found inconsistent documented evidence of disciplinary actions against cardholders who wrote NSF checks, or had their accounts charged off or put in salary offset. Further, almost one-half of these cardholders still had, as of August 2002, active secret or top-secret clearances. Other control breakdowns related to the Navy's failure to provide the necessary staffing and training for effective oversight, and infrequent, or nonexistent, monitoring of travel card activities. As a result of these and similar findings in the Army travel card program, the recently enacted fiscal year 2003 Defense Appropriations Act included provisions requiring the Secretary of Defense to establish guidelines and procedures for disciplinary actions and to deny issuance of the travel card to individuals who are not creditworthy.

section_title: Letter
paragraphs: On October 8, 2002, we testified before the Subcommittee on Government  Efficiency, Financial Management and Intergovernmental Relations, House  Committee on Government Reform, on the results of our audit of internal  controls over travel activity at the Department of the Navy (including the  United States Marine Corps).  During fiscal year 2001, the Navy had about  395,000 individually billed travel card accounts and $510 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 to the card issuer, Bank of America.  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 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 (see app. I for additional background information on  the Navy’s travel card program).  While we support the use of a travel card  program to streamline the administration of official government travel, it is  important that agencies have adequate internal controls in place to protect  the government from fraud, waste, and abuse.
This work was performed in response to your request for a comprehensive  examination of the Department of Defense’s (DOD) and the military  services’ purchase and travel card programs.  We have previously reported  on the results of our Army travel card audit and will be reporting on the  results of our Air Force travel card audit.  This report provides details and  results of our Navy travel card audit, which was summarized in our recent  testimony.
The objectives of our audit of the Navy’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 Navy  travel card accounts, along with an analysis of related causes and DOD and  Navy corrective actions, (2) whether indications existed of potentially  fraudulent and abusive activity related to the Navy travel cards, and (3) the  effectiveness of the overall control environment and key internal controls  for the Navy’s travel program.  To achieve these objectives, we analyzed the  Navy’s account delinquency and charge-off information and compared it to  that of non-Navy DOD components and other federal agencies.  We also  used data mining techniques to review Navy transactions for potential  fraud and abuse.  In addition, we evaluated the effectiveness of selected,  specific internal control policies, procedures, and activities at 3 Navy  installations, representing 3 of the Navy’s 27 major commands.
We selected the three installations we audited based on the relative amount  of travel card activity at the different Navy commands and of the  installations under these commands, the number and percentage of  delinquent accounts, and the number and percentage of charged-off  accounts.  For these installations, we tested a statistical sample of travel  card transactions and conducted other audit work to evaluate the design  and implementation of key internal control procedures and activities.  Our  statistical sample test results can be projected only to the individual  installations where we performed the testing and cannot be projected to  the command level or to the Navy as a whole.  Through auditing travel card  transactions at the three installations during fiscal year 2001, and data  mining of transactions incurred throughout the Navy during fiscal year  2001 and the first 6 months of fiscal year 2002, we identified numerous  examples of potentially fraudulent and abusive travel card activity.   However, our work was not designed to identify, and we cannot determine,  the extent of potentially fraudulent and abusive activity.  Appendix II  provides details on our scope and methodology.
We conducted our audit work from December 2001 through October 2002  in accordance with U.S. generally accepted government auditing standards,  and we performed our investigative work in accordance with standards  prescribed by the President’s Council on Integrity and Efficiency.  We  received written comments on a draft of this report from the Under  Secretary of Defense (Comptroller) dated December 5, 2002.  We addressed  DOD’s comments in the “Agency Comments and Our Evaluation” section  and reprinted them in appendix V.
subsections: section_title: Navy Has High Delinquency and Charge-off Rates but Recent Actions Have Resulted in Some Improvements
paragraphs: The Navy’s delinquency rate was slightly lower than the Army’s, which is  the highest delinquency rate in the federal government.  Cumulative Navy  charge-offs since the inception of the Bank of America travel card program  in November 1998 were nearly $16.6 million.  As discussed in further details  in the following sections of this report, weaknesses in the Navy’s overall  control environment and a lack of front-end controls over travel card  issuance and use exacerbated the Navy’s delinquency problems.  Without  proper management control, demographics such as the age and pay rates of  Navy personnel also contributed to delinquencies and charge-offs.  These  problems have led to contract modifications with Bank of America that  resulted in the Navy, the federal government, and the taxpayers losing  millions of dollars in rebates, higher fees, and substantial resources spent  pursuing and collecting on past due accounts.
DOD and the Navy have taken a number of positive actions to address the  Navy’s high delinquency and charge-off rates, and results from the first half  of fiscal year 2002 showed a significant drop in charged-off accounts.  Most  of this reduction could be attributed to a salary and military retirement  offset program, which began in November 2001.  DOD and the Navy also  encouraged cardholders to voluntarily use the split disbursement payment  process (split disbursements) to direct that a portion or all of their  reimbursements be sent directly to the bank for payment of their travel  card bills.  The Navy also increased management attention and focus on the  delinquency issue.  However, except for split disbursements, the Navy’s  actions primarily address the symptoms of delinquency and charge-offs  after they had already occurred.  Control weaknesses remain in the front- end management of the travel card program, such as issuing the cards and  overseeing the proper use of the cards.
subsections: section_title: The Navy’s Delinquencies and Charge-offs
paragraphs: Over the last 2 years, the Navy’s delinquency rate fluctuated from 10 to 18  percent and on average was 5.6 percentage points higher than other non- Army DOD components and 6 percentage points higher than non-DOD  federal civilian agencies.  As of March 31, 2002, over 8,000 Navy  cardholders had collectively $6 million in delinquent debt.  As discussed  below, the nature of the Navy’s mission, which requires personnel in certain  Navy commands to travel often for training and preparation for  deployment, contributes, at least in part, to the Navy’s high delinquency  rate.  Figure 1 compares delinquency rates among the Navy, Army, other  DOD, and the 23 largest civilian agencies.
Since Bank of America took over the DOD travel card contract on  November 30, 1998, Bank of America has charged off over 13,800 Navy  travel card accounts with nearly $16.6 million of bad debt.  Table 1 provides  a comparison of cumulative charge-offs, recoveries, and delinquencies by  military service as of March 31, 2002.
section_title: Age and Pay Grade 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 2, the Navy’s delinquency and  charge-off problems are primarily associated with low- and midlevel  enlisted military personnel grades E-1 to E-6, with relatively low incomes  and little experience in handling personal finances.
Available data indicate that military personnel grades E-1 (seaman recruit  in the Navy or private in the Marine Corps) to E-6 (petty officer first class in  the Navy or staff sergeant in the Marine Corps) account for about 78  percent of all Navy military personnel.  These enlisted military personnel  have basic pay levels ranging from $12,000 to $27,000.  These individuals  were responsible for 40 percent of the total outstanding Navy travel card  balances as of September 30, 2001.
Figure 3 compares the delinquency rates by military rank and civilian  personnel to the Navy’s average delinquency rate as of September 30, 2001.   As shown, the delinquency rates were as high as 34 percent for E-1 to E-3  military personnel and 20 percent for E-4 to E-6 military personnel,  compared to the Navy’s overall delinquency rate of 12 percent.  These rates  were markedly higher than the rates for officers, which ranged from a low  of 1 percent for O-7 to O-10 (admirals in the Navy or generals in the Marine  Corps) to a higher 8 percent for O-1 to O-3 (ensign to lieutenant in the Navy  or second lieutenant to captain in the Marine Corps).  These rates were also  substantially higher than that of Navy civilians, which at 5 percent was  comparable with the federal civilian agencies rate shown in figure 1.
The delinquency rate of military personnel E-4 to E-6 in particular had an  important negative impact on the Navy’s delinquency rate.  Specifically,  these are petty officers in the Navy and corporals to staff sergeants in the  Marine Corps.  Pay levels for these personnel, excluding supplements such  as housing, ranged from approximately $18,000 to $27,000.  These  individuals also traveled often.  As shown by Bank of America data,  personnel E-4 to E-6 accounted for 36 percent of the total Navy outstanding  balance, which was higher than the outstanding balance of all other  military and civilian personnel.  This combination of high outstanding  balance and high delinquency rate largely explained the high Navy  delinquency rate.
As shown in figure 4, charged-off amounts for military personnel grades E-1  to E-6 during fiscal year 2001 totaled more than $3.6 million.  This  represented 72 percent of the almost $5 million in total Navy charge-offs  during fiscal year 2001.
According to Navy representatives, these individuals often had little  experience handling personal resources.  Although their basic pay rates are  supplemented with housing and food allowances, the low salaries may not  permit payment of excessive personal charges on travel cards.  If these  individuals get into financial difficulty, they have fewer resources at their  disposal to pay their travel card balances in full every month.  Also, if  cardholders in these lower grade levels do not receive their travel card  reimbursements promptly because of either delays in filing their vouchers  or voucher processing, they may lack the financial resources to make  timely payments on their travel card accounts.  In addition, as discussed  later in this report, the Navy did not exempt personnel with poor credit  histories from required use of travel cards.  Consequently, these low- and  midlevel enlisted military personnel are often issued travel cards even  though some may already be in serious financial trouble and, therefore,  may not have been appropriate credit risks.  Lack of adequate training and  the failure to adequately monitor travel card use may also have  exacerbated the delinquency rates for these individuals.
section_title: Delinquency Rates Vary Across Navy Commands
paragraphs: Navy delinquency rates also varied widely across commands.  Table 2  shows the outstanding balance and delinquency rates of major Navy  commands as of March 31, 2002.  As shown, the delinquency rates as of  March 31, 2002, ranged from 22 percent for the Naval Reserve Force to as  low as 2 percent for four commands, including the Naval Air Systems  Command.  Table 2 also shows that high credit card activity was not  necessarily associated with high delinquency rates.  In fact, some Navy  commands with high credit card activity also had low delinquency rates.
The six major commands with the highest delinquency rates—ranging from  22 to 12 percent—as of March 31, 2002, were the Naval Reserve Force, the  U.S. Atlantic Fleet, the U.S. Pacific Fleet, U.S. Marine Corps Forces Pacific,  U.S. Marine Corps Forces Atlantic, and Marine Forces Reserve.  Navy  officials expressed the belief that demographics and logistics were  important contributing factors to these high delinquency rates.  According  to Navy officials, Atlantic and Pacific fleet personnel, as well as Marine  Corps Forces Atlantic and Pacific, travel frequently for training and  preparation for deployment.  Because they are always on the move, these  individuals might not be filing vouchers and making payments in a timely  manner.  In addition, fleet personnel often consist of low- and midlevel  recruits, demographics which, as discussed previously, are a contributing  factor to the high delinquency rate.
Navy officials attributed the delinquency problems with the reserve forces  to logistics of a different kind.  Reserve forces are spread throughout the  country and report to duty only once a month.  Reservists typically fill out  their vouchers when they return home and then mail them to the  processing centers, sometimes weeks after the training.  According to Navy  officials, the high delinquency rates in the reserve forces could be  attributed partly to the fact that some had not received travel  reimbursement by the time their bills became delinquent.
In contrast, some commands, such as Naval Sea Systems Command and  Naval Air Systems Command, had large numbers of travel card accounts  and high travel card activity, yet low delinquency rates.  According to Navy  officials, this is because personnel in these commands are typically  civilians, are older and more mature, and therefore are better at managing  their finances.  These demographic factors, coupled with the fact that these  sites typically have full-time APCs and a better control environment, may  explain why their delinquency rates are lower than the Navy average, and  sometimes even lower than the average rate for federal civilian agencies.
The case study sites we audited followed the pattern described above.  For  example, at Camp Lejeune, a principal training location for Marine air and  ground forces, over one-half of the cardholders are enlisted personnel.   Representative of the Navy’s higher delinquency rate, Camp Lejeune’s  quarterly rates over the 18 months ending March 31, 2002, averaged over 15  percent.  As of March 31, 2002, the delinquency rate at this site was nearly  10 percent.  In contrast, at Puget Sound Naval Shipyard, where the mission  is to repair and modernize Navy ships, civilian personnel earning more than  $38,000 a year made up 84 percent of total government travel cardholders  and accounted for 86 percent of total fiscal year 2001 travel card  transactions.  This site’s delinquency rate had declined to below 5 percent  as of March 31, 2002.
section_title: High Delinquency and Charge-off Rates Have Resulted in Increased Costs to the Government
paragraphs: High delinquencies and charge-offs have resulted in increased costs to the  Navy.  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 have cost  the Navy an estimated $1.5 million in lost rebates on combined individually  and centrally billed accounts in fiscal year 2001 alone and will cost, in  addition, about $1.3 million in automated teller machine (ATM) fees  annually.  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 must be 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.
subsections: section_title: Dispute between Contractor and DOD
paragraphs: Unexpectedly high defaults by DOD’s travel cardholders, including the  Navy’s, 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 because of required  “contract and program management policies and procedures” associated  with higher-than-anticipated credit losses, because 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 reduce its financial risk 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 participating in split disbursements, in  which the government sends part or all of the travel voucher  reimbursements directly to Bank of America.
section_title: Effect of Increased Fees
paragraphs: One of the terms of the renegotiated task order between Bank of America  and DOD 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 Navy reimburses all cash advance fees related to authorized  cash withdrawals.  We estimate that this contract modification will result in  approximately $1.3 million of increased costs to the Navy each year.  Our  estimate was made by applying the new fee structure that went into effect  in August 2001 to cash advances made throughout fiscal year 2001 to  ascertain how much more Bank of America would have charged.  Other fee  increases agreed to in the renegotiation, such as the fee for expedited  travel card issuance, will also result in additional costs to the Navy.
section_title: Delinquent Account Payment Affects Rebates to the Navy
paragraphs: The GSA master contract modification also changed the rebate calculation,  making it imperative that the Navy improve its payment rates to receive the  full benefits of the program.  Under the GSA master contract, credit card  companies are required to pay a quarterly rebate, also known as a refund,  to agencies and GSA 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 on time.  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 rebates that the  Navy received as a result of combined individually and centrally billed net  sales in fiscal year 2001.  In fiscal year 2000, the Navy received  approximately $2.0 million in rebates from the travel card program.  In  contrast, in fiscal year 2001, the Navy collected only about $800,000 of the  $2.3 million in rebates that we estimated it would have received, based on  fiscal year 2001 net sales, had individually billed account payments been  timely.  This is due to a contract modification in January 2001, which  changed the way rebates were calculated.  In fact, during the first quarter of  fiscal year 2001, the Navy collected almost $470,000 in total rebates from  Bank of America.  However, rebates for the last three quarters affected by  the contract change had dwindled to $351,000.
section_title: Navy and DOD Have Taken Steps to Reduce Delinquencies and Charge- offs, but Additional Actions Are Needed
paragraphs: The Navy has taken a number of positive actions to address its high  delinquency and charge-off rates, and results from the first half of fiscal  year 2002 showed a significant drop in charged-off accounts.  Most of this  reduction may be attributed to a salary and military retirement payment  offset program—similar to garnishment—started in November 2001.  Other  Navy actions included increasing the use of split disbursements, in which  Navy disburses a portion of a travel reimbursement directly to the bank  (instead of sending the entire amount of the reimbursement to the  cardholder), and increased management attention and focus on  delinquency.  Except for split disbursements, the actions primarily  addressed the symptoms, or back-end result, of delinquency and charge- offs after they have already occurred.  As noted in the remaining sections of  this report, the Navy has significant control weaknesses, particularly with  respect to the front-end management of the travel card program, such as  issuing the cards and overseeing their proper use, which it has not yet  effectively addressed.
subsections: section_title: Charge-offs Have Decreased
paragraphs: As shown in figure 5, the amount of charge-offs has decreased substantially  at the same time that recoveries have increased.  At the start of fiscal year  2001, the charge-off balance greatly exceeded the recovery amount.   Starting in the third quarter of fiscal year 2001, the amount charged off  started to decline and by the quarter ended December 31, 2001, the amount  charged off was about the same as the recovery amount.  By March 31,  2002, recoveries for the first time exceeded the charged-off amount.
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 card as a result of delinquencies not disputed by the  employee.  The salary and military retirement offset program was  implemented DOD-wide.
DOD’s offset program came into being as part of the task order  modification.  From April to August 2001, DOD and Bank of America  worked together to establish program protocols.  Starting in August 2001,  Bank of America sent demand letters to cardholders whose accounts were  more than 90 days delinquent.  The Defense Finance and Accounting  Service (DFAS) 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  in December 2001.  Bank of America can also use the offset program to  recover amounts that were previously charged off.  January 2002 was the  first month in which Bank of America requested offsets for accounts that  had already been charged off.
The offset program works as follows.  When an account is 90 days  delinquent, Bank of America is to 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 requested for offset.  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 cannot be accepted.  According to a DFAS official, as of  July 2002, 1,002 of 1,227 DOD bargaining units have agreed to participate  in the program.
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 (i.e., active, reserve, retired military, or civilian) systems  cannot be accepted for offset.
Civilian retirees were not subject to offset during the period covered by  our audit.  The authorizing statutes for both the Civil Service Retirement  System and the Federal Employees Retirement System specify that  retirement benefits may be offset only to the extent expressly  authorized by federal statutes.  TTRA, Section 2, provides authority to  offset salaries of “employees” of agencies but does not provide such  authority for civilian employee retiree annuitants.  However, Public Law  107-314 authorizes the Secretary of Defense to offset delinquent travel  card debt against the retirement benefits of DOD civilian retirees.
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 monthly for military personnel and retirees and biweekly for  civilian personnel.
According to DFAS, from October 2001 through July 2002, Bank of America  referred 53,462 DOD-wide cases with debt of approximately $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 Navy-specific cases forwarded by Bank of America were not  available.  From November 2001 through July 2002, DFAS collected  approximately $5.2 million from active and retired Navy military personnel  through the offset program.  Although DFAS was unable to break down the  amount of civilian offset by military service, the amount collected from all  DOD employees was $1.6 million during the same period.  The salary and  retirement offset program is expected to continue to reduce the amount of  accounts that need to be charged off, at the same time increase the amount  of recoveries.
section_title: Split Disbursement Payment Process
paragraphs: DOD has recently encouraged cardholders to make greater use of split  disbursements, a payment method by which cardholders elect to have all or  part of their reimbursement sent directly to Bank of America.  A standard  practice in many private sector companies, split disbursements have the  potential to significantly reduce delinquencies.  However, during the period  covered by our audit no legislative authority existed requiring the use of  split disbursements by Navy employees. This practice was voluntary,  resulting in a low participation rate.  As shown by Bank of America data,  only 14 percent of fiscal year 2001 travel card payments were made using  this method.  Although payments made through split disbursements have  increased during the first three quarters of fiscal year 2002, they made up  only 25 percent of all travel card payments.
Our report on the Army travel card program included a matter for  congressional consideration that would authorize the Secretary of Defense  to require that employees’ travel allowances be used to pay the travel card  issuers directly for charges incurred using the travel card. We believe that  this action would help to reduce DOD’s travel card delinquency and charge- off rates.  Public Law 107-314 authorized the Secretary of Defense to  require split disbursement for all DOD travel cardholders.
section_title: Management Focus and Attention
paragraphs: The Navy has also initiated actions to improve the management of travel  card usage.  The Navy’s three-pronged approach to address travel card  issues is as follows:  (1) providing clear procedural guidance to APCs and  travelers, available on the Internet, (2) providing regular training to APCs,  and (3) enforcing proper use and oversight of the travel card through data  mining to identify problem areas and abuses.  Noting that the delinquency  rates for many Navy commands still exceeded the Navy’s established goal  of no more than 4 percent, the Assistant Secretary of the Navy, Financial  Management and Comptroller, in April 2002 issued a memorandum on  travel card control procedures and policies.  This memorandum addressed  a number of travel card issues, including (1) requiring that the travel card  be deactivated when employees are separated from the service, (2)  changing the definition of infrequent travel to traveling four times or less a  year, (3) lowering the delinquency goal to 4 percent, (4) deactivating all  cards whenever the cardholders are not scheduled for official travel, and  (5) requiring spot checks for travel card abuse.  The Assistant Secretary  also required all units with delinquency rates higher than 4 percent to take  immediate actions to lower the delinquency rates and to report on these  results within 30 days of receiving the memorandum.
Further, the DOD Under Secretary of Defense (Comptroller) created a  DOD-wide Charge Card Task Force in March 2002 to address management  issues related to DOD’s purchase and travel card programs.  The task force  issued its final report on June 27, 2002.  We have reviewed the report and  believe that many of the actions proposed by the task force will improve  the controls over the travel card program.  Important task force  recommendations include canceling inactive accounts and expanding the  salary offset program.  However, actions to implement additional front-end  or preventive controls, such as strengthening the critical role of the APCs  and denying cards to individuals with prior credit problems, were not  addressed in the report.  We believe that strong preventive controls will be  critical if DOD is to effectively address the high delinquency rates and  charge-offs, as well as the potentially fraudulent and abusive activity  discussed in this report.
section_title: Potentially Fraudulent and Abusive Travel Card Activity
paragraphs: Our review identified numerous instances of potentially fraudulent and  abusive activity associated with the Navy’s travel card program during  fiscal year 2001 and the first 6 months of fiscal year 2002.  For purposes of  this report, cases where cardholders wrote three or more NSF checks or  wrote checks on closed accounts to pay their Bank of America bill were  characterized as potentially fraudulent.
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,  thus benefiting personally.   In addition, some of the travel card activity that  we categorized as abusive may be fraudulent if it can be established that  the cardholders violated any element of federal or state criminal codes.   Failure to implement controls to reasonably prevent such transactions can  increase the Navy’s vulnerability to additional delinquencies and charge- offs.
subsections: section_title: Potentially Fraudulent Transactions
paragraphs: Our review identified numerous examples of potentially fraudulent activity  where the cardholders wrote checks against closed checking accounts or  repeatedly wrote NSF, or “bounced,” checks as payment for their travel  card accounts.  Knowingly writing checks against closed accounts or  writing three or more NSF checks may be bank fraud under 18 U.S.C.  1344.  Further, it is a violation of the Uniform Code of Military Justice  (UCMJ) article 123a when a soldier makes, draws, or utters (verbally  authorizes) a check, draft, or order without sufficient funds and does so  with intent to defraud.  During fiscal year 2001 and the first 6 months of  fiscal year 2002, in total over 5,100 Navy cardholders wrote NSF checks, or  made NSF payments by phone, as payment to Bank of America for their  travel card bills.  Of these, over 250 might have committed bank fraud by  writing three or more NSF checks to Bank of America during either fiscal  year period.  Table 3 shows the 10 cases we selected for review where the  cardholders wrote three or more NSF checks to Bank of America, and their  accounts were charged off or placed in salary offset or another fixed pay  agreement due in part to repeated use of NSF checks.  We have referred the  cases in which potential bank fraud has occurred to the Navy Criminal  Investigation Service for further review.
The 10 cardholders in table 3 wrote a total of 107 checks that were returned  by Bank of America because they were NSF, drawn on closed accounts,  and/or had payments stopped for other reasons.  These checks totaled over  $211,000.  Eight of the 10 cardholders had significant credit problems prior  to card issuance, such as bankruptcies, charged-off credit card accounts,  accounts in collection, and serious delinquencies.  Two of the cardholders  did not have credit problems prior to card issuance; however, one of these  two experienced serious financial problems after issuance of the Bank of  America travel card.  The following provides illustrative detailed  information on two of these cases.
Cardholder #1 was a petty officer second class with the U.S. Pacific  Fleet in Honolulu.  The cardholder wrote 12 NSF checks totaling more  than $61,000 for payment on his Bank of America travel card account.   These checks were written partly to cover charges incurred while on  official travel, but records showed that the cardholder made many more  charges at convenience stores, restaurants, gas stations, and travel  agencies in the vicinity of his hometown.  An examination of the  cardholder’s credit history also revealed that, prior to receiving his  government travel card in May 2000, the cardholder had multiple charge- offs, in addition to filing personal and business bankruptcies.  Despite  his financial history, the cardholder was issued a standard card, instead  of a restricted card with a lower credit limit.
From March 2001 through December 2001, the cardholder wrote about  one NSF check a month, with three of these NSF checks, totaling more  than $12,500, written in the month of December 2001 alone.  Financial  industry regulations require that an account be credited immediately  upon receipt of a check.  Consequently, when Bank of America posted  the NSF checks, the account appeared to have been paid, which  provided credit to the cardholder to make additional purchases.  Thus,  by writing NSF checks, and submitting NSF payments over the phone,  which Bank of America had to credit to his travel card account, the  petty officer was able to, in effect, increase his credit limit to more than  $20,000—a practice known as “boosting.”  He used each of these  successive increases in his effective credit limit to charge additional  items on his travel card.  Thus, despite the repeated NSF checks written  throughout 2001, the individual was able to continue making charges  through December 2001.
The cardholder’s APC did not know of the NSF check problems until  Bank of America notified him of the fact.  Because the cardholder was  considered a good sailor, he was given administrative counseling for  potential fraud and abuses related to his travel card.  The terms of the  administrative counseling specified that the cardholder would face an  administrative discharge in case of continued abuse of the credit card  or any other misconduct.
Cardholder #5 was a petty officer (E-5) assigned to the Naval Reserve  Forces in San Jose, California.  Prior to receiving the Bank of America  travel card in June 2000, the individual had a number of unpaid accounts  with other creditors.  The individual was given a restricted card, which  should have been issued in “inactive” status and only activated when  needed for travel.  However, records showed that the cardholder was  able to make about 130 separate purchases and ATM transactions in the  vicinity of his hometown while not on official travel.  These transactions  totaled more than $5,000.  In addition, from September 2000 through  December 2001, the cardholder wrote eight NSF checks and one stop  payment check totaling $20,052 to Bank of America.  During fiscal year  2001, not a single valid payment was made to Bank of America for this  account.  The cardholder had an unpaid balance of $4,589 at the time his  account was charged off in July 2002.  The cardholder also had three  other unrelated charge-offs to accounts other than the government  travel card in July 2002.
We found no documentation that disciplinary actions had been taken  against the cardholder.  The APC assigned to the cardholder told us that  he had received little training for his APC responsibility, which is a  collateral duty.  He recalled advising the cardholder once to pay off his  travel card balance.  Although a Bank of America official informed us  that access to NSF check information had been available to APCs since  2000, the APC said he was not aware of the NSF checks written by the  cardholder.  The APC also informed us that he was not aware that the  cardholder’s account was charged off until he was notified by Bank of  America.  Despite having his Bank of America account charged off and  other financial problems, the cardholder was recently promoted from  petty officer second class (E-5) to petty officer first class (E-6).  His  account had been referred to salary offset.
section_title: Abusive Travel Card Use
paragraphs: We found instances of abusive travel card activity by Navy cardholders that  covered charges for a wide variety of personal goods and services,  including prostitution, jewelry, gentlemen’s clubs, gambling, cruises, and  tickets to sporting and other events.  Further, we found abusive card  activities where (1) cardholders who were reimbursed for official travel did  not pay Bank of America and (2) cardholders used the card for personal  charges and failed to pay Bank of America.
subsections: section_title: Abusive Card Activities Related to Inappropriate Purchases
paragraphs: We found that the government cards were used for numerous abusive  transactions that were clearly not for the purpose of government travel.  As  discussed further in appendix II, we used data mining tools to identify  transactions we believed to be potentially fraudulent or abusive based  upon the nature, amount, merchant, and other identifying characteristics of  the transactions.  Through this procedure, we identified thousands of  suspect transactions.  Government travel cards were used for purchases in  categories as diverse as legalized prostitution services, jewelry, gentlemen’s  clubs, gambling, cruises, and tickets to sporting and other events.  In  addition, we found evidence that cardholders circumvented prescribed  ATM procedures by obtaining cash at adult entertainment establishments.
Table 4 illustrates a few of the types of abusive transactions and the  amounts charged to the government travel card in fiscal year 2001 and the  first 6 months of fiscal year 2002 that were not for valid government travel.   The number of instances and amount shown include cases in which the  cardholders paid the bills and where they did not pay the bills.
We found that Navy cardholders used their government travel cards to  purchase prostitution services.  We arrived at this information by first  identifying that two institutions frequented by Navy cardholders were  legalized brothels in Nevada.  Based on a price list provided by one of the  brothels, we eliminated transactions that were most likely for bar charges  and determined that 50 cardholders used their government travel card to  purchase over $13,000 in prostitution services.  These charges were  processed by the brothels’ merchant bank, and authorized by Bank of  America, in part because a control afforded by the merchant category code  (MCC), which identifies the nature of the transactions and is used by DOD  and other agencies to block improper purchases, was circumvented by the  establishments.  In these cases, the transactions were coded to appear as  restaurant and dining or bar charges.  For example, the merchant James  Fine Dining, which actually operates as a brothel known as Salt Wells Villa,  characterizes its services as restaurant charges, which are allowable and  not blocked by the MCC control.  According to one assistant manager at the  establishment, this is done to protect the confidentiality of its customers.   Additionally, the account balances for 11 of the 50 cardholders purchasing  services from these establishments were later charged off or put into salary  offset.  For example, one sailor, an E-2 seaman apprentice, charged over  $2,200 at this brothel during a 30-day period.  The sailor separated from the  Navy, and his account balance of more than $3,600 was eventually charged  off.
We also found instances of abusive travel card activity where Navy  cardholders used their cards at establishments such as gentlemen’s clubs,  which provide adult entertainment.  Further, these clubs were used to  convert the travel card to cash by supplying cardholders with actual cash  or “club cash” for a 10 percent fee.  For example, we found that an E-5  second class petty officer circumvented ATM cash withdrawal limits by  charging, in a single transaction, $2,420 to the government travel card and  receiving $2,200 in cash.  Subsequently, the club received payment from  Bank of America for a $2,420 restaurant charge.  Another cardholder, an E- 7 chief petty officer, obtained more than $7,000 in cash from these  establishments.  For fiscal year 2001 and through March 2002, 137 Navy  cardholders made charges totaling almost $29,000 at these establishments.
These transactions represented abusive travel card use that was clearly  unrelated to official government travel.  The standard government travel  card used by most Navy personnel is clearly marked “For Official  Government Travel Only” on the face of the card.  Additionally, upon  receipt of their travel cards, all Navy cardholders are required to sign a  statement of understanding that the card is to be used only for authorized  official government travel expenses.  However, as part of our statistical  sampling results at three Navy locations, we estimated that 7 percent of  fiscal year 2001 transactions at one site to 27 percent at another site were  for purposes not related to official travel, and therefore, were abusive.
Personal use of the card increases the risk of charge-offs related to abusive  purchases, which are costly to the government and the taxpayer.  Of the 50  cardholders who purchased prostitution services described above, 11 were  later charged off or put into salary offset.  As we discussed earlier in the  report, charged-off and delinquent accounts resulted in contract  modifications and other monitoring efforts, which have cost the Navy  millions of dollars.
section_title: Travel Card Abuse Due to Failure to Pay Bank of America Charges
paragraphs: Our work at three case study sites and our Navy-wide data mining  identified numerous examples of abusive travel card use where  cardholders failed to pay their travel card bills.  This abusive activity  included (1) authorized transactions incurred in conjunction with approved  travel orders where the cardholders received reimbursement but did not  pay the bills or (2) transactions incurred by cardholders that were not  associated with approved travel orders.  These accounts were subsequently  charged off or placed in salary offset or other fixed pay agreement.  In  many cases, APCs, commanders, and supervisors did not effectively  monitor travel card usage or take documented disciplinary actions against  cardholders.  Table 5 provides specific examples of cardholders who failed  to pay their travel card bills.
Eight of the 10 cardholders included in table 5 had significant credit  problems prior to card issuance, such as charged-off credit card accounts,  mortgage foreclosures, bankruptcies, serious delinquencies, unpaid  accounts, and referrals to collection agencies.  One cardholder had similar  problems subsequent to issuance of the Bank of America travel card.  The  following provides illustrative detailed information on abusive activities for  three of these cases.
Cardholder #1 was a sergeant (E-5) with the U.S. Marine Corps Reserve  assigned at Camp Lejeune.  Despite a history of credit problems, which  included several charged-off and delinquent commercial credit  accounts, Bank of America issued the cardholder a standard card, with a  credit limit of $10,000, in March 2000.  The cardholder was deployed to  Europe in August 2000 and his credit limit was increased to $20,000.   Within a month of his deployment, the cardholder had charged $10,700  to the card, including $8,500 in ATM withdrawals.  Although the  cardholder received reimbursements for his travel expenses, he failed to  settle his account in full.  In December 2000, the cardholder informed  the APC that his account was 30 days past due and promised to pay the  full outstanding balance.  He again failed to do so and his account  balance of $11,467 went delinquent in January 2001.  The APC did not  deactivate the travel card account but put the cardholder in “mission  critical” status as his tour in Europe was coming to a close.  The  cardholder’s credit limit was then raised to $25,000 to enable the  cardholder to return to the United States.  Consequently, when the  account was closed on February 8, 2001, the outstanding balance had  increased to $19,971.  The APC admitted to us that he failed to carefully  monitor this account.  No disciplinary action was taken against the  cardholder, who had returned to civilian life; however, judicial action  against the cardholder is pending.  We have referred this matter to  DOD’s Office of Inspector General for appropriate action.
In addition, our review indicated that the cardholder might have filed a  fraudulent travel voucher in January 2001.  This travel voucher claimed  reimbursement for expenses in Germany over the holiday period from  late December 2000 to early January 2001, allegedly for official  purposes.  However, Bank of America data showed that the government  travel card belonging to this cardholder was used to make transactions  in the vicinity of the traveler’s hometown during this holiday period.  It  appeared that the cardholder might have returned to the United States  for the holiday, yet continued to claim expenses as if he was still in  Germany, a potentially fraudulent act.
Cardholder #3 was a petty officer third class (E-4) assigned to the  LeMoore Naval Air Station in California.  Our review indicated that the  cardholder had numerous unpaid cable, medical, and communication  accounts and serious delinquency of more than $5,000 on his personal  credit card account prior to receiving the travel card.  The unit to which  the cardholder was assigned had a policy of activating the government  travel card only when a cardholder travels.  However, from February  through April 2001, while not on travel, the cardholder purchased over  $6,250 worth of electronic and computer equipment from Best Buy and  various Web sites using the government travel card.  The cardholder did  not pay his balance and thus came to the attention of the APC when his  name appeared in the delinquency report.  Upon determining that the  cardholder was able to use the card when not on travel, the APC  contacted Bank of America, which was unable to tell the APC who had  activated the account.  The cardholder’s balance of more than $8,000  was charged off, and he was granted an administrative separation in lieu  of a court-martial for offenses unrelated to the travel card misuse,  including absence without leave, making false statements, and stealing  government property of less than $100.
Cardholder #4 was a commander (O-5) with the Naval Reserves  assigned to the Naval and Marine Corps Reserve Center in Washington,  D.C.  Our review showed that Bank of America issued the cardholder a  standard card in May 2000, although the cardholder’s credit history  indicated serious financial problems before and at the time of card  issuance.  For example, in October 1998, the cardholder filed for  Chapter 7 bankruptcy with only $37,169 in assets against $542,063 in  liabilities.  Further, in January 2000, right before the Bank of America  card was issued, an account with a balance of more than $30,000 was  charged off.  This Navy commander continued, after the issuance of the  government travel card, a pattern of delinquencies on numerous  accounts, and in one instance had merchandise repossessed for  nonpayment.
During fiscal year 2001 and the first 3 months of fiscal year 2002, the  cardholder used the government travel card to make numerous  personal transactions.  Transactions included more than $1,400 to D.B.  Entertainment, which owns Baby Dolls Saloon, a gentlemen’s club in  Dallas, and more than $700 to Wearever cookware and Partylite Gifts, a  manufacturer of candles and candle accessories.  A delinquency letter  was sent to the cardholder on August 9, 2002, when the account was  120 days past due; however, no documentation existed to indicate that  any action was taken prior to this date.  Although the cardholder had  been placed in salary offset, no other disciplinary action had been taken  against the cardholder.
section_title: Travel Card Abuse Where Cardholder Paid Bank of America Charges
paragraphs: As discussed above, some individuals who used the card for improper  purposes paid their travel card bills when they became due.  We considered  these occurrences to be abusive travel card activity because these  cardholders benefited by, in effect, getting interest-free loans.  Personal use  of the card increases the risk of charge-offs, which are costly to the  government and the taxpayer.  In addition, the high rate of personal use is  indicative of the weak internal control environment and the failure of APCs  to monitor credit card activities, as discussed later in this report.
Table 6 provides examples of the types of abusive charges we found during  our review.
As shown in table 6, cardholders used their travel cards for a wide variety  of personal goods or services.  Some transactions were similar to the  services procured in table 4.  The cards were also used to purchase home  electronics, women’s lingerie, tax services, and in one instance, to make  bogus charges to the cardholder’s own business.  In this instance, an E-5  second class petty officer reservist, whose civilian job is with the U.S.  Postal Service, admitted making phony charges of over $7,200 to operate  his own limousine service.  In these transactions, the reservist used the  travel card to pay for bogus services from his own limousine company  during the first few days of the card statement cycle.  By the second day  after the charges were posted, Bank of America would have deposited  funds—available for the business’ immediate use—into the limousine  business’ bank account.  Then, just before the travel card bill became due,  the limousine business credited the charge back to the reservist’s  government travel card and repaid the funds to Bank of America.  This  series of transactions had no impact on the travel card balance, yet allowed  the business to have an interest-free loan for a period.  This pattern was  continued over several account cycles.  Navy officials were unaware of  these transactions until we brought them to their attention and are  currently considering what, if any, action should be taken against the  cardholder.
section_title: Few Documented Disciplinary Actions Taken against Cardholders Who Misused the Travel Card
paragraphs: It is critical that cardholders who misuse their travel cards are identified  and held accountable for their actions.  The DOD Financial Management  Regulation (FMR) states that “commanders or supervisors shall not  tolerate misuse of the DOD travel cards and cardholders who do misuse  their cards shall be subject to appropriate disciplinary action.”  However,  DOD and Navy policies and procedures do not define appropriate  disciplinary action to help ensure that consistent punitive actions are taken  against cardholders who abuse their travel cards.  Lacking such guidance,  disciplinary actions are left solely to the discretion of commanders and  supervisors.  As a result, we did not find documentation indicating that  commanders and supervisors took any disciplinary actions against almost  two-thirds of individuals we reviewed who abused or misused their cards  during fiscal year 2001 and the first 6 months of fiscal year 2002.  Failure to  identify and discipline abusive cardholders will likely result in the Navy  continuing to experience the types of potentially fraudulent and abusive  activity identified in our work.
For many cardholders we inquired about, the misue or abuse of the travel  card led Navy officials to counsel cardholders on proper use of the card  and the cardholders’ responsibility for timely payment of travel card bills.   We found only a few cases where the Navy court-martialed or issued  administrative warnings to individuals solely because of card misuse.  More  often than not, severe disciplinary actions were taken in response to travel  card abuse in conjunction with other more serious offenses—such as  failing to obey orders or unauthorized absences.  In these instances,  documented disciplinary actions included dismissal from the Navy.
At the sites we audited, the Navy could not provide documentation of  disciplinary actions taken against cardholders in 37 of the 57 NSF check  cases and charged-off or salary offset accounts we reviewed.  For example,  cardholder #9 in table 3, whose account was charged off for more than  $4,900, did not receive any disciplinary action.  Cardholder #5 in table 3 was  promoted after his unpaid account balance of almost $4,600 was charged  off.
Also, we found little evidence that cardholders faced adverse  consequences for personal use of the card as long as they paid their travel  card bills.  Of the 10 cases detailed in table 6, only 1 had evidence of  disciplinary action.  We saw few indications that supervisors were aware  that these abusive transactions occurred.  To the extent we found that  APCs or supervisors were aware of such travel card abuse, we saw little  evidence of disciplinary actions.
Further, we found that some individuals who abused their travel card  privileges held high-level positions, where they may have been responsible  for taking appropriate disciplinary action in response to travel card abuse  by personnel within their commands.  In instances where these individuals  abused the card, they rarely received disciplinary action.  For example, a  commander became severely delinquent in January 2002 after making more  than $2,000 in purchases of inappropriate items such as cookware and  adult entertainment.  However, there was no indication that this officer’s  superior was informed of his delinquency or misuse of the travel card until  the account was at least 120 days past due.  Consequently, although the  cardholder’s account was placed in salary offset, the cardholder was not  disciplined.
We have reported similar problems with the Army travel card program and  in our testimony on the Navy travel card program.  As a result, the fiscal  year 2003 Department of Defense Appropriations Act, Public Law 107-248,  contains provisions that address this problem.  Specifically, the Act  requires the Secretary of Defense to establish guidelines and procedures  for disciplinary actions to be taken against cardholders for improper,  fraudulent, or abusive use of the government travel card.
section_title: Cardholders with Credit Problems Continued to Have Active Security Clearance
paragraphs: We found that many cardholders who had abused the travel card or been  involved in potentially fraudulent activities continued to have active  security clearances.  Both DOD and Navy rules provide that an individual’s  finances are one of the factors to be considered in determining whether an  individual should be entrusted with a security clearance.  The U.S.  Department of the Navy Central Adjudication Facility (commonly referred  to as DON CAF) is responsible for issuing and updating security clearances  for Navy personnel.  Secret clearances are updated every 10 years and top- secret clearances are updated every 5 years.  During the interim periods,  Navy instructions require commanders of personnel with clearances, such  as secret or top secret, to submit to DON CAF any evidence of financial  irresponsibility on the part of an individual that would affect his or her  clearance.  Such evidence would include information on financial  impropriety, such as excessive indebtedness.  DON CAF is to evaluate this  information and determine whether to revoke or downgrade the clearance.
We found that commanders responsible for referring evidence of financial  irresponsibility to DON CAF were sometimes not aware of their  subordinates’ financial problems.  Consequently, Navy security officials  might not be in possession of all information necessary to assess an  individual’s security clearance.  Our audit found that 27 of 57 travel  cardholders we examined whose accounts were charged off or placed in  salary offset as of March 2002 still had active secret or top-secret security  clearances in August 2002.  These financially troubled individuals may  present security risks to the Navy.  We provided the information we  collected on individuals with charged-off accounts to DON CAF for its  consideration in determining whether to revoke, change, or renew the  individuals’ security clearances.
Further guidance for this procedure is also contained in the fiscal year 2003  Defense Appropriations Act.  In addition to requiring the Secretary of  Defense to establish guidance and procedures for disciplinary actions, 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: Weak Overall Control Environment and Ineffective Travel Card Program Controls
paragraphs: A weak overall control environment and ineffective internal controls over  the travel card program contributed to the potentially fraudulent and  abusive travel card activity and the Navy’s high rates of delinquency and  charge-offs.  The foundation of all other controls, a strong control  environment provides discipline and structure as well as the climate that  positively influences the quality of internal controls.  Although we observed  improvements in the first half of fiscal year 2002, we identified several  factors that contributed to a weak overall control environment for fiscal  year 2001, including, as discussed previously, few documented disciplinary  actions taken against cardholders who abused their travel cards and a lack  of management attention and focus on establishing and maintaining the  organizational structure and human capital needed to support an effective  Navy travel card management program.  We found that this overall weak  control environment contributed to design flaws and weaknesses in six  management control areas needed for an effective travel card program.   Specifically, we identified weaknesses in the Navy travel program controls  related to (1) travel card issuance, (2) cardholders’ training, (3) APCs’  capacity to carry out assigned duties, (4) procedures for limiting card  activation to meet travel needs, (5) procedures for terminating accounts  when cardholders leave military service, and (6) access controls over Bank  of America’s travel card database.
All six of these areas related to two key overall management weaknesses:   (1) lack of clear, sufficiently detailed Navy policies and procedures and   (2) limited travel card audit and program oversight.  First, during fiscal year  2001, the sites we audited used DOD’s travel management regulations DOD  FMR (Vol. 9, Ch.3) as the primary source of policy guidance for  management of Navy’s travel card program.  However, in many areas, the  existing guidance was not sufficiently detailed to provide clear, consistent  travel management procedures to be followed across all Navy units.   Second, as recognized in the DOD Inspector General’s March 2002  summary report on the DOD travel card program, “ecause of its dollar  magnitude and mandated use, the DOD travel card program requires  continued management emphasis, oversight, and improvement by the  DOD.  Independent internal audits should continue to be an integral  component of management controls.”  However, the DOD Inspector  General report noted that no internal review reports were issued from  fiscal year 1999 through fiscal year 2001 concerning the Navy’s travel card  program.  According to the NAS, no internal review report related to Navy’s  travel card had been issued since then.
subsections: section_title: Ineffective Controls over Issuance of Travel Cards
paragraphs: The Navy’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.  Similar to  what we found at Army, the Navy’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.  Although the DOD FMR  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 for personnel who are denied  travel cards for financial irresponsibility.  However, DOD’s policy is not  clear as to what level of financial irresponsibility by a travel card applicant  would constitute a basis for such an exemption.  We found no evidence that  the Navy exempted any individuals or groups from required acceptance  and use of travel cards, even those with histories of severe credit problems.
The DOD FMR 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 provide  to new DOD travel applicants.  While, as mentioned above, DOD FMR  would allow the Navy to exempt individuals with financial irresponsibility  from the use of the government travel card, in practice any applicant who  does not authorize a credit check, has no credit history, or has a history of  credit problems, is issued a restricted travel card with a $2,500 credit limit.   All other applicants are issued standard travel cards with a $10,000 credit  limit.  In January 2002, the Navy further reduced the credit limit on a  restricted travel card to $2,000 and the limit on a standard card to $5,000.   However, DOD and Navy policy also permit APCs to raise the credit and  ATM limits of all cards after they have been issued to meet travel and  mission requirements.
As discussed previously, many of the Navy travel cardholders that we  audited who wrote numerous NSF checks, were severely delinquent, or had  their accounts charged off had histories of delinquencies and charge-offs  relating to other credit cards, accounts in collection, and numerous  bankruptcies.  Our analysis of credit application scoring models and credit  risk scores used by major credit bureaus confirmed that applicants with  low credit scores due to histories of late payments are poor credit risks.   Credit bureau officials told us that if their credit rating guidelines for  decisions on commercial credit card application approvals were used to  make decisions on travel card applicants, a significant number of low- and  midlevel enlisted Navy 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,  individuals with no credit history, or little credit history, are generally  issued cards with lower credit limits, as reflected by current DOD policy.
By authorizing all individuals regardless of past credit history who apply  for cards to get them, the Navy has exposed the government to increased  losses from increased fees and lost rebates associated with these  individuals.  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.
Further, as a result of our audit findings and an amendment proposed by  Senators Byrd and Grassley, the fiscal year 2003 Department of Defense  Appropriations Act requires that the Secretary of Defense evaluate whether  an individual is creditworthy before authorizing the issuance of any  government travel charge card.  An individual found not to be creditworthy  may not be issued a government travel charge card.  Implementing  procedures to assess the creditworthiness of an individual prior to issuing a  credit card, and denying a credit card to anyone found not creditworthy as  required by the fiscal year 2003 Department of Defense Appropriations Act,  should improve delinquency rates and reduce fraud and abuse.
section_title: Inadequate Cardholder Training
paragraphs: The DOD FMR requires that APCs provide training to cardholders on the  proper use of the government travel card prior to card issuance.  The FMR  also requires DOD components to ensure that current cardholders are  informed of policy and procedure changes to the travel card program.   However, we found that the three case study sites we visited did not  provide consistent and periodic training to cardholders.  The APCs we  interviewed generally informed us that they viewed the signature on a  travel card application as indication that the cardholder had read, and  understood, the regulations governing the use of the government travel  card.  In addition, the APCs stated that the cardholders also received a  statement of understanding when they were issued a travel card.   Only one  APC informed us that she discussed travel card restrictions with employees  at the time they submitted the travel card applications, and that the fleet  support group periodically provided individuals with briefings on proper  travel card use.  The failure to provide standardized, consistent, and  periodic training on travel card procedures might have contributed, in part,  to high incidences of misuse because individuals did not fully understand  the rules governing travel card usage.
section_title: Unrealistic APC Performance Expectations
paragraphs: DOD policy provides that APCs are the primary focal points for day-to-day  management of the travel card program.  However, at units with low- and  midlevel military personnel who are often deployed, APC duties are  generally “other duties as assigned.”  This exacerbated an already existing  disposition towards delinquency of these individuals, as discussed above.
Further, the sheer number of responsibilities assigned to APCs, coupled  with issues concerning APC span of control and training, greatly affected  the APCs’ abilities to carry out their critical duties effectively.   Consequently, we found that APCs were generally ineffective in performing  their key travel card program management oversight duties.  However, the  proactive measures by a full-time APC contributed to a low delinquency  rate at one installation we audited.
subsections: section_title: APC Responsibilities
paragraphs: As prescribed by the DOD FMR, APCs “are responsible for the day-to-day  operations of the DOD Travel Card Program.”  DOD FMR volume 9, chapter  3, provides that APCs are responsible for a variety of key duties, including  establishing and canceling cardholder accounts, tracking cardholder  transfers and terminations, monitoring and taking appropriate actions with  respect to 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.
We found distinct differences in how APC duties were assigned at the three  case study sites.  At Camp Lejeune, a military installation, the six APCs that  we interviewed were primarily responsible for other duties.  For example,  some were assigned duties as personnel officers in units providing  specialized training for infantry and engineering.  These individuals’ APC  responsibilities were “other duty as assigned,” and most spent less than 20  percent of their time carrying out these duties.  Additionally, one APC  indicated to us that it was a challenge to keep up with his APC  responsibilities, mainly because he was expected first and foremost to  perform his primary duties.  In contrast, at Patuxent River and Puget Sound  Naval Shipyard, two installations with mainly civilian cardholders, the APC  role is a full-time post and therefore the APCs spend all of their time  carrying out APC responsibilities.
Most of the APCs at the case study sites focused monitoring efforts on  delinquencies, and rarely conducted detailed review of charge card  transactions.  All APCs have access to account transaction activity reports  and declination reports, which detail activities that were rejected by Bank  of America and thus would be useful in identifying individuals who might  have attempted to misuse the card.  One APC interviewed told us that  detailed transaction reviews were too time-consuming.  If she reviewed  account activities at all, it was in conjunction with, and after she had  identified delinquent accounts.  Failure to systematically and regularly  review transaction activities meant that most APCs were not able to  promptly detect, and therefore take further actions to prevent, abusive  travel card activity.  This is illustrated by the fact that personal use of the  card was estimated to be 27 percent at one site we audited.
In contrast, the APC at another case study site informed us that she  reviewed delinquency reports several times a month to identify and  promptly notify supervisors about the status of delinquent accounts.  She  also told us that, in addition, she monitored transactions in the Bank of  America database for improper and abusive uses of the card monthly, and  sent out notices to the cardholders and the cardholder supervisors if such  transactions were identified.  We believe these proactive actions  contributed to that site’s low delinquency rate and fewer incidences of  personal use.
Failure to review cardholder transactions and take action to address  inappropriate card usage can lead to delinquencies and account charge- offs.  For example, one APC was not aware that a cardholder within her  sphere of responsibility made 17 personal use transactions to Herbalife  International, as shown in table 6, from January 2001 to May 2001 until the  cardholder became delinquent in August 2001.  By that time, the cardholder  had charged over $6,750 to the vitamin company.  In another example, an  APC did not detect that a cardholder had misused his card to purchase over  $6,250 in electronic and computer equipment until he appeared in the  delinquency report.  His account balance of more than $8,000 was  subsequently charged off.
section_title: APC Span of Control
paragraphs: The DOD’s FMR guidance does not address the appropriate span of control  for an APC—the  number of cardholders that an APC should be responsible  for managing and overseeing.  A reasonable span of control is critical for  effective management and proper travel program oversight.  In addition,  because APC duties often are assigned as collateral duties, the span of  control should be commensurate with the time available to carry out APC  responsibilities effectively.  As shown in table 7, at the three sites we  audited, the average ratio of cardholders to APCs ranged from 214 to 1 to  5,984 to 1.
While table 7 shows the average span of control, the actual span of control  for the APCs at the three sites we audited ranged from a low of 25 to about  6,000 cardholders.  Bank of America guidance provides that an optimal  span of control is 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 management and oversight responsibilities  discussed previously if he or she, even working full time, has responsibility  for hundreds or thousands of cardholders.  In fact, the supervisor of one  APC with about 6,000 cardholders informed us that the APC simply did not  have time to systematically perform other types of monitoring beyond  identifying and notifying supervisors and commanders of delinquent  accounts.
Decisions on the optimal span of control must take into account not only  the number of accounts for which the APC has direct responsibility, but  also the number of accounts for which a lower-level APC has direct  responsibility.  For example, an APC at Patuxent River had direct  responsibility for 2,244 cardholders and oversight responsibility for  another 5,560 cardholders.
section_title: APC Training
paragraphs: Our internal control standards state that management’s commitment to  competence and good human capital practices are key factors in  establishing and maintaining a strong internal control environment.   Specifically, our standards provide that management identify appropriate  knowledge and skills required for various jobs and provide needed training.   They also state that establishing appropriate human capital practices,  including hiring, training, evaluating, counseling, and disciplining  personnel, is another critical environmental factor.
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 Navy 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.
We found that APC training had not been considered a priority.  Of the nine  APCs we spoke to, only one had received official APC training.  The other  eight told us they relied heavily upon on-the-job learning, trial and error, or  other program coordinators for advice on how to carry out their duties  when they assumed their APC responsibilities.  One full-time APC had been  in her position for more than 2 years but had not attended formal Bank of  America training, even though training seminars are offered annually.   Some APCs we interviewed indicated that they were not proficient in using  the tools available through the Bank of America Web-based system  containing travel card transaction data—Electronic Account Government  Ledger System (EAGLS)—to monitor cardholders’ travel activities.  The  lack of emphasis on training could negatively affect APCs’ ability to  monitor delinquencies and promptly detect and prevent potentially  fraudulent and abusive activities.  According to data provided by Bank of  America, as of May 2002 about 23 percent of the Navy’s APCs had never  logged on to EAGLS.
section_title: Controls over Activating/Deactivating Travel Cards to Meet Travel Needs
paragraphs: Allowing Navy travel cardholders to maintain accounts in an active status  when not needed for government travel unnecessarily increases the risk of  misuse—through cardholders either mistakenly or intentionally using the  card for personal purposes.  DOD’s FMR provides that restricted cards are  issued to cardholders in an “inactive” status and initially activated only  when the cardholders have authorized government travel needs.  Standard  cards, however, are “active” when they are issued to cardholders.  DOD  policy guidance does not address deactivating restricted and standard  travel cards when not needed for official purposes.
Lacking overall policy and procedural guidance in this area, we found  instances in which individual commands or sites established their own  practices for deactivating restricted cards when individuals were not on  travel.  In fact, APCs at the case study sites we audited informed us that  they generally deactivated restricted cards when individuals were not on  travel.  In contrast, during fiscal year 2001 and most of fiscal year 2002, the  standard cards were issued in an “active” status, and remained active when  individuals were not traveling.  Leaving cards in active status increased the  risk of misuse, as supported by our statistical sampling work, which  showed that most improper use occurred while the individuals were not on  official travel.  Recognizing this internal control weakness, the Navy issued  a directive in April 2002 requiring that the U.S. Marine Corps, which  continued to have a high delinquency rate, deactivate cards for all  personnel not scheduled for official travel.  The directive also required that,  once activated for official travel, the cards be deactivated immediately  upon the conclusion of official travel.
section_title: Exit Control Procedures for Separating Employees
paragraphs: We found that the Navy lacks clear, sufficiently detailed procedures that  would ensure that travel cards are deactivated or terminated when  cardholders leave the Navy.  DOD’s FMR provides that APCs are  responsible for terminating travel cards when cardholders retire, separate,  or are dismissed from DOD.  Operating procedures established by  individual Navy commands and installations to notify APCs in the case of  retirement or separation of employees were neither consistent nor  effective.  Controls were also ineffective in ensuring that prompt actions  were taken to deactivate or terminate cards even when the APC is notified.   Consequently, some cardholders’ accounts remained active, creating an  opportunity for abuse.
In general, the three case study sites had standard exit procedures, which  required a signature from the APC, or the unit where the APC worked,  before individuals could complete outprocessing.  The purpose of such  procedures is to ensure that travel cards are promptly deactivated or  closed.  However, our work found that these procedures were not always  followed.  For example, at one case study site, the APC is a checkpoint on  the checkout list, and cardholders are expected to obtain the APC’s  signature before completing outprocessing.  However, there was no control  at the unit where the cardholder turned in the checkout list to ensure that  the list was complete.  Consequently, the APC informed us that exit  procedures were not effective.
We also found that the Navy did not have procedures requiring periodic  comparisons between active travel card accounts and their employees to  ensure that accounts of separated or retired employees were closed.  All  three case study sites we visited maintained databases of their active  employees.  However, the APCs at these locations generally did not  compare these records against the list of active travel card accounts to  identify accounts that should have been deactivated and/or closed but  remained open.  Periodic reconciliation of the two lists would have enabled  these units to identify separated cardholders with active accounts so that  appropriate, timely actions could be taken.
Ineffective exit procedures and the inability to effectively identify and  terminate travel cards of individuals no longer in the Navy led to numerous  travel card abuses and charge-offs.  These separated Navy employees  benefited by using the travel cards to purchase a variety of goods and  services, possibly at discounted government rates.  Some did not pay their  monthly bills, thereby essentially obtaining the personal items for no cost.   The following cases are examples of what can happen when travel cards  are not effectively deactivated or closed upon separation.
In one Navy unit, a cardholder died in October 1999.  However,  ineffective controls over the notification process resulted in the APC not  being aware that this had occurred.  Therefore, the APC did not take  actions to close this individual’s government travel card account.   Consequently, in October 2000, when the old card was about to expire,  Bank of America mailed a new card to the address of record.  When the  card was returned with a forwarding address, the bank remailed the  card and the personal identification number, which is used to activate  the card, to the new address without performing other verification  procedures.  The card was activated in mid-December 2000, and within a  month, 81 fraudulent transactions for hotel, food, and gas totaling about  $3,600 were charged to the card.  In January 2001, in the course of her  monthly travel card monitoring, the APC noticed suspicious charges in  the vicinity of the cardholder’s previous post-of-duty.  The APC took  immediate action to deactivate the card, thus preventing additional  charges from occurring.  Upon finally learning of the cardholder’s death  from the cardholder’s unit, the APC immediately reported the case to a  Bank of America fraud investigator.  Investigations indicated that a  family member of the cardholder might have made these charges.  No  payment was ever made on this account, and the entire amount was  subsequently charged off.   We referred this case to the U.S. Secret  Service Credit Card Task Force for further investigation and potential  prosecution.
A chief warrant officer (W-3) at Naval Air Force, U.S. Atlantic Fleet,  repeatedly used his travel card after his retirement on December 1, 2000.   The cardholder currently works for a private company.  He used the  government travel card since his retirement to make charges totaling  more than $41,000 for hotels, car rentals, restaurants, and airline tickets  for personal and business purposes.  In a number of instances, the  cardholder was able to obtain the government rate—which can be  substantially lower than the commercial rate—for lodging in San Diego,  Philadelphia, and Cincinnati.  Because the Navy does not routinely  monitor cardholder transactions for abusive activity and because this  particular account was always paid in full, abusive activity was not  detected.  Bank of America data showed that the cardholder’s account  was still open in early September 2002 and thus available for further  charges.
In another instance, a mechanic trainee at the Puget Sound Naval  Shipyard was convicted of a felony for illegal possession of a firearm in  October 2000 and placed on indefinite suspension by his employer in  November 2000.  However, neither the security office, which took action  against the employee, nor the office where the individual worked  notified the APC to cancel or deactivate the cardholder’s government  travel card account.  Following his suspension, the cardholder used the  government travel card to make numerous cash withdrawals and  purchases totaling almost $4,700.  The APC was not aware of these  abusive charges until the monthly delinquency review identified the  account as delinquent.  The account balance of $1,600 was subsequently  charged off in January 2002.  Although security officers at the Puget  Sound Naval Shipyard referred the case to DON CAF in October 2000,  our work indicated that the employee, who was still in suspended status  as of August 2002, continued to maintain a secret clearance, despite the  travel card charge-off and felony conviction.
We also found instances where the APC did not promptly deactivate or  terminate the travel card upon being notified of an employee’s death,  retirement, dismissal, or separation from the Navy.  At one case study site,  we audited 10 accounts of employees who died, retired, separated, or were  otherwise removed since November 2000.  Of the 10, 4 cardholders  obtained signatures from the travel branch, where the APC works, upon  leaving the unit.  However, 3 of these 4 accounts were not deactivated or  terminated in a timely manner.  In one case, a cardholder continued to use  the card to make numerous charges totaling $4,900 for more than 9 months  following separation.  The cardholder failed to make timely payments on  her account and became delinquent in September 2001.  The APC did not  report this cardholder’s delinquent status to the appropriate unit supervisor  until the account was 90 days past due.  The supervisor stated that she took  actions to have the card deactivated immediately upon learning of the  delinquency.  The individual’s account was charged off on November 27,  2001, and as of July 13, 2002, had a remaining balance of $4,800.  Available  data also indicated that another cardholder who retired in August 2001  continued to maintain possession of an active card until September 2002,  although he did not use the card.  Failure to promptly deactivate or  terminate travel card accounts of individuals no longer with the Navy  increases the risk of delinquencies and charge-offs and can lead to  increased cost to the Navy.
section_title: Access Controls over Bank of America’s Travel Card System
paragraphs: Thousands of Bank of America and DOD employees have 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 access levels include customer-level access (APCs requiring access to  travel data for cardholders under their purview and individual travelers  requiring access to their own travel transaction histories) and bank  employee-level access (Bank of America employees may be granted one of  five different levels of access depending on their assigned duties).  The  highest level of Bank of America employee access to EAGLS is the “super  user” level.  According to Bank of America security officials, this level of  access—which provides users the ability to add, delete, or modify anything  in the system, including creating accounts and editing transaction data in  the system—should be granted to as few individuals as possible.
We found that 1,127 Bank of America employees had some level of access  to the EAGLS system, including 285 with super-user-level access.  After we  brought this matter to the attention of Bank of America security officials,  they reviewed employee access and deactivated access for 655 employees  that they determined should not have had any level of access.  This  included 22 employees with super-user 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: With the weak control environment and related program control  weaknesses we identified, it is not surprising that we found weaknesses in  the implementation of selected key control activities we statistically tested  at the three Navy sites we audited.  We selected four key control activities  to test related to basic travel transaction and voucher processing.  As  discussed previously, for the three locations, we estimate that the  percentage of transactions during fiscal year 2001 that represented  personal use varied from 7 percent at one location to 27 percent at another  location.
We tested the implementation of the following internal control activities for  a statistically valid sample of travel card transactions.
Was there a travel order associated with the transaction that was  approved prior to the start of travel?
Was there a travel voucher associated with the transaction that was  properly reviewed to ensure that payment was accurate and properly  supported?
Did the traveler submit a travel voucher associated with the transaction  to the installation travel office for processing within 5 days of  completion of travel, as required by government travel regulations?
In accordance with TTRA and the DOD FMR, was the traveler paid  within 30 days of the date a properly approved travel voucher associated  with the transaction was submitted for payment?
Table 8 shows the results of our statistical samples.  Appendix II includes  the specific criteria we used to assess the effectiveness of these controls.
subsections: section_title: Controls over Travel Order Approval
paragraphs: Timely approval of the travel orders is the first step in ensuring that travel  is authorized.  At one of the three installations we audited, Patuxent River,  the controls over travel order approval were partially effective.  In contrast,  Puget Sound Naval Shipyard, which had a failure rate of 49 percent, had  ineffective controls over travel order approval.  At Puget Sound, the high  failure rate was primarily attributable to travel personnel not consistently  ensuring that all copies of the six-part travel orders used in fiscal year 2001  were signed before sending the originals to the travelers.  Consequently,  this unit was unable to provide us with signed copies of the travel orders.   Puget Sound Naval Shipyard management informed us that it had recently  instituted procedures that require signed copies of travel orders be  maintained by the unit.
section_title: Controls over Travel Voucher Review and Accuracy Were Not Effective
paragraphs: Once travel is completed, the traveler is required to submit a voucher for all  reimbursable expenses and must include receipts for certain claimed  amounts.  The voucher review process is intended to ensure that only  authorized, properly supported travel charges are reimbursed and that the  amounts are accurately calculated.  All three case study sites we audited  had ineffective controls to ensure that travel orders were properly  reviewed for accuracy and support.  The estimated failure rates during  fiscal year 2001 for the three case study sites ranged from 33 to 40 percent.
Travel voucher errors resulted in both over- and underpayments to the  traveler and created an additional administrative burden for the Navy,  which had to take additional actions to recover overpayments or make  payments on previous underpayments.  Travel voucher errors were  attributed to ineffective review and audit of travel vouchers.  At one case  study site we audited, a communication breakdown had occurred between  the office that helped travelers prepare vouchers and the office that  entered voucher data into the automated system used to record relevant  travel voucher data so that payment could be made by DFAS.  At this site,  each office thought that the other was responsible for reviewing the  vouchers for accuracy.  As a result, the vouchers were not consistently  reviewed to ensure that they were filed in accordance with travel  regulations.  In addition, we found that the voucher auditing process was  not effective, resulting in payment errors that should have been detected.   In our samples, we found that most errors were in the following categories.
Missing or inconclusive receipts – We found instances in which  voucher packages did not include all receipts required to support  claims, as required by DOD and Navy regulations, yet payments were  made.  For example, a cardholder at Puget Sound Naval Shipyard who  claimed cell phone charges totaling more than $1,000 on several partial  vouchers did not submit a detailed breakdown of these phone charges.   As a result, there was no indication that all of the charges were for  official use.  However, the voucher was processed and full payment was  made to the traveler.
Errors in calculating amounts paid – We found instances in which the  voucher processing units paid for lodging expenses not incurred and  made other errors in calculating incidental expenses, resulting in both  over- and underpayments to the traveler.  At Patuxent River, one traveler  was reimbursed $395 in lodging expenses and $33 in lodging taxes;  however, the hotel receipt for this travel claim indicated lodging  expenses of $316 and lodging taxes of $24.  Thus, the traveler was  overpaid a total of $88.  Other errors related to the reimbursement of  telephone calls and car mileage, and the failure to pay excess baggage  fees expressly authorized in the travel order.  Other errors related to the  transposition of numbers.  Most of these errors were relatively small in  terms of dollar amounts.
However, we found errors that were significant in comparison to the  travel voucher amount.  For example, at one case study site a traveler  claimed an ATM fee of $17.25 on a voucher totaling less than $1,000, but  the amount was entered into the travel reimbursement system as  $1,725.  As a result, the cardholder was overpaid by more than $1,700.   Although this voucher was audited by the voucher processing unit, the  error was not detected.  As a result of our audit, the Navy unit has taken  actions to recover this and other overpayments.
section_title: Conclusions
paragraphs: The intent of the travel card program was to improve convenience for the  traveler and to reduce the government’s costs of administering travel.   However, when the Navy implemented the travel card as part of its travel  program, it did not provide the control infrastructure—primarily human  capital—necessary to manage and oversee the use of government travel  cards.  Consequently, a weak internal control environment in the travel  card program has resulted in a significant level of delinquencies and  charge-offs of bad debts, as well as travel card fraud and abuse.  This has  resulted in millions of dollars of costs to the Navy, including higher fees,  lost rebates, and substantial time pursuing and collecting delinquent travel  card accounts.
DOD and the Navy have taken positive steps to reduce the delinquencies  and charge-offs, including establishing a system of wage and retirement  payment offset for many employees, encouraging the use of split  disbursements where travel reimbursements are sent directly to the bank  rather than the employee, and making management of the travel program a  priority for the Navy commands.  These actions have resulted in significant  collections of previously charged-off and delinquent accounts.  DOD and  the Navy have also proposed additional steps as reported in the June 27,  2002, DOD Charge Card Task Force report to improve the controls over the  travel card program.  However, these Navy and DOD actions have primarily  addressed the symptoms rather than the underlying causes of the problems  with the program.  Specifically, actions to date have focused on dealing  with accounts that are seriously delinquent, which are back-end or  detective controls rather than preventive controls.  To effectively reform  the travel program, DOD and the Navy will need to work to prevent  potentially fraudulent and abusive activity and severe credit problems with  the travel card.  The fiscal year 2003 Department of Defense Appropriations  Act requires the Secretary of Defense to establish guidelines and  procedures for disciplinary actions to be taken against cardholders for  improper, fraudulent, or abusive use of the government travel card and to  deny issuance of the government travel card to individuals who are not  creditworthy.  Further, 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 payment 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, including civilian and military retirees, who have delinquent  travel card balances and payment of those amounts to the travel card- issuing bank.
section_title: Recommendations for Executive Action
paragraphs: To strengthen the overall control environment and improve internal control  for the Navy’s travel card program, we recommend that the Secretary of the  Navy 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 Navy establish specific policies  and procedures governing the issuance of individual travel cards to military  and civilian employees, including the following:   Provide individuals with no prior credit histories with “restricted” travel  cards with low credit and ATM limits.
Develop procedures to periodically evaluate frequency of card usage to  identify accounts of infrequent travelers.
Cancel accounts for current infrequent travelers, as noted in the Charge  Card Task Force report, in order to minimize exposure to fraud and  abuse.
Evaluate the feasibility of activating and deactivating all cards,  regardless of whether they are standard or restricted cards, so that  cards are available for use only during the periods 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 Navy-wide initial training and  periodic refresher training for travel cardholders, focused on the  purpose of the program and appropriate uses of the card.  The training  should emphasize the prohibitions on personal use of the card, including  gambling, personal travel, and adult entertainment.  Such training  should also address the policies and procedures of the travel order,  voucher, and payment processes.  For entry-level personnel, the training  should also include information on basic personal financial  management techniques to help avoid financial problems that could  affect an individual’s ability to pay his or her travel card bill.
section_title: Monitoring, Review, and Disciplinary Actions
paragraphs: We recommend that the Secretary of the Navy establish the following  specific policies and procedures to strengthen controls and disciplinary  actions for 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 Navy-wide procedures to provide assurance that APCs receive  training on their APC responsibilities.  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  transaction histories to ascertain whether transactions are incurred  during periods of authorized travel and appear to be appropriate travel  expenses and are from approved MCCs.
Establish guidance requiring APCs to review EAGLS reports to identify  cardholders who have written NSF checks for payment of their account  balances, and refer these employees for counseling or disciplinary  action.
Investigate and, if warranted, take appropriate disciplinary actions  against cardholders who wrote three or more NSF checks to Bank of  America.
Establish Navy procedures to develop a data mining program to further  facilitate APCs’ ability to identify potentially inappropriate transactions  for further review.
Establish Navy-wide procedures requiring that supervisors and  commanders notify APCs of actions taken with respect to delinquent  cardholders.
Establish a Navy requirement for cognizant APCs to retain records  documenting cardholders’ fraudulent or abusive use of the travel card.
Establish appropriate, consistent Navy-wide procedures as a guide for  taking disciplinary actions with respect to fraudulent and abusive  activity and delinquency related to the travel card.
Review records of individuals whose accounts have been charged off or  placed in salary offset to determine whether they have been referred to  DON CAF for security reviews.
Strengthen procedures used to process employees separating from the  service to ensure that all accounts are deactivated or closed, and  repayment of any outstanding debts is arranged.
Perform periodic review of exit procedures to determine that accounts  of separated cardholders are deactivated or closed in a timely manner.
Develop procedures to identify active cards of separated cardholders,  including comparing cardholder and payroll data.
Review, in conjunction with Bank of America, individuals with APC- level access to EAGLS to limit such access to only those with current  APC duties.
Develop a management plan to ensure that audits of the Navy travel  card program are conducted regularly, and the results are reported to  senior management.
section_title: Voucher and Payment Processes
paragraphs: To improve travel voucher accuracy, we recommend that commanders at  each unit identify causes of the high error rates related to travel voucher  review and provide refresher training to ensure that voucher examiners  and auditors are informed and can accurately apply travel regulations and  updates.
To ensure that travel vouchers are consistently reviewed prior to  processing, we recommend that the Commander of Puget Sound Naval  Shipyard take the following actions:  Issue procedures to clearly assign responsibilities for reviewing the  accuracy of the travel vouchers.
Conduct periodic review to assess the effectiveness of the new  procedures in reducing the frequency and amount of voucher errors.
section_title: Agency Comments and Our Evaluation
paragraphs: In written comments on a draft of this report, which are reprinted in  appendix V, DOD concurred with 21 of 23 recommendations and partially  concurred with the remaining 2 recommendations. DOD partially  concurred with our recommendations regarding (1) establishing Navy-wide  procedures requiring that supervisors and commanding officers notify the  APCs of actions taken with respect to delinquent cardholders and   (2) having commanders at each unit identify causes of the high error rates  related to travel voucher review and provide refresher training to voucher  examiners and auditors. We believe that DOD’s planned actions for these  two areas, if effectively implemented, will address the intent of our  recommendations.
Concerning our recommendation that APCs be notified of actions by  supervisors with respect to delinquent cardholders, DOD responded that  providing this type of sensitive information to APCs is not appropriate.   DOD considers it to be more appropriate that actions taken with respect to  delinquent cardholders be reported up the chain of command and that the  department decide at what level and at what frequency this reporting  occur.  Our recommendation did not contemplate that APCs would  necessarily need details of disciplinary action, only that the APCs be  informed that actions have been taken and by whom. Often the actions  taken include verbal counseling.  The written documentation maintained  by the APC, which should refer to the official from whom authorized  personnel may obtain details of the disciplinary actions, will provide a  record that actions were taken and be a source for new  commanders/supervisors in identifying people with previous credit card  problems.
Regarding having commanders identify causes of the high error rate related  to travel voucher review and provide refresher training, DOD has requested  that NAS conduct a review of the department’s end-to-end travel process  and make recommendations to improve accountability and efficiency.  Upon completion of the NAS review, DOD said it will distribute the  appropriate guidance to all major commands.  We agree that it would be  beneficial for NAS to perform a comprehensive review of the travel  process.  In addition, to ensure immediate results, we believe that  commanders, who are ultimately responsible and are more involved in the  day-to-day operations, should take proactive steps in reviewing and  correcting the weaknesses identified in this report.
In addition, although DOD concurred with our recommendations to  establish policies and procedures governing the issuance of individual  travel cards to military and civilian employees, its response regarding  employees with no prior credit history indicated that some may be issued  cards with “…higher than ‘restricted’ limits to accomplish their mission.”   While this may be required on a case-by-case basis, we believe that  additional preventive managerial oversight to monitor these accounts  would be beneficial. Management should also consider lowering the limit  to established restricted levels once the mission is completed.
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 of this report to interested congressional  committees, the Secretary of Defense, the Under Secretary of Defense  (Comptroller), the Secretary of the Navy, and the Director of the Office of  Management and Budget.  We will make copies available to others upon  request.  In addition, the report will be available at no charge on the GAO  Web site at http://www.gao.gov.
Please contact Gregory D. Kutz at (202) 512-9095 or kutzg@gao.gov or John  J. Ryan at (202) 512-9587 or ryanj@gao.gov if you or your staffs have any  questions concerning this report.
section_title: Background
paragraphs: In 1983, the General Services Administration (GSA) awarded a  governmentwide master contract with a private company to provide  government-sponsored, contractor-issued travel cards to federal  employees to be used to pay for costs incurred on official business travel.   The intent of the travel card program was to provide increased  convenience to the traveler and 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 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 in 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 Navy.  Table 9  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 9, 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 9 also shows that the Navy provided about 395,000  individually billed cards to its civilian and military employees as of  September 2001.  These cardholders charged an estimated $510 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.  These rebates are based on the volume of  transactions incurred on the card and cardholders paying their monthly  travel card bills on time.  To help timely payments, 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 Regulations (FMR), Volume 9,  Chapter 3, Travel Policies and Procedures to supplement GSA’s travel  regulations.  DOD’s Joint Travel Regulations, Volume 1 (for Uniformed  Service Members), and Volume 2 (for Civilian Personnel) refer to the FMR  as the controlling regulation for DOD’s travel cards.  Further, in January  2002, the Navy eBusiness Operations Office issued Instruction 4650.1,  Policies and Procedures for the Implementation and Use of the  Government Travel Charge Card to supplement the FMR.  In addition,  some of the Navy’s individual commands and units have issued their own  instructions supplementing GSA and DOD guidelines.
section_title: The Navy Travel Process
paragraphs: As shown in figure 6, the Navy’s travel card management program for  individually billed travel card accounts encompasses card issuance, travel  authorization, cardholders charging goods and services on their travel  cards, travel voucher processing and payment, and managing travel card  usage and delinquencies.
When a Navy 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 7, 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 Navy.  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, it will suggest to  the service that the applicant receive a restricted credit limit of $2,500  instead of the standard credit limit of $10,000.  However, as shown in  figure 7, 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.
When cardholders leave the Navy, 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.
subsections: section_title: Travel Authorization
paragraphs: When a cardholder is required to travel for official government purposes,  he or she is issued a travel order authorizing travel.  The travel order is  required to specify the timing and purpose of the travel authorized.  For  example, the travel order is to authorize the mode of transportation, the  duration and points of the travel, and the amounts of per diem and any cash  advances.  Further, the Navy can limit the amount of authorized  reimbursement to military members based on the availability of lodging  and dining facilities at military installations.
section_title: Using the Travel Card for Official Travel Expenses
paragraphs: For authorized travel, travelers must use their cards to pay for allowable  expenses such as hotels and rental cars.  The Navy generally uses a  centrally billed transportation account to pay for air and rail  transportation.  Also, some units utilize unit cards, a form of centrally billed  account, in lieu of travel charge cards for individually billed accounts for  meals and lodging for group trips.
When the travel card is submitted to a merchant, the merchant will process  the charge through its banking institution, which in turn charges Bank of  America.  At the end of each banking cycle (once each month), Bank of  America prepares a billing statement that is mailed to the cardholder for  the amounts charged to the card.  The statement also reflects all payments  and credits made to the cardholder’s account.  Bank of America requires  that the cardholder make payment on the account in full within 30 days of  the statement closing date.  If the cardholder does not pay his or her  monthly billing statement in full, and does not dispute the charges within  60 days of the statement closing date, the account is considered delinquent.
section_title: Travel Voucher Submission and Processing
paragraphs: Within 5 working days of return from travel, the cardholder is required to  submit a travel voucher claiming legitimate and allowable expenses  incurred while on travel.  Further, the standard is for the cardholder to  submit an interim voucher every 30 days for extended travel of more than  45 days.  The amount that cardholders are reimbursed for their meals and  incidental expenses and hotels is limited by geographical rates established  by GSA.
Upon submission of a proper voucher by the cardholder, the Navy 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.  If the payment of  the approved proper voucher takes longer than 30 days, the Navy 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.
After the supervisor approves a cardholder’s travel voucher package for  payment, it is processed by a voucher processing unit at the location to  which the cardholder is assigned.  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.  Once the travel information from the  voucher has been entered into IATS, the voucher may be selected for  further review or “audit.”  IATS selects 10 percent of vouchers under $2,500  and all vouchers $2,500 or greater for audits.  If problems with the voucher  are found during the initial entry of the information into IATS or during the  audit of the information, the transaction can be rejected and returned to  the cardholder for correction.  Once the vouchers are processed and  audited, they are sent to DFAS for payment to the cardholder or to Bank of  America and the cardholder, if the cardholder elected split disbursements  whereby part of the DFAS reimbursement is sent to Bank of America.
section_title: Monitoring Travel Card Transaction Activity
paragraphs: In addition to controlling the issuance and credit limits related to the travel  card, APCs are also responsible for monitoring the use of and  delinquencies related to travel card accounts for which they have been  assigned management responsibility.  Bank of America’s Web-based  Electronic Account Government Ledger System (EAGLS) provides on-line  tools that are intended to assist APCs in monitoring travel card activity and  related delinquencies.  Specifically, APCs can access EAGLS to monitor  and extract reports on their cardholders’ travel card transaction activity  and related payment histories.
section_title: Managing Delinquent Cardholder Accounts
paragraphs: Both the Navy 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 8, there are specific  actions required by both DOD 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  DOD 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 an account, the  card cannot be used until the account is paid.  60 days past due—The APC is to issue a 60-day delinquency notification  memorandum to the cardholder and to the cardholder’s immediate  supervisor, informing them that the cardholder’s account has been  suspended 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 the 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.    180 days past due—Bank of America is to send “precharge-off” or last  call letters to cardholders whose accounts were not put in salary offset  informing them that Bank of America will charge off their accounts and  report them 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 creditworthiness of an individual  using credit bureau reports.    210 days past due—Bank of America is to chargeoff any delinquent  account that it was unable to put in the offset program and, if the  balance is $50 or greater, report it to a credit bureau, unless another  form of payments was forthcoming.
Some accounts are pursued for collection by Bank of America’s recovery  department, while others are sent to attorneys or collection agencies for  recovery.  The delinquency management process can be suspended when a  cardholder’s APC informs Bank of America that the cardholder is on  official travel, but is unable to submit vouchers and make timely payments  on his or her account, through no fault of his or her own.  Under such  circumstances, the APC is to notify Bank of America that the cardholder is  in “mission-critical” status.  By activating this status, 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 cards and associated travel processing and  management for the Department of the Navy.  Our assessment covered  the reported magnitude and impact of delinquent and charged-off Navy  travel card accounts for fiscal year 2001 and the first 6 months of fiscal  year 2002, along with an analysis of causes and related corrective  actions;  an analysis of the universe of Navy 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 Navy’s overall management control environment and the design of  selected Navy travel program management controls, including controls  over (1) travel card issuance, (2) APCs’ capacity to carry out assigned  duties, (3) limiting card activation to meet travel needs, (4) transferred  and “orphan” accounts, (5) procedures for terminating accounts when  cardholders leave military service, and (6) access for 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 Navy units’ travel  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 Navy 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 Financial Management Regulations,  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 Navy’s delinquency and charge-off rates to  other DOD services and federal agencies.  We did not verify the accuracy of  the data provided to us by Bank of America and GSA.  We also analyzed the  trends in the delinquency and charge-off data from fiscal year 2000 through  the first half of fiscal year 2002.
We also used data mining to identify Navy travel card transactions for  individually billed accounts for audit.  Our data mining procedures covered  the universe of individually billed Navy travel card activity during fiscal  year 2001 and the first 6 months of fiscal year 2002 and identified  transactions that we believed were potentially fraudulent or abusive based  upon the nature, amount, merchant, and other identifying characteristics of  the transaction.  However, our work was not designed to identify, and we  did not determine, the extent of any potentially fraudulent or abusive  activity related to the travel card.
To assess the overall control environment for the travel card program at the  Department of the Navy, we obtained an understanding of the travel  process, including travel card management and oversight, by interviewing  officials from the Office of the Undersecretary of Defense, Comptroller;  Department of the Navy; Defense Finance and Accounting Service (DFAS);  Bank of America; and GSA.  We reviewed applicable policies and  procedures and program guidance they provided.  We visited three Navy  units to “walk through” the travel process including the management of  travel card usage and delinquency.  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 Navy 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 also reviewed computer system access controls for Electronic Account  Government Ledger System (EAGLS)—the system used by Bank of  America to maintain DOD travel card data.  To determine whether these  controls over EAGLS were effective, we interviewed Bank of America  officials and observed EAGLS functions and capabilities.
To test the implementation of key controls over individually billed Navy  travel card transactions processed through the travel system—including  the travel order, travel voucher, and payment processes—we obtained and  used the database of fiscal year 2001 Navy travel card transactions to  review random samples of transactions at three Navy locations.  Because  our objective was to test controls over travel card expenses, we excluded  credits and miscellaneous debits (such as fees) from the population of  transactions used to select random samples of travel card transactions to  review at each of the three Navy 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 transactions that were not selected.
We selected three Navy locations for testing controls over travel card  activity based on the relative size of travel card activity at the 27 Navy  commands and of the units under these commands, the number and  percentage of delinquent accounts, and the number and percentage of  accounts written off.  We selected one unit from the Naval Sea Systems  Command because that command represented 19 percent of the total travel  card activity, 9 percent of past due accounts, and 7 percent of accounts  charged off during fiscal year 2001.  We also selected one unit from Naval  Air Systems Command because that command represented approximately  12 percent of travel card activity, 4 percent of past due accounts, and 4  percent of accounts charged off during fiscal year 2001 across the Navy.   We also selected U.S. Marine Corps Forces Atlantic because this command  represented about 24 percent of Corps charge card activity, 23 percent of  accounts past due, and 26 percent of accounts charged off.  Each of the  units within the commands was selected because of the relative size of the  unit within the respective command.  Table 10 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 traveler  was paid within 30 days of the submission of an approved travel voucher.   We considered transactions not related to authorized travel to be abuse and  incurred for personal purposes.  The results of the samples of these control  attributes, as well as the estimate for personal use—or abuse—related to  travel card activity, can be projected to the population of transactions at  the respective test case study site only, not to the population of travel card  transactions for all Navy cardholders.
We concluded that a control was effective if both the projected point  estimate of the failure rate and the upper bound of a one-sided 95 percent  confidence interval associated with the estimate were no more than 5  percent. We concluded that a control was ineffective if both the point  estimate of the failure rate and the lower bound of a one-sided 95 percent  confidence interval associated with the estimate were greater than 10  percent.  Otherwise, we concluded that the control was partially effective.   Tables 11 through 13 show (1) the results of our tests of key attributes, (2)  the point estimates of the failure rates for the attributes, and (3) the two- sided 95 percent confidence intervals for the failure rates for each  attribute. Table 11 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 12 shows the results of our test for effectiveness of controls in place  over the accuracy of travel voucher payments.
Table 13 shows the results of our tests of two key controls related to timely  processing of claims for reimbursement of expenses related to government  travel—timely submission of the travel voucher by the employee and timely  approval and payment processing.
To determine if cardholders were reimbursed within 30 days, we used  payment dates provided by DFAS.  We did not independently validate the  accuracy of these reported payment dates.
We briefed Navy managers, including Assistant Secretary of the Navy  (Financial Management and Comptroller) officials; and unit commanders  and APCs of the details of our audit, including our findings and their  implications.  We incorporated their comments where appropriate.  We  conducted our audit work from December 2001 through October 2002 in  accordance with generally accepted government auditing standards, and  we performed our investigative work in accordance with standards  prescribed by the President’s Council on Integrity and Efficiency.  We  received DOD comments on a draft of this report from the Under Secretary  of Defense (Comptroller) dated December 5, 2002, and have reprinted  those comments in appendix V.
section_title: Navy Major Command Delinquency Rates
paragraphs: Table 14 shows the travel card delinquency rates for Navy’s major  commands (and other Navy organizational units at a comparable level) that  had outstanding balances over $1 million as of March 31, 2002.  Commands  with a March 31, 2002, balance outstanding under $1 million have been  combined into "other."  The Navy’s commands and other units are listed in  descending order based on their respective delinquency rates as of March  31, 2002.  The delinquency rates shown represent the total amount  delinquent (amounts not paid within 61 days of the travel card monthly  statement closing date) as a percentage of total amount owed by the  command’s travel cardholders at the end of each quarter.
section_title: Navy Personnel Grade, Rank, and Associated Basic Pay Rates
paragraphs: Tables 15, 16, and 17 show the grade, rank (where relevant), and the  associated basic pay rates for 2001 for Navy’s and Marine Corps’ military  personnel and civilians.  The basic 2001 pay rates shown exclude other  considerations such as locality pay and any allowances for housing or cost  of living.
section_title: Comments from the Department of Defense
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