Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse
Released: 2002-10-08T00:00:00

Letter

Travel Card Delinquencies and Charge-offs

Most Navy cardholders properly used their travel cards and paid amounts owed to Bank of America in a timely manner. However, as shown in figure 1, the Navy’s average delinquency rate was nearly identical to the Army’s, which, as we have previously testified, is the highest delinquency rate in the government. The Navy’s quarterly delinquency rate fluctuated from 10 to 18 percent, and on average was about 6 percentage points higher than that of federal civilian agencies. As of March 31, 2002, over 8,400 Navy cardholders had $6 million in delinquent debt.

We also found substantial charge-offs of Navy travel card accounts. Since the inception of the travel charge card task order between DOD and Bank of America on November 30, 1998, Bank of America has charged off over 13,800 Navy travel card accounts with $16.6 million of bad debt. Recent task order modifications allow Bank of America to institute a salary offset against DOD military personnel members whose travel card accounts were previously charged off or are more than 120 days past due. As a result, as of July 31, 2002, Bank of America had recovered $5.2 million in Navy government travel card bad debts. The high level of delinquencies and charge-offs have also cost the Navy millions of dollars in lost rebates, higher fees, and substantial resources spent pursuing and collecting past due accounts. For example, we estimate that in fiscal year 2001, delinquencies and charge-offs cost the Navy $1.5 million in lost rebates, and will cost about $1.3 million in increased automated teller machines (ATM) fees annually.

As shown in figure 2, the travel cardholder’s rank or grade (and associated pay) is a strong predictor of delinquency problems. We found that the Navy’s overall delinquency and charge-off problems are primarily associated with young, low- and mid-level enlisted military personnel with basic pay levels ranging from $12,000 to $27,000.

According to Navy officials, low- and mid-level enlisted military personnel comprise the bulk of the operational forces and are generally young, often deployed, and have limited financial experience and resources. It is therefore not surprising to see a higher level of outstanding balances and delinquent amounts due for these personnel. Figure 2 also shows that, in contrast, the delinquency rate for civilians employed by the Navy is substantially lower. As of September 30, 2001, the delinquency rate of low- and mid-level enlisted personnel was almost 22 percent, compared to a Navy civilian rate of slightly more than 5 percent. This rate is comparable to the non-DOD civilian delinquency rate of 5 percent.

The case study sites we audited exhibited this pattern. 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 delinquency rate for the 18-month period ending March 31, 2002, averaged over 15 percent and was close to 10 percent as of March 31, 2002. In contrast, at Puget Sound Navy 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 card holders 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.

In combination with these demographic factors, a weak overall control environment, flawed policies and procedures, and a lack of adherence to valid policies and procedures contributed to the significant delinquencies and charge-offs. Further discussion of these breakdowns is provided later in this testimony.

Potentially Fraudulent and Abusive Travel Card Activity

Our work identified numerous instances of potentially fraudulent and abusive activity related to the travel card. During fiscal year 2001 and the first 6 months of fiscal year 2002, over 5,100 Navy employees wrote at least one nonsufficient fund (NSF), or “bounced” check, to Bank of America as payment for their travel card bills. Of these, over 250 wrote 3 or more NSF checks, a potentially fraudulent act. Appendix III provides a table summarizing 10 examples, along with more detailed descriptions of selected cases in which cardholders might have committed fraud by writing 3 or more NSF checks to Bank of America. These 10 accounts were subsequently charged-off or placed in salary offset or voluntary fixed payment agreements with Bank of America.

We also 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 I, 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 transaction. Through this procedure, we identified thousands of suspect transactions. Table 1 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. 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. The number of instances and amounts shown includes both cases in which the cardholders paid the bills and instances in which they did not pay the bills.

We found that 50 cardholders used their government travel card to purchase over $13,000 in prostitution services from two legalized brothels in Nevada. Charges were processed by these establishments’ 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 use of the travel cards that were clearly unrelated to official government travel. There should be no misunderstanding by Navy personnel that personal use of the card is not permitted. In fact, 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 the three sites we audited, we estimated that personal use of the government travel card ranged from almost 7 percent of fiscal year 2001 transactions at one site to over 26 percent at another site. As shown in appendix V, cardholders who abused the card but paid the bill also used the government travel cards for the same transaction types discussed in table 1.

Personal use of the card also increases the risk of charge-offs related to abusive purchases, which are costly to the government and the taxpayer. Our work found that charged-off accounts included both those of (1) cardholders who were reimbursed by the Navy for official travel expenses but failed to pay Bank of America for the related charges, thus pocketing the reimbursement, and (2) those who used their travel cards for personal purchases for which they did not pay Bank of America. Appendix IV provides a summary table and supporting narrative describing examples of abusive travel card activity where the account was charged off or placed in salary offset or voluntary fixed payment agreements with Bank of America.

Furthermore, as detailed by the 10 examples in appendix V, we also found instances in which cardholders used their travel cards for personal purposes, but paid their travel card bills when they became due. For example, an E-5 second class petty officer reservist, whose civilian job was with the U.S. Postal Service, admitted making phony charges of over $7,200 to operate his own limousine service. In these transactions, the sailor 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 sailor’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.

Abusive Travel Card Activity Not Consistently Linked to Disciplinary Action and Security Clearances

We did not always find documented evidence of disciplinary actions taken by Navy commanders and supervisors against cardholders who wrote NSF checks or had their accounts charged off or placed in salary offset. Of the 57 cardholders fitting these categories that we selected through data mining, we did not find any documented evidence that 37 had been disciplined. For example, a lieutenant commander (O-4) with the Naval Air Reserve used his travel card for personal purchases in California and frequent personal trips to Mexico. The individual did not pay his account when due and was placed in salary offset in October 2001. Although the agency program coordinator (APC) responsible for program oversight had apprised management of this officer’s abuse of the travel card, and had initiated actions to take away the cardholder’s security clearance, management had not taken any administrative action against this cardholder. In addition, of the 10 individuals who abused the card but paid their bills, only 1 was disciplined. Appendixes III, IV, and V provide further details of the extent of disciplinary actions taken against some of the cardholders we examined.

In addition, we found that 27 of these same 57 travel cardholders we examined whose accounts were charged off or placed in salary offset as of March 31, 2002, still had active secret or top-secret security clearances in August 2002. Some of the Navy personnel holding security clearances who have had difficulty paying their travel card bills may present security risks to the Navy. DOD rules provide that an individual’s finances are one of the factors to be considered in whether an individual should be entrusted with a security clearance. However, we found that Navy security officials were unaware of these financial issues and consequently could not consider their potential effect on whether these individuals should continue to receive a security clearance. We have referred cases identified from our audit to the U.S. Navy Central Adjudication Facility (commonly referred to as Navy CAF) for its continued investigation.

Key Internal Control Breakdowns

For fiscal year 2001, we identified significant breakdowns in key internal controls over individually billed travel cards. The breakdowns stemmed from a weak overall control environment, a lack of focus on oversight and management of the travel card program, and a lack of adherence to valid policies and procedures. These breakdowns contributed to the significant delinquencies and charge-offs of Navy employee account balances and potentially fraudulent and abusive activity related to the travel card. In contrast, one Navy unit we audited with a low average delinquency rate (4 percent) attributed its relative success to constant monitoring of delinquencies and to some monitoring of inappropriate travel card use.

We found that in fiscal year 2001, management at the three case study locations we audited focused primarily on reducing delinquencies. In general, management placed little emphasis on controls designed to prevent, or provide for early detection of, travel card misuse. In addition, we identified two key overall control environment weaknesses: (1) the lack of clear, sufficiently detailed Navy travel card policies and procedures and (2) limited internal travel card audit and program oversight. First, the units we audited used DOD’s travel management regulations (DOD Financial Management Regulation, volume 9, chapter 3) as the primary source of policy guidance for management of Navy’s travel card program. In many areas, the existing guidance was not sufficiently detailed to provide clear, consistent travel management procedures to be followed. 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, no internal review report had been issued since fiscal year 1999 concerning the Navy’s travel card program.

We found that this overall weak control environment contributed to design flaws and weaknesses in a number of management control areas needed for an effective travel card program. For example, many problems we identified were the result of ineffective controls over issuance of travel cards. Although DOD’s policy allows an exemption from the requirement to use travel cards for certain groups or individuals with poor credit histories, we found that the Navy’s practice was to facilitate Bank of America issuing travel cards—with few credit restrictions—to all applicants regardless of whether they have a history of credit problems. For the cases we reviewed, we found a significant correlation between travel card fraud, abuse, and delinquencies and individuals with substantial credit history problems. The prior and current credit problems we identified for Navy travel card holders included charged-off credit cards, bankruptcies, judgments, accounts in collections, and repeated use of NSF checks.

Also, a key element of internal control, which, if effectively implemented, may reduce the risk and occurrence of delinquent accounts, is frequent account monitoring by the APC. However, some APCs, who have the key responsibility for managing and overseeing travel card holders’ activities, were essentially set up to fail in their duties. Some were assigned APC responsibilities as collateral duties and given little time to perform these duties, while other full-time APCs had responsibilities for a large number of cardholders. When an APC is unable to focus on managing travel card usage because of the high number of cardholders or the extent of other duties, the rate of delinquency and potentially abusive and fraudulent transactions is adversely affected. For example, at Camp Lejeune, where the delinquency rate was over 15 percent, the six APCs we interviewed were given the role as “other duty as assigned,” with most spending less than 20 percent of their available time to perform their APC responsibilities.

In addition, a lack of management focus and priority on ensuring proper training for APCs resulted in some APCs being unfamiliar with the capabilities of Bank of America’s credit card database that would help them to manage and oversee the travel card program. For example, one APC did not know that she could access reports that would help identify credit card misuse and thus enable the responsible supervisors or commanders to counsel cardholders before they became delinquency problems. With the large span of control, minimal time allotted to perform this duty, and lack of adequate training, we found that APCs generally were ineffective in carrying out their key travel card program management and oversight responsibilities.

In contrast, a Navy unit we visited—Patuxent River—showed that constant monitoring of delinquency by a knowledgeable APC contributed to a lower delinquency rate. The APC at this unit had responsibility for approximately 1,200 to 1,500 active travelers monthly, but APC duties were her only responsibility. The APC informed us that she constantly monitored the government travel card program. For example, she reviewed delinquency reports several times a month to identify and promptly alert cardholders and supervisors about the status of delinquent accounts. She also told us that less frequently, but still on a monthly basis, she monitored transactions in the Bank of America database for improper and abusive uses of the card and sent out notices to the cardholders and the cardholders’ supervisors if such transactions were identified. She also emphasized the use of the split disbursement payment process (split disbursements) whenever possible. Consequently, the delinquency rate for this unit was consistently lower than the Navy-wide rate and the civilian agency rate.

Another area of weakness in internal controls relates to the process over the cancellation and/or deactivation of cards in case of death, retirement, or separation from the service. These ineffective controls allowed continued use of the government travel card for personal purposes, which in some instances led to charge-offs, thereby contributing to increased costs to the government. For example, 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 cancel 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 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 post-of-duty. The APC took immediate action to deactivate the card, thus preventing additional charges from occurring. Upon learning of the cardholder’s death from further discussion with the cardholder’s unit, the APC immediately reported the case to a Bank of America fraud investigator. Investigations revealed 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 Systems Command Atlantic repeatedly used his travel card after his retirement on December 1, 2000. The cardholder currently works for a private company. The cardholder used the government travel card, since his retirement, to make charges totaling $44,000 for hotels, car rentals, restaurants, and airline tickets. 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 cardholders’ transaction reports for abusive activity and because this particular account was always paid in full, they did not detect the abusive activity. 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 conviction 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 gas purchases totaling almost $4,700. The APC was not aware of these abusive charges until the monthly delinquency review identified the account as being 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 Navy CAF in October 2000, our work indicated as of August 2002, the suspended employee continued to maintain a secret clearance, despite the account charge-off and felony conviction.

Table 2 summarizes our statistical tests of four key control activities related to basic travel transaction and voucher processing at three Navy locations. We concluded that the control was effective if the projected failure rate was from 0 to 5 percent. If the projected failure rate was from 6 to 10 percent, we concluded that the control was partially effective. We considered controls with projected failure rates greater than 10 percent to be ineffective.

Although we found significant failure rates at all three case study sites for the requirement that vouchers be filed within 5 working days of travel completion, this did not have an impact on these units’ delinquency rates. However, we found substantial errors in travel voucher processing that resulted in both overpayment and underpayment of the amount that cardholders should have received for their official travel expenses. At times, these errors were substantial in comparison with the total voucher amounts. For example, we found data entry errors that resulted, in one case, in an overpayment of more than $1,700 to the traveler. In another case, failure to carefully scrutinize supporting documentation resulted in an overpayment to a traveler of more than $1,000 for cell phone calls, for which the traveler did not submit detailed documentation to support what were claimed to be calls made for business purposes. As a result of our work, the Navy unit has taken actions to recover these overpayments.

Corrective Actions

DOD has taken a number of actions focused on reducing delinquencies. For example, the Department of the Navy had established a goal of a delinquency rate of no more than 4 percent. Beginning in November 2001, DOD implemented a system of wage and retirement payment offset for many employees. It also began encouraging the use of split disbursements—a payment process by which cardholders elect to have all or part of their reimbursements sent directly to Bank of America. This payment method is a standard practice of many private sector employers. Although split disbursements have the potential to significantly reduce delinquencies, this payment process is strictly voluntary at DOD. According to Bank of America, split disbursements accounted for 30 percent of total payments made by Navy employees in June 2002. This rate represented a large increase over fiscal year 2001, when only 16 percent of Navy payments were made through split disbursements. As a result of these actions, the Navy experienced a significant drop in charged-off accounts in the first half of fiscal year 2002.

The Navy has also initiated actions to improve the management of travel card usage. The Navy has a three-pronged approach to address travel card issues: (1) provide clear procedural guidance to APCs and travelers, available on the Internet, (2) provide regular training to APCs, and (3) enforce proper use and oversight of the travel card through data mining to identify problem areas and abuses. Further, to reduce the risk of card misuse, the Navy has also begun to deactivate cards while travelers are not on travel status and close a number of inactive cards, and plans to close inactive cards semi-annually to eliminate credit risk exposure. The Navy is also pursuing the use of “pre-funded” debit or stored value cards for high- risk travelers—funds would be available on the cards when travel orders were issued in an amount authorized on the order.

Further, the DOD Comptroller created a DOD Charge Card Task Force to address management issues related to DOD’s purchase and travel card programs. We met with the task force in June 2002 and provided our perspectives on both programs. The task force issued its final report on June 27, 2002. To date, many of the actions that DOD has taken primarily address the symptoms rather than the underlying causes of the problems with the program. Specifically, actions to date have focused on dealing with accounts that are seriously delinquent, which are “back-end” or detective controls rather than preventive controls. 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. We are encouraged that the DOD Comptroller recently took action to deactivate the travel cards of all cardholders who have not been on official government travel within the last 6 months. However, additional preventive solutions are necessary if DOD is to effectively address these issues.

To that end, we will be issuing a related report in this area with specific recommendations, including a number of preventive actions that, if effectively implemented, should substantially reduce delinquencies and potentially fraudulent and abusive activity related to Navy travel cards. For example, we plan to include recommendations that will address actions needed in the areas of exempting individuals with histories of financial problems from the requirement to use a travel card; providing sufficient infrastructure to effectively manage and provide day-to-day monitoring of travel card activity related to the program; deactivating cards when employees are not on official travel; taking appropriate disciplinary action against employees who commit fraud or abuse of the travel card; ensuring that information on travel card fraud or abuse of cardholders with secret or top-secret security clearances is provided to appropriate security officials for consideration in whether such clearances should be suspended or revoked; and moving towards mandating use of the split disbursement payment process. The defense authorization bill for fiscal year 2003 passed by the Senate reflected a move in this direction. This bill would change the voluntary use of split disbursements by authorizing the Secretary of Defense to require that any part of an employee’s travel allowance be disbursed directly to the employee’s travel card issuer for payment of official travel expenses. The defense authorization bill for fiscal year 2003 passed by the House does not contain comparable authority. As of September 12, 2002, the bill (H.R. 4546) was in conference.

Mr. Chairman, Members of the Subcommittee, and Senator Grassley, this concludes my prepared statement. I would be pleased to respond to any questions that you may have.

Contact and Acknowledgments

For further information regarding this testimony, please contact Gregory D. Kutz at (202) 512-9505 or kutzg@gao.gov or John J. Ryan at (202) 512- 9587 or ryanj@gao.gov.

Appendix I: Scope and Methodology

We used as our primary criteria applicable laws and regulations, including the Travel and Transportation Reform Act of 1998, the General Services Administration’s Federal Travel Regulation, and the DOD Financial Management Regulations, Volume 9, Travel Policies and Procedures. We also used as criteria our Standards for Internal Control in the 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 at our three case study locations.

To assess the magnitude and impact of delinquent and charged-off accounts, we compared the Navy’s delinquency and charge-off rates to those of other DOD services and agencies and federal civilian agencies. We also analyzed the trends in the delinquency and charge-off data from the third quarter of fiscal year 2000 through the first half of fiscal year 2002. In addition, we obtained and analyzed Bank of America data to determine the extent to which Navy travel card holders wrote NSF checks to pay their travel card bills. We also obtained documented evidence of disciplinary action against cardholders with accounts that were in charge-off or salary offset status or had NSF checks written in payment of those accounts. We accepted hard copy file information and verbal confirmation by independent judge advocate general officials as documented evidence of disciplinary action.

We also used data mining to identify Navy individually billed travel card transactions 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. 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 the General Services Administration, and by reviewing 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, and the preparation, examination, and approval of travel vouchers for payment. We also assessed actions taken to reduce the severity of travel card delinquencies and charge-offs. Further, we contacted one of the three largest U.S. credit bureaus to obtain credit history data and information on how credit scoring models are developed and used by the credit industry for credit reporting.

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 a random sample of travel card transactions to audit at each of the three Navy case study units. Each sampled transaction was subsequently weighted in the analysis to account statistically for all charged transactions at each of the three units, including those that were not selected.

We selected three Navy locations for testing controls over travel card activity based on the relative amount of travel card activity at the three Navy commands and at the units under these commands, the number and percentage of delinquent accounts, and the number and percentage of charged-off accounts. Each of the units within the commands was selected because of the relative size of the unit within the respective command.

Table 3 presents the sites selected and the universe 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 control over the transactions was effective, as well as to provide an estimate, by unit, of the percentage of transactions that were not for official government travel. For each transaction in our statistical sample, we assessed whether (1) there was an approved travel order prior to the trip, (2) the travel voucher payment was accurate, (3) the travel voucher was submitted within 5 days of the completion of travel, and (4) the travel voucher was paid within 30 days of 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.

Table 4 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 5 shows the results of our test for effectiveness of controls in place over the accuracy of travel voucher payments.

Table 6 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 DOD managers, Navy managers, including the Assistant Secretary of the Navy (Financial Management and Comptroller) officials, unit commanders, and APCs; and Bank of America officials on the details of our audit, including our findings and their implications. We incorporated their comments where appropriate. We did not audit the general or application controls associated with the electronic data processing of Navy travel card transactions. We conducted our audit work from January 2002 through September 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. Following this testimony, we plan to issue a report, which will include recommendations to DOD and the Navy for improving internal controls over travel card activity.

Appendix II: Navy Personnel Grade, Rank, and Associated Basic Pay Rates

Tables 7, 8, and 9 show the grade, rank (where relevant), and the associated basic pay rates for fiscal year 2001 for the Navy’s and Marine Corp’s military personnel and civilian personnel.

Appendix V: Abusive Travel Card Activity Where Cardholders Paid the Bills

Table 12 shows cases of travel card use for personal expenses where the cardholder paid the bill.