[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
IMPLEMENTATION OF THE TRAVEL AND TRANSPORTATION REFORM ACT OF 1998: WHY
HAVEN'T FEDERAL EMPLOYEES BEEN HELD ACCOUNTABLE FOR MILLIONS OF DOLLARS
OF FEDERAL TRAVEL EXPENDITURES?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
FINANCIAL MANAGEMENT AND
INTERGOVERNMENTAL RELATIONS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
MAY 1, 2001
__________
Serial No. 107-46
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
77-576 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia ROD R. BLAGOJEVICH, Illinois
DAN MILLER, Florida DANNY K. DAVIS, Illinois
DOUG OSE, California JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky JIM TURNER, Texas
JO ANN DAVIS, Virginia THOMAS H. ALLEN, Maine
TODD RUSSELL PLATTS, Pennsylvania JANICE D. SCHAKOWSKY, Illinois
DAVE WELDON, Florida WM. LACY CLAY, Missouri
CHRIS CANNON, Utah ------ ------
ADAM H. PUTNAM, Florida ------ ------
C.L. ``BUTCH'' OTTER, Idaho ------
EDWARD L. SCHROCK, Virginia BERNARD SANDERS, Vermont
------ ------ (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations
STEPHEN HORN, California, Chairman
RON LEWIS, Kentucky JANICE D. SCHAKOWSKY, Illinois
DAN MILLER, Florida MAJOR R. OWENS, New York
DOUG OSE, California PAUL E. KANJORSKI, Pennsylvania
ADAM H. PUTNAM, Florida CAROLYN B. MALONEY, New York
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
J. Russell George, Staff Director and Chief Counsel
Earl Pierce, Professional Staff Member
Grant Newman, Clerk
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on May 1, 2001...................................... 1
Statement of:
Anderson, William, deputy chief financial officer,
Corporation for National and Community Service............. 28
Boehm, Alan, assistant inspector general for investigations,
Corporation for National and Community Service............. 2
English, Patricia, Acting Chief Financial Officer, Federal
Emergency Management Agency, accompanied by James Lucas,
Chief, Financial Policy and Standards Branch; Lorraine
Norman, Agency Program Coordinator, Travel Card Program;
and Paula Lyons, Agency Program Coordinator, Purchase Card
Program.................................................... 33
Griffin, Michael N., Chief, Division of Planning and Internal
Control, Office of the Chief Financial Officer, U.S.
Department of Labor........................................ 54
Hinton, Jerry, Director, Finance, Defense Finance and
Accounting Service, Department of Defense.................. 15
Pieroth, Chris, senior vice president, product and marketing,
U.S. Bank.................................................. 24
Skelton, Clifford A., senior vice president, BACS government
executive, Bank of America................................. 8
Wagner, G. Martin, Associate Administrator, Office of
Governmentwide Policy, General Services Administration,
accompanied by Carolyn Alston, Assistant Commissioner,
Office of Acquisition, Federal Supply Service, General
Services Administration.................................... 40
Letters, statements, etc., submitted for the record by:
Anderson, William, deputy chief financial officer,
Corporation for National and Community Service:
Information concerning employee's OPFs................... 60
Prepared statement of.................................... 30
Boehm, Alan, assistant inspector general for investigations,
Corporation for National and Community Service, prepared
statement of............................................... 5
English, Patricia, Acting Chief Financial Officer, Federal
Emergency Management Agency:
Information concerning employee's OPFs................... 58
Prepared statement of.................................... 36
Griffin, Michael N., Chief, Division of Planning and Internal
Control, Office of the Chief Financial Officer, U.S.
Department of Labor, information concerning employees OPFs. 56
Hinton, Jerry, Director, Finance, Defense Finance and
Accounting Service, Department of Defense, prepared
statement of............................................... 17
Pieroth, Chris, senior vice president, product and marketing,
U.S. Bank, prepared statement of........................... 26
Skelton, Clifford A., senior vice president, BACS government
executive, Bank of America, prepared statement of.......... 11
Wagner, G. Martin, Associate Administrator, Office of
Governmentwide Policy, General Services Administration,
prepared statement of...................................... 42
IMPLEMENTATION OF THE TRAVEL AND TRANSPORTATION REFORM ACT OF 1998: WHY
HAVEN'T FEDERAL EMPLOYEES BEEN HELD ACCOUNTABLE FOR MILLIONS OF DOLLARS
OF FEDERAL TRAVEL EXPENDITURES?
----------
TUESDAY, MAY 1, 2001
House of Representatives,
Subcommittee on Government Efficiency, Financial
Management and Intergovernmental Relations,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:59 a.m., in
room 2154, Rayburn House Office Building, Hon. Stephen Horn
(chairman of the subcommittee) presiding.
Present: Representatives Horn and Putnam.
Staff present: J. Russell George, staff director and chief
counsel; Dianne Guensberg, detailee; Bonnie Heald, director of
communications; Earl Pierce, professional staff member; Matthew
Ebert, policy advisor; Grant Newman, assistant to the
subcommittee; Michelle Ash, minority counsel; Mark Stephenson,
minority professional staff member; and Jean Gosa, minority
assistant clerk.
Mr. Horn. The Subcommittee on Government Efficiency,
Financial Management and Intergovernmental Relations will come
to order.
Each year the government spends billions of dollars on
employee travel. Accordingly, Congress has long been interested
in making the Federal travel process more efficient and less
costly. The Travel and Transportation Reform Act of 1998, which
I sponsored, was enacted to achieve both goals. One provision
of the law requires Federal departments and agencies to issue
government travel cards to their employees. These cards, called
SmartPay Travel Cards, are to help agencies verify legitimate
travel expenses more accurately and efficiently. Today's
hearing will focus on the implementation of this program.
The Travel Reform Act was estimated to save the government
millions of dollars in travel costs each year. However, the
subcommittee has learned that lagging agency oversight and
employee misuse of the Travel Card Program is not allowing the
government to maximize this potential savings. In some cases
employees are using the credit cards for personal expenses
rather than government travel as was intended. In other cases
employees are defaulting on their payments, costing the
government millions of dollars in potential revenue. Today's
testimony will highlight both of these problems.
In March the Bank of America reported to the subcommittee
that Department of Defense employees have defaulted on more
than $50 million in Federal travel expenditures since the
program began in November 1998. Bank of America officials say
that each month the bank writes off more than $2 million in
delinquent Federal travel expenditures. The Bank of America,
which processes all Defense Department travel cards, writes off
accounts that are 200 days or more delinquent. Also in March,
the General Services Administration reported that government-
wide Federal employees were delinquent in paying more than $25
million charged against their travel accounts.
In addition to these individual accounts, which are to be
repaid by Federal employees, the subcommittee has learned that
some departments and agencies are also in arrears in paying
their government-guaranteed travel accounts. In March the
General Services Administration reported that agencies were
delinquent in repaying more than $12 million in travel
expenditures.
Today the subcommittee will examine these problems. We want
to learn why agencies are not taking action against employees
who are delinquent in paying their travel card bills, and why
the agencies themselves have fallen in arrears. We want to
learn whether banks are providing agencies with the tools to
verify their travel expenditures as they promised, and we
finally wonder whether other types of nongovernment clients are
of any difference to the government clients. Finally, we want
to know what Federal agencies are doing to prevent further
delinquency. We welcome our witnesses today and look forward to
their testimony.
Let me tell you how we conduct these hearings. This is an
investigative committee. We ask all of the witnesses to swear
an oath that the truth they're providing us is the truth, and
when we call on each of you in the order of the agenda, we will
put your own testimony in, it's been read by all of us, and try
to summarize if you could in the 5 to 8 minutes. And then we
will get through this and get to the questions and answers.
And if you'll stand and raise your right hands. The clerk
will note, by the way, who's got the right hand up: 1, 2, 3, 4,
5, 6, 7, 8, 9, 10.
[Witnesses sworn.]
Mr. Horn. The clerk will note that all of those said aye.
We now start with the first panel, and that begins with
Alan Boehm, the Assistant General Inspector for Investigations
for the Corporation for National and Community Service.
STATEMENT OF ALAN BOEHM, ASSISTANT INSPECTOR GENERAL FOR
INVESTIGATIONS, CORPORATION FOR NATIONAL AND COMMUNITY SERVICE
Mr. Boehm. Yes, sir. Mr. Chairman, I appreciate the
opportunity to testify on behalf of the Office of Inspector
General regarding the Corporation for National and Community
Service's participation in the GSA SmartPay Travel Card
Program. The Corporation has participated in that Travel Card
Program since November 29, 1998. The Corporation has 590
employees, and of these employees, 539 were issued the travel
card. This is about 91 percent of the work force. For the past
2\1/2\ years, Corporation employees used the travel cards to
charge almost $3 million.
On August 1, 2000, Corporation management reported to us
that a Corporation employee's travel account was delinquent by
$8,603. We investigated and found that in less than 1 year,
this employee charged $26,500 to his travel card. After
examining the employee's travel documents, we found that only
$4,064 of these charges were incurred in support of official
travel. The remaining $22,442 were charges for personal
expenses, some of which may have been made by the employee's
roommate.
We began a review of employee travel card accounts based
upon what we saw during this investigation, which indicated to
us the potential for widespread misuse of the travel card.
Initially we were required to request the paper documents from
Corporation management, who, in turn, had to ask for these
documents from the vendor. This was a slow process. In August
2000, we were granted access to the Electronic Account
Government Ledger System [EAGLS]. EAGLS is a secure Web-based
system designed to assist an authorized user in analyzing
program activities online. Access to EAGLS allows us to
download----
Mr. Horn. We're having difficulty hearing. Move that
microphone----
Mr. Boehm. Oh, sure. Certainly.
Mr. Horn. It's a horrible microphone. It isn't your fault.
It's just we need to get it as close as possible.
Mr. Boehm. Certainly.
Mr. Horn. That's fine.
Mr. Boehm. Access to EAGLS allows us to download online the
individual's account and then import them into Excel templates
we designed. This streamlined the process and allowed us to
review an employee's account in almost real-time. Initially we
concentrated on those accounts that were delinquent. Later we
expanded our review to include employees who were utilizing
their travel cards in the same general area they were assigned.
We felt that the use of the travel card within the immediate
vicinity of an employee's duty station was a good indicator of
potential misuse, since Federal travel regulations and
Corporation policy prohibit this type of use. Then we compared
the employee's travel and local reimbursement vouchers to a
travel statement to determine what expenses were incurred as a
result of the travel. The personal expenses we saw included
purchases at local restaurants, local bars, gas stations,
travel and personal expenses and ATM withdrawals.
One example, in less than 2 years, one employee made 27 ATM
withdrawals of various amounts up to $180 for a total of $4,389
and never officially traveled once. Another employee admitted
using the travel card for personal expenses for about 2 years,
charging a total of $7,724. He told us he used the card because
he had declared bankruptcy, and it was the only credit card he
had. A senior employee admitted spending $9,806 for personal
expenses and did so because, in her words, it was convenient.
Another employee at a Corporation State office was using her
travel card to obtain cash at a local bar by signing fraudulent
credit slips indicating she was purchasing food and beverages,
when, in fact, she was receiving the amount in cash.
Investigatively, we are treating employee misuse of the
travel card as a violation of the Corporation travel policies,
the Federal travel regulations and standards of ethical conduct
for employees. Thus far, we have investigated 13 employees who
have misused their travel cards, of whom 8 admitted misusing
their cards. Two of these employees were dismissed. Two are
pending dismissal. One resigned. One retired. One received a
letter of counseling. One received verbal counseling, and five
are pending further action. We have identified additional
employees, approximately 9 percent of the work force, who
appear to have misused their travel cards and are awaiting
receipt of the employees' travel and local reimbursement
vouchers. We have also identified other employees who appear to
have misused their travel cards, but to a lesser extent, and we
have referred these employees to the Corporation management for
further consideration.
We believe there's some contributing factors to the misuse
of the travel cards. One factor is issuance of the travel cards
to Corporation employees who have no need to travel. Another
factor was a Corporation travel section not routinely reviewing
travel card expenses. After we provided the Corporation with
our templates and instructions for use, the travel section now
reviews travel card expenses. Within the last 2 weeks, they
have referred two matters to us that appeared to involve
employees misusing their travel card. We have also found that
the Corporation's supervisors who approve travel for their
subordinates do not have access to EAGLS necessary for them to
review their subordinates' use of the travel card. This
effectively eliminates the first level of oversight.
Mr. Chairman, this concludes my prepared testimony. I thank
you for your time.
Mr. Horn. Thank you. We thank you.
[The prepared statement of Mr. Boehm follows:]
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Mr. Horn. I'm going to call on the gentleman from Florida,
Mr. Putnam.
Mr. Putnam. Thank you, Mr. Chairman. I appreciate your
indulgence, and I appreciate you holding this hearing. I'm
looking forward to hearing the testimony from today's panel and
learning more about the issues surrounding the implementation
of the Travel and Transportation Reform Act of 1998,
specifically about issuing credit cards to government employees
for use during official travel. While this program has proven
successful in providing some savings to the government, it is
clear by the reports of improper card usage, as well as the
large number of accounts that are delinquent or written off,
that this program is desperately in need of improvement.
I'm very concerned that agency employees and U.S.
servicemen and women are charging expenses on government-issued
cards while traveling on official government business as
representatives of our government and then failing to pay these
balances when due. The failure to pay these balances ultimately
reflects badly on the Federal Government and the taxpayers it
represents.
Equally distressing is the fact that government agencies
responsible for issuing these cards and ultimately for
overseeing their proper usage are apparently not doing their
job. Just as it is incumbent upon the employees to pay the
charges they've incurred, individual agencies have a
responsibility to see that their employees have fulfilled this
obligation. There is no excuse for delinquencies and write-offs
of this magnitude to be occurring.
It appears as though the policies and procedures in place
within the agencies are not adequate to monitor this program
and ensure that it is properly implemented. To the extent that
the cause of much of these delinquencies and write-offs are
attributable to fraudulent practices by employees, agencies
must do a better job of curtailing this misuse. To the extent
that these delinquencies and losses are due to distributing
these cards to individuals who do not have the propensity or
ability to responsibly handle these cards, it is important that
basic guidelines be established to make this determination
prior to the issuance of the cards.
While I seriously question the logic of a financial
institution entering into a contract that obligates them to
extend credit to individuals based upon no qualification
whatsoever, this deficit and financial paralysis does not
relieve government agencies and their employees of the
obligation that is thrust upon them.
I hope this hearing provides us valuable insight into these
problems, Mr. Chairman, and I look forward to further
testimony.
Mr. Horn. I thank the gentleman for his very able
statement.
We now go to Mr. Clifford A. Skelton, senior vice president
of BACS Government Executive, Bank of America. I'm not sure
what the BACS is.
Mr. Skelton. Bank of America Card Services, sir.
Mr. Horn. OK.
STATEMENT OF CLIFFORD A. SKELTON, SENIOR VICE PRESIDENT, BACS
GOVERNMENT EXECUTIVE, BANK OF AMERICA
Mr. Skelton. Good morning Chairman Horn, Representative
Putnam. Thank you for inviting me here today. My name is Cliff
Skelton. I manage Bank of America's Government Card Services
Division. I joined the Bank of America team 2 years ago after
serving 21 years in the U.S. Navy as a naval aviator. I've had
the opportunity to serve our country as the commanding officer
of an F-18 squadron with over 200 officers and enlisted men and
women. I was also fortunate to serve as a White House fellow in
1997 and 1998, and I spent a year in the Office of the
Secretary of the Navy. I mention this because I want the
subcommittee to know that I have a deep appreciation for
government service, as well as the fine men and women who serve
at the Department of Defense and other agencies of the
government.
Bank of America provides travel and procurement card
services to 42 Federal agencies, with the vast majority of our
business unfortunately dedicated to travel, and specifically to
DOD travel. Of the 1.8 million cards we issue, 1.4 million are
for DOD employees. I say that it's unfortunate that we have
mostly travel business because travel-only businesses don't
make money. They lose money. Procurement card lines of business
are generally profitable. If you look at the distribution of
agencies and businesses in the GSA SmartPay Program, you find
my friends here at U.S. Bank with a ratio of 51 to 1
procurement volume to travel volume, with only $86 million
spent by government employees using their travel card per year;
Citibank, with a 5 to 1 procurement-to-travel ratio, with a
travel spend of $1 billion; Bank One, with 2 to 1 procurement-
to-travel and $263 million in travel spent; while Bank of
America has a procurement-to-travel ratio of 0.5 to 1 and $3.3
billion in travel spent, due primarily to the Department of
Defense.
What this all means is that Bank of America was awarded
three times more unprofitable travel business and one-quarter
of the profitable procurement business when compared to the
distribution of our nearest competitor, Citibank. And this
story is true before ever examining the payment and internal
management performance at the Department of Defense.
Now, I would be remiss if I did not acknowledge that Bank
of America did have some startup problems in 1999. Those
problems have long been resolved, and regardless of these
problems, the following statistics cannot be overlooked: 40,000
sailors, soldiers, airmen, marines and civilian DOD employees
have defaulted on more than $53 million or 5 times the
commercial standard in what is supposed to be official travel.
The cost of service for DOD is 26 percent more expensive than
we experience in a commercial portfolio. Forty percent of the
DOD cards have never been used, in total, while 60 percent do
not meet our agreed-upon standard for frequent travelers,
thereby increasing bank expense with no offsetting revenue.
DOD members call our call centers 60 percent more often,
and it takes a considerably longer period of time to solve
issues as compared to commercial standards. Error rates for
applications and expedited card demands far exceed industry
standards or needs. Cash advances are twice as likely not to be
paid back when compared to other card charges, leading one to
believe that misuse is routine, if not rampant, not to mention
the anecdotal evidence.
Having said all this, I am nonetheless pleased to report
that just 3 weeks ago, DOD committed to implementing a number
of changes through a contract modification. This modification
is expected to lower credit losses and hopes to bring cost of
services more in line with those associated with a commercial
product. We believe this is a good start for a partnership;
however, it is just that, a start. It never makes sense for a
contractor to lose money when providing services to our
government. It does not produce winning results, and
arrangements such as this tend to end in failure for both
parties. Despite these contract changes, our financial picture
still indicates we will continue to lose millions of dollars
per year for the life of the contract, potentially 7\1/2\ more
years.
I believe the original intent of the Travel and
Transportation Act of 1998 was to create a state-of-the-art
program that would streamline travel for employees, increase
efficiencies for administrators and achieve significant savings
for the taxpayer. We, as your business partner, cannot satisfy
these goals under the current contract.
As the third vendor in a row to lose money providing travel
services to the Department of Defense, it appears that either
the contracting vehicle for DOD must change or be offset by
more profitable lines of business. I offer that you consider
outsourcing government travel card service needs as a pay-for-
service or cost reimbursement arrangement so that agencies pay
for the service and for the performance.
In conclusion, please understand that while my comments
have been somewhat retrospective in tone, the answer lies ahead
of us, not behind us. While significant changes will still need
to take place if the DOD travel business expects a competitive
contractor market, I believe the Department of Defense is now
truly interested in a more partnered relationship. The bank
looks forward to working with the Department of Defense, the
General Services Administration, as well as the 41 other
government agencies to make this a viable relationship into the
future.
Mr. Chairman, Representative Putnam, thank you for
providing me the opportunity to testify before the
subcommittee, and I'll be glad to answer any questions that you
or other members of the subcommittee may have when it's
appropriate.
Mr. Horn. Thank you very much, Mr. Skelton. That's a very
helpful statement.
[The prepared statement of Mr. Skelton follows:]
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Mr. Horn. And now is Mr. Jerry Hinton. He is Director of
Finance, Defense Finance and Accounting Service, Department of
Defense. Mr. Hinton.
STATEMENT OF JERRY HINTON, DIRECTOR, FINANCE, DEFENSE FINANCE
AND ACCOUNTING SERVICE, DEPARTMENT OF DEFENSE
Mr. Hinton. Good morning, Mr. Chairman and Congressman
Putnam. I'm the Director of Finanance at Defense Finance and
Accounting Service. The responsibilities for coordinating the
policy and procedures for the use of the travel card with the
bank and the military services fall under me. It is a pleasure
to be here this morning. Since you have my written statement,
with your approval I will simply summarize the main points.
Overall the Department has benefited from the Travel Card
Program. In fiscal year 2000, we received $5.7 million in
volume discount rebates offered by the bank. Both GSA and the
Department have established rules for the travel card as
required by the Travel and Transportation Act. Those rules
allow latitude in establishing exemptions to mandatory card
use, which we've used to address the specific needs of the
Department.
The DOD Travel Card Program includes both centrally billed
accounts [CBAs], held by the unit or office and individually
billed accounts [IBAs], issued to individual travelers.
Centrally billed accounts are primarily used for airline
tickets. These charges are included in the computation of
rebates paid to the Department by the bank. Interest and
penalties accrue on any invoice paid 31 or more days after the
date of the invoice, pursuant to the Prompt Pay Act. We are
working with the bank to refine travel invoice reconciliation
processes, and with the military services on the delinquencies
for these accounts. Recently monthly reports indicate that
progress is being made, and we are paying the bills more
promptly and thus reducing the interest that we pay.
For individual travelers, the use of the travel card has
reduced the need to process travel advances. The volume of
charges on individual cards is also factored into the rebates
offered by the bank. We recognize there have been challenges
associated with implementation of the mandatory use of the
travel card, and we are working with the Military Services and
the Defense Agencies to take corrective steps.
We also recognize the added expense that the high number of
delinquencies pose to the bank. We have worked hard to ensure
that travelers receive their reimbursements in a timely manner.
So far this year, the Defense Finance and Accounting Service
has settled about 99 percent of the claims submitted within 9
days.
We have and continue to work with the bank and the Military
Services to refine the information provided to unit commanders
so that they may take appropriate administrative actions to
counsel and to hold individuals accountable for their payments.
Recognizing the bank's concern, we began discussions several
months ago on the Travel Card Program. Those discussions led to
an agreement we signed just a few weeks ago on April 11th that
extend the task order for the travel card program through
November 29, 2001. That agreement adds risk mitigation
features, including increased command management attention on
individual delinquencies, deactivation or cancellation of cards
issued to infrequent travelers, deductions from salaries for
accounts that are over 120 days past due, the use of split
disbursements allowing a traveler to have portions of their
expenses charged paid directly to the bank. The modification
also lowers cash and cash limits of individual cards. It allows
for higher ATM and late fees--late payment fees.
In conclusion, I can assure you, Mr. Chairman, Mr. Putnam,
the leadership in DOD is engaged. We believe that the changes
that have been implemented will be successful in resolving the
problems with delinquent accounts, and we continue to work with
the bank to address areas of concern. The Travel Card Program
is important to the Department, and we will work to keep it
successful.
That concludes my remarks, and I'll be happy to address any
questions that you have.
Mr. Horn. Thank you very much, Mr. Hinton.
[The prepared statement of Mr. Hinton follows:]
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Mr. Horn. We now move to Mr. Chris Pieroth, the senior vice
president, product and marketing for the U.S. Bank.
STATEMENT OF CHRIS PIEROTH, SENIOR VICE PRESIDENT, PRODUCT AND
MARKETING, U.S. BANK
Mr. Pieroth. Thank you, Mr. Chairman, members of the
committee.
Travel cards have been marketed as a convenient and cost-
effective replacement to cash advances, as well as a means of
consolidating spending data for better vendor negotiations. The
use of travel cards has been a standard best practice for
managing travel expenses for over 15 years.
In order to maximize the benefits offered by travel cards,
organizations implementing such programs will normally mandate
the use of the card by all travelers. This allows for the
complete elimination of costly cash advances and maximizes the
capture of spending data. Organizations also do not generally
accept liability for travel cards issued to individual
employees.
The issuance of travel cards to employees is based on
organizational authorization and is not contingent upon
individual employees passing credit checks. While basic credit
screening is done for the purpose of risk assessment and
account monitoring, the results do not prevent the initial
issuance of a travel card to an authorized employee.
Issuers of travel cards manage risk in a number of ways.
First, the organization itself must undergo a credit check to
ensure that the organization is financially stable and is able
to properly reimburse employees for travel expenses. Second,
upon issuance of a travel card, a basic credit screen is done
for the purpose of risk assessment and account monitoring.
Accounts that are deemed to present a higher-risk are more
closely monitored for delinquency and unusual spending
activity; third, delinquency reports provided to organizational
program managers to assist in collection activities; and
finally, financial incentives are provided to organizations for
faster payment and lower-than-anticipated credit losses.
The effectiveness with which a card issuer is able to
perform these functions has a significant impact on delinquency
and write-off rates. Experience is also very important. Travel
card portfolios behave differently than other card portfolios.
Additionally, travel card portfolios belonging to different
customer channels, such as large market, midmarket, and
government customers, also behave differently. A slow and
controlled entry into each customer channel to ensure a proper
understanding of portfolio behavior and development of proper
risk mitigation strategies is also very important. Entering a
new customer channel too quickly can result in higher
delinquency rates and larger-than-anticipated write-offs.
Mandating the use of travel cards by Federal employees was
simply an adoption of a longstanding private sector best
practice. While there have been delinquency and write-off
issues associated with the GSA SmartPay Program, U.S. Bank does
not believe these issues were made worse by mandating the use
of travel cards by Federal employees. From U.S. Bank's
perspective, the GSA and the agencies participating in the
SmartPay Program have consistently demonstrated a willingness
to work cooperatively to address the resolution of delinquency
and write-off issues. U.S. Bank believes this will continue to
be the best method for handling such issues in the future. And
that concludes our testimony.
Mr. Horn. Well, we thank you for that approach.
[The prepared statement of Mr. Pieroth follows:]
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Mr. Horn. Mr. William Anderson, deputy chief financial
officer for the Corporation for National and Community Service.
Glad to have you here.
STATEMENT OF WILLIAM ANDERSON, DEPUTY CHIEF FINANCIAL OFFICER,
CORPORATION FOR NATIONAL AND COMMUNITY SERVICE
Mr. Anderson. Good morning, Mr. Chairman, and members of
the subcommittee. My name is Bill Anderson, and I am the deputy
chief financial officer for the Corporation for National
Service. Thank you for inviting me to testify on the
Corporation's participation in the GSA SmartPay Travel Card
Program. I ask that my full statement be included in the
record.
Mr. Horn. Yes. All of them are automatically.
Mr. Anderson. The Travel Card Program has significant
benefits that allow the Corporation to carry out necessary
travel effectively and efficiently. We have issued management
policies governing the proper use of the travel card, and that
policy has been widely disseminated throughout the
organization. We have had some continuing issues relating to
travel payments billed to the Corporation's central account and
for travel billed to individuals that I will focus on today.
First, I want to note that we have no delinquent balances
in our active account. The Corporation does have an unresolved
balance of $275,000 related entirely to a centrally billed
account that was closed over a year ago. At the time the
account was closed, the balance was $1.3 million. When we first
implemented the SmartPay Program, our charge card vendor,
NationsBank, now Bank of America, did not bill the Corporation
properly for travel charged to the Corporation's centrally
billed account. When we tried to resolve these charges, the
bank was unable to provide us with the information we needed to
sort out which subaccounts had unpaid balances. As a result,
the central account balance grew. When we closed that central
account, it had a balance of $1.3 million.
Working closely with Bank of America to resolve this
matter, we have reduced the unresolved balance in the closed
centrally billed account to $275,000. To date, we have
determined that about $1 million of the $1.3 million had
already been paid by the Corporation, but had been misapplied
by the bank. We expect to complete our work on the remaining
discrepancy within 60 days. We also have a new account
structure with Bank of America, and all those accounts are
current and working properly.
The second matter I will discuss is the Corporation's
actions relating to the delinquency and use of the travel cards
billed directly to individuals. About 6 months ago, Corporation
travel unit staff began obtaining all outstanding balances for
Corporation travel cardholders. The report is reviewed to
identify all employees with accounts reported 60 days past due.
Each delinquent cardholder is contacted to determine why they
have not paid their balance. Letters are sent to the employee
and the employees' supervisor, notifying them that the account
is delinquent and reminding them of their responsibility to pay
all travel card balances in a timely manner. In most cases this
action is all that is necessary to get the account current. Our
current delinquency rate is less than 4 percent. It's about
$5,000, within the average governmentwide performance in this
area.
In addition to reviewing for delinquencies, the Corporation
currently reviews a detailed transaction listing from the
Electronic Account Government Ledger System [EAGLS], for
certain cardholders. Cardholders may be selected for a detailed
review either randomly or based on perceived risk, such as a
large delinquent balance. The transaction detail is reviewed to
determine whether or not the charges were appropriate and
related to official travel. If the Corporation determines that
the charges were not for authorized purposes, the Corporation
will take appropriate disciplinary action, including removing
the employee from Federal service. The Corporation has taken
such actions in the past.
Mr. Chairman, the Corporation takes the misuse of Federal
cards very seriously. We have issued guidance to employees on
their obligations with respect to the use of the cards and have
plans to take additional steps that will help minimize the
likelihood of abuse. These steps include revisiting how the
Corporation determines who gets a card and the credit limit on
individual cards. In addition, the monthly delinquency report
will be provided to the Corporation's chief operating officer
for review.
In addition to these actions, we have worked closely with
the Corporation's Office of the Inspector General on this
issue. That office also obtains information from EAGLS and
reviews staff usage of the travel card. When problems are
identified, we receive reports from the inspector general and
take appropriate action.
Mr. Chairman, the Corporation has been working diligently
to resolve the outstanding matters with our delinquent accounts
and ensuring proper use of the SmartPay Program by our
employees.
Thank you again for inviting me to testify on behalf of the
Corporation. I would be happy to answer any of your questions.
Mr. Horn. Thank you very much, Mr. Anderson.
[The prepared statement of Mr. Anderson follows:]
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Mr. Horn. And we now move to Ms. Patricia English, Acting
Chief Financial Officer for the Federal Emergency Management
Agency.
STATEMENT OF PATRICIA ENGLISH, ACTING CHIEF FINANCIAL OFFICER,
FEDERAL EMERGENCY MANAGEMENT AGENCY, ACCOMPANIED BY JAMES
LUCAS, CHIEF, FINANCIAL POLICY AND STANDARDS BRANCH; LORRAINE
NORMAN, AGENCY PROGRAM COORDINATOR, TRAVEL CARD PROGRAM; AND
PAULA LYONS, AGENCY PROGRAM COORDINATOR, PURCHASE CARD PROGRAM
Ms. English. Good morning, Mr. Chairman and members of
the----
Mr. Horn. You're going to need to get the mic right up to
you.
Ms. English. Good morning, Mr. Chairman, and members of the
subcommittee.
Mr. Horn. Let's see. Is there a switch on there?
Ms. English. It's green.
Mr. Horn. You got it? Just take the other one. Thank you.
Ms. English. I'll try again.
Good morning, Mr. Chairman, and members of the
subcommittee. I am Pat English, Acting Chief Financial Officer
for the Federal Emergency Management Agency. I am pleased to
appear before you today to discuss FEMA's participation in the
GSA SmartPay Travel Card Program. I would also like to
introduce Mr. James Lucas, who is the Chief, Financial Policy
and Standards Branch; Ms. Lorraine Norman, who is the Agency
Program Coordinator for the Travel Card Program; and Ms. Paula
Lyons, who is the Agency Program Coordinator for the Purchase
Card Program.
Mr. Lucas is responsible for managing the development of
FEMA's policies and procedures for implementing the Travel and
Transportation Act of 1998 and the GSA SmartPay Travel Card
Program. Ms. Norman and Ms. Lyons are responsible for managing
the day-to-day operations of the GSA SmartPay card for travel
and purchase programs respectively. We welcome the opportunity
to come before this subcommittee to discuss FEMA's efforts to
implement the act and the actions taken to improve the
operational effectiveness and efficiency of the contractor-
issued charge card.
As you are aware, the act requires that all travelers use
the travel card to pay for travel expenses. FEMA recognizes the
significant benefits that the Travel Card Program provides to
the government and to the traveler, and we have taken steps to
fully realize these benefits. As a matter of fact, in 1993,
FEMA issued a travel directive maximizing the use of the
contractor-issued travel card for official authorized travel.
Employees who are frequent travelers were issued a travel card.
We eliminated the use of the imprest funds and began using ATMs
for travel cash advances. We replaced the government travel
request [GTR] to purchase common carrier transportation with
the individually or centrally billed travel card.
Implementation of an aggressive travel card program has had
its challenges. Prior to the implementation of the current GSA
SmartCard Program, FEMA had one of the highest delinquency
rates, approximately 20 percent, for individually billed travel
card accounts in the Federal Government. We recognized the need
to improve the management of delinquencies; however, making
progress is very difficult. In selecting our current card
traveler vendor, Citibank, we saw this as an opportunity to
create a new partnership. We turned our attention to improving
the overall management of the program. After overcoming initial
startup problems, we started to see once again the delinquency
problem developing.
Prior to it getting out of hand, I met with Citibank
officials to discuss our delinquency rate, and they were able
to raise my level of awareness of the tools available to
address our delinquencies. I met with my staff. An action plan
was developed which identified tasks, accountable organizations
and/or individuals with milestones for completion.
The plan raised the level of awareness throughout FEMA.
Today, about 12 months later, FEMA has one of the lowest
delinquency rates for these accounts in the Federal Government.
I attribute our success to the support given to me by other
FEMA senior managers and my staff. My staff developed a written
policy for the SmartPay Card Program. We consulted with
management and labor representatives when developing our policy
and discussed the reason for the changes. We conducted an
extensive education campaign to communicate the policy to all
FEMA cardholders. Office program coordinators were trained to
manage the program in their respective organizations.
Sufficient resources were committed to manage the program so
that we can maintain an OPC-to-cardholder ratio of 1 to 100 to
ensure proper oversight of the program. Progressive
disciplinary guidelines ranging from reprimand to dismissal are
applied when the card is used for unauthorized travel expenses.
Managers and cardholders are held accountable for their
performance in the program. Working as a team, we continue to
communicate our message to assure that everyone clearly
understands the policies and procedures governing the use of
the program.
A strong partnership has been formed with Citibank to
improve the management of the program. We meet regularly with
the Citibank staff to review the performance and identify
opportunities for improvement. We decreased spending limits and
have expanded the use of merchant category code restrictions.
FEMA actively participates in GSA/Citibank-sponsored workshops
and training seminars. GSA's best practice guide reflects many
of FEMA's policies.
Citibank has invested time to learn about FEMA's program
and understand our charge card needs. Citibank client account
specialists provide invaluable assistance to our OPCs in
managing the day-to-day operation of the program. Citibank--
excuse me, CitiDirect, the Citibank Internet-based management
information system, is used to review cardholder account
activity online.
I am proud of FEMA's efforts to improve the management of
the SmartCard Program. We make sure that our employees are
reimbursed for their travel expenses on time. Cardholders are
paid within 3 to 5 working days after submission of travel
vouchers; therefore, timely reimbursement of the employee for
travel expenses is not an issue.
This summer we will begin to deduct from cardholder
salaries past-due amounts owed to Citibank. We plan to develop
and implement a split payment system in the near future to pay
Citibank directly for transportation, lodging and rental car
expenses charged to the cardholders' accounts. FEMA's
delinquency rate for March 2001 for accounts past due 61 days
plus is 2 percent for individually billed cards, zero percent
for centrally billed cards, zero percent for purchase account
cards, compared to governmentwide averages of 7, 5 and 3
percent respectively.
Mr. Chairman, this concludes my prepared remarks for this
morning. I will be happy to now answer any questions that you
or members of the subcommittee may have. Thank you very much.
Mr. Horn. Well, thank you, Ms. English.
[The prepared statement of Ms. English follows:]
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Mr. Horn. Now we have Mr. G. Martin Wagner, Associate
Administrator, Office of Governmentwide Policy for the General
Services Administration.
STATEMENT OF G. MARTIN WAGNER, ASSOCIATE ADMINISTRATOR, OFFICE
OF GOVERNMENTWIDE POLICY, GENERAL SERVICES ADMINISTRATION,
ACCOMPANIED BY CAROLYN ALSTON, ASSISTANT COMMISSIONER, OFFICE
OF ACQUISITION, FEDERAL SUPPLY SERVICE, GENERAL SERVICES
ADMINISTRATION
Mr. Wagner. Good morning, Mr. Chairman. I would also like
to introduce--I have with me Carolyn Alston, Assistant
Commissioner of the Office of Acquisition within GSA's Federal
Supply Service. Ms. Alston's office developed and manages the
GSA SmartPay contract.
But before I actually get into the prepared remarks, I'd
like to mention to the subcommittee that at this very moment,
the Third Annual Miles Romney Award in Personal Property
Management is being presented. Miles was a tremendous asset to
the Hill, worked for many years for the subcommittee, and we
really appreciated his help, as is illustrated by the fact that
we named one of our awards after him. I'm afraid it has nothing
to do with this hearing, but I thought I would mention it.
Mr. Horn. Well, I thank you for mentioning it, though.
Miles Romney was a legend around here for decades. He helped
both the minority and the majority, Democrats and Republicans,
and he was a very skilled, fine public servant.
Mr. Wagner. We really appreciated the chance to work with
him.
But to return to the question at hand, I am pleased to
appear before the subcommittee to discuss the Travel and
Transportation Reform Act of 1998. The act capitalizes on card
technology as a mechanism that could be merged with other
technology advances to make a more efficient and better-run
government. In particular, the act recognized that appropriate
use of commercial card solutions for ordering and paying for
travel services would be more efficient and effective than a
government-developed solution, and that a common approach using
cards for an agency as a whole would work better than a
multiple approach based on individuals using their own cards.
We believe that the use of charge cards offers an
opportunity for government to better leverage industry best
practices. The ability to eliminate or greatly reduce travel
advances, to gather essential management data and to capitalize
on industry trends all involve the use of charge cards. This
subcommittee recognized that and gave us both the structure and
the flexibility in the act to take advantage of current
technology and position ourselves to be ready for future
changes. For that we thank the subcommittee.
Now let me discuss the Travel Card Program. The final
implementing regulation for the program was issued March 30,
2000, and effective already for travel on or after May 1, 2000.
With expenditures of $4.7 billion in fiscal year 2000, the
GSA SmartPay contract is the single largest corporate travel
card program in the world. The program provides a charge card
that is universally accepted, improves government cash
management and significantly reduces the need to provide travel
advances. It also provides the opportunity to reduce our
administrative costs for making travel payments and to obtain
data on travel spending to negotiate better discounts.
Finally, the program provides agencies the opportunity to
earn refunds on their travel payments if they reimburse the
card companies on a timely basis. Refund payments are
influenced by two factors, volume of expenditures and payment
performance. Several agencies have taken advantage of this
opportunity, and overall GSA's SmartPay refunds for travel
purchase and fleet increased from $55 million in fiscal year
1999 to $65 million in fiscal year 2000. I need to emphasize
that is all charge card contracts--or charge card vehicles
under the contract.
Our partners have also expressed concerns with cardholder
delinquency, inactive accounts and write-offs on individually
billed accounts. GSA is working closely with our customers and
our card providers to develop a host of delinquency controls.
We believe that agency efforts are working, as we have seen a
decline in delinquency rates. For example, delinquency rates
for March 2001 were 7 percent for the individual billed
accounts and 5 percent for the centrally billed accounts, a 50
percent decline for March 2000. Good progress, but not enough.
In addition, GSA has recently made some contract modifications
to encourage agencies to reduce the write-offs to a more
acceptable level.
While program performance continues to improve, the
government needs to do better. The card providers and the
agencies can work together and are working together to make
this an even better program.
Mr. Chairman, that concludes my oral statement.
Mr. Horn. Thank you. Well, thank you very much.
[The prepared statement of Mr. Wagner follows:]
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Mr. Horn. Now, Carolyn Alston is the Assistant Commissioner
for the Office of Acquisitions for the General Services
Administration, and Mr. Wagner noted that she was accompanying
you.
Is there anything you would like to add to the testimony
from the General Services Administration?
Ms. Alston. No. There's nothing I'd like to add. I will
assist Mr. Wagner in answering questions.
Mr. Horn. All right. We then move to the last presenter,
and then we'll get down to questions.
Mr. Michael N. Griffin is the Chief of the Division of
Planning and Internal Control, Office of the Chief Financial
Officer, U.S. Department of Labor.
STATEMENT OF MICHAEL N. GRIFFIN, CHIEF, DIVISION OF PLANNING
AND INTERNAL CONTROL, OFFICE OF THE CHIEF FINANCIAL OFFICER,
U.S. DEPARTMENT OF LABOR
Mr. Griffin. Yes. Thank you, Mr. Chairman. I appreciate the
opportunity to appear before you today to brief you on the
Department of Labor's implementation of the Travel and
Transportation Reform Act of 1998 and our participation in the
GSA SmartPay Travel Card Program.
The Department, under the auspices of the General Services
Administration's SmartPay Program, entered into a contract with
Citibank for its government-sponsored travel card on November
30, 1998. The travel in the Department is an important part of
our mission, and the Travel Card Program has served us well by
giving us a number of benefits, including streamlined
administrative processes, elimination of costly paperwork, and
improved cash management through the reduction of travel cash
advances.
The Department currently has approximately 13,000
individually billed travel accounts and 140 centrally billed
accounts, with an employment base of about 16,000. This number
of cards is fairly representative of the number of employees
traveling on behalf of the government and reflects our response
to the requirements for mandatory use of the card.
My office, the Office of the Chief Financial Officer, has
primary responsibility for overseeing and coordinating the
Travel Card Program throughout the Department. Since the
inception of this program years ago, we've established travel
card coordinators in each Department of Labor agency and each
region to ensure program execution and monitoring of employees'
cards.
My office acts as a liaison with GSA, the bank, and the
travel card coordinators to communicate policies, procedures,
and ensure that proper financial business practices are
followed. This infrastructure has generally worked well for us
in the past.
We consistently monitor the Department's travel card
payment performance. When problems are detected, we work with
the travel card coordinators to administer corrective actions
and to minimize delinquent debts on individually and centrally
billed accounts. Our performance has generally been pretty
good, but requires a lot of hard work in terms of monitoring
performance.
Recently, we had a problem that resulted in increased late
payments over the past 12 months in our centrally billed
accounts. The problem resulted from a misunderstanding with the
charge card bank on our centrally billed accounts. A number of
payments were misapplied and required some intercession with
the bank to get the payments properly applied to the Department
of Labor.
We've recently discussed with Citibank and reached
agreement on implementation of a salary offset program on
disputed delinquent individually billed travel card accounts.
We've lowered card spending limits and have conducted more
training jointly with the bank and our travel card coordinators
to ensure that the card program operations are clearly
understood. We work closely with regions and with our
coordinators to resolve problems. Every 6 months we issue
reminders to our employees from the Chief Financial Officer on
cardholder's conduct and responsibilities. We inform the
employees of the bank card suspension, cancellation and
reinstatement policies and procedures' and, in monitoring the
program, do occasionally have to cancel cards.
Payment performance on our centrally billed accounts has
generally been pretty good. This is not reflected in the recent
spike in our delinquencies, but we've addressed that problem
and are confident that the problem will be eliminated.
Mr. Chairman, the SmartPay Travel Card Program has worked
well for us. We are building a better partnership with
Citibank. It's taken us quite some time to get management
reporting, but an online system that is now available will help
us better monitor the program.
I thank you for giving me the opportunity to share our
program experiences with you, and will be happy to answer any
questions.
Mr. Horn. Well, thank you very much, Mr. Griffin.
We'll now go to questions and answers, and before I yield
to Mr. Putnam, I have two questions.
Mr. Hinton, a lot of the problems have come in the
Department of the Army, I believe, and my question is very
simple. Is the idea of defaulting on a loan--is that in
anywhere, in either the civilian side, military side, that
would be a debt to the individual? And I'm talking now in terms
of the morality of it all, and people, it seems to me, in
responsible positions and responsibility should be held to an
accountable standard. What do you think? And why wasn't the
Department of Defense--why didn't it just say, hey, we've got a
problem here, and let's get a tough master sergeant to see what
he can do with the troops?
Mr. Hinton. Yes, sir. What I'd like to say, first of all,
in the article that was published in the Army Times on April
2nd, recognized that you mentioned the Army. It was the Army
Times talking about the Army. They started off saying that they
had problems, and they know they needed to do better. The Army
has moved their delinquency down from a high of--I think it was
18 percent or so, and they are about half of that, and they----
Mr. Horn. You're saying 9 percent default?
Mr. Hinton. It was about 9 percent.
Mr. Horn. Well, you said 18 percent, and then you've moved
down.
Mr. Hinton. Yes.
Mr. Horn. And I take it that's 9 percent then.
Mr. Hinton. Yes, sir.
Mr. Horn. OK.
Mr. Hinton. But the Army, as well as the Department, feel
that the modification that we've just worked out with the bank,
part of that is working through all the processes. We have a
number of cards, as the bank just mentioned, that are not being
used. We want to take those cards away, and we started several
months ago to reduce those. We also--with our new folks that
are coming in, mostly junior folks, as well as the civilians,
we are giving them additional training and financial training
on the card. We also are holding folks accountable. We give
them opportunities to pay their card and work with the bank,
and we have taken some disciplinary actions as well. Senior
leadership in the Department is very serious about this.
Going back to that same article, it talks about the
Secretary of the Army issuing guidance to his four-star
Commanders, and even today, General Keane has issued that as a
part of the reporting that comes to him in the morning, that he
holds his officers accountable, as well as the civilians. And I
think that started over the fall, and we are seeing results as
we speak now.
Overall for the Department, for IBAs, we had a percentage
in January of 18 percent--I think 18.55 or something close to
that, and we are down to, for the Department, 8.85. We have a
target, as soon as possible, to get down to 4. We're going to
continue to work with the bank to reduce that even more.
Mr. Horn. Well, you're saying that they are taking it
seriously in terms of personnel records; is that correct?
Mr. Hinton. Yes, sir.
Mr. Horn. So on their personnel jacket or whatever you want
to call it, does it note so and so defaulted on loan, or are
they afraid to do that?
Mr. Hinton. It's not across--I can't say across the board,
and I don't have all the stats, but I know in some cases some
of those things have happened, but I can't say if it's across
the board. I can provide additional information on that one.
Mr. Horn. Now, Mr. Griffin, how about the Department of
Labor? If there's defaults, does that go into the personnel
jacket?
Mr. Griffin. I would have to check for you, Mr. Chairman.
Mr. Horn. Would you?
Mr. Griffin. Yes.
[The information referred to follows:]
The Department of Labor (DOL) does not routinely place a
statement in an employee's personnel file to indicate that the
employee defaulted on his or her travel card account or used
the card for unauthorized purchases. However, if a payment
default or other misuse results in disciplinary action against
the employee, e.g. a letter of reprimand or adverse action, DOL
does document the disciplinary action in the employee's Office
Personnel File (OPF). Letters of reprimand are placed in the
OPFs for finite periods of time, usually for one to three
years, and then removed. Adverse actions, such as suspension or
removal for cause, are documented in the OPF and become a
permanent part of employee's record. DOL's personnel action
tracking system reflects several cases where disciplinary
action was taken based on cardholder impropriety.
Mr. Horn. At this point, without objection, it will be in
the record.
Ms. English, the same for FEMA, Federal Emergency
Management Agency, does a default go into the personnel file,
so if somebody is up for a promotion sometime, that could make
them a little, perhaps, more conscious earlier in their
career----
Ms. English. I'll have to check----
Mr. Horn [continuing]. So they don't default?
Ms. English. I'll have to check on that and get back to
you.
Mr. Horn. OK. And at this point we'll put in a statement
from the Federal Emergency Management Agency.
[The information referred to follows:]
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Mr. Horn. And let me ask Mr. Skelton, on the records that
reflect the Army's improvement, does the Bank of America see
changes in the Army's improvement?
Mr. Skelton. Mr. Chairman, we do see some pretty
significant changes. I will tell you that you have to be
careful how you analyze progress. I do believe there has been
significant progress, but we have to be careful that they're
still in the millions per month being charged off by OCC
regulation at 180 days past due, 210 past billing, we must
write off those accounts. So while we do see significant
improvement, we do see performance well beyond what we would
ever imagine in any other commercial relationship. But I must
admit there is very good performance in terms of improvement.
Mr. Horn. Let me just ask one more agency that's before us,
and that's the Corporation for the National Community Service.
Have we got anything that ties down the records, Mr. Boehm? And
we also had Mr. Anderson. What's happening in that agency?
Mr. Anderson. In respect to defaults?
Mr. Horn. Right. Defaults. And is it in the personnel
record?
Mr. Anderson. I can't say specifically if somebody defaults
on their charge card debt, if it goes into their personnel file
at this time. In the past 2\1/2\ years under the SmartPay
Program, I believe we have had seven instances where somebody's
debt has been charged off by the bank. The total amount of that
debt is approximately $15,600. Of these seven individuals, six
are no longer with the Corporation. The other individual has
disciplinary action pending against him.
Mr. Horn. Without objection, we'll preserve a space in the
record for what's the status of personnel use for people that
default, and are they doing it; not just a big song and dance
about, well, we'll think about it, just are they doing it,
because we're going to come back to this a few months from now
just to see how this thing is going.
[The information referred to follows:]
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Mr. Horn. So my last question before Mr. Putnam is to the
General Services Administration, Mr. Wagner. Can you walk us
through the monthly performance report for March 2001?
Mr. Wagner. I think I'll have Ms. Alston walk us through
that one here. Thanks.
Ms. Alston. OK. The----
Mr. Horn. It's a little hard to see that, but----
Ms. Alston. It's harder for me to see this. OK. The monthly
report is information concerning the agencies that are on the
CFO Council, the Chief Financial Officer's Council, and the
report shows at the bottom the total delinquencies for the
government for both individually billed accounts and for
centrally billed accounts. And if you can see----
Mr. Horn. Now, I take it that category is headed overall 60
plus days; is that correct? It says 2 months default----
Ms. Alston. This is 61 plus days of total outstanding IBA,
and at the bottom you can see that the government's rate for
March was 7.23 percent. OK, if you continue over----
Mr. Horn. Well, it is an average at the bottom, or is it
a----
Ms. Alston. Yes, that's the average for these agencies
shown.
Mr. Horn. Right.
Ms. Alston. But there----
Mr. Horn. So you've got the Corporation for National
Service at 38 percent defaults. So that certainly would run it
up a little, and we have--the Department of Education is 18
percent. Is that generally student loans? It seems to me we
aren't giving them these. So it's the staff that's getting
them, and it's 18 percent, which is pretty sad, because we're
asking testing for students, and we need testing for
bureaucrats.
Ms. Alston. Mr. Chairman, I think we may be looking at
different reports. Do you have the report that's March 2001?
Mr. Horn. That's what I got, 60-plus-day delinquencies, and
you say it's 4.8 percent, which--yeah. Let's just go down the
line at the top here. Travel individually billed accounts,
balance due, and you can see there in the case of the
Department of Defense, we're talking about $17.1 million.
Ms. Alston. Yes.
Mr. Horn. We get to Justice, $1.8 million. We get to
Transportation, $1.7 or $1.8 million, and then the total of
that is simply travel, individually billed accounts, that are
over 2 months or 60 days, however you count it----
Ms. Alston. That's correct.
Mr. Horn [continuing]. At $25 million. Then we've got the
outstanding ones to the tune of $347 million.
And, again, Defense has $195 million involved. And then
we've got a whole series of things here, but in a nutshell, it
boils down that there is, say, a few big defaults and there's
some that are in the 1 or 2 percent. But the big ones are, of
course, as I said earlier, Corporation for National Service, 38
percent, and then the Department of Defense, 18 percent. And
that's a big number any way you look at it.
So is that unusual or is that--is there a trend line here
is what I'm after? Is this the worst or the best? Are we
improving in March or not improving?
Ms. Alston. Actually we have improved considerably. This
number, the overall percentage for the government is down from
last month. It was 11 percent and now it's down to 7.23. And if
you look at the very bottom of the chart, it will show you the
numbers in the far right corner, it shows you March 2000, and
individually billed debt over 60 days was at 14 percent. Now
it's down to 7. So we see that the trend is for the delinquency
rates to come down.
Mr. Horn. I now yield to Mr. Putnam for the purpose of
questioning.
Mr. Putnam. Thank you, Mr. Chairman. First of all, for Mr.
Hinton, I am most concerned about a department whose culture is
defined by discipline, by the chain of command, by authority,
responsibility and 40,000 soldiers and sailors and employees in
the Department of Defense have accumulated $50 billion in
defaults.
Now, are some branches in worse shape than others by nature
of the deployment? Are there trends within the Department of
Defense? Are civilian rates higher than non civilian rates?
Could you give us some insight into that and elaborate on that
a little bit for us.
Mr. Hinton. Yes, sir, be glad to. As I mentioned earlier,
we have been working with the bank over the last several months
very, very hard. And we signed an agreement on April 11th to a
number of things to help better manage this problem. One of the
things that are coming--and I'll get back to in a little bit--
but I just wanted to lay out that we are implementing, for
instance, deductions from salaries, meaning that after 120
days, the bank will be able to come to us, after due process,
and we will take money out of the particular member's salary.
Mr. Putnam. When will that be implemented?
Mr. Hinton. It will be implemented by October 11th, 6
months from now. It's not only the current debt, but they can
demand the part that has been written off as well. So we are
retrospectively going back to try to eliminate or to reduce the
burden to the bank. And that was signed, again, on April 11th.
As far as the particular military department or civilian in
the military, we see a trend kind of in the junior ranks, but
junior ranks in civilian as well as military. What we are
trying to do is we are giving more training. We are counseling
the folks. We are trying to be proactive. We don't want to
solve the problem at the end, we want to, you know, help work
with them before things get out of hand.
For instance, the stats that I can recall, I think the Army
has--the chairman has mentioned, and in the article that I
mentioned, the Army talked about some of those issues in the
article on April 2nd from the Army Times some of the leadership
in the Army--about the cards being issued to some of the junior
folk, civilian and military. They are addressing that.
Mr. Putnam. But you don't know if there is a bigger problem
in the Army or the Navy, or if the nature of the deployment of
the Marines makes their situation worse or better than the
Coast Guard, meaning----
Mr. Hinton. In the article in the Army--April 2nd Army
Times, the Army did mention that it was--the deployments of the
soldiers, it was talked about. So I would say I think it's
probably the Army, based on that article and my understanding
of it.
Mr. Putnam. Now, the other agencies, FEMA and National
Service and Labor, you indicated that you did not know whether
notes were made in the personnel file. What action is taken
when these situations occur? What disciplinary action does take
place?
Mr. Anderson. If I may go first, Congressman. Can I first
clarify something regarding Congressman Horn's, the 38 percent
related to the Corporation's rate? I just wanted to point out
that 38 percent is not for our individually billed travel
accounts. We have $4,700 in those delinquencies. Almost the
entire amount of delinquencies reported for the Corporation for
National Service relates to a closed, centrally billed account.
In my view, probably none of that is really delinquent. We
had some difficulties with Nations Bank, and now Bank of
America is getting the exact amount of billing and payments
that we've made to the bank addressed. Almost the entire amount
is things where we've actually made the payment, it's just
showing up in a different account. Most recently we determined
that of the $424,000 that is there, approximately $165,000 of
that was for payments we had made on our travel card that they
had inadvertently applied to our purchase card.
As far as what happens with people when they become
delinquent on their debt or if they default, the Corporation
does review and take seriously any instances of misuse with the
card. We've had 13 instances over the last 2\1/2\ years where
people have been identified as having some sort of abuse with
the card. That abuse ranges from an innocent inappropriate
charge on a card that the employee caught themselves, had
reversed off of the card and applied to their own personal
credit card when they were on the travel status, and then they
were identified in a followup review because the charge is on
their card, to the more egregious abuses identified in the
Inspector General's report.
Our penalties and/or our disciplinary action related to
those activities range anywhere from in the first instance to a
reprimand to the person, or basically telling them you got to
be more careful with the card. It was an innocent use, but you
still need to be careful, to the most egregious actions where
we terminated the employee.
Mr. Horn. Just, if I might followup, since you opened it, I
notice in the GSA report under the Corporation for National
Service, which is 38 percent overall, and it says ``asterisk,
data under review.'' Does that mean you got some phony numbers
from the people at the Corporation?
Mr. Anderson. No. The data is under review because we had
difficulties when we first implemented the SmartPay program,
the bank was to provide us with certain information so that
payments to our centrally billed accounts could be applied
properly, where the funds are controlled, and where the money
is obligated. The bank was unable to provide us with that
information. When we began--we were making payments on our
bills, but the bills were not showing up as being paid.
The problem continually grew until approximately a year
ago, in cooperation and coordination with Bank of America, we
basically closed all the old accounts and set up new accounts.
The new accounts are working properly. The old accounts still
have open balances related to them in some instances.
It was $1.3 million. We have it down to $275,000 as of
today. Of that $1.3 million, over $1 million had been paid to
the bank by the Corporation, only it hadn't shown up as being
applied to our accounts. So it was not that we were delinquent
on the debt, it was just that the particular account was
showing that it had not been paid, when in fact it had been
paid.
Mr. Putnam. Does your agency garnish wages?
Mr. Anderson. To date, we have not garnished anybody's
wages.
Mr. Putnam. Thank you. Ms. English, does your agency
garnish wages in these situations?
Ms. English. No, not to date we haven't.
Mr. Putnam. Mr. Wagner.
Mr. Wagner. Yes, GSA does.
Mr. Putnam. Mr. Hinton.
Mr. Hinton. No, sir.
Mr. Putnam. You said that you were going to begin.
Mr. Hinton. Deduction from salary, yes, sir.
Mr. Putnam. So of all the agencies in government, how many
are actually taking advantage of the law which allows them to
garnish wages? Does anybody know the answer to that?
Ms. Alston. Well, we know of only three that are actually
doing it now. And there are three other agencies that we
believe are implementing it.
Mr. Putnam. Who are the three that are currently doing
that.
Ms. Alston. GSA, Department of Interior, and the Social
Security Administration.
Mr. Putnam. Of all agencies in the government, only three
are taking advantage of the law which would presumably prevent
the types of defaults that Mr. Skelton's industry faces. And
that's on the individual side.
Now, the part that concerns me probably more than the
individual side, even though it's a smaller number is, is the
central billing problem, which there conceivably should be no
excuse for.
Now, if 4 percent of $1\1/2\ billion in outstanding balance
are 60 days old or more. Could someone please share with me
what circumstances would allow that type of situation to occur
in these agencies that have internal accounting departments,
that have finance departments? Why can't the government pay its
bills on time?
Mr. Wagner, we'll let you take a crack at that one.
Mr. Wagner. OK. I'm operating on a theoretical basis here,
but I am aware in general that when you work with the folks
doing financial systems, and I'm not a financial person, that
one of the very difficult problems is reconciliation. And so we
have many legacy systems that make it quite difficult to match
up exactly which disbursement goes in the right bucket. And I
think that we just heard a discussion of that where you're
trying to reconcile between a bank system and an internal
system and work that out.
And I only know from theoretical knowledge that is what a
lot of the financial community has been working hard to make
better. And many of our financial systems need a lot more work
or improvement. And what you're seeing here is evidence of the
difficulties people are having in the centrally billed
accounts. But I must confess I'm operating on theoretical
rather than empirical knowledge here. Others may know this
problem more closely than me.
Mr. Putnam. Mr. Skelton, have you been given any reasons
why the government is incapable of paying their bills in less
than 2 months?
Mr. Skelton. Yes, sir. Typically what we see is an agency
requirement where reconciliation is required internally prior
to submitting payment or posting payment. Some agencies
interpret that rule or perceived regulation differently. At
Department of Interior, for example, we're paid, and then
reconciliation takes place afterwards and reimbursements are
placed if any payments were in error.
And let me say, with respect to Mr. Anderson's comment,
that there are errors from time to time. The errors are well
shared, both within Bank of America and within the agencies.
Often we get payments with the wrong account number on them,
with no account number at all, etc. But those are on the
margins. Frankly, the problem is the reconciliation requirement
and the interpretation of that preceived requirement. In
agencies where they don't perceive that requirement to
reconcile before paying we have absolutely no issue on
timeliness of payments.
Mr. Putnam. Mr. Pieroth would you take a crack at this one?
Mr. Pieroth. Certainly Congressman. Our experience has been
that the majority of agencies at the time an employee goes on
travel and has elected to charge their transportation to a
centrally billed account, those agencies issue a travel
authorization number. And that authorization number is critical
to getting back to the original appropriation to actually pay
for that travel when the bill comes in.
Due to limitations within the airline industry, even though
the travel agency that books the travel is able to capture that
travel authorization number, there is currently no mechanism in
the infrastructure to pass that travel authorization number on
to the banks. And as a result, in many cases, there's a
requirement for the bank to deliver a reconciliation file to
the travel agency, who in turn must then append the data with
his travel authorization number and then pass on either a
written report or a data file to the agency for payment. And
our experience has been that process is difficult and has been
fraught with problems.
Mr. Putnam. Thank you. To all of our Federal witnesses, we
have heard testimony that only three of the agencies actually
take advantage of the opportunity that the law allows to
garnish wages. Should the ``may garnish wages'' in the law be
changed to a ``must'' in your opinion?
Mr. Wagner.
Mr. Wagner. I guess I would have to say I'm a ``don't
know'' on that. I think that one of the issues that people get
into with garnishing wages is often the situation is there's
nothing left to garnish, the people who get into these problems
already have other financial problems. So the garnishment tool
is less strong than it might be. And we would also want to look
at the managing of how these cards are issued in the first
place. It certainly appears, based on the first year's
experience, that we need to put more attention on who we issue
those cards to so we never even get into the situation of
garnishing.
Mr. Putnam. Thank you. Yes, ma'am.
Ms. Alston. May I add that there are other tools that
agencies have to manage delinquencies that are also set forth
in the contract. So salary offset or garnishment is just one of
those tools. Agencies can also do things, like set credit
limits for their travelers. They can block merchant categories.
What we've tried to do is give agencies a package of
alternatives that they can use in helping to bring down the
delinquencies.
Mr. Putnam. Mr. Wagner.
Mr. Wagner. As I think about it a little more, our position
on a lot of the way we look across the government as a whole is
not so much to tell people how, but to tell people what. And
that we would view this--well, we do view this as a management
issue in that the problem is for the agencies that have this
problem to deal with it as a management problem and work with
it in whatever internal context they might have, the type of
employee, the union, etc. So I would be hesitant to mandate any
specific way of doing it, but more, focus on what are the
results we want which is certainly a lot fewer and a lot lower
balances in the central billed accounts. Thank you.
Mr. Putnam. Thank you. And ordinarily I would agree with
you, but only you and two other agencies are planning to take
control of this problem. It would appear that the Congress, in
developing the law attempted to do just that, to build some
discretion in, to build some management opportunities in there
and look where it got us.
Let me ask what I think is what, to me, is the core of the
issue. Can anyone answer how much we have saved by moving to
this new system? How much government agencies have earned or
accrued in these rebate programs, and how much these agencies
have had to pay out additionally or have lost as a result of
the consequence of the payment loss? So what's the net gain or
loss to the taxpayer as a result of this legislation? Staff
tells me, Mr. Wagner, that's your department, too.
Mr. Wagner. I'm actually looking for the piece of paper
that pulls out the travel refunds specifically. And I think it
probably would be better for Ms. Alston to explain that. I also
would caution you on these figures we keep--we will answer the
question, but I think if we also submitted some more specific
background.
Mr. Putnam. Please.
Mr. Wagner. Because you end up with different contracts,
different basis points and it would be--but Carolyn, if you
have the refunds.
Ms. Alston. Can I say that if you look at the agencies,
your issue of what agencies are actually managing, even though
you know we've said there are only three agencies that I know
of that have implemented salary offset, that and three others
that are implementing agencies using other tools to bring down
their delinquencies. If you look at the March report, you'll
see that there are a number of agencies that are at zero
delinquencies on their debt that is over 60 days for centrally
billed, and on the IBA, the individually billed accounts, there
are a number of agencies that are at 1 and 2 percent, which I
think would compare very favorably to similar commercial
accounts.
The answer on the savings is that really it's too early to
tell. We really have, for comparison data, only two quarters of
this year that we can compare to the period prior to the
mandatory use of the credit card.
For those two quarters, we're showing--and this is just raw
data so there has been no analysis--for the same period last
year, the refund was $4.7 million and for this year it's been
$4.8. I think that part of the reasons why the refund didn't go
up more is the volume was up, but the payment performance was
not where we wanted to see it. I think that the act gives the
potential for greater savings, but we're going to have to see
some of the initiatives that bring down the delinquencies
actually have an impact. And also we're going to have to look
at our next quarter, which is generally our higher spend
period.
Mr. Putnam. Thank you. And I stand corrected, I appreciate
you clarifying the point about the different agencies and I
look forward to seeing the more detailed data. I yield back to
the Chair.
Mr. Horn. Thank the gentleman. And as I look at this chart,
the Office of Personnel Management, which is supposed to,
throughout the executive branch, have sensible personnel
policies, and they're in 11 percent in the individual accounts
over 60 days. Now, the other administrative agency that is not
in the executive office of the President is the General
Services Administration. So sort of tell me who you have to
consult with when you're putting out a policy on a program like
this? Do you have to consult to the Office of Personnel
Management? And did you? Or are they just out of existence and
have a title?
Mr. Wagner. Generally when we do any policy in GSA, we
consult with as many people as possible. We found that a
collaborative policy development model is the way to go. So we
would certainly, and I'm certain, did consult with Office of
Personnel Management, Office of Management and Budget, the
banks as well, and anyone we could work with in developing the
policy. So yes, OPM would have been a player.
Mr. Horn. How about the Office of Management and Budget?
Were they a player?
Mr. Wagner. Very definitely.
Mr. Horn. What part of the Office was involved in this
policy?
Mr. Wagner. Well, I think as a technical matter, it goes
through the Office of Information and Regulatory Affairs. But
we actually have a very close working relationship with
essentially all parts of OMB that work management issues so
that it would cut across in other areas. For example, the
financial management side of OMB we talk to them, which is why
I have theoretical but not empirical knowledge of the
reconciliation issues. So sort of all parts of OMB involved in
management issues would be the folks we deal with.
Mr. Horn. When this policy went out, was the Deputy
Director for Management at OMB, or was that a vacancy?
Mr. Wagner. I think we definitely had Deputy Directors for
Management at OMB, at least on an acting basis. Whether any of
the individuals were personally involved, I don't think so.
Mr. Horn. So up to 1998 was Koskinen and then DeSeve and so
forth.
Mr. Wagner. We've talked to John Koskinen and DeSeve and
Sally Katzen on a regular basis. I am not sure I remember--I
know John Koskinen was very involved in earlier travel reform
issues. I think by the time this came about, John was working
on the--maybe he was still doing that.
Mr. Horn. Well, he was retired as of, I think January--it
would be around 1998 or so. And then he came out of retirement.
Mr. Wagner. To do Y2K.
Mr. Horn. Mr. Putnam is correct here, we ought to get
people's attention that we just aren't going to let this go
unraveled. And what we knew--need to do is talk about
delinquencies and does it affect people, why should we promote
anybody that doesn't pay their bills? I realize it's tough for
a lot of families. But a lot of these people are not families
on food stamps, which we often hear about. Some people I
suspect are at least over GS-5s or 7s. It would be fascinating
to know what's happening there, if you want to put that in one
of your columns, that might be very revealing.
And I guess I would ask the banks present what are the
demographics of the Federal employee most likely to default on
their travel card account?
Mr. Skelton.
Mr. Skelton. Mr. Chairman, I can speak specifically for
DOD. And what we find, just to answer that, as well as one of
Representative Putnam's questions, is that Army is the worst,
Air Force is the best in this IBA payment situation. And what
we find is 70 percent of what we charge off or write off the
books in the way of individually billed payments are from the
E-1 through E-6 junior enlisted category, and that category
actually recommends about 25 percent of the spend or the amount
of charges. So we find a significantly bigger issue in the
junior enlisted personnel area. And that is germane.
And then finally, quickly, he had asked about rebates, we
paid $8 million to the Department of Defense in the way of
rebates, $5 million more could have been achieved.
Mr. Horn. Do the corporate travel cards produce revenue for
the banks?
Mr. Skelton. In this particular--travel-only corporate
travel card relationships not offset by procurement business do
not achieve industry-wide profit for the banks, specifically
egregious in our case with the Department of Defense.
Mr. Horn. Now, Mr. Pieroth of the U.S. Bank, what would
your answer be to the question that was posed to Mr. Skelton?
Mr. Pieroth. I would also have a similar response that the
demographics of employees that will tend to have delinquency
problems are those that are of a lower grade level, receive
less compensation, and as a result, are more likely to find
themselves in a financial difficulty.
If I may, I would also like to point out one area that I do
not believe we have touched on yet, but at least from the
perspective of U.S. Bank we believe was critical to this issue.
If you take a look at delinquency, there are really two major
contributors: The first is personal use of the card for non-
travel expenses. That tends to be the smaller of the two. And
generally can be managed by associating appropriate credit
limits based on anticipated travel, putting appropriate limits
on cash access and also blocking the use of the card at
establishments that would not normally be related to travel.
And I believe that those tools can be effectively deployed to
bring that risk down to an acceptable level.
The second and by far largest contributor to delinquency is
cases in which the employee has been reimbursed for business or
government travel, and then elects not to pay the card issuer.
And while we can talk about how we might be able to garnish or
punish the employee, we firmly believe that the most proactive
solution is to ensure that the employee is never put in that
position. And one of the commercial best practices that is
deployed by a majority of our commercial customers is the
institution makes payment directly to the card issuer for those
charges that were actually put on the card. And in some cases,
agencies have deployed these split disbursement systems. We
have also heard that some agencies believe there are various
reasons why they could not implement such a system. But we
believe that it, in and of itself, would be the biggest
improvement that could take place in terms of managing
delinquency.
Mr. Horn. Any other comments the banks want to make that
they feel might be helpful to solving this problem?
Mr. Skelton. Mr. Chairman, I would agree with Mr. Pieroth
on his comments with regards to what is usually classified as
split disbursement or direct payment to the bank. If possible,
I would argue that you could take that a step further, and for
those that actually still don't manage or it still doesn't
manage to work properly, it's my belief that for official
government travel, the government should assume responsibility,
like corporations do in nearly every other corporate
relationship we have for delinquencies that go beyond a certain
point. We have, by and large, no other relationships in a
commercial card whereby the corporation is not liable for those
charges. And in this case, it doesn't exist that way.
Mr. Horn. Any other thoughts on that, Mr. Pieroth, besides
this?
Mr. Pieroth. No, Mr. Chairman.
Mr. Horn. Any comments from the Federal executives as to
what you see as a better way to go about this? We'd like to
hear it. Any thoughts on that we haven't already gotten into?
Anything else from the Federal group?
Section 2, the first major provision of the Travel Reform
Act, provides agencies with authority to exempt personnel from
the law. Why wasn't this provision used to a better end by your
agencies? Defense?
Mr. Hinton.
Mr. Hinton. Mr. Chairman, we followed, we believe, the
intent of the law. We have added some additional exemptions
from personnel. We have, after signing the agreement that I
always come back to from April 11th, we are going back there to
take a look at the people that we have issued cards, I think, I
believe the bank said about 40 percent. I cannot agree with
that, but I know there are cards out there that we need to pull
back. And before we issue cards, we will proactively look at
accounts and the other information related to issuing a card.
Mr. Horn. And I gather, see if there is true from either
U.S. Bank or Bank of America, how does the delinquency rate on
a government credit card compare with the delinquency rate on
commercial credit card?
Mr. Skelton. Profoundly higher on the government card.
Mr. Horn. Is there something you're doing with your
commercial accounts that you don't do with the government
accounts?
Mr. Skelton. First and foremost, Mr. Chairman, what I would
say is what I said previously, and that in a commercial
relationship the corporation is typically accountable, almost
always accountable for those charges. And the policy, for
example, in our corporation, is we are as well accountable if
the employee is fired when it gets to a point of significant
delinquency. So the bottom line is we need accountability from
within the government for charges for official travel. And
that's the main differential that I see, as well as who we have
to issue the cards to. We would not issue many of the cards we
issue today to the Department of Defense if we were allowed to
follow the standards we use in our commercial practice.
Mr. Horn. Mr. Pieroth, U.S. Bank.
Mr. Pieroth. Our experience has been that our delinquency
rates on government accounts are approximately three times
higher than those that we see on commercial accounts. Although
we do not have an expectation that the government will be able
to match commercial delinquency rates, we do think the current
rate can probably be improved.
From a commercial perspective, we do issue accounts with
individual liability. As a matter of fact, the majority of our
accounts are issued in that manner. The primary differences
between our commercial customers and our government customers
is one, our commercial customers are able to implement more
stringent policies, including termination in the event of
misuse of the card.
The majority of them, as I had mentioned earlier, also
deploy the split disbursement systems to ensure that payment is
made directly to us rather than to the employee for charges
that have occurred on a card and are legitimate travel
expenses. And then, third, our financial incentives are based
on the overall profitability of the relationships. So to the
extent that the delinquency and credit losses make the account
unprofitable, we do not pay any financial incentives to our
commercial customers until that condition is rectified.
Mr. Horn. Well, those make sense to me. Mr. Wagner, should
the agencies assume liability for these accounts, and wouldn't
that result in an immediate improvement?
Mr. Wagner. I guess I don't know. I hate to admit that, but
the problem we would get into is if you set up--it's a very
different scheme than we have developed over many years. I
think we actually have some flexibility under the laws,
opportunities for experimental situations, and we could explore
that using, if some agency wished to, look at how that traded
off. I do agree that tools like split disbursement and more
effective management of our employees have a lot of value.
Ms. Alston. We have found that there are some differences--
variations in the commercial models among the banks. We've
engaged in an independent contractor to document what the
commercial model is, what their costs are, and what their
revenue streams are, and to help us design a model that we can
use to assess whether our model is financially viable from the
bank's standpoint. We hope to use the information that we
gather from that to assess whether we need to make further
improvements on the model that we're using today.
Mr. Horn. OK. Anybody have a last word on this before I get
a last word? You can even have the last word off that.
Mr. Skelton. Sir, if I might, I just wanted to point out
that within the Department of Defense, one of the issues,
policy issues we have is the use of cash, is significant by
requirement, and I don't question the fact that DOD interprets
it that way, the cash and fixed rate per diem by city is
necessary. But what we find in performance is that 21 percent
of the charges on the card in the DOD portfolio are for cash,
and what we find in our other agencies is that about 12 percent
is used for cash. And we also find that cash is twice as likely
to go through the delinquency process to charge off. So we
either think that there is a misuse issue, but we also believe
that the policy surrounding the need for cash are a significant
part of the problem here.
Mr. Horn. Any other thoughts?
Mr. Hinton.
Mr. Hinton. Not really, sir. But I will mention that we are
looking at, again, the number of cards that are out there and
again, the bank has mentioned 40,000. I think if we start by
controlling those cards, I think it's going to help with that
percentage. Thanks.
Mr. Horn. Any other thoughts on this?
OK. Let me thank the staff that prepared this hearing, and
then I have a closing statement. My left, your right is the
staff director and chief counsel of the subcommittee, J.
Russell George; detailee from the General Accounting Office,
Diane Guensberg. Bonnie Heald is the director of communications
and professional staff; and the very able clerk, Grant Newman,
assistant to the committee, and Earl Pierce is the professional
staff member. Matthew Ebert is the policy advisor, lead staff
member on this, and I must say congratulations to Mrs. Ebert,
it's an 8-pound baby boy on Sunday. We are human and we still
work on these things.
The minority staff, Michelle Ash, professional staff;, Jean
Gosa over there in the corner, and the ranking member, the
gentlewoman from Illinois, wants a statement entered into the
record, and without objection, that will be put into the record
after Mr. Putnam's remarks. The court reporters, Michelle
Bulkley and Julie Thomas, we thank you also.
I would like to thank each of our witnesses for their
insightful testimony. This is a very difficult situation. I
must note, however, that although deputies and agencies have
made headway over the last few weeks in improving their
delinquency rates, much more must be done. Whether this hearing
inspired such action or not, this improvement demonstrates what
agencies request accomplish, if given the proper incentive. Mr.
Wagner, we would like to request that GSA continue providing
the subcommittee with monthly statistics on the travel card
program. In addition, we'd like you to submit any legislative
remedies that would help resolve this difficult problem. So I
don't expect that just from the Federal officials. If those of
you that are on the commercial side of banking, we'd welcome
your ideas on how to solve some of this and make it a little
more effective than it seems to be. So if you have any point on
this, we would welcome them.
Mr. Skelton, any thoughts on this?
Mr. Skelton. I think we need to continue to examine this,
Mr. Chairman, and I do believe that any sort of ongoing
continued oversight that you can provide will help us to keep
our finger on that one, and continue to operate in cooperation
to bring some best practice advice back to the government. We
intend to try and do that.
Mr. Horn. Good.
Mr. Pieroth.
Mr. Pieroth. No, Mr. Chairman we don't have any other
points other than those we've already made.
Mr. Horn. OK. Any thoughts? Well, we thank you all for
coming. And we appreciate your testimony. With that, we're
adjourned.
[Whereupon, at 11:42 a.m., the subcommittee was adjourned.]
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