[House Hearing, 107 Congress]
[From the U.S. Government Printing Office]




                               before the

                        FINANCIAL MANAGEMENT AND

                                 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

                            WASHINGTON : 2002
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                     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
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
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
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

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



                          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 
    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.


    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 
    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 
    Mr. Horn. We're having difficulty hearing. Move that 
    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 
    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 
    Mr. Horn. I thank the gentleman for his very able 
    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.


    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 
    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 
    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 
    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 
    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 
    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.


    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 
    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 
    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 
    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.

                      MARKETING, U.S. BANK

    Mr. Pieroth. Thank you, Mr. Chairman, members of the 
    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 
    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.


    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 
    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 
    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 
    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 


    Ms. English. Good morning, Mr. Chairman and members of 
    Mr. Horn. You're going to need to get the mic right up to 
    Ms. English. Good morning, Mr. Chairman, and members of the 
    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.


    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 
    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 
    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.

                    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 
    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' 
    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 
    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 
    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 
    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 
    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 
    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 
    Mr. Horn. OK. And at this point we'll put in a statement 
from the Federal Emergency Management Agency.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] T7576.036
    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 
    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:]

    [GRAPHIC] [TIFF OMITTED] T7576.037
    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 
    Ms. Alston. Yes, that's the average for these agencies 
    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 
    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 
    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 
    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 
    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 
    Mr. Putnam. Does your agency garnish wages?
    Mr. Anderson. To date, we have not garnished anybody's 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    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 
    [Whereupon, at 11:42 a.m., the subcommittee was adjourned.]
    [Additional information submitted for the hearing record