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




 GOVERNMENT PURCHASE AND TRAVEL CARD PROGRAMS AT THE DEPARTMENT OF THE 
                                  ARMY

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
                        FINANCIAL MANAGEMENT AND
                      INTERGOVERNMENTAL RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 17, 2002

                               __________

                           Serial No. 107-213

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform


                                 ______

87-139              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
JOHN SULLIVAN, Oklahoma                  (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
DOUG OSE, California                 MAJOR R. OWENS, New York
ADAM H. PUTNAM, Florida              PAUL E. KANJORSKI, Pennsylvania
JOHN SULLIVAN, Oklahoma              CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
                  Bonnie Heald, Deputy Staff Director
                        Justin Paulhamus, Clerk
           David McMillen, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 17, 2002....................................     1
Statement of:
    Grassley, Hon. Charles E., a U.S. Senator from the State of 
      Iowa.......................................................     5
    Kutz, Gregory D., Director, Financial Management and 
      Assurance, U.S. General Accounting Office, accompanied by 
      Special Agent John Ryan, Assistant Director, Office of 
      Special Investigations, U.S. General Accounting Office; 
      Major General Thomas W. Eres, Commander, California Army 
      National Guard; Sandra L. Pack, Assistant Secretary of the 
      Army, Financial Management and Comptroller, Office of the 
      Secretariat; and Jerry S. Hinton, Director for Finance, 
      Defense Finance and Accounting Service, Department of 
      Defense....................................................    48
    Kutz, Gregory, Director, Financial Management and Assurance, 
      U.S. General Accounting Office, accompanied by Special 
      Agent John Ryan, Assistant Director, Office of Special 
      Investigations, U.S. General Accounting Office; James T. 
      Inman, Acting Deputy Assistant Secretary of the Army for 
      Policy and Procurement; and Diedre A. Lee, Director, 
      Defense Procurement, Office of the Under Secretary of 
      Defense for Acquisition, Technology and Logistics, 
      Department of Defense......................................   128
Letters, statements, etc., submitted for the record by:
    Eres, Major General Thomas W., Commander, California Army 
      National Guard, prepared statement of......................    83
    Grassley, Hon. Charles E., a U.S. Senator from the State of 
      Iowa:
        Information concerning fraudulent transactions...........   120
        Prepared statement of....................................    10
    Hinton, Jerry S., Director for Finance, Defense Finance and 
      Accounting Service, Department of Defense, prepared 
      statement of...............................................   100
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     3
    Inman, James T., Acting Deputy Assistant Secretary of the 
      Army for Policy and Procurement, prepared statement of.....   132
    Kutz, Gregory D., Director, Financial Management and 
      Assurance, U.S. General Accounting Office, prepared 
      statement of...............................................    53
    Lee, Diedre A., Director, Defense Procurement, Office of the 
      Under Secretary of Defense for Acquisition, Technology and 
      Logistics, Department of Defense, prepared statement of....   141
    Pack, Sandra L., Assistant Secretary of the Army, Financial 
      Management and Comptroller, Office of the Secretariat, 
      prepared statement of......................................    91
    Schakowsky, Hon. Janice D., a Representative in Congress from 
      the State of Illinois, prepared statement of...............    42
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................    36

 
 GOVERNMENT PURCHASE AND TRAVEL CARD PROGRAMS AT THE DEPARTMENT OF THE 
                                  ARMY

                              ----------                              


                        WEDNESDAY, JULY 17, 2002

                  House of Representatives,
  Subcommittee on Government Efficiency, Financial 
        Management and Intergovernmental Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to recess, at 10 a.m., in 
room 2154, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Schakowsky, Waxman, and Ose.
    Staff present: J. Russell George, staff director and chief 
counsel; Bonnie Heald, deputy staff director; Justin Paulhamus, 
clerk; Sterling Bentley, Joey DiSilvio, Freddie Ephraim, 
Michael Sazonov, and Yigal Kerszenbaum, interns; Phil Schiliro, 
minority staff director; Kate Anderson, minority counsel; Karen 
Lightfoot, minority senior policy advisor; David McMillen, 
minority professional staff member; and Jean Gosa, minority 
assistant clerk.
    Mr. Horn. A quorum being present, this hearing of the 
Subcommittee on Government Efficiency, Financial Management and 
Intergovernmental Relations will come to order.
    We are here to continue our examination of two Government 
credit card programs within the Department of Defense: the 
Department of the Army's travel card program, and its purchase 
card program.
    We will begin with the Army travel card program. As you 
will soon hear, the General Accounting Office has found that 
these travel cards, which clearly state that they are for 
``Official Government Travel Only'' have been used for escort 
services, casino and Internet gambling and at facilities called 
gentlemen's clubs; bearing such names as ``Bottoms Up,'' 
``Cheetah's Topless Club,'' and ``Teazers,'' regardless of 
whether the cardholder is traveling on official Government 
business or not.
    When first conceived, the Government travel card program 
was envisioned as an efficient way to reduce the Government's 
costs of administering travel. The cardholder is reimbursed for 
the travel expenses by the Government, and is responsible for 
paying the credit card bill.
    In most cases, the cardholders pay their bills on time, but 
in far too many other cases, they do not. These delinquencies 
and charge-offs are costing the Army millions of dollars in 
lost rebates, higher fees, and time and effort spent attempting 
to collect the overdue accounts.
    At a subcommittee meeting more than a year ago, a 
representative from the Bank of America, which issues the 
Defense Department's travel cards, stated that the bank was 
writing off more than $2 million in delinquent travel card 
charges each month. In addition, cash advances charged to the 
Defense Department travel card were 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.
    Ms. Schakowsky and Senator Grassley, who is our first 
witness today, joined me in requesting the General Accounting 
Office to examine the extent of these problems.
    This morning, we will focus on the GAO's investigation of 
the Department of the Army's travel card program. At 2 p.m., we 
will reconvene to examine the Army's purchase card program. I 
welcome our witnesses today, and I hope that we can provide the 
information we need to correct this egregious situation.
    [The prepared statement of Hon. Stephen Horn follows:]
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    [GRAPHIC] [TIFF OMITTED] T7139.002
    
    Mr. Horn. Now I am delighted to have with us today, Senator 
Grassley, who has been a very patient person, with the rest of 
us. We do not like what we see, and we want to solve it. So 
Senator, we are delighted to have you with us again.

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE 
                         STATE OF IOWA

    Senator Grassley. Thank you, Mr. Chairman, and thank you, 
most importantly, for your outstanding leadership on the DOD 
credit card issue.
    We began this oversight investigation more than 2 years 
ago. We jumped into this mess, not knowing what we would find. 
As each new layer of abuse has been peeled back, we have made 
new discoveries. You have encouraged us to keep digging, and we 
are staring, it seems like, into a bottomless pit.
    With 2.3 million credit cards at 23 different agencies 
spawning expenditures of $20 billion a year, the pit is deep, 
and it is dark.
    Through thick and thin, you, Mr. Chairman, stood like the 
Rock of Gibraltar. You have been steadfast and unwavering. You 
have provided the venue where we could do oversight without 
fear of interference. You have created an environment that, 
quite frankly, is getting results, and that is what our work 
should be doing around here.
    Thanks to you, Mr. Chairman, we have the DOD credit card 
abuse under the microscope, and we are going to keep it under 
the microscope. The General Accounting Office is helping us, 
and is doing a great job. It has been an honor and a privilege 
for me to participate.
    As I said, when I was before your committee in March of 
this year, in a place like the Pentagon, the glare of public 
spotlight is never welcome, but shedding light on a problem 
like this one is the heart and the soul of congressional 
oversight. Exposure makes good things happen.
    Thanks to you, Mr. Chairman, the spot-light switch is set 
on full power. The beam is focused on the problem. Hopefully, 
we will soon see the bottom of the pit and know what to do.
    Mr. Chairman, we have come a long way. We have seen the 
promised land, but we are not there, yet. We have generated 
pressure for change. The momentum is good, but the outcome is 
uncertain.
    So we have more work to do, and I hope today's revelations 
help us maintain momentum and keep us moving down the field 
toward the end zone.
    There has been recent progress. For starters, Secretary 
Rumsfeld is on our side. He is trying to solve the problem, 
instead of making excuses. I find that rare for Secretary's of 
Defense that I have served with in the past.
    Secretary Rumsfeld created the Charge Card Task Force to 
clean up the mess, and that Task Force is moving in the right 
direction.
    The Office of Management and Budget has just announced a 
crackdown on credit card abusers. Salary offsets are working. 
Travel card charge-offs have stopped; charge-offs are accounts 
that the Bank of America had to write off as bad debt, due to 
non-payment. More than $6 million in outstanding debt has 
already been recovered, and hopefully more is on the way.
    The 713 commissioned officers who had defaulted on $1.1 
million in travel card charge are being dragged to the pay 
window. Half of those bills have been paid in full. The rest 
are in salary offsets or voluntary re-payment plans.
    The Department of Defense Inspector General is starting to 
be very proactive in this area. So far, the IG has been ``out 
to lunch'' on the credit card abuse, but that seems to be 
changing. The IG is creating an automated ``data mining'' 
capability to police the system and provide real time 
oversight.
    One area still needs dramatic and drastic improvement. That 
is the travel voucher turn-around time. It takes far too long 
to reimburse troops for official travel expenses. This, in 
turn, is pushing account delinquencies upward. With a little 
luck, maybe we may see reform in our lifetime.
    I would like to now look at the situation with the U.S. 
Army: Army purchase cards and army travel cards, as you have 
already announced. Our first hearing in July 2001 and the 
second one in 2002 were Navy days. After the first two 
hearings, our critics complained that somehow Senator Grassley 
and Congressman Horn were focusing on a few isolated cases. One 
rotten apple, we were told, does not make the whole barrel bad.
    Well, today's hearing will lay the one bad apple theory to 
rest for good. This time around, the General Accounting Office 
visited 13 installations, and tested a much bigger sample. The 
General Accounting Office used techniques to call several 
thousand suspicious transactions for hundreds of thousands of 
charges. All sorts of stuff fell out, including 13 purchase 
card fraud cases, plenty of waste and abuse, as well, plus a 
number of potential travel card fraud cases.
    Some are now active criminal investigations. I want to look 
at the lack of reliable data on fraud cases. We now know that 
there are a lot of bad apples out there, but exactly how many, 
we do not know. The GAO says the number is big, like 500-plus. 
The DOD IG thinks it is maybe more like 72. Nobody knows for 
sure.
    The General Accounting Office says there are no reliable 
data on the total number of cases under active investigation. 
Somebody should be able to punch a button and get the number. 
Lack of data on fraud cases is product of a ``hear no evil-see 
no evil'' kind of mentality that is too prevalent around here. 
The Department of Defense cannot manage effectively, obviously, 
they do not have information to make management decisions. So 
reliable data is a very important thing.
    Now I would like to look at fraud and abuse cases. The 
General Accounting Office has found everything but the kitchen 
sink and, hopefully, that is coming to light. We have 
Government employees using their cards to make mortgage 
payments and closing costs; to buy cards; to buy engagement 
rings; racetrack betting; Elvis photos from Graceland; a framed 
John Elway jersey; a trip to the Rose Bowl game; and even 
Caribbean Cruises. You name it, it seems like they are being 
done.
    The General Accounting Office found at least 200 
individuals who were using Department of Defense plastic to buy 
cash in ``gentlemen's clubs'' like the Bottoms up Lounge that 
you mentioned, Mr. Chairman. These are adult entertainment bars 
that are located near military bases. They are probably run by 
the mob. After surrendering their military IDs and credit 
cards, the soldiers get $500 cash.
    They spent the $500 on lap dancing and other forms of 
entertainment. But the amount posted on their account is $550. 
The extra $50 covers a 10 percent fee to get the cash.
    At the last hearing, I mentioned Pablo Falcon. He ran up a 
bill of $3,100 at one of these places. Since then, the General 
Accounting Office has found many others doing it, too, to the 
tune of $38,000.
    Now I would like to look at bad checks. The General 
Accounting Office found 1,200 Department of Defense personnel 
who wrote NSF or bad checks, to pay travel card bills. Over 200 
are chronic rubber check writers. Some are commissioned 
officers. One individual, a Staff Sergeant at Fort Jackson, 
South Carolina, wrote 86 bad checks in 2001 alone, totaling 
$270,000. That was against his unpaid balance of $36,000.
    The Staff Sergeant's 86 bad checks should have come as no 
surprise. Before receiving his Government card, he had a 
criminal record for credit card fraud and bad checks. He had a 
$115,000 real estate loan that went bad. He had declared 
bankruptcy and used two Social Security numbers to perpetuate 
crime.
    The Staff Sergeant's 86 bad checks were a boosting 
operation, and this is how boosting works. Under industry 
regulations, a payment check must be credited to an account 
upon receipt. Once posted, the account appears to have been 
paid, providing more credit for more purchases.
    By writing successively larger bad checks, at the right 
moment, the Staff Sergeant succeeded in raising his credit 
limit to $35,000, and he charged right up to that limit, Mr. 
Chairman.
    One or two bad checks obviously can happen. I understand 
that. But the regular abusers, especially commissioned 
officers, need to be held accountable.
    Mr. Chairman, I asked the General Accounting Office to 
transmit the list of chronic bad check writers to Secretary 
Rumsfeld and the Department of Defense IG for further review. 
Writing a lot of bad checks and leaving a trail of bad debts 
are signs of financial irresponsibility. These people, under 
those circumstances, could be national security risks.
    Under the existing Department of Defense rules, a person's 
level of financial responsibility is a key factor in 
determining whether that person holds a security clearance and 
is placed in a sensitive position.
    The General Accounting Office has tested that rule. To do 
this, the General Accounting Office culled out the 105 worst or 
most abusive travel card cases, and did a match up with 
clearances.
    Among the 105 worst cases, the GAO found 40 cardholders who 
hold secret, top secret, or higher clearances. Each of those 40 
accounts had to be charged off by the Bank of America as bad 
debt. The bad debt on these accounts alone is a staggering 
$148,430. One of these individuals, a GS-13 in the Pentagon, 
wrote four bad checks worth $77,000, and had accumulated $3,257 
in bad debt on her DOD travel card account. She used it to 
cover a personal move of $3,600, from her apartment in Virginia 
to a new home in Mitchellville, Maryland.
    When she applied for a Department of Defense travel card, 
she exercised her right. She put an ``X'' in the no-credit-
check box, and she did this for good reason. She had a bad 
credit report. She had defaulted on several charge accounts.
    She holds a top secret clearance, and works on a highly 
classified project. This case is troublesome, and ought to be 
for three reasons. The person's supervisor was completely 
unaware of the bad checks and the bad debt. Second, No 
discriminatory action has been taken. Third, on the day she was 
interviewed by the General Accounting Office, she paid off her 
debt to the bank.
    The General Accounting Office has referred all these cases 
to the Army's Central Adjudication Facility for review, and the 
CAF is the one that grants clearances. The CAF needs to assess 
the level of financial irresponsibility, and determine whether 
any of these clearances should be pulled.
    Now I would like to speak about something I call goodies 
for everyone, because these are some words used by people in 
the Defense Department.
    ``Let us get enough goodies for everyone,'' it was said. 
That is a lofty objective behind a command decision to buy 80 
palm pilots for $30,000. The palm pilots were bought by an 
office over at the Pentagon, the Office of Assistant Secretary 
of Defense for Acquisition. That is the office run by the DOD 
purchase card czar, Ms. Dee Lee.
    Mr. Chairman, those audacious words come right out of her 
internal memo. I have that memo here, and I would like to have 
that placed in the record, if I could.
    Mr. Horn. It will be put into the record at this point.
    Senator Grassley. So let us get enough goodies for 
everyone. It is a product of a culture. It is an attitude 
nurtured in a place where there seems to be no restraint. It 
says, ``We can splurge, at the taxpayers' expense and not worry 
about it.''
    It is unfortunate that such an attitude is being nurtured 
in the purchase card czar's front office. It sends the wrong 
message to the troops in the field. The message going out is 
clear. Abuse is OK. Everyone deserves to get some goodies.
    The General Accounting Office figures Ms. Lee wasted $1,540 
on the palm pilots. She paid top dollar for a rush order that 
ended up in the storage cabinet. Maybe the goodies were not 
needed, after all. Maybe, in fact, $30,000 was wasted.
    Mr. Chairman, we need to answer the question, why are there 
so many bad apples in the barrel? The reason can be boiled down 
to three words, ``ineffective internal controls.''
    That brings me to my last main point. Weak or nonexisting 
controls, like the ones in place today, leave the door wide 
open to theft. Army internal controls are AWOL. The General 
Accounting Office tested Army transactions against a standard 
set of internal controls. Army failures rate on the control 
tests were unbelievably high, across the board; as high as 86 
to 87 percent in key areas.
    An important part of checking to make sure that you got 
what you paid for, obviously, is inventory control; and it is 
seen as the Army having none.
    At Fort Benning, GA, for example, 84 percent of pilferable 
items bought with purchase cards were not recorded in the 
books. So where is this property today, right now? Letting 
soldiers keep their cards when they leave is another kind of 
control failure.
    The General Accounting Office found 317 cardholders at Fort 
Hood, Texas, who were allowed to keep their cards when they 
left the Army. We know that at least one of these cards was 
used to commit fraud. When weak controls and no credit checks 
are combined with monthly purchase card spending limits of up 
to $4,100, fraud is very easy.
    Mr. Chairman, weak controls leadeth the dishonest into 
temptation. Checking credit card transactions is so very 
simple; just match receipts with statements. Why is the Army 
not doing it?
    The General Accounting Office says the Army troops are just 
too busy with other duties to do it. Being too busy to make 
routine control checks to protect the taxpayer's money is not 
acceptable.
    Purchase card accounts are U.S. Treasury accounts. These 
are accounts obviously belonging to the taxpayers. Protecting 
tax money is not an option. It is mandatory, Mr. Chairman. If 
the troops can not do it, then maybe credit cards are not the 
answer.
    So Mr. Chairman, this is what I have to say on your topic 
this morning. If I can, I plan to return, as you requested that 
I do, to this afternoon's hearing, to provide an in-depth 
report on very troublesome fraud cases, and particularly one 
involving a current Army employee, Ms. Tanya Mays.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Grassley follows:]

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    Mr. Horn. Thank you very much, Senator, for taking this 
time. I know you have plenty of business on the other side of 
the Hill. So we appreciate you taking this time.
    Senator Grassley. And I thank you for letting me in early, 
ahead of all your Members' statements, because we do have a 
vote at 10:30. So I appreciate that very much.
    Mr. Horn. We have one on our side in 5 minutes.
    Senator Grassley. I will leave my statement here for the 
record.
    Mr. Horn. Thank you. Well, let us swear in everybody, and 
then I will yield to Ms. Schakowsky as the ranking member.
    Mr. Waxman.
    Mr. Waxman. Mr. Chairman, may I request that I be allowed 
to give an opening statement right away, because I am called to 
another committee?
    Mr. Horn. Sure.
    Mr. Waxman. Thank you very much.
    We are going to hear today yet again about the financial 
mismanagement of the Department of Defense. Americans have been 
hearing a lot about financial mismanagement lately. Revelations 
about corporate misdeeds in companies like Enron and WorldComm 
fill the headlines on a daily basis.
    The public is growing increasingly concerned, and this 
concern is spreading to how the Federal Government manages its 
money.
    We, in Congress, have a responsibility to ensure that the 
Federal Government's accounts are honest. That is why today's 
hearing is so important, and I want to thank the chairman for 
calling it.
    I also want to thank my colleague, Representative 
Schakowsky for her vigilance in pursuing this issue. I am 
pleased to work with her to hold the Defense Department 
accountable.
    Today, she and I will send a letter to Secretary Rumsfeld, 
urging him to address the problems of financial mismanagement, 
found by GAO's investigations.
    As GAO's testimony and report reveal, this mismanagement is 
rampant. GAO found widespread abuse of Government travel cards 
and purchase cards. Both of these cards are intended to 
increase convenience for Government employees.
    The travel cards are designed to make it easier for 
Government employees to pay for official travel, and the 
purchase cards are designed to make it easier to buy needed 
items. Both cards are specifically intended for official 
business.
    But we will hear today that these cards were frequently 
used, not for official business, but instead for private 
pleasure. For instance, GAO found that at one site, 45 percent 
of the purchases on the travel card were for personal use.
    For example, one use of these travel cards was at strip 
clubs. Army personnel would use these cards to obtain cash or 
sometimes ``club cash'' from the strip club, often at 10 
percent fee. GAO identified about 200 individuals who were 
charged almost $38,000 at these establishments. One cardholder 
alone obtained more than $5,000 in cash.
    But that is not the only disturbing example. GAO found that 
these travel cards were being used to pay for everything from 
dating and escort services, to casino and Internet gambling, to 
cruises. GAO's findings on purchase cards, which the committee 
will hear about today are similarly troubling.
    For instance, these cards were also used to purchase escort 
services. In another example, GAO estimates that $100,000 was 
spent on various items, including a computer game station, 
digital camera, and a surround sound system. In another case, 
$30,000 was spent on items that included clothing from 
Victoria's Secrets.
    These abuses are unacceptable, and it is even more 
unacceptable that the Defense Department has not done more to 
stop them. GAO reported on these problems last year, yet the 
department failed to correct them.
    It is common sense that the use of these cards require 
proper oversight. No Government agency should give its 
employees a blank check, and not watch to see how the money is 
spent. Yet, that is effectively what the department has done 
with these cards.
    GAO found that a weak overall control environment, and 
breakdowns in key internal control activities leave the Army 
vulnerable to potentially fraudulent, improper, and abusive 
purchases. It is past time for our Government to get its books 
in order.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Waxman follows:]

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    Mr. Horn. Thank you.
    Would you like, Ms. Schakowsky, to add anything at this 
point?
    Ms. Schakowsky. How were you going to do this?
    Mr. Horn. I am going to swear in the witnesses, and I would 
just as soon have you do it now, and then they will be here.
    Ms. Schakowsky. Thank you, Mr. Chairman, for calling these 
hearings today. I appreciate your separating the travel card 
and purchase card issues, so we can focus on the unique aspects 
of each.
    Mr. Waxman referred to the letter that he and I now have 
authored to Secretary Rumsfeld today, urging that there be a 
consistent and effective effort to solve the financial 
management problems at the Defense Department.
    The primary issue before us today is the failure of 
financial management at the Department of Defense. Last year, 
the Inspector General reported that the Defense Department had 
$1.2 trillion in expenditures that could not be properly 
accounted for in the annual audit.
    The GAO has repeatedly testified that the failure of the 
Defense Department to be able to audit its books is what is 
keeping the entire Government from being able to have a clean 
audit.
    Today, we will hear several examples of misuse of 
Government credit cards. I am sure that tomorrow's news stories 
will focus on the most outrageous of these examples, as they 
should.
    However, we will not solve this problem by only focusing on 
these examples, and only singling out the individuals, because 
it will not reveal the true problem facing our oversight role; 
which is the department.
    As Senator Grassley stated, we are talking about having to 
change the culture, a culture of abuse, a culture of no 
accountability that is in the Department of Defense right now. 
Government travel and purchase cards were instituted to save 
money for the Government.
    However, we have gone from a system of Byzantine chains of 
review for small purchases or day trips, to no management at 
all.
    The span of control in many of the agencies reviewed by GAO 
is absurd. We see purchases made on Government cards for 
personal use. We see individuals defaulting on large sums owed 
for Government travel; travel for which the individual was 
reimbursed, and then the person is promoted. Where is the 
management oversight?
    Again and again, whether it is procurement, travel cards, 
purchase cards, or contract management, the story is the same. 
DOD management is not just bad, it is atrocious.
    Last week was one of the worst weeks on Wall Street in Wall 
Street history, because the public has lost confidence in 
corporate financial management.
    What is clear from our testimony today is that the 
financial management at DOD, at the Department of Defense is as 
bad or worse as Enron, WorldComm, Xerox, or any other 
corporations that have misled the public.
    I want to say that again, because I think the American 
people should be shocked that financial management in our own 
U.S. Government of Defense is as bad or worse as Enron, 
WorldComm, Xerox, in my opinion, or any of the other 
corporations that have misled the public.
    At a time when allegations of wrongdoing, about business 
executives and high ranking Government officials are dominating 
the news, we must demand that our agencies set a good example.
    The President ran on the idea that Government should be run 
more like business. Well, it looks like one should be careful 
what one wishes for.
    Our former colleague, Senator Proxmire used to give out the 
Golden Fleece Award, which often went to some unit within the 
Defense Department. Perhaps it is time that we brought that 
back.
    I am dismayed at the number of hearings that we have had 
that highlight the failure of financial management at DOD, and 
yet nothing has happened.
    Some, I am sure, will complain that we should not be 
distracting the military from its primary mission, as we fight 
terrorism. But it is scandalous that the Department of Defense 
management is permitted to squander funds that could be spent 
protecting our home front, and those serving on the front line.
    Thank you, Mr. Chairman.
    [The prepared statement of Ms. Schakowsky follows:]

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    Mr. Horn. Thank you. We will now ask panel two to come 
forward. Gregory Kutz is Director, Financial Management and 
Assurance, U.S. General Accounting Office. He is accompanied by 
Special Agent John Ryan, Assistant Director, Office of Special 
Investigations in the U.S. General Accounting Office.
    Then we have Major General Thomas Eres. He is Commander of 
the California Army National Guard. Sandra L. Pack is the 
Assistant Secretary of the Army, Financial Management and 
Controller, Office of the Secretariat; and Jerry Hinton, 
Director for Finance, Defense Finance and Accounting Service, 
Department of Defense.
    Now we want not just you, but we want all your assistants 
that are going to give you testimony or whisper in your ear or 
whatever it is. The clerk will take down the names and put in 
those people, the staff back-up, and they will be in the record 
at this point.
    So if you will all come and raise your right hand. Let us 
see, we have 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, it looks like.
    [Witnesses sworn.]
    Mr. Horn. The clerk will note that all have affirmed the 
oath. We have now a vote on the floor. Please be seated. We are 
going to come, as fast as we can, back off the floor, and then 
come back here. So we are in recess now.
    [Recess.]
    Mr. Horn. The recess is over at seven before the time. So 
we now will have Greg Kutz, Director of Financial Management 
and Assurance, U.S. General Accounting Office. You have spent a 
lot of time with this, so give us the best you can think of, in 
terms of the summary.

 STATEMENTS OF GREGORY D. KUTZ, DIRECTOR, FINANCIAL MANAGEMENT 
 AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY 
SPECIAL AGENT JOHN RYAN, ASSISTANT DIRECTOR, OFFICE OF SPECIAL 
 INVESTIGATIONS, U.S. GENERAL ACCOUNTING OFFICE; MAJOR GENERAL 
  THOMAS W. ERES, COMMANDER, CALIFORNIA ARMY NATIONAL GUARD; 
  SANDRA L. PACK, ASSISTANT SECRETARY OF THE ARMY, FINANCIAL 
  MANAGEMENT AND COMPTROLLER, OFFICE OF THE SECRETARIAT; AND 
  JERRY S. HINTON, DIRECTOR FOR FINANCE, DEFENSE FINANCE AND 
           ACCOUNTING SERVICE, DEPARTMENT OF DEFENSE

    Mr. Kutz. Thank you, Mr. Chairman. It is a pleasure to be 
here to discuss our audit of the Army Travel Program. With me 
is Special Agent John Ryan from our Office of Special 
Investigations, who is an expert in credit card fraud and 
abuse.
    I have in my hand a travel card, and it is also shown on 
the monitor, for those in the audience. As you can see, it 
looks like a normal credit card. The card used by the Army is a 
Bank of America Master Card, and can generally be used wherever 
Master Card is accepted. However, notice that it says, ``For 
Official Government Travel Only.''
    Travel card charges are billed to and paid for directly by 
the cardholder, unlike the purchase card, where they are billed 
to the Government and paid by the Government.
    Travel cards were introduced to the Government to improve 
efficiency and reduce the cost of operations. The Department of 
Defense individually billed travel card activity was over $2 
billion in fiscal year 2001.
    With 1.4 million travel cards in the hands of DOD 
employees, effective internal controls are necessary to prevent 
fraud and abuse.
    Today, I will discuss our audit of the Army travel program 
for fiscal year 2001. This is the first in a series of audits 
on the Department of Defense travel programs. We plan to issue 
the results of our Navy and Air Force audits in the next 
several months.
    I also want to thank the Army for their cooperation in our 
audit. The recent success of our forces in Afghanistan has 
again demonstrated that our military forces are second to none.
    The bottom line of my testimony is that the Army had 
significant breakdowns in internal controls over the travel 
program. These breakdowns contributed to significant 
delinquencies and charge-offs, and fraudulent and abusive 
activity.
    My testimony has three parts. First, delinquencies and 
charge-offs; second, fraudulent and abusive activity; and 
third, the effectiveness of internal controls.
    First, we found substantial delinquencies in charge-offs of 
Army travel card accounts. Most Army employees used their card 
appropriately and paid the bank on time. However, as shown on 
the posterboard, we found that the Army has the highest 
delinquency rate in the Federal Government.
    For the 2-years ending March 31, 2002, the Army's 
delinquency rate fluctuated between 10 and 18 percent. this was 
about 5 percentage points higher than the rest of DOD and 7 
percentage points higher than Federal civilian agencies. In 
addition since 1999, nearly $34 million of Army accounts have 
been charged-off.
    These delinquencies and charge-offs have cost the Army 
millions of dollars in lost rebates, higher fees, and 
substantial resources spent pursuing and collecting past-due 
accounts.
    We found that the Army's delinquency and charge-off 
problems relate primarily to young, low and mid-level enlisted 
military personnel. Specifically, this is privates to staff 
sergeants, with basic pay ranging from $11,000 to $26,000.
    The Army and DOD have taken action to improve management 
attention on delinquent accounts. In addition, beginning 
November 2001, DOD began offsetting military and civilian 
employee wages and retirement payments. These and other actions 
have significantly reduced charge-offs and increased recoveries 
in fiscal year 2002.
    My second point relates to our findings of numerous 
instances of potentially fraudulent and abusive activity. Fraud 
and abuse were substantial in fiscal year 2001. Since 1999, 
23,000 Army accounts were charged off, while thousands more 
have been delinquent.
    In addition, we estimate that 15 to 45 percent of 2001 
travel card transactions at the four installations that we 
audited were for personal charges.
    The instances of potential fraud we found related to 
individuals who wrote three or more NSF or ``bounced'' checks 
to the Bank of America. During fiscal year 2001, over 4,000 
Army personnel wrote NSF or bounced checks to the bank. More 
than 200 of these cardholders, all having their accounts 
charged-off, may have committed bank fraud by writing three or 
more NSF checks to the bank.
    One cardholder, as Senator Grassley mentioned, from Fort 
Jackson, wrote 86 NSF checks to the bank, for about $270,000. 
This cardholder was convicted of writing NSF checks, prior to 
getting a Government travel card.
    This cardholder was able to boost his credit limit from 
$10,000 to $35,000, by writing these NSF checks. As of late 
May, this cardholder was being court martialed.
    We also identified substantial abuse of the travel card. 
Abuse due to failure to pay Bank of America included both 
cardholders that were reimbursed for official travel, and those 
that used the card for personal charges.
    The posterboard shows examples of abuse, resulting in 
charged-off accounts, including: the purchase of a used car 
from Budget Rent-A-Car; adult entertainment charges, including 
gentlemen's clubs, such as the Spearmint Rhino Adult Cabaret; 
Internet and casino gambling, including a Pennsylvania National 
Guard solder, who charged nearly $14,000 for his Black Jack 
gambling habit; and use of reimbursed travel money to pay for 
the closing costs on a home purchase.
    We found that having the travel card was like having cash. 
Specifically, cardholders abused the travel card by improperly 
obtaining cash at gentlemen's clubs.
    These clubs, which provide adult entertainment, supplied 
cardholders with actual cash or ``club'' cash for a 10 percent 
fee. For example, a cardholder wanting $300 of cash would be 
provided $300 and billed $330. These transactions appeared on 
the monthly credit card bill as restaurant or bar charges.
    One cardholder, who was on official travel, obtained $5,000 
in cash at two gentlemen's clubs, in Columbia, South Carolina, 
called Bottoms Up and Platinum Plus. This cardholder told us 
that the ability to obtain cash at these clubs was common 
knowledge among military members.
    We also found abusive charges that were personal use, but 
where the cardholder ultimately paid the Bank of America. These 
cardholders benefited by effectively getting an interest-free 
loan. These purchases included cruises, a package for the Rose 
Bowl, sports and theater tickets, insurance, and women's 
lingerie.
    In addition, it was troubling to see little evidence of 
disciplinary action against travel card abusers. In the rare 
cases where severe disciplinary action was taken, it was often 
done in conjunction with other problems such as drug abuse.
    We even found that a California National Guard employee was 
promoted from Major to Lieutenant Colonel, after having her 
$5,000 account balance charged-off.
    In addition, we found that 38 of 105 severe travel card 
abusers from our testing have active, secret, or top secret 
clearances. An individual's finances are one of the key factors 
used in determining whether a clearance is granted.
    We found that the Army does not link fraudulent or abusive 
use of the travel card to the maintenance of security 
clearances.
    In addition to travel card abuse, many of these 38 
individuals had other financial problems, such as bankruptcy, 
foreclosed home mortgages, and repossessed automobiles. Let me 
repeat, the people with these financial problems had secret and 
top secret clearances in June 2002.
    Mr. Chairman, as you, Representative Schakowsky, and 
Senator Grassley requested, we have provided the DOD with a 
list of these individuals to reevaluate the security 
clearances.
    My third point relates to weaknesses in internal controls.
    Mr. Horn. Let me just interrupt on that. We sent over to 
the Secretary about 800 names on that, and I think they came 
from you. So I just wanted to know where that is.
    Mr. Kutz. That is a different list. This is a list of 
people with active, secret, and top secret clearances that 
abused their travel card.
    Mr. Horn. And they have matched that against that?
    Mr. Kutz. We had matched that.
    Mr. Horn. You matched that?
    Mr. Kutz. Yes, we did the matching.
    Mr. Horn. OK.
    Mr. Kutz. My last point relates to weaknesses in internal 
controls. A weak control environment, compounded by instances 
of delays in processing travel reimbursements, contributed to 
the Army's high delinquency rates.
    Army management has not provided for an effective 
infrastructure, primarily human capital related, to effectively 
manage this program.
    For example, agency program coordinators, who oversee 
travel cardholders' activities, are often military personnel, 
who are rated primarily on other job responsibilities, such as 
airport security.
    The APC role is an ``other duty as assigned.'' Many of 
these APCs are set up to fail in their duties, because they are 
given a substantial span of control, in one instance, up to 
1,000 cardholders, and virtually no time to do this collateral 
duty.
    Many problems related to the Army issuing travel cards to 
individuals, regardless of their prior credit history. We found 
a significant correlation between travel card abuse, fraud, and 
delinquencies, and prior credit problems.
    Prior problems included defaulted credit cards, automobile 
loans and home mortgages, bankruptcies, and prior convictions 
for writing bad checks.
    Delays in processing travel reimbursements, particularly at 
the California National Guard, contributed to the high 
delinquency rate for that unit. We found a substantial number 
of California Guard, and several employees at other units, that 
should have been reimbursed for interest and late fees.
    In summary, a weak internal control environment has 
resulted in a travel program with substantial fraud and abuse, 
and a significant level of delinquencies and charge-offs. DOD 
and the Army have taken positive steps to improve the 
delinquencies and charge-offs.
    However, we believe that the Army actions to date have 
focused primarily on treating the symptoms of the problems, the 
delinquencies and charge-offs, rather than the causes.
    Preventive solutions include mandatory splitting of 
disbursements; exempting individuals with financial problems 
from receiving a card; deactivating cards when employees are 
not on official travel; and a strong, consistent disciplinary 
policy.
    We will followup on this testimony with a report with 
recommendations. We plan to work closely with the Army and the 
Charge Card Task Force to implement these recommendations.
    Mr. Chairman, that ends my statement. Agent Ryan and I 
would be happy to answer questions when the others have done 
their statements.
    [The prepared statement of Mr. Kutz follows:]

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    Mr. Horn. Let us start now with Mr. Ryan. Is there anything 
that you would like to add?
    Mr. Ryan. Not at this time, Mr. Chairman.
    Mr. Horn. All right, we will go to Major General Eres, 
Commander of the California Army National Guard. We will go 
ahead with your testimony, General.
    General Eres. Good morning, Mr. Chairman, thank you for the 
opportunity to be here representing the California Army 
National Guard. Recently I assumed a new position in homeland 
security/homeland defense.
    I am here representing Major General Paul D. Monroe, the 
Adjutant General of the State of California. We have prepared 
remarks that have been submitted to your our committee, which 
are quite extensive and comprehensive.
    My remarks here will be identified in those areas that I 
think need particular attention from our standpoint. I would 
like to thank the GAO and this committee for commissioning them 
to come to California, because you do not know what you do not 
know; and GAO has given us a basis within which to get a good 
sense of the people component of trying to manage this program, 
with all of the technology that we have in existence.
    I believe that a little bit of context for the National 
Guard in California is important. It is about 16,450 in size, 
about 2,000 of which are full-time, 14,000 of which would be 
traditional guard, which means they have other employment and 
other jobs.
    We have a full-time manning challenge out in California, in 
that we actually have personnel full-time at about 43 percent 
of what we have authorized. What that means is, 43 percent of 
the individuals who are necessary are actually doing the job.
    That is an environmental point only, for purposes of the 
context within the management challenges created by the travel 
card program are presented.
    This is a people world. This is a people business that we 
are dealing with in credit management. One of the cotter-pins 
for that is the Agency Program Coordinator has been identified 
by GAO out in California. We use this position as an additional 
duty.
    It is clear from the audit and clear from our review, this 
must change. This must be a high priority, dedicated 
assignment, with responsibility and authority commensurate with 
it. That will require a readjustment of priorities of the 
limited full-time personnel, but that is something that will 
need to be reviewed carefully by the Adjutant General, and 
those adjustments made.
    Included in that would be reducing the span of control; as 
was mentioned, something more modest, down to perhaps 300 to 
one.
    We also believe that about 90 percent of the problem that 
we are dealing with here is in the area of communication. As I 
mentioned, this is a people business. Perhaps we should look 
more at a partnership-type thinking, in terms of the players 
and principles we are dealing with, from the Bank of America, 
the Department of Defense, the National Guard and its chain of 
command, the individual soldier, and ultimately, the merchant 
that accepts the card.
    I am intrigued by, for example, the nature of the look of 
the card. It looks very clear up on the screen, but when you 
look at the card directly, it is very hard to discern it from 
any other credit card.
    I believe merchants, if they were to see a card that had 
something more like a chartreuse color, with very bold ``United 
States Federal Government, For Official Use'' would be more 
questioning in terms of swiping that card, when someone is 
purchasing tickets to Disneyland, when they are supposed to be 
on travel.
    These are some of the suggestions that we have been looking 
at, to try to make the culture a little bit more attuned to the 
responsibilities that we have with respect to managing this 
program.
    One of the things that we have found is that we need better 
systems integration. If we can get the systems integrated, then 
we can have better synchronization as relates to trying to 
manage the program.
    As has been noted, we had a situation where an individual 
was promoted, and how could that happen when they have a 
deficient credit card?
    It happens because of stovepipes, and we have to find a 
better way of integrating between those stovepipes their 
information, in a way that we can better synchronize those 
actions necessary to identify an individual and their file, and 
any personnel actions that may be in the pipeline, so that, in 
fact, these can be reconciled.
    Administratively, we are in the process of trying to better 
tune the time delay between processing travel vouchers, so that 
the individual solder gets, in a timely fashion, a 
reimbursement of that travel voucher. So, in fact, they have 
the capability to pay that credit card bill.
    Internal controls are very important to us. We believe that 
we have now a better handle in terms of segregating 
responsibility within USPFO, the APCs and the chain of command.
    We believe that GAO hit the nail on the head with respect 
to the fact that you need to have that independence, that check 
and balance, and the chain of command has to be intimately 
involved, in terms of making sure that the right people, the 
supervisorial chain, get the right information at the right 
time, that is accurate; so in fact, they can post their chain 
of command, and take those actions that are necessary.
    We think that the notion of a split disbursement is a very 
good notion. It is voluntary at the moment, but we think 
perhaps some legislative change there to make it mandatory 
would be appropriate; that, in effect, when you use your travel 
card on official business, it is for official business.
    Therefore, the reimbursement should go to the Bank of 
America for those direct costs that the card was used for; 
incidental expenses, of course, going to the individual 
soldier.
    We also think that the notion of the offset is important, 
and we think that is a good idea. We also think the idea of 
interest charges and the notion of late fees are also 
important.
    One of the things, though, that we need to do is to be 
preemptive in our educational process with the soldier. We need 
to have an early warning system that allows the bank to 
integrate with our system, in terms of when that soldier goes 
on orders, so that travel card is activated at that moment, and 
when that soldier comes off of orders, it is de-activated; and 
then internally within that timeframe of active duty or, if you 
will, on travel.
    Any kind of a transaction that appears to be out of the 
ordinary creates a flag with respect to the reporting of that 
transaction. So before the travel voucher is even submitted, we 
are already alerted that there is a potential transaction that 
appears to be inappropriate, in terms of that travel.
    We think this would be an additional way to try to find, at 
the front end, an opportunity to find out if there is a 
problem, and do the reconciliation before 60, 90, 120, or 180 
days pass. At that stage of the game, the ship has sailed and 
we are fighting, in effect, a backfire.
    Again, I thank you for the opportunity to make these 
preliminary remarks in support of the written statements that 
we have prepared, and I am available to answer any questions 
you might have, sir.
    [The prepared statement of General Eres follows:]

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    Mr. Horn. Thank you, General; you made some suggestions 
that need to be implemented.
    Sandra Pack is the Assistant Secretary of the Army, 
Financial Management and Comptroller. Please proceed.
    Ms. Pack. Good morning, Mr. Chairman; I am pleased to 
appear before the committee today to talk about the Army's 
travel card program.
    Given the scope and the complexity of the U.S. Army, we 
face daunting challenges, any time we undertake significant 
change. That certainly was the case in November 1998, when we 
began implementing the Army's travel card program.
    We did this as a result of the Travel and Transportation 
Reform Act of 1998, which stipulates that the Government-
sponsored, contractor-issued travel card be used by all 
Government employees, to pay for official business travel 
costs.
    Despite initial implementation problems, including 
inadequate software, on-line management system deficiencies, 
and insufficient training for our personnel, the Army has 
succeeded in implementing a stable travel card program.
    The travel card program provides many benefits to the Army. 
It meets our travel and transportation needs, and provides an 
effective, convenient method for Army travelers to pay official 
travel expenses, and moreover, the travel card program improves 
the Army's cash management and provides cost savings.
    For example, the Army received $2.7 million in travel card 
rebates during fiscal year 2000. In fiscal year 2001, the Army 
saved over $73 million in administrative processing and 
accounting costs, because the travel card greatly reduced the 
need for travel advances.
    The Army has two kinds of travel card accounts: 
individually billed accounts where the individual cardholder is 
liable for payment; and centrally billed accounts, where the 
Government is liable for payment.
    Given the current delinquency rate of less than 1 percent 
for the centrally billed accounts, we believe that the Army has 
established and is maintaining adequate oversight and internal 
controls for these accounts. Hence my comments today will not 
focus on centrally billed accounts.
    Managing the delinquency rates for the Army's individually 
billed accounts, however, has proven significantly more 
difficult. This is the area where we are focusing our 
attention.
    The Army currently has approximately 420,000 individually 
billed account cardholders. In any given month, approximately 
115,000 Army travelers satisfy their travel needs with this 
card, and over 92 percent pay their bills on time So it is fair 
to say that the vast majority of Army travel card users are 
following the rules.
    In October 2000, the Army's Vice Chief of Staff established 
a delinquency goal of not more than 4 percent, which is 
consistent with the three to 5 percent delinquency rate 
experienced by the private sector. By May 2001, the delinquency 
rate for individually billed accounts had dropped from 11 
percent to 5.6 percent. Since then, the delinquency rate has 
fluctuated and now stands at about 8 percent.
    As of June 2002, most Army commands had met or were within 
2 percentage points of the 4-percent goal. We are now 
concentrating on bringing those few remaining commands in line 
with our 4 percent delinquency goal. I will elaborate on some 
of the challenges that we face in accomplishing this goal.
    As you know, the nature of the Army's mission involves 
destinations, durations, and circumstances that are not 
comparable with others in the Federal Government and, 
therefore, may not have been envisioned in the original 
contract.
    While the travel card has proven to be a valuable tool for 
the majority of the Army's personnel, it frequently is not 
useful for travelers in remote locations or on deployments.
    In addition, our experience has been that the majority of 
our delinquent cardholders are lower grade, enlisted soldiers, 
who tend to be inexperienced in personal finance and in the use 
of charge cards.
    These 130,000 cardholders represent 30 percent of the cards 
issued, and only 15 percent of the Army's total spending, but 
they are responsible for 59 percent of the delinquencies and 
bank write-offs.
    The Army leadership is engaged and committed to solving 
these travel card problems. For example, the Secretary of the 
Army has authorized, and we now post on the Army's senior 
leadership intranet site, the delinquency statistics for our 
commands.
    We provide Army senior leaders and major commands monthly 
delinquency reports that permit them to compare their 
performance with other commands and subordinate units. We 
conduct bi-weekly teleconferences between our Army travel card 
program manager and his counterparts in the field.
    In addition, the Army is working closely with the 
Department of Defense to remedy its travel card problems. We 
were actively involved in the Department of Defense's recent 
effort to re-negotiate the contracting bank's task order.
    These contract modifications include key provisions that 
help reduce travel card delinquencies, including: a salary 
offset program that allows delinquent account balances to be 
collected from the cardholder's pay; increased cardholder fees 
for late payments and back checks; and a significant reduction 
in the number of travel cards issued to infrequent travelers. 
As a result, the Army has canceled or de-activated over 60,000 
travel card accounts.
    The Army also is an active participant on the Department of 
Defense Charge Card Task Force. In conjunction with this 
effort, the Army has taken a number of actions, including: 
providing additional training for cardholders and unit travel 
card program coordinators; working closely with the bank to 
resolve problems of cardholders who are misplaced in the Army 
account structure; expanding the use of split disbursement and 
salary offset; closing inactive accounts; assessing alternative 
travel card products, such as debit cards and smart cards; 
working closely with the Army investigative community to ensure 
that relevant findings of cardholder delinquency are promptly 
coordinated with security administration personnel and the 
cardholder's supervisor; and using the Travel and 
Transportation Reform Act exemption for en-route expenses 
associated with mission deployments.
    In addition we are making changes in the Army's travel card 
policy, including: prohibiting travel card use for permanent 
change of station moves; encouraging the commands to use the 
training request form or the purchase card to pay advance 
conference and registration fees; including the unit travel 
card program coordinator as a mandatory step in the in-and-out 
processing procedures; and reducing the number of cardholder 
accounts for which each unit travel card program coordinator is 
responsible.
    In short, the Army believes that the travel card program is 
worthwhile. It is an effective tool for meeting the Army's 
travel and transportation needs, and for reducing 
administrative and support function costs. We are committed to 
reducing our travel card problems, and we strongly support 
initiatives to improve the program.
    We have made good progress in reducing delinquencies and 
misuse, and we believe that our continued efforts will result 
in continued improvements in the future.
    Mr. Chairman, that concludes my statement. I will be happy 
to take any questions.
    [The prepared statement of Ms. Pack follows:]

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    Mr. Horn. Thank you very much for your testimony.
    We now move to Jerry S. Hinton, Director for Finance, 
Defense Finance and Accounting Service.
    Mr. Hinton. Good morning, Mr. Chairman, thanks; I am 
pleased to be here today to discuss the Department's travel 
card program.
    The travel card program falls within my responsibilities. 
The travel card program provides savings to the Department, and 
has helped to streamline our operations, and the cards offer 
convenience to those who travel on official business.
    The Department's senior leadership is seriously concerned 
about the operational shortcomings, the delinquencies and 
abuses that are the focus of this hearing. the failure to 
fulfill the job responsibilities and observe appropriate 
standards of conduct will not be tolerated.
    Mr. Chairman, when I appeared before this subcommittee in 
May of last year, I noted that the Department was working to 
address delinquencies and improve the travel card program.
    Since last year, we have reduced the Department's centrally 
billed travel card account delinquency rate from 14 percent in 
January 2001, to less than 2 percent in May 2002. The June 
report, which we received Monday, shows it is now approximately 
1 percent.
    We also modified the task order terms to eliminate the 
automatic billing cycle credit replenishment feature for 
standard and restricted accounts.
    We canceled approximately 115,000 cards, and deactivated 
another 112,000 belonging to infrequent travelers.
    We implemented salary offset that has significantly reduced 
the number of accounts written off by the bank. As of May 2002, 
$15.1 million had been collected and paid to the card-issuing 
bank, Bank of America. Again, our general report this week 
shows over $17 million has now been collected.
    Accountability is a major focus within the Department. 
Component heads have been directed to report on the actions 
taken to resolve current cases of charge card misuse, abuse, 
delinquencies, and to preclude future such instances.
    Improved internal controls and process re-engineering are 
important to the Department. The Under Secretary of Defense 
Comptroller, Dr. Zakheem, established a task force in March to 
investigate the Department's charge card programs and to 
propose ways to strengthen them.
    The task force report, issued on June 27, 2002, included 
findings and observations similar to those of GAO, and 16 of 
those recommendations address the travel card program.
    Those recommendations fall into three areas: one, 
management emphasis and organizational culture; No. 2, process 
and work force development; and three, compliance. The specific 
recommendations related to the travel card program are 
summarized in my statement, and we are working their 
implementation.
    Mr. Chairman, the senior leaders in the Department are 
engaged in ensuring the travel card program is properly 
administered and successful.
    That concludes my remarks, and I will be pleased to answer 
any questions you may have.
    [The prepared statement of Mr. Hinton follows:]

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    Mr. Horn. Thank you, and we now will recognize the 
gentleman from California, Mr. Ose, for 5 minutes of 
questioning, and then the ranking member next.
    Mr. Ose. Thank you, Mr. Chairman; I regret I was late. It 
is not often that someone sneaks something by me, but when I 
got back to my office this morning, I discovered, much to my 
chagrin, that somebody had snuck one by this morning.
    In watching the television and noting the introduction of 
one of our witnesses today, I am not sure that we did quite 
enough justice to him; that being Major General Eres, who is a 
resident of Sacramento.
    Frankly, he is too humble. But I will tell you for a fact, 
that in my community, there are people who do and there are 
people who talk; and this gentlemen is a man who does. He has 
for many years.
    He is a past President of the Sacramento Metropolitan 
Chamber of Commerce. He has been in Rotary. He has got four 
wonderful kids. His wife is actually the General in the 
household.
    I will tell you, he has a long history in Sacramento 
business enterprise, also. He has served in any number of 
roles, one of which has been as counsel to my family. It is a 
distinct pleasure to have him join us here today.
    I am sorry I was not here for his remarks or his first 
introduction, but I did want to get here and thank him. Because 
he is one of those people that make Sacramento a great place to 
live. So, General, thank you for coming.
    General Eres. Thank you.
    Mr. Ose. My questions really devolve around to the issues 
that you put on the table, and I am not going to speak to a 
chartreuse card, at the moment. I will get back to that.
    The question I do have, I mean your testimony is very 
telling. What General Eres brought up was the issue of, if 
somebody is deployed, and they have a claim for reimbursement, 
as is his want, he is always worried about the people who are 
actually out in the field.
    What happens when someone who is deployed makes a 
reimbursement request, and it takes longer than 30 days for 
that person to recover their funds, and what is the consequence 
there?
    General Eres. The consequence that we have found is that a 
vast majority of the cards have been issued to people in the 
lower ranking positions, both enlisted, warrant, and in the 
officer core. So these are people that are usually pretty 
tight, in terms of the amount of cash-flow that they have 
available to them.
    The primary resource then, for repayment of the card, would 
be the reimbursement that they get from the voucher that is 
processed. Depending upon the timeframe within the bank, it 
goes from a card that is delinquent to one that is seriously 
heading toward a potential for a charge-off or potentially 
would be a candidate for an offset or a garnishment, if you 
will.
    It is a timeframe that can be influenced by a delay in 
processing that travel voucher. We believe, in California, from 
the National Guard's perspective, we have taken strong efforts 
to try to augment the actual staff that are going to be 
processing these cards. We think that we can do a much better 
job than we have been doing.
    The requirement is that the individual, after leaving that 
travel status, has 5 days to turn their report in, or their 
travel request in. That should be processed, and they should 
have a check on the way in approximately 30 days.
    If the system is working, that money ought to be applied to 
the travel card and clear the account. In an abundance of 
caution, I think, though, under the notion that has been 
suggested as a split disbursement perhaps, in my view that, and 
I believe for General Monroe, is a very positive step.
    So, in fact, those charges legitimately on that card for 
travel are bifurcated, and the check is paid directly to the 
Bank of America, with the incidental payments going directly to 
the soldier.
    Mr. Ose. Would you recommend doing that electronically, for 
instance, to the card provider?
    General Eres. I really do. I think that in this paperless 
information technology, there is much more we can do to 
interface between the Bank of America and its systems, our 
systems and the National Guard called aft-costs, and in the 
processing that we do through the U.S. Property and Fiscal 
Office, and the oversight that can be provided by the APCs. I 
think we have the capability to integrate and synchronize those 
activities by using technology.
    Mr. Ose. Does the Guard in California bifurcate these 
payments, or follow the system you have just described?
    General Eres. They do only on a voluntary basis, on this 
split disbursement. We really favor that the notion be 
mandatory. We do not know of any reason why it should not.
    In the old days, and I will show my age here, when you went 
and obtained a vehicle for military travel, you got what was 
called a log book. When you got the log book, you signed for 
that vehicle. There was a gas card in it. You went on your 
travel. You turned the card and the log book in and logged out. 
That is a system that ought to fit nicely within the use of the 
travel card, we think.
    Mr. Ose. I regret my time is expired, Mr. Chairman.
    Mr. Horn. Well, we will get back to that. Let me just say, 
to followup on one question, you mentioned the Bank of America. 
Could they not match their particular knowledge of either 
people that had accounts, or where you can get from any place, 
I guess, and what do you think about them? Do they ever look to 
see if this is a person that is a deadbeat; and if not, why 
not?
    General Eres. One of the suggestions from the General 
Accounting Office was to take a look at the pre-qualification 
of those soldiers who are given the card. That is, in effect, a 
manifestation of trust in the soldier.
    To the extent those cards are being given to those who 
already have a credit history that is not supported in the 
private sector for a card, it is something that we should 
ensnare at the front end of this process.
    The difficulty we have is that a number of the individuals, 
this is their first card, their first exposure to credit. We 
have a larger job to do, as basically credit managers, to 
educate, train, and oversee those who are given that trust, and 
may not use it expeditiously or responsibly.
    As relates to the Bank of America, I am not familiar with 
their capabilities and capacities, in terms of managing these 
accounts. I believe their Eagle system is a good start, and I 
believe it gives an opportunity for the electronic interface, 
the integration and synchronization I mentioned, to alleviate a 
great deal of the challenge. Because if we do not have timely, 
accurate information on the transaction itself, we are behind 
the power curve.
    Mr. Kutz. Mr. Chairman, let me add to that. Because we 
would distinguish, as the General did, between people with bad 
credit and no credit. A lot of the young people coming into the 
military have no credit. We are not suggesting in our 
recommendations that they not be provided a card. They should 
be provided what is called a restricted card, which has a lower 
credit limit and has tighter controls.
    But what we did find was a significant correlation between 
the abusers of the travel card and those that had prior credit 
problems. One of our recommendations is going to be that they 
deny travel cards to people with prior significant credit 
problems.
    Mr. Horn. I now yield 5 minutes to Mrs. Schakowsky, the 
ranking member on this subcommittee.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Mr. Kutz, you have testified in the last year on a number 
of instances of fraud, waste, and abuse, including purchase 
card fraud and abuse at the Navy, chem-bio suits that were 
being sold on the Internet for less than $3, while DOD is 
buying them for over $200 each.
    DOD is spending $17 per line to process a purchase card 
bill; and Army purchase card fraud and abuse, and Army travel 
card delinquencies, charge-offs, fraud, and abuse, it seems 
like even more than that.
    Given your broad perspective, can you tell me why the 
Department of Defense continues to have billions of dollars in 
waste, fraud, and abuse?
    Mr. Kutz. I think this gets into your initial opening 
statement with respect to, this is a financial management 
problem. The Department has been unable to reform its business 
processes.
    You have issues such as culture, which we have talked about 
at many of these hearings, being a common theme throughout 
these different types of problems that we find.
    You find lack of sustained leadership over periods of time. 
This credit card problem that we have here is not something 
that a task force report or a quick hit is going to fix. It is 
going to take sustained leadership and time to deal with this.
    Then I believe that things oftentimes revert back to their 
norm. If you do not stay on top of this over a period of time, 
it could revert back to the way it is.
    The other thing that we see here is the issue with 
disciplinary action and accountability, and who is responsible 
for this program?
    I think that is something the Department often has trouble 
with, with respect to the Office of the Secretary of Defense 
versus the Army here. Whose program is this? Who is the point 
person?
    Who can you actually go out and touch and say, you are 
responsible, and you are the one who is going to fix this 
program? That is a common theme, I think, we have seen with all 
the things we have testified before you.
    Ms. Schakowsky. Well, let me followup on that then with the 
General. Because we have a case where a California National 
Guard cardholder was actually promoted after charge-offs.
    I am just trying to understand how we can establish the 
right culture, the right atmosphere, the right accountability 
and controls, when we find that those individuals, rather than 
being punished, in fact, in some instances, are promoted.
    General Eres. Yes, ma'am, the particular case that you are 
referring to, I have become very familiar with. I mentioned in 
my opening remarks the challenge we have with what we call 
stovepipes or parallel systems.
    So it is entirely possible that you could have a member of 
the National Guard, who has a full-time position within the 
National Guard, but also has a position within a chain of 
command that is the military chain of command.
    It may be that the abuse of the credit card was something 
that was handled by the immediate supervisor on the full-time 
side of that pipeline; whereas, the chain of command on the 
miliary unit side was not aware that was even a problem.
    What we have done to take corrective action on that is to 
integrate those two stovepipes. We have also integrated the 
security check, the classified process by which we have 
security clearances for our personnel.
    So at the minimum, the immediate action we have taken is to 
link not only the full-time military system with the military 
unit system, with the security system, and to be in a position 
where we have any indication that there has been a default or a 
deficiency on the travel account that, I will use the term 
descriptively, flags that particular individual across all of 
those stovepipes.
    So you do not have a promotion or an award or send somebody 
off to school or other training, when you have that kind of an 
incident or a flag, if I could use that phrase.
    Ms. Schakowsky. So do you feel confident that kind of 
problem will not surface again?
    General Eres. I feel confident, ma'am, that purposes if we 
have accurate information that drives the flagging process, and 
again, I am using that descriptively, we can do that.
    What I am not confident in is, do we get accurate, timely 
information of the condition of the account soon enough, so 
that those flags will be effective.
    As I mentioned earlier, I think this is where the 
technology between the Bank of America and its Eagle system and 
our pay system will help us flag, very early, immediately when 
that account becomes deficient; or, I do not whether the term 
is slow pay or no pay.
    Ms. Schakowsky. Well, let me ask you this, General, because 
in the GAO report, we are talking about, and I do not know if 
this is the full extent of it, the delinquencies and charge-
offs cost the Army $2.4 million, estimates the GAO, in lost 
rebates, and will cost $1.4 million.
    You know, in every case, we are talking about millions and 
millions of dollars. Do you feel confident that we are not 
going to have the same hearing a year from now? Let us start 
with 6 months from now. Do you feel confident we are not going 
to find the same thing, 6 months from now?
    General Eres. In the context of the California Army 
National Guard, I am confident that we have a very good data 
base on the problems that you are addressing, and that we have 
meaningful solutions.
    I would be more than willing to submit it to another look-
see, whether it is by GAO, or I can assure you internally 
within our own system, we will have our own audit, to make sure 
that we are benchmarked, and that we are not going to be back 
here in 6 months having the discussion because those systems, 
those stovepipes, are not communicating and are not integrated.
    Ms. Schakowsky. Mr. Ryan, did you want to say something? Do 
you mind, Mr. Chairman? Mr. Ryan wanted to respond.
    Mr. Horn. Go ahead, Mr. Ryan.
    Mr. Ryan. I think in response to what the General is 
saying, a lot if it ties in on how much the Army is committed 
to bring in full-time APCs. These APCs are front line. They 
identify potential problems. They can notify commands of 
problems.
    If we have APCs that are doing part-time work, they cannot 
do both jobs. We talked to one APC that had over 1,000 
cardholders to manage. The only thing that he did at the end of 
the months was to try to look at delinquencies, and keep his 
Commander out of trouble.
    If we have full-time APCs that, on a daily basis, are 
looking at the transactions, that are looking at the 
delinquencies, I think that you will find that overall there 
will be a better management of the program.
    But the Army has to commit to this. They have to commit to 
full-time people to do this job. We have a lot of money 
invested in this, and I think that we need full-time people to 
monitor the program.
    Ms. Schakowsky. And is there a commitment to do that?
    Mr. Ryan. I think you need to ask the Army.
    General Eres. I will pass that on to the Army. I am sure 
they are pleased to get it. But I can tell you that in the 
National Guard, we are staffed at 43 percent of authorized, 
required full-time.
    So the National Guard gets the resources that we are 
assigned. We utilize those, and as Mr. Ryan has indicated, that 
means our APCs are duo-hatted, triple-hatted, or even more.
    What we are talking about here is if the program is 
important enough, what we need to do is to look at how you can 
re-prioritize resources in order to have more and dedicated 
personnel in this area. Because we are in a sub-optimum 
environment, in terms of resource allocations.
    Mr. Kutz. Representative Schakowsky, I would like to add 
one thing to that, quickly. We also saw, at some of the 
different units than the California National Guard, that the 
military APCs turned over every 6 months or so.
    One of the other things that we are going to be 
recommending is that the Army look at having more civilians, if 
possible, to act in the APC role. Because what we found was 
that APC's were in the position for 2 or more years and you 
need some continuity in that position to have it be effective.
    Ms. Schakowsky. Thank you.
    Mr. Horn. I think the answer to your question is one, for 
the Assistant Secretary of the Army, Ms. Pack, what can you do 
in answering Mrs. Schakowsky's question, which is a very 
important question; and what is the Army doing about it?
    Ms. Pack. Mr. Chairman, I became aware of these problems in 
preparing for this hearing today. What I would say about that 
is, the Army, like any other institution, has to make tradeoffs 
with resources.
    From the GAO report, which I found very beneficial--and I 
am an accountant by trade, so I believe audits are good--we 
have learned that, basically, we have an oversight problem. The 
way to fix that is to put human capital against that and, of 
course, that costs money.
    Ms. Schakowsky. Excuse me, but we are talking about huge 
sums of money that is just falling away like sand through our 
fingers; huge sums of money that should be used to protect our 
homeland, to take care of our men and women in uniform.
    I understand that we are going to have to put more money 
into it. But this cavalier attitude that I find that, well, you 
know, we are like any other organization, and we have to have 
the resources, this is a crisis worth billions of dollars.
    I think it is absolutely equal to the Enrons and the 
WorldComms, with our own Department of Defense; and it requires 
a much more aggressive attitude than what I am hearing from you 
and that what we have heard, time and time again, at hearing 
after hearing.
    We are talking billions. We are talking about trillions, 
$1.2 trillion, that we do not know where it is or how it is 
accounted for. This is not just a nickel and dime kind of 
operation, a couple of guys going to a strip club. We are 
talking about a culture, a systematic problem within this 
department. We are talking about being in deficit spending 
right now. We are talking about $48 billion more for the 
Department of Defense to do its job.
    So I think that we ought to find the money to do it, 
because we are going to save, hopefully, billions and billions 
of taxpayer dollars. They deserve no less, Ms. Pack.
    Ms. Pack. Yes, ma'am, I agree with everything you have 
said. I have been in this position for 8 months. I have just 
now come to understand the scope of this and the complexity of 
this. Believe me, I take this personally. I believe this is my 
personal responsibility to correct. So do not take me wrong in 
saying that there are tradeoffs.
    What we need to do, and you are right, we can save billions 
of dollars, by adding people. One of the things that I had 
asked my staff before I came over here this week is, I need to 
know what it would take to get the right people in the right 
places to take care of this?
    What is the dollar figure we are talking about, so that we 
can take this to the leadership and say, here is what we need 
to do. This is the solution. If we do this, yes, it will cost 
something, but the savings will far outweigh that.
    Mr. Horn. Well, I would like to add to that, when did you 
first learn of this situation? You have been here 8 months, and 
when did you first learn of this?
    Ms. Pack. When I first learned of this, I believe, was in 
the March timeframe, when these hearings were being held 
earlier.
    Mr. Horn. OK, well, when you heard that, what did you and 
the various civilian officers in the Army do? Did anything 
happen?
    Ms. Pack. Well, we became part of this task force, the DOD 
Charge Card Task Force, and we started looking at this program 
in detail to see where are the problems. That is why I say, the 
GAO report was especially helpful, because it looked at 
specific places, specific problems, and gave us the details on 
where the problems lie.
    In my line of work, credit problems are a security risk, 
and you do not get hired if you have those problems. So I take 
those very seriously.
    The thing that is frustrating to me is, these kinds of 
problems are manageable. It just simply takes somebody at the 
monitor, looking at this. We simply do not have the people 
doing that. Therein lies the major problem.
    Mr. Horn. Well, I guess what I asked, when this first came 
to my attention, months ago, was where are the Master 
Sergeants; where are the people that know what is going on?
    Ms. Pack. The chain of command; I agree.
    Mr. Horn. The officers often do not know what is going on.
    Ms. Pack. That is right.
    Mr. Horn. New lieutenants and everybody that ever was in 
the Army or any of our services; woe be the person that thinks 
they know everything out of the Academies or everything out of 
the technical this or that.
    Get a good Chief Petty Officer for the Navy and a good 
Master Sergeant for the Army; now can they not do that and say, 
you know, go down the command bit, where you have got the 
problems, and assign a few people to that to say, straighten it 
up. Then I think it would be straightened up.
    Ms. Pack. Absolutely, sir, and let me just add, the 
supervisor cannot do anything about a problem of which he knows 
nothing. That is where the program coordinators come in. If you 
do not have somebody watching this to spot the problems, then 
no action will be taken.
    Mr. Horn. Yes.
    Ms. Schakowsky. Are you saying to us that we will be back 
here in 6 months or a year, if we do not get more personnel 
there? There is really virtually nothing you can do if there 
are not more people to straighten out these problems?
    Ms. Pack. No, I am not saying that, ma'am. What I am saying 
is, give me 6 months, and let us see what we can do about this. 
I am engaged on this, and we will work on this. I know at the 
outset, one of the problems we have is oversight, and we have 
got to solve that.
    So let me work on this, and let me come back to you in 6 
months and tell you what we have been able to accomplish. This 
is fixable.
    Ms. Schakowsky. Mr. Chairman, how many hearings over how 
many years have you had on this?
    Mr. Horn. On this one, alone?
    Ms. Schakowsky. Not just this one alone; on the problems at 
DOD? We hear the same thing.
    Mr. Ose. Mr. Chairman, if I might?
    Mr. Horn. Yes, the gentleman from California.
    Mr. Ose. Ms. Pack.
    Ms. Pack. Yes.
    Mr. Ose. With the problems that you have discovered in the 
payment systems that we are talking about here today, I mean, I 
think Mrs. Schakowsky raises an interesting question. How long 
have they been going on?
    Ms. Pack. I am sorry, I did not understand your question.
    Mr. Ose. How long have the payment or credit issue problems 
that you are dealing with been going on, that Mrs. Schakowsky 
has very eloquently brought up?
    Ms. Pack. With this program, I am aware of the program 
starting in 1998. There were immense problems in the first 
year, implementation problems, because the on-line system was 
not available. It did not work.
    So, once the bank got that program working, and we finally 
had the detail that we could look at, we had a back log to get 
through. So many of the specific problems that had been 
mentioned in early testimony, we were completely unaware of, 
because we had no way to see them.
    So what I would say to you is, the problem was that, and 
this goes to the culture, it gave the impression that no one 
was watching, and no one was. It gave the impression that no 
one cared. That is hard to negate, once you have established 
that.
    Mr. Ose. Was the program set up by virtue of a 
congressional mandate?
    Ms. Pack. I believe so; yes, sir.
    Mr. Ose. So somewhere in legislation, it was specified that 
this system will be implemented?
    Ms. Pack. What was specified was that an official travel 
card be used for all travel, and that all Federal employees use 
that.
    Mr. Ose. All right, as it relates to this particular branch 
of this particular system, what you are pointing out is that, 
frankly, whoever set it up really did not understand checks and 
balances, in terms of how it gets implemented. Is that what you 
are saying?
    Ms. Pack. I would say it was not ready for implementation. 
The systems were not there in the first year. So it took that 
long just to get them, so that we had the visibility of the 
accounts.
    Mr. Ose. And the system of checks and balances, I mean, I 
understand credits and debits and all that. It is not a very 
complicated thing. I mean, banks do it all the time.
    Ms. Pack. I agree. I agree.
    Mr. Ose. So is there some reason it has not been done, to 
date?
    Ms. Pack. Sir, I am not sure what you are asking me.
    Mr. Horn. I think what he is saying, if I might add to it, 
because we are all feeling that way, that you are a newcomer, 
and thank heavens they get newcomers, because that is what we 
need to turn some of these systems around; and I am sure you 
will be handling this as best you can.
    But the problem is that they have not really got it yet, 
and that is what gets us, I think. Every time they come in, 
they take the oath and all this, and we are saying, hey, what 
have you done? Mr. Hinton, we asked him, the last time, what 
are you going to do?
    I mean, the problem is, when people go in with the 
services, they run them around to facilities, and they have a 
lot of flags and all the rest of it, to keep you from doing the 
real work that you have got to do. Where do you get the people 
and at what point are supervisory going?
    We ought to change a lot of civilians in a lot of these 
major bureaucracies. Some of those people have very good 
skills, and they would know how to solve this. It is just that 
we get a feeling that, well, here they are again and, you know, 
let us just wear them out for a month or two.
    Well, we are not going to end this, I mean, this afternoon. 
We are going to see a few cases due for the fraud people; 
namely, the U.S. attorneys.
    Ms. Pack. Sir, I agree with you, and if I were in your 
shoes, I would be enormously frustrated. I cannot speak for the 
performance of my predecessors. I can speak for myself, and I 
am a person who understands the meaning of commitment.
    I am committed to fixing this. This is not going to lose my 
attention, when I walk out this door. I commit to staying on 
top of this, as long as I am serving in this position.
    Mr. Horn. Yes, the gentlewoman from Illinois?
    Ms. Schakowsky. I wanted to ask about training. The General 
was talking about young people sometimes, who do not have a lot 
of experience.
    And when I look at the Army delinquent and total 
outstanding travel card balances that are in the GAO report, 
you find that the single largest bulk is E-1 to E-3s and E-4 to 
E-6. We are talking about people who earn between $11,000 and 
$26,000. It is not all that surprising that at the end of the 
month, they do not have money to pay those.
    What are we doing to help train these young people. Often, 
they are 18 or 20-year-olds, who may not have had any 
experience or any credit, as was pointed out, in how to handle 
this? We all know, those of us who have kids that have gone to 
college understand the problem, you know.
    Ms. Pack. Right.
    Ms. Schakowsky. You give a kid a credit card and things 
happen. So we have to train them on how to responsively use 
those.
    When we are distributing them wholesale throughout a huge 
system like this, what are we doing?
    Ms. Pack. Well, you make very good points, ma'am. I mean, 
training is absolutely essential. The other thing is just mass 
distribution. Do not give the cards to people unless they truly 
need them. Then before you give them the cards, make sure they 
have the training.
    So one of the things I have requested from our field, is 
for them to send in all of the training materials they have 
come up with, so that we can compile these and come up with a 
standard training package that we make available on the 
Internet; and that we get back to the Commands and ask them to 
use in training these people.
    That is one point. We do not have one specific training 
package now. So that is one of the things I have already 
ordered. Let us call it all in from the field, just take the 
best of it, compile it, develop a standard package that will 
address this and address it effectively.
    Ms. Schakowsky. Also, Mr. Kutz said that we could set lower 
credit limits.
    Ms. Pack. Yes.
    Ms. Schakowsky. I think we could turn cards on, when an 
individual is on travel and off, at other times. I mean, it 
seems that there are lots of management tools that could be 
applied to this kind of situation.
    Ms. Pack. I agree with you. Those are great ideas. But keep 
in mind, that type of management is contemporaneous. That 
means, you have to have people dedicated to that job, who are 
dedicated to knowing when people are going on travel and when 
they are coming off, so that you are activating and 
inactivating correctly.
    If we do not have the people now, after the fact, looking 
at the transactions, after they have already been made, 
obviously, we do not have the people who can do that in 
advance, or be there contemporaneously.
    Ms. Schakowsky. I guess, I mean, credit limits are credit 
limits.
    Ms. Pack. That is true. That is true. Keep in mind also, 
there are two parties to this, and that is what complicates it, 
in the sense that the bank, itself, I do not think was prepared 
for the volume of transactions it was going to get on this.
    Hence, transactions have come through that should not have, 
because someone was over their credit limit. Transactions have 
come through from merchant codes that should not be allowed. 
Both parties on this have had to work together to get to where 
we are today.
    Ms. Schakowsky. Which is in a mess.
    Ms. Pack. Well, it is not what it needs to be, absolutely. 
But if you look at it from the standpoint that 92 percent of 
the cardholders are following the rules, we have come a long 
way.
    Ms. Schakowsky. Well, let me ask you this. What would the 
Army do, and what would it cost, if Congress canceled the 
travel card program?
    Ms. Pack. The Army would have to go back to doing travel 
advances, which would then raise our bill with the DFAS folks 
quite a bit. It would be $24 per transaction, I believe.
    So the savings, you would be throwing the baby out with the 
bath water. We would go back to a cumbersome system that 
required a lot of accounting support and would be expensive. We 
would be going backward if we did that.
    Ms. Schakowsky. I am a little concerned, though, that then 
we have a cost benefit ratio, that it is better to let all 
these abuses go on, because in the end, it is cheaper than, you 
know, taking away the travel cards.
    Ms. Pack. No, ma'am, we would not look at it that way. I 
mean, we want no abuses. It is an imperfect world. I am sure we 
will not ever get to 100 percent, but we can do a lot better 
than we are doing.
    Ms. Schakowsky. I hope so.
    Mr. Horn. Well, on that point, and you have obviously 
started on this, the General Services Administration has a 
number of training programs on line. Is the Army making use of 
those tools?
    Ms. Pack. I am not sure the awareness is what it should be. 
That is another thing that we are going to do, to make sure 
that people in the field are aware that is there and available 
to them.
    Of course, having it available is not necessarily the whole 
answer, either. These people need to have the time to do the 
training.
    Mr. Horn. Well, General Eres has, I think, some good 
suggestions on a change in the travel card's appearance and a 
kind of reduction, really, in that card, and the changing of 
it. What do you think of that? Have you had a discussion with 
either the Command you are in or with the Army, in itself, in 
the Pentagon? What is the best way to do it, General?
    General Eres. I do not want to go way out of my pay grade. 
I am just a poor country General from California. [Laughter.]
    The notion, from my standpoint, was looking at ``Private 
Snuffy'' in the foxhole out in the State of California.
    What sorts of things can we do to help change the culture, 
and particularly when we are dealing with that 18 year old that 
you are referring to, that will help at least alert the fact 
that if they pull that card out of their billfold, and it gives 
enough distinction to it, just maybe there is a little bit of a 
reminder that this is for official use only? I think, from that 
standpoint, that may be a first step.
    I do believe that we owe the solders in the system a better 
system of education and training. I think that in much of that, 
it befalls the chain of command to do that; those Master 
Sergeants that you are referring to; that particularly in a 
high risk group, that we do not just have a CD, or we have 
simply a canned briefing that they get once year.
    But there should be something a little more hands-on to 
that, that is going to help make them more responsible for a 
lifetime; not just simply the time that they are in the 
military.
    I think this is an opportunity, and I welcome the 
institutionalized education and training materials that might 
come to us. But I am also reminded that making the training 
available will not work if we do not have the execution of the 
actual training. That means, again, that Master Sergeant, one 
on one, with those youngsters, those young soldiers.
    Mr. Horn. Well, I would think, either at reveille or 
whatever, that it ought to be that finance does matter. 
Granted, they are there for fighting. Obviously, we do not want 
to disturb that.
    But we need to have some point of key enlisted or 
commissioned people on regiments and battalions and the 
company, right down to the platoon, that this is your chance. 
If you mess it up, you might lose your credit, in terms of the 
civilian area. We want you to be people that are good citizens, 
and you are going to have to do this, this, and this.
    If you say it enough, they ought to be well put, I would 
think, by a few people, out in the range and in the forts and 
in the camps, and so forth. But it has got to be right down 
there. I cannot be in the Pentagon, although they have sure 
abused it, also. But you need to do all of those things.
    Mr. Ryan, as a good investigator, tell me what would you 
do, if you were put over in the Army, and they said, look, 
clean this up?
    Mr. Ryan. That is a tall order, Mr. Chairman.
    First of all, I truly believe that if the Army Command, at 
Ms. Pack's and levels comparable to her, pay attention to this 
issue, I think the delinquency rates and the charge-offs can 
come way down.
    I think that will affect the Government going back in and 
renegotiating with Bank of America to lower some of these fees. 
We are paying a lot in regards to fees.
    I think also, by putting what I call the ``Cop on the 
Watch,'' the APC, getting someone in there at a grade level 
that is not going to take any guff from any of these people 
when they talk to them, and also using them as an educational 
tool, a teacher, they are going to be in contact with these 
soldiers. They are going to be the person who is going to push 
the buttons and talk to their commanders. I think that we can 
start at that level.
    I think also we need to make the security clearances 
directly tied in to the fact that these accounts and these 
soldiers are charging-off accounts.
    We have some soldiers that absolutely have committed crimes 
by writing bad checks. They have a pattern of writing bad 
checks. They have a pattern of boosting their own accounts.
    This all has to be taken into consideration. We need to 
start making people responsible, and we start, as the General 
says, getting away from the stovepipes and crossing the 
responsibilities.
    It all starts at the top. If you cannot get the people at 
the top to emphasize the importance of the issue, then we are 
at a loss, and we will be back here again in 6 months.
    From the perspective of an investigator, I think the most 
important tool that we can use is the ``Cop on the Beat,'' the 
APC, who can use the Eagle system to help monitor and find out 
exactly what is going on.
    In regards to the General's chartreuse color card, I think 
it is a good idea. People cannot use as an excuse, I pulled the 
wrong card out of my wallet.
    But on the other hand, there has to be some responsibility 
put on the merchants that accept it. We have deceptive 
transactions taking place between cardholders and the vendors 
of these adult entertainment facilities.
    We have, in my opinion, them making false statements to 
financial institutions. They are selling money, and they are 
disguising it under bar and restaurant charges.
    This is something that also has to be looked at. DOD does 
not necessarily have visibility over that, because as business 
goes on, these vendors are changing their names.
    We have institutions, Crazy Horse II, is doing business as 
the Power Co. It is hard to figure out what the Power Co. is. 
From an APC's perspective, if they are in the full-time, they 
are going to gather intelligence information in regards to 
doing their job.
    So again, the APC, I think, Mr. Chairman, to me, is the 
most important person to help with this problem.
    Mr. Horn. Any other advice?
    Mr. Kutz. I would say, on the issue that was discussed 
earlier with Congressman Ose, the issue of splitting of 
disbursements, that would be probably our No. 1 recommendation, 
to have the Department work with the Congress to mandate that; 
not only probably for DOD, but possibly Government-wide.
    You could potentially drive down all of the delinquency 
rates across the Government by mandating the splitting of 
disbursements. That is something that we have found is also 
used in the private sector by large corporations, which has 
kept their delinquency rates low.
    Mr. Horn. In my remaining months in Congress, I am 
committed to reviewing the implementation of this legislation, 
and see it moving through the subcommittee.
    The travel card and the purchase card program that we have 
talked about today were the result of legislation that I pushed 
through Congress. My intent was to reduce the transactional 
costs for the Government's performing basic functions.
    The abuses described today are very troubling. I am 
encouraged by the steps taken by Secretary Rumsfeld to address 
this issue, but more must be done, and it must be done more.
    Let me assure you that you will be back before us in the 
Fall, and I hope we want to hear better news, and make sure 
that it is just another game and we want action, in brief.
    So with that, we are going out of this particular one, into 
the 2 one this afternoon. It will be at 2, and we are thanking 
the people here that put all this together. So we will combine 
all of this, and we will now adjourn this. We will see you at 
2.
    [Recess.]
    Mr. Horn. The Subcommittee on Government Efficiency, 
Financial Management and Intergovernmental Relations will have 
this oversight hearing. It goes over from the morning and this 
is ``Government Purchase and Travel Card Programs at the 
Department of the Army.''
    We are glad to have the number of people that know what can 
be done and we hope this is the last time we have to ask the 
very bright officials to come here and still not have served 
the thing.
    A quorum being present, we will continue our examination of 
government credit card programs at the Department of Defense 
focusing on the Department of the Army's Purchase Card Program.
    Last year, I was joined by Ms. Schakowsky and Senator 
Grassley in requesting that the General Accounting Office 
examine the purchase card programs at two naval facilities in 
San Diego, California. At a subcommittee hearing held on July 
30, 2001, the General Accounting Office reported it found 
serious abuse and fraudulent use of these government guaranteed 
credit cards. Purchases were made for personal items, including 
clothing, luggage, designer briefcases and the taxpayers paid 
the bills.
    At the time, we did not know whether these abuses were 
unique to these two facilities or whether they were symbolic of 
a much broader problem. Now, the General Accounting Office has 
found similar examples of waste, fraud and abuse of credit 
cards at the Department of the Army, including extravagant 
purchases and items for personal use. Once again, no one is 
minding the store at the Department of Defense. I realize well 
that you have a major war going on and there are many things to 
do, but we also have people in finance over there and they 
ought to be doing the right thing and not just letting it sit 
there.
    I welcome this panel of witnesses and I want to know what 
is being done to ensure this appalling waste of taxpayers' 
money is stopped. We will probably have to swear in some 
because you weren't here. Let us have those who did not take 
the oath this morning.
    [Witnesses sworn.]
    Mr. Horn. The clerk will note that seven have affirmed and 
Senator Grassley, I am told, is here. We will start with 
Senator Grassley and then we will go to the panel.
    Senator Grassley. I had an opportunity to thank you for 
your leadership and I appreciate that very much, and the hard 
work you do in this area.
    At the last hearing, I shed some light on a particularly 
troublesome fraud case involving a current Army employee, Ms. 
Tanya Mays. I would like to revisit the case and give you some 
new information.
    The alleged fraud occurred while she was employed by the 
Navy Department in San Diego. She is now in charge of what they 
call cash integration in the Army's financial management 
organization in the Pentagon. Since our March meeting, her case 
has disappeared off the radar screen and by raising this 
troublesome matter in March, I had hoped someone in the 
Pentagon with some clout would hear me and do something about 
the case.
    Secretary Rumsfeld's Charge Card Task Force came to my 
office on May 16 to provide a briefing on the plans for 
cleaning up the credit card mess. The Task Force doesn't seem 
to care a hoot about Tanya Mays' case though. I hope this is 
not a bad omen. The Task Force brushed off questions I had 
about the Mays' case and when I asked about it, the Task Force 
provided kind of a candid response, something about the Navy 
got the money back, consequently problem solved. That response 
really bothers me, it just doesn't seem to cut it.
    Mr. Chairman, getting the money back is a red warning flag. 
It should also trigger a followup action like criminal 
investigation. The General Accounting Office's Office of 
Special Investigations examined Tanya Mays' case and here are 
the facts as we know them.
    Ms. Mays' purchase card allegedly went Christmas shopping 
in December 1999 and in a few short days ran up $12,000 of 
bills. It was used to buy seven gift certificates worth $7,500, 
a Compaq computer, an Amana range, groceries, gas, clothing. 
You name it, it seems like they got it, and all expensive stuff 
and all at taxpayers' expense. The Citibank statement for 
December 1999's shopping spree is dated January 21, 2000. All 
purchases were made over a 6-day period from December 20 
through December 26 for a grand total of $12,550.24.
    The Christmas shopping spree prompted the bank to suspend 
the account. Ms. Mays got the bad news when she attempted to 
use the card on December 27. When confronted with the 
suspicious transaction, she told the bank she lost the card. 
Two days later, she was issued a new one. In late January 2000, 
she presented the $12,550.24 bill to her Navy superior for 
approval. Her signature appears at the bottom of the statement. 
Her signature signifies that she accepted the charges as her 
own. According to the supervisor, she said she needed it 
approved in a big hurry because she had already been late in 
submitting it.
    If she questioned the charges, she was required to attach a 
dispute form to the January 2000 statement. No dispute form was 
attached, there were no complaints and no story about losing 
the card. The supervisor then rubber stamped it, approved, 
without reviewing it. Once she got the skids greased and the 
payment ball rolling, she claimed once again the charges were 
not her's. She said she kept the card in her office desk drawer 
and somebody took it for a few days. She told that story on 
January 31, 2000 but the bill got paid in full anyway.
    At this point, Citibank gave her a dispute form but for 
reasons yet to be explained, she waited 13 months until 
February 2001 to file a sworn affidavit disputing charges. By 
then the evidence trail was cold. When Ms. Mays left the Public 
Works Department in June 2000 for another Navy office in San 
Diego, she did not surrender her card. She was allowed to keep 
it and that was contrary to regulations. She abused it again. 
This time for a personal car rental on June 18, 2000 for 
$357.95. Public Works gladly paid this bill as well. Ms. Mays 
also used her official travel card in mid-1999 to buy three 
airline tickets for her son. They cost around $722. The grand 
total on Ms. Mays' government card was $13,630.19.
    Mr. Chairman, I ask unanimous consent to have these 
documents and statements of January 2000 printed in the record.
    Mr. Horn. Without objection, this will be in the record at 
this point.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T7139.081
    
    [GRAPHIC] [TIFF OMITTED] T7139.082
    
    [GRAPHIC] [TIFF OMITTED] T7139.083
    
    [GRAPHIC] [TIFF OMITTED] T7139.084
    
    Senator Grassley. The handwriting on Ms. Mays' purchase 
card receipt has been subjected to analysis by the U.S. Secret 
Service Forensic Division. These experts have concluded that 
someone other than Ms. Mays actually signed the receipts but 
all appeared to have been signed by the same person. The Amana 
range, for instance, was bought with a gift certificate made 
out to Ms. Mays' ex-boyfriend's mother. The boyfriend in 
question resided at Ms. Mays' address at the time the 
fraudulent purchases were made. Mr. Chairman, her ex-boyfriend 
has a long criminal record; he is considered a real pro at 
committing fraud.
    This new information seems to raise the possibility that 
the boyfriend used the card without Ms. Mays' knowledge or 
approval. Most of the experts who have investigated this case 
don't buy that theory. However, they believe that Ms. Mays did 
not make the purchases but that she knows who did. Ms. Mays 
needs to come clean; there are too many unanswered questions.
    If someone stole her credit card and used it between 
December 20 and December 26, 1999 as she claims, how did she 
happen to have it yet again on December 27 when she tried 
unsuccessfully to use it? Why didn't Ms. Mays examine her 
January 2000 bill before presenting it to her naval superior? 
Did she check it and reconcile charges with her receipts? Why 
did she sign the January 2000 statement signifying that the 
charges were her's? Why didn't she attach the required dispute 
form to her January 2000 statement? Why did it take her 14 
months to give a sworn affidavit disputing the charges? Why did 
she abuse her purchase card again in June 2000?
    When she handed the January 2000 statement to her 
supervisor, it seems to me that she had to know the score. 
These charges were incurred on her credit card account, they 
appeared on her statement. She endorsed that statement. She 
submitted it and she demanded immediate payment. She now needs 
to accept responsibility for the charges that appeared on her 
statement.
    It is true that the Navy eventually got the money back in 
April 2001. That is good news. The taxpayers' losses were 
recovered. Getting the money back is a powerful indictment at 
the same time. It seems that Citibank and/or the Navy came to 
the conclusion that the charges on Ms. Mays' account were 
fraudulent. Mr. Chairman, why can't Mr. Rumsfeld's task force 
see the handwriting on the wall? Why didn't the Navy Criminal 
Investigation Unit get on the stick and attack this case in 
January 2000? The Naval Criminal Investigative Service seems to 
have dropped the ball. That brings us back to Ms. Mays. Ms. 
Tanya Mays and/or her associates have the stolen goods. That 
means the bank gets left holding the bag. The bank gets busted 
and the criminals skate. That is not right.
    There are other signs that Ms. Mays was not acting in good 
faith. The $357.95 personal car rental charge she incurred was 
also reversed through a credit from Citibank. Again, the Navy 
got the money back, Ms. Mays agreed to repay the bank but she 
hadn't done that. Ms. Mays has just repaid Bank of America the 
money she owed for her son's airline tickets she initially paid 
the bank $343.21 on that bill but $378.79 was left unpaid for 3 
years until recently when we started cranking up the pressure. 
In February 2002 after being grilled by the General Accounting 
Office investigators, she finally paid off that balance. The 
account was closed and not reissued.
    Mr. Chairman, Ms. Mays' credit record is a trail of bad 
debt. It is scandalous, she should never have been issued a 
government credit card. She had a long history of personal 
credit card abuse. She had at least 12 accounts that went bad. 
Whoever gave her government credit cards, should have had their 
head examined, quite frankly. The bottom line again is lack of 
accountability.
    Based on the General Accounting Office's work so far, I 
would have to say the Army is tougher on credit card crime than 
the Navy. We found an Army female sergeant who was court 
martialed in April 2002 and sentenced to 18 months 
incarceration for $30,000 in fraudulent purposes. The Army 
Staff Sergeant who wrote 86 bad checks was court martialed and 
is now confined. The Navy is at the zero end of the scale. The 
Mays case is a combined Army-Navy case. To my knowledge, no 
disciplinary action has been taken against Ms. Tanya Mays. She 
seems to be working her way up the promotion ladder like 
nothing has ever happened. As I understand it, she was moved 
into a bigger job and given a promotion in October 2001, 21 
months after the alleged Christmas shopping spree. I am told 
the Navy helped put her on the fast track for the Army job. The 
Navy gave her glowing recommendations when she applied for her 
current position with the Army. That seems to be an old 
bureaucratic trick, sprinkle some perfume on tarnished goods 
and pass it on to the other service. This case obviously sets a 
terrible example. It symbolizes all that is wrong with the 
Department of Defense Credit Card Program. Ms. Mays must be 
held accountable for the purchases that appear on her 
government credit card. If someone else committed these alleged 
crimes, then she obviously needs to spill the beans.
    I want this matter investigated and I think by 
investigating it, the matter would be solved, at least based on 
what I know. Right now, the prospects for accountability look 
dim. No one wants to touch this case seemingly with a ten foot 
pole. The U.S. attorney has repeatedly declined to prosecute 
because the amount stolen is too small.
    Mr. Horn. Which U.S. attorney, San Diego or here?
    Senator Grassley. I will have to get that information and 
insert it in the record because I don't know.
    Mr. Horn. Does Mr. Kutz with the GAO team know? Mr. Ryan.
    Senator Grassley. We will have the information for you in 
the next panel.
    The Navy refuses to pursue the case because Ms. Mays is no 
longer employed by that department. Her current employer, the 
U.S. Army, refuses to take action because the alleged crimes 
were committed while she was employed by the Navy, and the 
Tanya Mays case seems to be falling through cracks.
    However, there are two new developments. First, I am told 
the Department of Defense IG opened an active investigation on 
June 3. Second, Ms. Mays holds a security clearance. As I 
explained this morning, a person's level of financial 
responsibility is a key factor in granting clearances. On June 
12, I asked the Assistant Secretary of the Navy to review her 
credit history and determine whether she has the requisite 
level of financial responsibility to hold a clearance. On July 
1, I was informed that her security clearance has been, in 
their words, informally suspended pending further review.
    If the Department of Defense is unable to resolve this 
matter in a way that is fair and just for Mays but also in the 
case of Citibank, then all the promises about credit card 
reform are nothing but empty promises. Accountability and 
reform go hand in hand. Without accountability, it doesn't seem 
to me that you can have reform. Tanya Mays is a good place to 
start, and that is where the rubber meets the road.
    I spent my time on just one case, but I think it is an 
example of a culture that if we focus more light on a few of 
these very egregious cases and get action on them, that 
consequently we will be able to continue on the positive 
approach that I expressed in my statement this morning.
    That is the end of my comments, Mr. Chairman.
    Mr. Horn. Thank you very much for digging into this. I was 
worried about that the last time and you have broadened out a 
lot more than we knew at that time. If we knew it, why can't 
the legal enforcement of the executive branch deal with these 
matters? Is someone up high protecting her or what? This is 
just idiocy.
    Senator Grassley. Obviously your question is a legitimate 
one and maybe time will prove we will get a positive response 
from the people concerned. In the meantime, I guess we just 
raised questions.
    Mr. Horn. So the Inspector General over there now has this 
case?
    Senator Grassley. Starting June 2 with some preliminary 
reports, July 1.
    Mr. Horn. Is that Army or Defense IG?
    Senator Grassley. I think it is the Department of Defense.
    Mr. Horn. We need to get into that.
    Senator Grassley. Thanks a lot, Mr. Chairman.
    Mr. Horn. Thank you. You have done a lot of work and it is 
well done.
    We will now move to Panel Two, Gregory Kutz, Director, 
Financial Management and Assurance, U.S. General Accounting 
Office; Special Agent John Ryan, Assistant Director, Office of 
Special Investigations, U.S. General Accounting Office; James 
T. Inman, Acting Deputy Assistant Secretary of the Army for 
Policy and Procurement; and Diedre A. Lee, Director, Defense 
Procurement, Office of the Under Secretary of Defense for 
Acquisition, Technology and Logistics, Department of Defense.
    Ms. Schakowsky. I would like to give my opening statement 
now.
    Mr. Horn. Fine.
    Ms. Schakowsky. Thank you for allowing me to give my 
opening statement at this point before we hear the witnesses. I 
appreciate once again your holding this hearing.
    As I said this morning, I am deeply disturbed by the record 
of financial mismanagement at the Department of Defense, and I 
am not encouraged by anything I have heard so far today. I look 
forward to Secretary Rumsfeld's response to the letter that 
Representative Waxman and I sent this morning asking how he was 
going to address the financial mismanagement problems at the 
Defense Department.
    The abuse of purchase cards, even more than the problems 
with travel cards, is simply bad management. There are too many 
cards. There is too little oversight. There is no 
accountability.
    This morning, we heard about a National Guard officer who 
defaulted on $5,400 of travel charges and then was promoted. At 
the last hearing, I made the comment that nothing happens to 
people who abuse the privileges they have and I was corrected 
by, oh, yes, something happens, they get promoted.
    Earlier this year, we were told about a Navy employee who 
purchased $800 worth of luggage supposedly to transport 
computer equipment and then left the luggage behind when he 
returned to San Diego. This afternoon, we will hear more 
examples of egregious behavior by Defense Department employees. 
Where and when will it end?
    The Purchase Card Program may have been a promising idea 
when it was devised, and I know it was devised in good faith, 
but the management at the Defense Department has turned it 
upside down. A program that was designed to save money has 
instead made it easier to abuse the purchasing system. A 
program that was designed to streamline bureaucracy has made it 
easier for an employee to buy personal items and on the Federal 
Government's tab.
    I am anxious to see the results of the study I requested 
from the GAO that compares the price paid on these purchase 
cards to the price of the same item on the GSA schedule. I have 
little doubt now what it will show. Any of these abuses could 
have been stopped if management was managing, and it was not.
    The abuses of financial management do not stop at credit 
cards. Last month we heard about DOD selling chemical 
protective suits on the Web for pennies on the dollar. Last 
year we heard there was over $1 trillion on the DOD books that 
could not be properly accounted for. Two years ago, GAO 
included financial management of the Defense Department on its 
high risk list and it will be there again next January. First 
it was $600 hammers and $3,000 toilet seats, and now it is 
escort services and plastic surgery. Leadership must come from 
the top and this pattern of abuse at the Defense Department 
must come to an end.
    At a time when the deficit is growing and the Government 
must meet the new challenges of terrorism, the Department of 
Defense must become a partner in improving Government 
accountability and not the poster child for fiscal 
irresponsibility.
    Thank you, Mr. Chairman.
    Mr. Horn. Thank you. You have hit a lot of the hot spots.
    Let us start now with Mr. Kutz. Do you want to give us a 
summary of the purchase card problem?

STATEMENTS OF GREGORY KUTZ, DIRECTOR, FINANCIAL MANAGEMENT AND 
   ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY 
SPECIAL AGENT JOHN RYAN, ASSISTANT DIRECTOR, OFFICE OF SPECIAL 
INVESTIGATIONS, U.S. GENERAL ACCOUNTING OFFICE; JAMES T. INMAN, 
 ACTING DEPUTY ASSISTANT SECRETARY OF THE ARMY FOR POLICY AND 
PROCUREMENT; AND DIEDRE A. LEE, DIRECTOR, DEFENSE PROCUREMENT, 
   OFFICE OF THE UNDER SECRETARY OF DEFENSE FOR ACQUISITION, 
        TECHNOLOGY AND LOGISTICS, DEPARTMENT OF DEFENSE

    Mr. Kutz. It is a pleasure to be here again this afternoon 
to discuss our audit of Army purchase cards. With me again this 
afternoon is Special Agent John Ryan from our Office of Special 
Investigations.
    I have in my hand a purchase card. It is also shown on the 
monitor. As you can see, similar to the travel card, this looks 
like a normal credit card. The card used by the U.S. Army is a 
U.S. Bank Visa card and can generally be used wherever Visa is 
accepted. However, notice this says ``For official U.S. 
Government purchases only.'' The Army has about 100,000 of 
these purchase cards and spent about $2.4 billion in fiscal 
year 2001. Unlike the travel card, purchase card charges are 
billed to the Government and paid directly by the Government.
    Today, I will discuss our third in a series of audits of 
purchase cards at the Department of Defense. I have testified 
twice before the subcommittee on purchase card usage at two 
Navy units in the San Diego area. Today, I will discuss Army 
purchase cards and in the next several months, we will be 
releasing reports on Air Force and Navy purchase cards.
    I want to thank the Army for their cooperation in the 
audit. As I mentioned this morning, the recent success of our 
forces in Afghanistan has shown once again that our military 
forces are second to none. Also, I want to make clear that our 
audit of the purchase card was looking at implementation, not 
design. Used and controlled appropriately, the purchase card 
can benefit the Federal Government.
    The bottom line of my testimony is that for fiscal year 
2001, we found significant breakdowns in purchase card 
controls. These breakdowns contributed to fraudulent, improper 
and abusive purchases and theft and misuse of government 
property. My testimony has three parts: first, the overall 
purchase card control environment; second, the effectiveness of 
key internal controls; and third, examples of fraudulent, 
improper and abusive charges.
    First, our work has shown that the lack of a strong 
internal control environment leads to the risk of improper 
behavior. We found that Army management has focused primarily 
on maximizing the use of purchase cards and paying the bills 
quickly. However, the Army has not provided for adequate 
infrastructure for management of the program. Specific 
weaknesses in the control environment related to operating 
procedures, management over the number of cardholders, spending 
limits, program coordinator oversight, and span of control for 
approving officials.
    One effect of the weak control environment was ineffective 
control over canceling accounts of departed cardholders. For 
example, Fort Hood had a substantial problem with termination 
of purchase cards. Data show that over 300 active cardholders 
at Fort Hood were no longer assigned to the units that issued 
their card. One of these purchase cards was used to make 
undetected fraudulent purchase at the Sunglass Hut and the 
Discovery Channel Store. These fraudulent purchases were not 
identified until we informed Fort Hood officials about them.
    Second, with Army's weak overall control environment, it is 
not surprising we found controls were ineffective at all five 
of the case study installations that we audited. The control 
activities we tested in aggregate are intended to provide 
reasonable assurance that purchases are for valid, authorized 
government needs.
    Based on statistical sampling, we found key internal 
controls failed from 25 to 87 percent of the time. In addition, 
the installations could not provide supporting invoices for 7 
to 26 percent of the transactions we tested. For example, for 
many of the fraud cases, the certification of the monthly bill 
by the approving official was nothing more than a rubber stamp. 
Further, the job of approving official is a collateral duty 
with insufficient time available for effective performance.
    Third, given the weak control environment, it is also not 
surprising that we found potentially fraudulent, improper and 
abusive purchase card transactions for 2001. Based on our 
limited testing, we identified or became aware of 13 fraud 
cases. Seven of the 13 cases were at two locations, Eisenhower 
Medical Center and Fort Benning. As shown on the poster board, 
three large fraud cases were at Eisenhower. Fraudulent 
purchases included computers, digital cameras, women's 
lingerie, jewelry, car repairs and clothing.
    As shown on the next poster board, four of the fraud cases 
were at Fort Benning. Fraudulent purchases there included DVD 
players, cruises, a trip to Las Vegas, and food. One cardholder 
made 178 criminal charges for $30,000 both before and after he 
retired. These charges were made over the period of 2 years and 
the approving official did not verify the purchases. Another 
cardholder, a Chapel fund manager, used the purchase card to 
pay for escort services in New Jersey. Funds used to pay for 
the purchase card bill for these services came from the Chapel 
offering. This individual was demoted and required to repay the 
funds.
    In addition to fraudulent purchases, we also identified a 
significant number of improper or abusive purchases. Examples, 
as shown on the poster board, include $16,000 of executive 
office furniture, including elegant desks, chairs and a 
conference table, leather bomber jackets from Sky Mall, 
wasteful and abusive cell phone usage at Fort Hood, a $500 Bose 
radio purchased by an individual to listen to music in his 
office, designer day planners costing up to $250 each, as the 
Senator mentioned this morning, 80 palm pilots for Pentagon 
officials, fine china and crystal from Royal Daulton and Lenox 
that was used for culinary arts competition, 30 sunglasses 
purchased from the Sun Glass Hut for the Golden Knights 
Parachute Team, and a damaged $2,250 tree to plant in 
celebration of Earth Day. For these purchases, we generally 
found no documented justification. Rather, Army often provided 
us with after the fact rationalization for the purchases. With 
100,000 Army purchase cards, there are many people making daily 
decisions about how to spend the Government's money. However, 
the abusive and wasteful purchases I just described raise 
questions that go far beyond the confines of the Purchase Card 
Program.
    In summary, our testimony shows some real consequences of 
ineffective financial management and internal controls. We 
support the use of a well controlled Purchase Card Program. 
However, as implemented by the Army, this program is highly 
vulnerable to fraud, waste and abuse. As reflected by our 
recommendations, we believe the keys to reforming Army's 
Purchase Card Program include well designed, Armywide operating 
procedures and controls, effective program coordinators and 
approving officials, reducing the number of purchase cards to 
the minimum number necessary, developing clear, detailed 
guidance in the appropriate usage of the purchase card, and 
establishing proper incentives, accountability and consequences 
for all personnel involved in the program.
    The Army has reacted in a positive manner to all of our 
recommendations. We plan to continue working constructively 
with the Army and the DOD Charge Card Task Force to implement 
these recommendations.
    Mr. Chairman, this concludes my testimony. Agent Ryan and I 
would be happy to answer your questions.
    Mr. Horn. Thank you very much.
    We will now move to James T. Inman, Acting Deputy Assistant 
Secretary of the Army for Policy and Procurement. To start 
with, Mr. Inman, how did they get you into this situation?
    Mr. Inman. I was drafted. Dr. Oscar left and he asked if I 
would be willing to sit in the hot seat and I said I would do 
whatever he wanted me to do. So I am here, sir.
    Mr. Horn. Army Policy and Procurement, this falls in that 
rubric then?
    Mr. Inman. Yes, sir. We are the established executive 
agency for the Army's program in the new Army Acquisition 
Contracting agency but I answer to Mr. Bolton and Mr. Bolton 
does not like unanswered questions, so that falls within my 
purview.
    Mr. Horn. Tell us what you know.
    Mr. Inman. I am Jim Inman, the Acting Deputy Assistant 
Secretary of the Army for Policy and Procurement.
    I have submitted testimony for the record and with your 
permission, I would like to summarize that testimony.
    Mr. Horn. Thank you.
    Mr. Inman. I feel strongly, first of all, about the 
Purchase Card Program. It is contributing significant savings 
to the Department and I firmly believe that we cannot go back 
to the old way of doing business. Before I continue, however, I 
want to thank the Government Accounting Office for the 
assistance they have rendered us in defining the scope of our 
program's shortcomings. I do know that we have shortcomings and 
I affirm to you that we are committed at the very highest 
levels of the Army to correcting our programmatic weaknesses to 
ensure the continuance of the public trust. That is critical to 
our existence as an organization.
    The Army experienced a rapid growth in the use of the 
purchase card between 1995 and 1999. At the same time, we were 
dramatically reducing the population of the acquisition 
community, the functional element responsible for the 
administration of the program. We are taking steps to respond 
to the GAO's findings that the Army has not devoted adequate 
manpower to the program. We recognize that these shortages have 
contributed to an overall weak internal control environment. 
This has made the Army program vulnerable to fraud, waste and 
abuse.
    Recently, the Department of Defense Charge Card Task Force 
identified several best practice workload matrices. On July 8, 
2002, our Vice Chief of Staff tasked the Army to ``comply with 
the recommended ratios and monitor the Purchase Card Program to 
eliminate the weaknesses noted in the GAO audit.'' He 
reiterated the need to develop and maintain a system of strong 
internal controls to ensure we are proper stewards of the 
taxpayers' dollars.
    The Army is also pursuing other measures to improve our 
effectiveness. We are completing a standard operating procedure 
[SOP] to standardize and tighten purchase card procedures. The 
SOP will address weaknesses identified by the GAO, as well as 
those uncovered by the Department of Defense Inspector General. 
These weaknesses include controls over the issuance and 
assessment of the ongoing need for cards; cancellation of cards 
when appropriate; span of control of the approving official and 
their respective cardholders; and appropriate cardholder 
spending limits.
    The Army Standard Operating Procedure will also include 
checklists as part of its oversight system for program 
coordinators to use in performance of program reviews as well 
as for the approving officials' reviews of their respective 
cardholders. In addition, we have requested that the bank 
assist us in developing standard data base queries that our 
program coordinators can use in reviewing transactions to 
evaluate our own program performance.
    In conclusion, I will tell you that the Purchase Card 
Program is critically important to the Army. We recognize that 
we need to make changes. We are aggressively correcting 
weaknesses and implementing across the board standard 
practices. We are determined, and I think I speak for Mr. White 
when I say this, to make this the most effective and efficient 
system possible.
    This concludes my testimony. I am prepared to respond to 
any questions you or members of the subcommittee may have.
    [The prepared statement of Mr. Inman follows:]

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    Mr. Horn. Thank you very much.
    We have to go into recess and we will be back. We will be 
in recess now and will be back at 2:55 p.m.
    [Recess.]
    Mr. Horn. Sorry it is so late but we had three votes that 
were very complicated. We won most of them.
    It is now 3:20 p.m., and we will pick up where we left off. 
Mr. Inman.
    Mr. Inman. I believe I concluded my remarks and said I 
would be glad to answer any questions.
    Mr. Horn. OK. Now we will go with Ms. Lee.
    Ms Lee. I appear before you today to discuss the Department 
of Defense's implementation of the governmentwide Purchase Card 
Program and corrective actions we are taking to correct the 
problems identified by our own internal reviews and the General 
Accounting Office.
    I would like to echo what Mr. Inman said about the 
importance of the purchase cards to the Department of Defense. 
We do use the cards to streamline process and we do save a good 
amount of money on administrative process. However, I would 
also like to echo what Mr. Inman and Mr. Kutz said. It is 
absolutely unacceptable that we have abuse or misuse of these 
cards and we have a lot of work to do to ensure that we rebuild 
your confidence and that of the taxpayer and make sure our 
people understand the obligations and the responsibilities we 
expect for them to deliver on.
    As you know, we established a task force in response to 
your request and the concerns of your subcommittee and the 
concerns of the GAO. I have a copy of that Task Force report 
and I know we previously furnished it to you. I would like to 
mention a few things in the report. The thing that particularly 
catches my attention and I think one of the most important for 
all of us to emphasize is that the recommendations note that 
the tone at the top or leadership is absolutely essential for a 
successful purchase card program.
    We have heard you loud and clear. We absolutely agree and 
we are aggressively pursuing to ensure that everyone knows the 
importance of the proper use of these cards.
    I am going to focus on three areas today that are contained 
in the Credit Card Task Force report. The first one is 
management emphasis and organizational culture. As I mention 
there, we need to focus on leadership. At the Department, we 
have made sure we have emphasized that. The Deputy Secretary 
signed a letter on the 21st of June to all the Service 
components and defense agencies explaining to them the 
importance of proper use of the card and requiring them to come 
back and tell him if they had any actions and corrective 
actions they were taking within their service. We will be 
acting promptly and vigorously on those issues.
    As well, I personally made some visits to some areas where 
we have had concern and I have talked with service acquisition 
executives, my boss, Mr. Wynn and we have even had some 
meetings in the purchasing areas to make sure everyone realizes 
the importance of that.
    Another key area that the Task Force emphasizes is the 
process. We have a concept of operations which is here. The 
concept actually goes into quite a bit of detail, including 
flowcharts on how to do everything through the program from set 
up and approval of purchase card officials, how to train them, 
what to do. It is true we haven't had that guidance as concise 
and clear in the past as we should have, so we are now working 
on that.
    In meeting with the GAO, we talked a little about do these 
things, if implemented properly, will they help with the 
answers. The answer is absolutely yes.
    Mr. Horn. What is the title of that document?
    Ms. Lee. This is called ``The Government Purchase Card 
Concept of Operations.'' We have it in draft and are going to 
finish it probably within the next month or so.
    Mr. Horn. That is the DOD version?
    Ms. Lee. Yes, sir.
    Mr. Horn. Not GSA?
    Ms. Lee. No, sir. This is the DOD version.
    Mr. Horn. We would like that put in the record at this 
point.
    Ms. Lee. Will do.
    The third thing I would like to mention beyond process is 
basically people. As you and I have discussed, this is all 
about paying attention. We need to make sure we have not only 
the right people but we have them appropriately trained and we 
have emphasized the right oversight for this program. Those are 
some areas we are also going to focus on.
    We have talked about internal controls and the issues that 
have been brought up here today. I do want to give a few 
examples. We are looking at making sure the approving official 
has a reasonable span of control. We said the maximum of 300 
cardholders but that could vary if you have people with a lot 
of charges. Perhaps the number should be less and we have a 
method for monitoring that.
    We also have a way we are going to use data mining. We used 
to call it mongoose but it actually is an electronic method 
where we go in and look at the purchases and certain things 
cause a blip, and then we further investigate. For example, 
certain purchases around a holiday might show us something we 
need to go further and investigate into that. We are working on 
that with the GAO and our own IG to make sure we aggressively 
pursue any questionable transactions.
    Last but not least, we are stressing to our folks not only 
the importance of the card but the remedies for misuse. We are 
processing an additional FAR case, a defense acquisition 
regulations case, which will go out for public comment but it 
very clearly delineates the Uniform Code of Military Justice 
could be applied for misuse and what the civilian remedies are 
for anyone who misuses their card.
    I agree wholeheartedly that we need to focus and make sure 
we are using these cards properly. They are a good tool. The 
majority of our people are great folks who are using the cards 
properly. We do have some misuse and we are going to 
aggressively pursue that and correct it.
    I would be happy to answer any questions you may have.
    [The prepared statement of Ms. Lee follows:]

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    Mr. Horn. Let us start.
    Ms. Schakowsky. This is our second hearing of the day on 
waste, fraud and abuse, travel cards this morning and purchase 
cards this afternoon. As I said this morning, I think the 
overall picture of financial mismanagement at the Department of 
Defense is really equal to the problems we are seeing at Enron, 
at World Com, etc. and worthy of equal attention because we are 
talking about billions of taxpayer dollars once you go through 
all these problems we have, and over $1 trillion that cannot be 
accounted for.
    I was happy, Ms. Lee, to hear you talk about culture, 
solving the problem comes from the top, but I want to tell you 
that I come here today even more skeptical than I have been in 
the past because if you look at the top of the Army, at the 
Secretary of the Army, you find the Secretary of the Army, 
Thomas White, is under FBI investigation for possible insider 
trading for sale of Enron stock, being one of Enron's top 
executives and Enron employees have said that he knew about 
accounting practices and inflated revenues.
    I think we are talking about culture and creating a culture 
of honesty where people aren't fast and loose, cooking the 
books, they feel that financial management is really important, 
that being a guardian of the money is really important. I think 
it ought to start with replacing the Secretary of the Army if 
we want to create a culture that really demands accountability 
and financial management that is appropriate.
    I think what the Department does in terms of its inability 
to pass an audit and therefore making it impossible for the 
whole Government to have a clean audit, should be laid at the 
feet of the people at the top. The people at the top right now 
are under a cloud and I think should not be there.
    I want to change tones here because I think there has been 
this task force, you do have the report, you have some plan for 
how to get there. When do you think you can come back and tell 
us about concrete improvements that have been made so that we 
don't have to come back here again in 6 months as we have over 
and over and find the same problems existing?
    Ms. Lee. I will be happy to come back at any time. We do 
have specific dates in our report by which things are due and 
are just working them off one by one, including additional 
direction and additional training. At any time, I would be 
happy to come and discuss any and all points in the report or 
any other issues that concern you.
    Ms. Schakowsky. When is the next date when you measure the 
success of your reform efforts?
    Ms. Lee. Probably the next really upon us date is the 
responses to the Deputy Secretary's letter, how the services 
responded and what corrective action and in turn, what do we 
need to do to make sure we accomplish that and support it. That 
is the next pending date which will be the end of this week or 
early next week we should see those results.
    Mr. Inman. Let me add I have seen Mr. White's draft 
response and I think it is pretty substantial.
    Ms. Schakowsky. Mr. Kutz, at the end of your testimony you 
listed some specific recommendations of things that could be 
done in terms of these credit cards. Would you tic through them 
once again, setting limits on the amount of credit, etc?
    Mr. Kutz. I had five bullets at the end which highlight 
some of the major recommendations we have made both to the Navy 
and the Army. One for the Army was to develop Armywide 
operating procedures, which they do not have, but which have 
been underway for quite some time. I believe that is one thing 
that is going to be done here. Reducing the number of cards, 
since we had our first Navy hearing, Navy has taken substantial 
action. They have gone from 58,000 cards to 26,000 cards, so 
they have made significant improvements in that area. I believe 
Army is working toward the same type of situation, although 
they still have 100,000 cards. I think probably Army needs to 
do a scrub of cardholders.
    Again, accountability, infrastructure and I think at the 
first two hearings we talked about some sort of guidelines that 
lay out what is or isn't an appropriate use of the purchase 
card with probably some specific examples of things that are 
prohibited because we have seen in the Army and the Navy some 
similarities in the types of things that are being purchased 
that shouldn't be.
    Ms. Schakowsky. Ms. Lee, do you feel all of those are 
adequately responded to in your plan?
    Ms. Lee. Yes, ma'am. We have addressed those issues, 
including special approvals and things in the back of the 
concept of operations and a list of things that are 
inappropriate. I would emphasize that anything that is not 
government official is a inappropriate purchase.
    Mr. Inman. I would like to add that in the Army's Standard 
Operating Procedure we have addressed all those issues, working 
with the GAO. I am very pleased with the help we have gotten 
from the Joint Program Office in helping us come to grips with 
trying to put out unified guidance on this. Just this week, we 
canceled 1,700 accounts. We put out guidance in February, 
followed up in March, twice in June. People didn't want to 
play, we said OK, game is over, goodbye.
    Mr. Horn. Is there a policy that when a person leaves the 
Government, the Military, the Department of Defense, whatever, 
they get their credit cards cut just as we do when we get a new 
one from some credit card company? What is the policy on that 
where you can say, you are leaving, so we want the card back?
    Mr. Inman. It has been a while since I have cleared post 
but when I used to clear post, I would get a sheet of places I 
had to go and things I had to do and the people I had to clear 
with would signoff or initial that. I would take that piece of 
paper to the final clearing place and the person would make 
sure there were initials in the correct blocks, nice to know 
you, goodbye. I expect that is still the process but there is 
nothing to prevent forged initials and signatures. That is one 
of the things.
    Mr. Horn. Say if you are on a base, that is usually where 
that happens, maybe it is with civilians, I don't know, but 
that is when you see they are going, you need to ask for the 
government credit card. Is there a place there? Do you have a 
government credit card? At that point, you say we want it.
    Mr. Inman. I am told there is APC clearance, the person in 
charge of the program at the installation has to be cleared so 
that everyone has to stop by there to make sure their credit 
card is turned in.
    Mr. Kutz. The place we found that was the biggest issue was 
at Fort Hood with respect to purchase cards. We found there 
were about 300 cards for people that had left that were still 
active. There was at least one, maybe two of those cases where 
we identified fraud. In my oral statement, I mentioned the Sun 
Glass Hut and the Discovery Channel Store. That was one of 
those examples.
    Since we have been at Fort Hood they have canceled those 
cards, but what they have done to change the policy and make 
sure it happens again, we are not sure. I believe there are 
policies to check out your card at these installations. It is a 
matter of if they are being enforced and if the APCs are 
actually involved in that policy to be notified that someone 
with a card is actually leaving. So there may be policies in 
place but either the policies need to be beefed up and/or there 
needs to be something done to ensure the policies are actually 
being followed.
    Mr. Horn. Did you see beyond the various military 
facilities and deal with some of the civilian part of the 
military?
    Mr. Kutz. Some of these were civilians at Fort Hood but it 
was primarily military. Again, it was something we saw in the 
Army Travel Program where there were people who had left or 
retired who had kept their travel card and were still using the 
card. Some of the chargeoffs for travel cards were people that 
had used a card after leaving the service.
    Mr. Horn. When a thief in this country sees a Master card, 
they simply use it over the phone and here is my number and so 
forth. Meanwhile, they are long gone with the goods or whatever 
or it is done by mail. What do you have as a thought as to how 
we deal with this?
    Mr. Kutz. With respect to canceling cards, I think they 
could also have a back-up policy. You can use the data to bump 
active cardholders against active employees. That would be a 
failsafe back-up policy they could have to make sure there 
aren't any people who have active credit cards that aren't on 
the current payroll. That would be something we probably would 
recommend they consider as a back-up policy.
    Mr. Horn. That would mean that they hadn't paid all their 
obligations and you could take it out of the payroll or what?
    Mr. Ryan. In the case you are talking about with these 
purchase cards, the Government is paying the bill. The 
cardholders are the agents of the Government. One of the things 
we have to consider is when they do leave, that the approving 
official can contact the issuing bank and have the card 
canceled. Therefore, it can't be used outside of their 
employment. That is kind of the best way to try to approach 
that from a backup standpoint.
    Mr. Kutz. What happens with the purchase card and the 
examples we found was the people who had left were gone, so 
they were no longer on the payroll, they were using the 
purchase card because nobody was reviewing the monthly bill, 
charges were going through and being paid for people who no 
longer worked at the Army. So once you are gone, there is 
nothing you can do to actually offset wages. It is too late at 
that point.
    Mr. Horn. That is also our problem with the IRS, I might 
add, on some of these questions.
    The GAO report contains an expansive list of 
recommendations. What are the most important actions the Army 
needs to take?
    Mr. Kutz. I believe reducing the number of cards to the 
minimum number necessary to complete the mission. I think Mr. 
Inman said they are working hard to reduce the number of cards. 
That is a critical element as is making sure the agency program 
coordinators and the approving officials are sufficiently 
trained. For example, the approving officials are given 
sufficient time and are rated on their job as approving 
official. Right now, those are collateral duties, they are not 
rated on that, it is not important and if they don't do it, 
there are no consequences.
    Mr. Horn. Obviously, Senator Grassley and I care about the 
problems of fraud, waste and abuse. If the Army effectively 
implements some of their recommendations, will fraud, waste and 
abuse be reduced?
    Mr. Kutz. It would be reduced but there is no way you can 
eliminate fraud. Wherever there is money, as Mr. Ryan has 
taught me, there is fraud. Certainly if you put a reasonable 
set of controls in place, which are the kinds of controls we 
talked about, advance approval, approving official review, and 
independent receipt and acceptance, if you have a group of 
those controls in place and they are consistently being 
followed, it is much more difficult for fraud to be committed. 
That doesn't prevent you from having fraud such as collusion or 
kickbacks with vendors which are some of the fraud cases we 
found here. Again, it makes it much more difficult for someone 
to actually perpetrate and get away with the fraud.
    Mr. Ryan. I would also like to add that the better job that 
we can do identifying the government agent, the individual who 
is holding the card, both financially, criminally and mentally, 
we can better identify the individual when we know what type of 
individual we are giving the card to. We found situations, as 
Senator Grassley mentioned, where an individual had poor 
credit. That is another example in which we have given this 
person, an agent of the government, the power to spend the 
taxpayers' money. We need to do a better job in identifying who 
those agents are going to be and we need to be doing the proper 
background checks. We are never going to eliminate fraud, but 
at least try to curtail it.
    Mr. Horn. The Department of Defense Comptroller is Dov 
Zakheim and he announced the establishment of a Charge Card 
Task Force to deal with the problems. They issued a report on 
June 27. Is that part of what you have Ms. Lee?
    Ms. Lee. That is the report right there.
    Mr. Horn. Let us get that. We want to see what happens 
between there and then. We will put this in the hearing record 
also and we will also look at it.
    [Note.--The report entitled, ``Department of Defense Charge 
Card Task Force Final Report,'' may be found in subcommittee 
files.]
    Mr. Horn. What are your views on the Task Force because the 
Army is taking it in the head now for what they had to say 
about the Purchase Card Program, I assume not just for the Army 
but for all the services, or was this focus strictly for the 
Army?
    Ms. Lee. No, this task force was DOD-wide, looking at 
appropriate use of the purchase card and the travel card. There 
are separate recommendations for travel card versus purchase 
card. I had a brief discussion with Mr. Kutz and asked him, 
what do you think about our recommendations. I will let him 
answer that.
    Mr. Kutz. For the purchase card, we thought the task force 
report was complete in describing the issue and in the types of 
recommendations and that the recommendations they had were 
consistent with the ones we had issued for the Navy reports and 
also for the Army.
    With respect to travel, we did find that the report had a 
lot more holes in it with respect to some of the issues we 
talked about this morning. For the Purchase Card Program, it 
appeared to be reasonably complete with respect to the types of 
issues we had seen in those two. We haven't completed our work 
Navy-wide or Air Force-wide to know if our recommendations are 
complete but assuming what we found so far, they would address 
those if implemented as Ms. Lee said across the Department of 
Defense.
    Mr. Horn. Would this be simply the tip of the iceberg or do 
we see something under the water?
    Mr. Kutz. With respect to fraud, we found that the 
Department does not know how much there is out there with 
respect to purchase card. They do not have a system that tracks 
the kinds of cases. The 13 cases we either identified or became 
aware of, if you wanted to roll that up for the Army, you 
couldn't because there isn't a data base, so they don't know 
what they know. They also don't know what they don't know 
because there is a lot of fraud out there that does not get 
identified, especially with the kind of control environment we 
have identified and talked about this morning and this 
afternoon.
    So we don't know whether it is the tip of the iceberg 
necessarily but what we do know is that the Department needs to 
start keeping track of these fraud cases and learning from 
them, knowing where they are and trying to identify the types 
of things that are happening so they can try to prevent them 
from happening in the future.
    MR. HOGAN: For example, apparently, Mr. Kutz, on 
questionable purchases you mentioned, there was a damaged tree 
plant on Earth Day. The Army paid $2,250 for the tree. I don't 
know if that is good or bad. I happen to like trees. Maybe 
whoever the officer was liked trees too. What do you conclude 
from all that?
    Mr. Kutz. We concluded that was an abusive purchase, not 
only because they didn't need to buy a $2,200 tree to plant in 
the middle of a courtyard with a bunch of other trees but as it 
turned out, this tree was damaged. It had 50 holes, it was 
leaking sap, there appeared that woodpeckers had been at the 
tree basically. By the time they actually tried to return it to 
the vendor, the vendor said it is too late, it is your tree. So 
the Government was stuck with a $2,250 damaged tree.
    Mr. Horn. Was that a nursery?
    Mr. Kutz. Yes, it was a nursery they bought it from.
    Mr. Horn. Can we just say, folks, that will be the last 
thing we buy from you if you don't take this back?
    Mr. Kutz. Hopefully, that is what happened. What we do know 
is they did plant another tree for Earth Day this year and they 
spent $500 this year, so they didn't need a $2,250 tree.
    Mr. Horn. Mr. Ryan, the GAO's report includes dollar 
amounts of some fraud cases. Is that the total amount of money 
involved in these cases of fraudulent purchases? How much have 
we got in some chart?
    Mr. Ryan. We have no idea. I don't think DOD has any idea. 
In regards to keeping track of the number of fraud cases both 
for purchase and travel, there doesn't seem to be a system in 
which you can push a button and get data back. We asked, in 
some cases they did worse searches. They ran credit card, 
travel card, purchase card, impact card and then they combined 
that information and said, this might be what we have. We can't 
tell you they are fraud cases but this is the result of our 
inquiry.
    As a criminal investigator and a supervisor in my former 
Secret Service life, we were able to identify the number of 
cases by assigning a specific administrative number to a type 
of case. So when we needed data to determine what the trends 
were, where we need to put our resources, and I might also add 
the amount of training that is needed for investigators. We 
talk about a lot of training for people that handle the system, 
but what about the people responsible for doing the 
investigations? All this data needs to be gathered and needs to 
be at someone's fingertips.
    It also maybe should be considered that when we are 
awarding these contracts to these banks, we put a condition in 
there that the banks have to train our investigators, give them 
the latest investigative information, the tactics, make it a 
responsibility of the financial institutions that we contract 
with to provide training to the investigators, to bring in the 
best investigators we can to work on financial crimes.
    Mr. Horn. Mr. Ryan, do vendors contribute to the defrauding 
of the Army purchase card program, and if so, please explain 
and give us some examples?
    Mr. Ryan. When looking at vendor fraud, I think it is 
important to recognize that we have learned the cardholders are 
turning over their account numbers to the vendors. The vendors 
have a data base of our government purchase card numbers. As a 
direct result, a vendor can then submit the purchase card 
number to the merchant bank for the transaction that maybe was 
done correctly and then they could just keep adding transaction 
after transaction. So it is a vehicle for them to get money.
    If we have cardholders and approving officials that are 
asleep at the switch, and have no idea what they are approving 
or what they are not approving, yes, the vendor is going to 
make money on submitted transactions. That is the way vendor 
fraud can work.
    Mr. Horn. Does the DOD have the resources it needs to 
identify and investigate financial crimes involved in these 
credit card programs, or can you move around people to solve 
the problem, at least so you can build a decent culture there? 
Where do you get the personnel to do this because somebody will 
whine about that and say, ``we can't do that, we have this 
great burden.'' For heavens sake, right down at the field, they 
ought to have somebody. They ought to make that in the office's 
analysis when they get a chance to go from a lieutenant to 
captain, captain to major and so on, and when you have civil 
servants and they go for the senior class and so forth, it 
seems to me like the people above them, they ought to have 
something in the file to say that person didn't have one idea 
in America on this thing, they just don't seem to care.
    Mr. Ryan. I can talk about it from an investigator's point 
of view. I think the investigators in the military services are 
good, hardworking investigators. Fraud investigations sometimes 
turn out to be a complicated issue because of the mechanics of 
a credit card transaction or a bank transaction. I would like 
to emphasize again the importance of providing enough training 
to the investigators to make them the best they can be. We can 
use them to learn when they do an investigation, they can bring 
back what the systemic problem was within that so we can pass 
that on to the appropriate management people so if adjustments 
need to be made, they can be made.
    Investigators can provide a lot of information if they are 
taught correctly how to do the investigations. I would like to 
emphasize again that if we could tie it into a contract where 
the banks have to provide some training to our investigators, I 
think it will be a benefit for the military services to use the 
resources of those investigators.
    Mr. Horn. I now yield to Ms. Schakowsky.
    Ms. Schakowsky. Ms. Lee, at our March hearing, we learned 
from the GAO--I believe you were here and corroborated this--
that the Navy had a policy of not putting on its inventory 
items that were easily pilfered. We just don't list those in 
our inventory. I am wondering, that was March, this is July, 
what the Defense Department has done now to change that policy?
    Ms. Lee. The concept of operations talks about the 
importance of having recordable property. There is also some 
dual receipt matching and guidance on how to do that. The Navy 
specifically suspended almost all their cards where they had a 
very small amount and they have had a very aggressive 
reinstatement program with letters from the Admiral telling 
people who are reinstated and are quite aggressively trying to 
correct some of those issues but we are focusing on it DOD-wide 
as well.
    Ms. Schakowsky. So you have changed your policy on that?
    Ms. Lee. The policy was always that sensitive property 
should be recorded and tracked. For some reason or other, some 
of the items, the Navy was not doing that, so we have 
reemphasized that requirement.
    Ms. Schakowsky. You have reemphasized it but do you know 
now that it is being done? Let me ask the GAO if you know if 
there has been a change now?
    Mr. Kutz. In the Army, four of the five installations we 
audited had difficulty finding property. For Army, I think the 
policy generally was to record pilferable property in the 
records. In some cases, the issue becomes what is pilferable 
property, so they would tend to err on the side of not 
recording it rather than recording it.
    With the Navy units in San Diego, they interpreted guidance 
from the Navy to mean they did not have to put it on the 
records. Whether that issue has been cleared up, I don't know, 
but they had interpreted the guidance they were getting from 
the Navy to mean they did not have to account for any 
pilferable property.
    Ms. Schakowsky. Which is different from what you just said, 
that it was always the rule. They interpreted the rule to mean 
they didn't have to so that is the way they were executing.
    Ms. Lee. The Navy interpreted the rule differently. We have 
clarified to them that their interpretation is not correct.
    Ms. Schakowsky. I wanted to ask about training. In the 
earlier hearing, we were dealing with people who use travel 
cards who are often young people who have no credit history, no 
experience in using credit cards. Here, we are dealing with 
individuals, all of whom have been assigned actually to make 
purchases; but is there some kind of built in retraining 
program so that these people understand, not just for the 
people supervising them, but for the people who have the cards 
in their hands? Is there some kind of staff training going on?
    Ms. Lee. Yes, we are putting in place right now a new 
electronic training process which will be housed in Defense 
Acquisition University, will be required for people to take it 
before they are allowed to have a card and to have refresher 
training. It includes basics about how to use your card. It 
also includes some specific instruction from the government 
because as you know, for example, before you purchase, if it is 
a certain item, it should be purchased from JWOD or Javitz 
Wagner O'Day or blinded, handicapped people, or certain 
products have certain requirements. Certain hazardous 
materials, you have to have a special approval before you can 
purchase it even if it is available on the purchase card. So we 
train people in all those processes as well as what they can 
buy and how it has to be approved, how they have to reconcile 
their statements, what their limitations of time are and what 
happens if you don't do what you are supposed to do.
    Ms. Schakowsky. I want to get to that. I think the two 
things that the American people would care about are 
restitution, the people pay back the money they have stolen 
from the taxpayers and punishment, and that there actually is 
some consequence to having done that. If you could address 
that? With Tanya Mays, it is still unclear that we actually got 
the money back that she probably stole, so I want to know about 
restitution and punishment.
    Ms. Lee. Mr. Inman has a list here. We do have examples 
where people have been prosecuted, they have made restitution, 
they are serving jail time.
    Ms. Schakowsky. We also have examples of people who have 
been promoted, so it is not just a matter of examples, it is 
policies and the norm now.
    Ms. Lee. The policy is to take the appropriate action and 
to recover the money for the taxpayer. We do give people due 
process, so we do give them an opportunity to respond but yes, 
we are taking corrective action.
    Ms. Schakowsky. If 6 months from now this purchase card 
problem is not resolved, will you be held accountable?
    Ms. Lee. Yes, ma'am.
    Ms. Schakowsky. What does that mean?
    Ms. Lee. Obviously I will be explaining to you, as well as 
my bosses, what the issues were, what we need to continue to 
do, and what I have done to make that improvement. I 
unfortunately do not think we can totally eliminate it. We need 
to make sure when we discover a misuse of the card, that we 
take prompt and meaningful action.
    Ms. Schakowsky. Let me ask another question. Mr. Ryan was 
just asked a question to quantify the problem, he said, I don't 
know. Maybe you can answer Mr. Inman. I don't think DOD knows, 
I don't think the Army knows. Who knows? Are we going to have 
the data so that we know, so these questions can be answered in 
a meaningful way to anyone?
    Ms. Lee. Yes. We have gone to our Inspector General for the 
Department of Defense who is the focal point for all DOD audits 
and asked them to assume the oversight, an additional oversight 
of the Purchase Card Program. They are making sure all the 
audits conducted by the IG, whether the Army IG, the Air Force 
IG, the Navy IG, that they have a broad oversight from that 
standpoint. I did go back to them and say, what is our 
accounting method, how do we record them and report back.
    Ms. Schakowsky. It sounded like Mr. Kutz said this is kind 
of a no-brainer, that these are coded in a special way so that 
you can actually retrieve them from a data base in some orderly 
fashion. I don't think you have to be a management mavin to 
imagine that would be a smart idea. Is that kind of thing 
happening?
    Ms. Lee. I am not familiar with the IG's accounting system 
and I will certainly get an answer for you on that.
    Ms. Schakowsky. Mr. Ryan.
    Mr. Ryan. I think it is important to recognize the 
difference between the audit responsibilities and investigative 
responsibilities. We are looking to identify systemic problems 
to help curtail the purchase card fraud. We are going to do 
that by learning from our investigations. We found there is no 
centralized data base to record the number of investigations 
that the DOD IG is doing in the area of purchase card fraud.
    My suggestion is, like a lot of other Federal agencies, 
they should have a data base that when an office in California, 
New Orleans or whatever opens a credit card case, there is a 
central data base that says, in New Orleans we have 14 credit 
card cases open. Right now, unless you specifically go to the 
people in that office, management can't really tell. It is a 
great tool to be able to see where you have your problems and 
maybe you can use your investigative cases in conjunction with 
trying to do audits in those particular areas. I have talked to 
some of the IG people and I believe they are headed in that 
direction. They just need a central data base to record their 
investigations.
    Ms. Schakowsky. The need for clear and comprehensive 
guidance for purchase card operations through DOD, you said 
there needed to be some standards concerning what could be 
purchased, what was right and you identified that as an 
essential element of the reform efforts.
    My understanding was DOD itself is reluctant to take direct 
action to establish those guidelines but rather rely on the 
individual services to establish those guidelines and the 
components of those. Is that not the responsibility of DOD?
    Ms. Lee. It is a shared responsibility. We set the general 
parameters and the services have the implementation. As well, I 
also do the Defense Acquisition Regulation which is a 
departmentwide regulation which tells people the parameters 
under which the program operates. They do have some flexibility 
in their implementation in that the Department of Defense 
doesn't appoint the cardholders, that flows down through the 
individual organizations because we feel they are best equipped 
to identify the people who need to do it for their job and are 
qualified. We set the general policy and then the services 
implement.
    Ms. Schakowsky. We have talked about vendor fraud, which we 
haven't really had a hearing about. Is there anything about 
getting a rein on these purchase cards? Have you dealt at all 
with vendor fraud at DOD and where are we with that?
    Ms. Lee. If properly implemented, if people are paying 
attention--if a vendor did have your card, if you pick up the 
phone and make a transaction, they have your number. In any of 
those cases, a vendor could choose to misuse your card, my 
personal card, my government card.
    Ms. Schakowsky. But much more likely is a situation where 
they think that money is going to get paid without scrutiny.
    Ms. Lee. Correct. If we are not paying attention, it 
certainly can happen. If you are paying attention and you have 
used your card for one tree and all of a sudden you get billed 
for ten and you know you didn't get 10 trees, the system works 
and people would dispute it and we would go back. So paying 
attention will help us, will make the difference.
    Ms. Schakowsky. It seems to me vendor fraud could really 
mount to a lot of money. Where are we in understanding the 
extent of this?
    Mr. Kutz. With respect to the biggest fraud case in our 
report, the $100,000 case at Eisenhower, there was vendor fraud 
involved in there. There were kickbacks and there was a 
combination of collusion between the cardholder, approving 
official and some vendors, so there were a number of parties 
involved in that. Again, $100,000 is what they know about. When 
we first looked at the case and picked some of the cardholders 
from that in our samples, it was $20,000, so it grew to 
$100,000. It is still ongoing at this point, so it could be 
larger than that. That was an example where there was vendor 
fraud involved.
    Ms. Schakowsky. One vendor, right?
    Mr. Kutz. One vendor, I believe. There were other smaller 
instances of single purchases where there were charges with no 
support. The Army went back to the vendor who said, oops, we 
really didn't give you anything. Whether it was fraud or not, 
or an unintentional billing, we don't know, but there were 
several cases like that of transactions we selected for say 
$500 or something like that where there was no support, the 
Army had paid the bill, and when they went back to the vendor 
they got their money back.
    Ms. Schakowsky. I have a real bad feeling we are talking 
about large amounts of money when you think of all the vendors 
that are involved in this. Have we asked for a systematic look 
at vendor fraud overall?
    Mr. Kutz. Not as a separate study. We are looking at it on 
the Air Force and the Navy-wide audits but that is something 
that could be looked at with a sharper focus solely on that if 
that is something you would be interested in. We are looking at 
that as part of a broader study of those two but we haven't 
focused just on that.
    Ms. Schakowsky. Let me end with this. I am tired of the 
product always being just a report. Reports fill up shelves, 
etc. I am not saying this report won't turn into action, but if 
it doesn't, it is not worth the paper it is printed on. I think 
it is real important this not be put on a shelf somewhere and 
viewed as, yes, we are doing something, and I can show you on 
page 42 that we are really doing it. No. We have to come back 
with some evidence that this kind of financial mismanagement is 
under control. I look forward to that hearing.
    Mr. Horn. The Defense Department keeps saying the cases of 
purchase card fraud are isolated. However, the General 
Accounting Office found 13 cases in the Army with only limited 
testing. The GAO also reported the Army does not know the 
number of fraud cases under investigation. Of course nobody 
knows how much unidentified fraud there is.
    Given all this, how can the Department of Defense continue 
to maintain there is not much fraud in the program?
    Ms. Lee. Those numbers are troubling and those instances 
are troubling but we have also spent over $6 billion this past 
year and had 10 million transactions. I realize it is a limited 
sample but it is a sample that identified 13. We have good 
people in the Department, the majority use the cards properly. 
We do have some who either through intention or not who have 
misused the card. We need to go after those aggressively but I 
do recognize we have a lot of good people who use the cards 
properly and have confidence they will continue to do so.
    Mr. Horn. Mr. Inman, based on the GAO report, immediate 
actions are needed to improve control over the Army's Purchase 
Card Program. What in your view are the most important actions 
that need to be taken to improve the program?
    Mr. Inman. We have taken some actions. The Vice Chief of 
Staff of the Army has sent a memorandum to the Army saying do 
this, do it right now, or else. We are looking to respond very 
quickly over Mr. White's signature. The Army's Standard 
Operating Procedure is due to be signed off by the end of this 
month, I am told, which will pull guidance that is admittedly 
in diverse locations into one location to address each and 
every one of the GAO recommendations.
    The things we are really focusing on are controls over the 
issuance and assessment of the ongoing need for cards or 
cancellations of cards where appropriate. I would like to 
reiterate this week alone, we canceled 1,700 accounts because 
they were not in compliance with our guidance. I don't know 
what the total is to date but it is a lot because I know the 
program manager and he doesn't take many prisoners. He is very 
serious about his job.
    The span of control of the approving official and the 
respective cardholders--we want our billing officials to manage 
not more than seven cardholders and our APCs to have 
responsibility for not more than 300 cardholders. The Vice 
Chief of Staff put out in his memorandum that he wants the 
agency program coordinators to be General Schedule 11 graded 
personnel, the equivalent of a captain in the Army, the 
position requiring in-depth skills in financial and contacting 
policy and procedures with strong verbal communication 
capability.
    We are also looking at policies directing Army activities 
to ensure adequate resources by number and grade are committed 
to make this program work the way you intended for it to work 
when you passed the legislation.
    Mr. Horn. Could you tell me who that individual is that 
takes no prisoners in this thing?
    Mr. Inman. My very dear friend, Mr. Bruce Sullivan. He is 
sitting behind me. He is a first round draft choice on 
anybody's team.
    Mr. Horn. Is he a senior member in the civil service?
    Mr. Inman. Unfortunately not, sir. We are going to lose him 
very quickly, I am also sad to say.
    Mr. Horn. If he is the solution to getting a solution, I 
would hope the powers that be over there give him a decent 
place to work and let him go. Mr. Sullivan, we would like to 
make sure you really are going to go after these people. Mr. 
Ryan is a good companion in this regard. He knows all the 
different things they can do.
    The Army has taken exception to the General Accounting 
Office recommendations that two control activities, advance 
approval and independent receiving and acceptance, should be 
included in the Army's Standard Appropriating Procedures 
governing the Purchase Card Program. Would you explain why the 
Army is taking that position? Is this out of the Vice Chief?
    Mr. Inman. No, that was our response to the GAO audit. We 
felt for the majority of purchases, it was not necessary to 
have advance approval if we had properly trained and motivated 
personnel. I operate from very wide point of view. Obviously I 
get caught up short from time to time but I tend to trust my 
employees to do those things which I ask them to do. So I do 
not think it is necessary to have advance approval in most 
cases. If there is any question, either don't do it or ask 
permission.
    The second thing was?
    Mr. Horn. The Army takes exception to the GAO's 
recommendation that two control activities, advance approval 
and independent receiving and acceptance, should be included in 
the Army's Standard Operating Procedures governing the Purchase 
Card Program. Mr. Kutz, was that a response to the GAO audit?
    Mr. Kutz. As I recall, we had a lot of recommendations and 
they did agree with everything except in some respects those. I 
would agree with respect to advance approval. We would not 
expect it for every type of purchase. I don't know if I would 
say most shouldn't have necessarily, but certainly routine 
purchases within the normal scope of someone's operating 
responsibility don't necessarily need to have advance approval.
    We are looking at some of the questionable type items we 
are talking about at the hearing today, that those should have 
advance approval. I guess we thought in a lot of instances that 
those with advance approval got bought anyway but there were a 
lot that didn't have advance approval or documented 
justification as to why they were buying them. I would agree to 
some extent with the comment on that one.
    Mr. Horn. Mr. Inman, in your civilian authority, when you 
are dealing with both senior military leaders and civilian 
managers in eliminating fraud, waste and abuse, what are the 
items that have been done and what the ones you want to do?
    Mr. Inman. One of the things we want to do is unify the 
guidance for the Purchase Card Program within the Department of 
the Army. That is being done and will be signed out under the 
Standard Operating Procedure this month I am told.
    Mr. Horn. That goes through the Vice Chief of Staff?
    Mr. Inman. That will be signed out by the Director of the 
U.S. Army Contracting Agency who is executive agent for the 
program with the Army. I guarantee you that General Keane will 
know about this. I got a call at noon. There was an article in 
the Early Bird that talked about--there was an early release on 
our hearing, he hadn't heard about it and he was interested so 
I had an opportunity to explain.
    Mr. Horn. I haven't seen it either.
    Mr. Inman. He is interested. I can assure you that General 
Shinseki is interested; my boss, Mr. Bolton, is quite 
interested, as is my Military Deputy, General Caldwell. We will 
put the guidance out, we know we have to come to grips with the 
idea that intent doesn't bring home the bacon. We are going to 
have to do more than ``intend to do well,'' we are going to 
have to do well and we have to prove ourselves to you because 
we owe that.
    Our focus is the 20 year old kid who is turning over rocks 
killing bad guys, that is our focus. We don't want anything to 
detract from what it is you ask us to do on behalf of the 
Republic. We will do everything we can to get the focus off the 
things we have not done properly to get it back on the kids 
doing the job for the country.
    Mr. Horn. Let us see what happens over the next 2 months. 
Do you think all this can be done in 2 months, 1 month, what, 
getting all this moving?
    Mr. Inman. If I get the Standard Operating Procedure signed 
off this month, I would think we should have some good 
information. Mr. Sullivan advised me part of what we have to do 
is realign the resources and he would think we should show some 
measurable results within 3 months from the time the Standard 
Operating Procedure is signed off.
    Mr. Horn. Around the Christmas season.
    Mr. Inman. Or shortly thereafter when things are settled 
down.
    Mr. Horn. I just wonder if they will use their cards more 
likely in December.
    Mr. Inman. I think you sent us a very clear message and we 
will be watching those very closely.
    Mr. Horn. Ms. Lee, could you explain your office's purchase 
of palm pilots mentioned in the GAO's report?
    Ms. Lee. That was covered in the earlier hearing. That was 
the Office of Acquisition and Technology and Logistics and the 
e-mail I saw and the little I know about it, I would need to 
get you more information for the record. It appears there was a 
purchase made to support the office. I am not familiar with the 
specifics and I would be happy to get that information for you.
    Mr. Horn. As I remember, either you or somebody in your 
office said, gee, those are goodies, we are going to have them 
all out. How do you know they need to have the goodies?
    Ms. Lee. I did see a copy of the e-mail, somebody provided 
it to me. I think that was misstated. I am not listed on the e-
mail, nor did I participate in the purchase.
    Mr. Horn. That is why I don't have e-mail. After going 
through the White House under Mr. Clinton and seeing the 
silliest things I have ever seen in my life in their e-mails, I 
decided I don't need that. If you want to see me, bring a 
candle.
    Ms. Schakowsky. Let me followup on the palm pilot. You did 
read the GAO report, right?
    Ms. Lee. Yes, I did.
    Ms. Schakowsky. And it is in there?
    Ms. Lee. Yes.
    Ms. Schakowsky. So you knew about the palm pilot? I am 
confused as to why you can't respond to that since it was in 
the GAO report.
    Ms. Lee. There is a line in the report that says these are 
some of the findings that we found and we are looking into 
those but I don't have the specifics on that at this moment.
    Ms. Schakowsky. Let me reiterate that it is time for us to 
have a totally different set of hearings, ones where we come in 
with real progress reports, real changes where we can measure 
from what was to show what is and there has been measurable 
progress. If 3 months is what it takes, then I think we should 
reconvene in 3 months and show the American people we are 
serious about good financial management at the Department of 
Defense and within our government.
    Mr. Horn. We used to do that under the Y2K thing. Does OMB 
know about all these things going on and do they worry about it 
or have they ever said anything about it?
    Ms. Lee. Yes. OMB is very concerned. They have tasked us 
all governmentwide to look at our purchase card programs and to 
give them a plan. We all submitted plans for improvement to the 
Office of Management and Budget.
    Mr. Horn. How about GAO, Mr. Kutz, anybody talk to GSA 
because that was most of it originally I believe, for the 
Government generally.
    Mr. Kutz. Are you asking if we have talked to GSA?
    Mr. Horn. Yes.
    Mr. Kutz. We talked to GSA as part of understanding what 
the guidances they have issued are. We have not spoken to OMB 
about anything, they have not contacted us but I know they have 
read our reports and I believe OMB was at a hearing one of my 
counterparts, Linda Calbom, back in May about purchase cards. I 
know an OMB representative was there expressing concern for the 
administration with the problems identified in the purchase 
card program.
    Mr. Horn. It is a good idea because I would think it has 
spread a bit around the civilian part and we haven't looked at 
that.
    Mr. Kutz. Yes, there are problems beyond the Department of 
Defense with the usage of purchase cards other agencies. That 
is why OMB has gotten involved, they are now seeing this as a 
governmentwide issue, not a DOD issue.
    Mr. Horn. I thank you all for these interesting questions 
and interesting answers. Let us hope next time there is some 
real difference. I hope those of you here now know we really 
will become very tired of having to deal with this if no 
progress is being made. I am looking especially to the 
political employees that get the thing moving and get the 
services moving. It looks like you are doing it. Let us hope we 
can get that done. I am glad the Vice Chief of the Army is 
taking it seriously.
    I am not quite clear, you have a Defense IG and civilian 
IGs and don't we still have service IGs from the services. What 
are they doing on this?
    Mr. Inman. We intend to use the Department of the Army IG 
and the Army Audit Agency as co-helpers in doing a perennial 
review of the things we have put in place. I have been talking 
to Mr. Sullivan about how we might best do that. We are not 
going to let people rest on their laurels even if they improve.
    Mr. Horn. Because they are generally going to be the ones 
out in the facilities, not sitting around in the Pentagon. That 
is where if you can head it off at the pass, we are in better 
shape that we don't get in the way of the IGs and really direct 
them in that. Often it isn't something like credit cards they 
are worried about, they have a long line of what they worry 
about. It would be good to see what they say when they go to 
various forts and camps and hospitals and all the rest.
    With that, we thank you and I thank those that put together 
this hearing: J. Russell, Staff Director, Chief Counsel; and 
Bonnie Heald, to my left, Deputy Staff Director; Justin 
Paulhamus, the Clerk; Chris Barkley, the assistant to the 
subcommittee; Sterling Bentley, Intern; and Joey DiSilvio, 
Intern; Freddy Emphraim, Intern; Michael Sazanov, Intern; and 
Yigal Kerszenbaum, Intern; and Senator Grassley's staff, 
Charlie Murphy; David McMillen, professional staff, along with 
Jean Gosa, the minority clerk for Ms. Schakowsky and Mr. 
Waxman. The court reporter is Mel Jones. Thank you. We 
appreciate it.
    With that, we are adjourned.
    [Whereupon, at 4:20 p.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]

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