[Senate Hearing 108-580]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-580

GOING NOWHERE: DOD WASTES MILLIONS OF DOLLARS ON UNUSED AIRLINE TICKETS

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

                                HEARING

                               before the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                              JUNE 9, 2004

                               __________

      Printed for the use of the Committee on Governmental Affairs


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                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
       Michael L. Stern, Deputy Staff Director for Investigations
                    Jason A. Foster, Senior Counsel
        Don Bumgardner, Detailee, U.S. General Accounting Office
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
         Michele Stockwell, Minority Professional Staff Member
                      Amy B. Newhouse, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins..............................................     1
    Senator Lautenberg...........................................     3
    Senator Coleman..............................................     5

                               WITNESSES
                        Wednesday, June 9, 2004

Hon. Charles E. Grassley, a U.S. Senator from the State of Iowa..     8
Hon. Janice D. Schakowsky, a Representative in Congress from the 
  State of Illinois..............................................    10
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.................    12
JoAnn R. Boutelle, Deputy Chief Financial Officer, U.S. 
  Department of Defense, accompanied by Jerry Hinton, Director of 
  Finance, Defense Finance and Accounting Service, U.S. 
  Department of Defense..........................................    15

                     Alphabetical List of Witnesses

Boutelle, JoAnn R.:
    Testimony....................................................    15
    Prepared Statement...........................................    61
Grassley, Hon. Charles E.:
    Testimony....................................................     8
    Prepared Statement...........................................    27
Kutz, Gregory D.:
    Testimony....................................................    12
    Prepared Statement with attachments..........................    32
Schakowsky, Hon. Janice D.:
    Testimony....................................................    10
    Prepared Statement...........................................    30

                                APPENDIX

Questions and responses for the Record from:
    Mr. Kutz and Mr. Ryan........................................    64
    Ms. Boutelle.................................................    67

 
GOING NOWHERE: DOD WASTES MILLIONS OF DOLLARS ON UNUSED AIRLINE TICKETS

                              ----------                              


                        WEDNESDAY, JUNE 9, 2004

                                       U.S. Senate,
                         Committee on Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:04 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Susan M. 
Collins, Chairman of the Committee, presiding.
    Present: Senators Collins, Coleman, Lautenberg, and Pryor.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. The Committee will come to order.
    Good morning. Today, the Governmental Affairs Committee 
will focus on ways to end mismanagement in the Department of 
Defense's travel card program. An important part of this 
Committee's mandate is to protect the Federal treasury from 
waste, fraud, and abuse.
    At a time of war, when every dollar is needed to support 
our troops and to fight terrorism, this mandate is particularly 
critical. It is very troubling that the Defense Department has 
wasted millions of dollars in unused airline tickets due to 
sloppy and inadequate financial controls. Every dollar wasted 
by the Pentagon is a dollar that could be spent on the war 
against terrorism.
    We will hear testimony that in fiscal years 2001 and 2002, 
the Pentagon paid for more than 41,000 airline tickets that it 
did not use. The Department did not seek and did not obtain 
refunds for these tickets. Those unused tickets cost taxpayers 
about $17 million.
    During the same 2-year period, the Department also failed 
to obtain refunds for the unused portions of more than 82,000 
additional tickets. All in all, the General Accounting Office 
conservatively estimates that the Defense Department has wasted 
more than $100 million in unused airline tickets since 1997.
    This estimate, I would note, does not include millions of 
additional dollars in travel card waste uncovered by the GAO. 
For example, the GAO found that some Defense Department 
employees were improperly reimbursed for airline tickets that 
were originally paid for by the Federal Government, not by the 
individual traveler. Thus, the government ended up paying twice 
for the same ticket.
    This is a clear case of waste and mismanagement, and 
possibly outright fraud. The GAO referred about 27,000 cases of 
improper reimbursement for further investigation.
    We, in public service, have an obligation to treat the 
public's money in the same way that we would treat our own. I 
cannot imagine any responsible person buying an airline ticket 
out of his or her own pocket, then not using it, and then not 
turning it in for a refund. We must demand that Federal 
employees take that same care with the public purse.
    I want to acknowledge the work done in this area by Senator 
Coleman and Senator Levin of this Committee. They have been 
vigorous in exposing waste, fraud, and abuse in the Federal 
Government's purchase and travel card programs.
    I am also very pleased that we are joined this morning by 
Senator Chuck Grassley, the Chairman of the Senate Finance 
Committee, and Representative Janice Schakowsky of Illinois, 
who will be our first witnesses. They, too, have been vigorous 
in requesting GAO reports, so I want to thank all of the 
individuals--Senator Coleman, Senator Levin, Senator Grassley, 
and Representative Schakowsky--for their hard work in this 
area.
    Our second panel of witnesses this morning includes 
representatives of the General Accounting Office, who will 
discuss their two reports which are being released today. These 
reports deal with the Department of Defense's use of what are 
known as centrally-billed accounts to purchase airline tickets 
for its employees. A centrally-billed account is essentially a 
credit card number that employees use to buy airline tickets 
for official travel. The bill for these charges is paid 
directly by the government.
    In the years audited by the GAO, the Defense Department 
spent approximately $2.4 billion through centrally-billed 
accounts. The GAO made three key findings that we will hear 
more about this morning. First, it found a lack of Department-
wide controls over these accounts that allowed the buying of 
millions of dollars of airlines tickets that were not used and 
yet were not processed for refunds. It is disturbing to me that 
the Pentagon was apparently not even aware of this problem 
before the GAO's investigation.
    The GAO's second finding was that some airline tickets 
purchased by the Department through these accounts were 
improperly submitted by the traveler for reimbursement. Again, 
due to weaknesses in the Department's financial controls, the 
Department could not consistently detect that the government 
had already paid for these tickets. The GAO found dozens of 
such cases.
    For example, one traveler, a GS-15 employee, was improperly 
reimbursed for 13 separate airline tickets purchased during a 
10-month period. The Department paid this employee close to 
$10,000 for tickets that the government, not the traveler, had 
paid for in the first place.
    Finally, the GAO found that weaknesses in DOD's financial 
systems made its accounts vulnerable to fraud. People with 
knowledge of the system, whether or not they worked for DOD, 
could exploit those weaknesses to obtain fraudulently an 
airline ticket purchased by the Federal Government. The GAO 
investigators were able to demonstrate this weakness by 
creating a fraudulent travel order and, by using this travel 
order, GAO was able to obtain a very real airline ticket and 
boarding pass. It was alarmingly simple for the GAO 
investigators to secure a boarding pass in a false name at the 
airport. They will explain this morning how they were able to 
do so. But this raises concerns about airport security, as well 
as about the financial fraud issues that the GAO set out to 
investigate.
    Unfortunately, the problems identified by these GAO reports 
are but one aspect of longstanding deficiencies in the 
Department of Defense's financial management. That is why, 
since 1995, the Department's financial management has 
consistently appeared on the GAO's list of high-risk areas that 
are vulnerable to waste, fraud, and abuse.
    We will also hear this morning from representatives of the 
Defense Department who will respond to the GAO's findings and 
recommendations. I am pleased that the Pentagon has concurred 
with the GAO's recommendations and has begun the process of 
seeking refunds for the unused tickets identified by the GAO. 
But even more important, I hope that the Department will tell 
us how it plans to fix the flaws not only in its travel card 
program, but also to improve its financial management 
generally. Nine years on the GAO's high-risk list is far too 
long for a department responsible for a critical mission and 
hundreds of billions of taxpayer dollars.
    Again, I want to thank all of our witnesses who have come 
before us today, and I look forward to hearing their 
statements.
    Senator Lautenberg.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thank you, Madam Chairman, for holding 
this hearing today to highlight the waste, fraud, and abuse 
concerns in the Department of Defense travel system. I am 
heartened that DOD is already taking steps to rectify the 
problems that the General Accounting Office has identified in 
that system.
    According to GAO investigators, as we have heard from our 
Chairman, DOD is sitting on $100 million in unused airline 
tickets that date back to 1997. It's an outrageous condition 
and it's completely unacceptable. It's a large sum.
    But this condition, unfortunately, doesn't come as a 
surprise. We are aware of other situations that raise questions 
of even far larger magnitude, despite the fact that this is 
$100 million. For instance, the Halliburton Company has a no-
bid contract and we haven't yet had a hearing in our Committee 
on that contract, which was permitted to grow from $50 million 
to $2.5 billion without competitive bidding or accountability.
    One of the concerns raised is that it would duplicate 
investigations being conducted by the GAO, the Defense Criminal 
Investigation Service, and the Defense Contract Audit Agency. 
That wouldn't be unusual because much of what this Committee 
has already done under the chairmanship of Senator Collins 
duplicates work being done by Executive Branch agencies to be 
absolutely certain that nothing falls through the cracks. For 
instance, hearings on Enron held by our Committee in 2002 
duplicated investigations being done by the Securities and 
Exchange Commission, the Department of Justice, the Internal 
Revenue Service, the Department of Labor, and the Federal 
Energy Regulatory Agency.
    Hearings on tax shelters, held just last November, 
paralleled investigations being done by the SEC and the 
Department of Justice and the IRS. In our hearing on abuses, we 
have been persistent in this and the Chairman has shown great 
leadership on this.
    In the mutual fund industry, we are simultaneous with 
investigations being done by the SEC, the Department of 
Justice, GAO, the National Association of Securities Dealers, 
as were hearings earlier this year on DOD contractors who don't 
pay their taxes by the IRS and General Accounting Office. And 
the hearing held just over a month ago on the misuse of 
government purchase cards, duplicative investigations being 
done by GAO, the Government Services Administration, etc. 
Obviously, the history of hearings held in this Committee by 
Chairman Collins confirms the need for accountability, even if 
other investigations are underway.
    I think this principle should also apply to Halliburton 
just as it did to Enron. Recent revelations make the need for a 
hearing on no-bid contracts critical. According to a recently 
uncovered Army Corps of Engineers E-mail from March, 2003, 
approval of this no-bid contract was coordinated with the Vice 
President's office. No accusations here. We don't know all the 
details of this coordination. But that is why we need a 
hearing, and what concerns me is that this situation may be 
simply the tip of the iceberg.
    An article in one of my State's major newspapers, the 
Asbury Park Press, reports that the Halliburton contract is a 
sign of something more troubling and widespread: The Federal 
Government's growing tendency to hire companies under a process 
that has increasingly emphasized speed and efficiency over 
competition and oversight.
    We have seen this in Iraq, where not only food and shelter 
but also some of the security things that used to be handled by 
the military, where some very brave non-military people paid 
for those services with their lives. That was a decision that 
was made.
    The bottom line is that we appropriated over $20 billion 
for the reconstruction of Iraq, and over $190 million for the 
overall war, and the ongoing expense estimate is about $5 
billion per month. The reconstruction in Iraq ushered in 
enormous changes in the way that the Federal Government 
conducts its procurement, and we need to review those changes 
and the many problems they have precipitated.
    Madam Chairman, I thank you for opening the door with this 
Committee hearing today.

                PREPARED STATEMENT OF SENATOR LAUTENBERG
Madam Chair:
    I'm glad we are holding this hearing today to highlight waste, 
fraud,, and abuse in the Department of Defense's (DOD) travel system. 
And I'm heartened that the DOD is already taking steps to rectify the 
problems the General Accounting Office (GAO) identified in that system.
    According to GAO investigators, DOD is sitting on 100 million 
dollars in unused airline tickets that date back to 1997.
    This is not an insignificant sum. But I would point out that it 
amounts to just four percent of the value of the no-bid contract 
awarded to Vice President Cheney's former firm, Halliburton. And yet, 
this Committee still hasn't held a single hearing to look into that 
contract, which was permitted to grow from 50 million dollars to 2.5 
billion dollars without competitive bidding or accountability.
    One reason given is that it would ``duplicate'' investigations 
being conducted by the GAO, the Defense Criminal Investigative Service 
(DCIS), and the Defense Contract Audit Agency (DCAA).
    That would not be unusual. Much of what this Committee does 
duplicates work being done by executive branch agencies, to be 
absolutely certain that nothing falls through the cracks.
    For instance, hearings on Enron held by our committee in 2002 
``duplicated'' investigations being done by the Securities and Exchange 
Commission (SEC), the Department of Justice (DOJ), the Internal Revenue 
Service (IRS), the Department of Labor, and the Federal Energy 
Regulatory Commission.
    Hearings on tax shelters held last November paralleled 
investigations being done by the SEC, the DOJ, and the IRS.
    Our hearing on abuses in the mutual fund industry were simultaneous 
with investigations being done by the SEC, the DOJ, the GAO, and the 
National Association of Securities Dealers.
    As were hearings earlier this year on DOD contractors who don't pay 
their tax by the IRS and GAO.
    And the hearing held just over a month ago on the misuse of 
``government purchase cards'' ``duplicated'' investigations being done 
by the GAO, Government Services Administration (GSA), DCIS, and four 
other DOD agencies.
    Obviously, the history of hearings in this committee by Chairman 
Collins confirms that the need for accountability even if other 
investigations are underway. That principle applies to Halliburton just 
as it does to Enron.
    Recent revelations make the need for a hearing on Halliburton's no-
bid contract critical. According to a recently uncovered Army Corps of 
Engineers email from March 2003, approval of this no-bid contract was 
coordinated with Vice-President's office. We don't know all of the 
details of this ``coordination'' but that is exactly why we need a 
hearing.
    What concerns me is that Halliburton may just be the ``tip of the 
iceberg.''
    An article in one of my state's major newspapers, the Asbury Park 
Press reports that the Halliburton contract ``is a sign of something 
more troubling and widespread: The Federal Government's growing 
tendency to hire companies under a process that has increasingly 
emphasized speed and efficiency over competition and oversight''
    The bottom line is that we have appropriated over 20 billion 
dollars for the reconstruction of Iraq and over 190 billion dollars for 
the overall war.
    The war and reconstruction in Iraq have ushered in enormous changes 
in the way the Federal Government conducts its procurement. We need to 
review those changes and the many problems they have precipitated.
    Thank you, Madam Chairman.

    Chairman Collins. Senator Coleman.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. Thank you, Madam Chairman.
    I will bring our focus back to the very important matter 
that we have before us, the issue of wasting millions of 
dollars of unused airline tickets.
    I do want to thank the Chairman for holding this hearing. 
As one of the requesters of the GAO review, about which you 
shall hear today, I share your concerns that the DOD exercise 
responsible stewardship over the taxpayer dollars that are 
allocated for their use.
    I also want to applaud Chairman Grassley and Representative 
Schakowsky for their dogged determination in rooting out fraud 
and abuse. Representative Schakowsky couldn't be at the last 
hearing we held that was initiated at her request, along with 
Chairman Grassley, of abuse regarding first class travel, but 
their determination and focus here really serves the taxpayers 
of this country well and I want to thank them.
    I also want to thank the GAO, which has done extraordinary 
work in focusing on this issue, and the beneficiaries are all 
the taxpayers. We all suffer and we all hurt when there is 
waste, fraud, and abuse. So for all involved, and certainly the 
leadership of the Chairman, I simply want to say thank you.
    As a previous hearing before the Permanent Subcommittee on 
Investigations has shown, in addition to having adequate 
systematic controls, DOD must hold its employees responsible 
and accountable for individual lapses that have cost the 
taxpayers hundreds of millions of dollars. The Permanent 
Subcommittee on Investigations is continuing to monitor DOD's 
response to the unauthorized use of premium travel. Today's 
hearing on unused airline travel tickets and travel fraud are 
additional matters that DOD must address.
    Over the past 6 years, the Department of Defense has failed 
to reclaim over $100 million in unused or partially used 
airline tickets. Of this amount, at least $80 million has been 
lost for all time because the Department of Defense has not 
implemented simple checks and kept records that are required to 
obtain refunds from the airlines. Further, some Department of 
Defense travelers have defrauded the government by obtaining 
and reselling airline tickets for personal gain, or by claiming 
reimbursement for airline tickets for which they did not pay. 
As a result, the Department of Defense has paid for travel that 
was not taken by its employees, or has in some instances paid 
twice for the same travel.
    This mismanagement of taxpayer funds is a direct result of 
the Department of Defense's failure to implement simple checks 
to ensure that travelers follow prescribed rules and 
regulations. For example, the Department of Defense requires 
its travelers to return any unused or partially used airline 
tickets to the issuing contract travel agent. But the 
Department of Defense does not check to see if travelers are 
complying with this requirement.
    The Chairman has identified some specific instances.
    I would close by noting that, in a February hearing before 
the Permanent Subcommittee on Investigations, we learned that 
DOD wasted millions of dollars on unauthorized or unjustified 
premium airline tickets. The continuing waste of Department of 
Defense travel dollars clearly points to the need to reform the 
travel system now, rather than waiting years for an automated 
system that may or may not reform the abusive practices. I look 
forward to learning what the Department of Defense plans to do 
to avoid these unnecessary losses.
    With that, Madam Chairman, I ask that my full statement be 
entered into the record.
    Chairman Collins. Without objection. And thank you for your 
leadership in this area.
    [The prepared statement of Senator Coleman follows:]

                 PREPARED STATEMENT OF SENATOR COLEMAN

    I want to thank the chairman for holding this valuable hearing on 
the Department of Defense's mismanagement of its travel funds. As one 
of the requesters of the General Accounting Office review about which 
we shall hear today, I share your concerns that DOD exercise 
responsible stewardship over the taxpayer dollars that are allocated 
for their use. As a previous hearing before the Permanent Subcommittee 
on Investigations has shown, in addition to having adequate systemic 
controls, DOD must hold its employees responsible and accountable for 
individual lapses that have cost the taxpayer hundreds of millions of 
dollars. The Permanent Subcommittee on Investigations is continuing to 
monitor DOD's response to the unauthorized use of premium travel. 
Today's hearing on unused airline tickets fraud are additional matters 
that DOD must address.
    Over the past six years the Department of Defense has failed to 
reclaim over $100 million in unused or partially used airline tickets. 
Of this amount at least $80 million has been lost for all time because 
the Department of Defense has not implemented simple checks and kept 
the records that are required to obtain refunds from the airlines. 
Further, some Department of Defense travelers have defrauded the 
government by obtaining and reselling airline tickets for personal 
gain, or by claiming reimbursement for airline tickets for which they 
did not pay. As a result, the Department of Defense has paid for travel 
that was not taken by its employees or has in some instances paid twice 
for the same travel.
    This mismanagement of taxpayer funds is the direct result of the 
Department of Defense's failure to implement simple checks to ensure 
that travelers follow prescribed rules and regulations. For example, 
the Department of Defense requires its travelers to return any unused 
or partially used airline tickets to the issuing contract travel agent. 
But the Department of Defense does not check to see if travelers are 
complying with this requirement.
    One simple check would be to compare the names of travelers who 
were issued tickets against the names of travelers who have submitted 
claims for reimbursement. This would identify all individuals who were 
issued tickets and had not filed a reimbursement claim. It is possible 
that they may not have undertaken the planned travel, and thus may have 
an unused ticket or they could be late in filing their claim. This 
could be determined by contacting the individual.
    A partially used ticket could potentially be identified by 
comparing a traveler's itinerary against their reimbursement claim. If, 
for example, the itinerary indicated that the travel was going to two 
cities and the reimbursement claim requested reimbursement for lodging 
in only one city it would be possible that one leg of the travel was 
not used. This also could be resolved by contacting the individual. 
However, the Department of Defense does not require its contract travel 
agents to make these comparisons. As a result, unused and partially 
used tickets are not identified for reimbursement by the airlines.
    Ninety-three Department of Defense employees submitted 125 
reimbursement claims for airline tickets that had already been paid for 
by the Department. Let me outline some of the more egregious abuses 
that have occurred:

      A GS-15 claimed and was reimbursed $9,700 for 13 airline 
tickets that were paid by the Department of Defense's contract travel 
agent and not by the traveler. The traveler stated that he did not 
notice the additional $9,700 in his checking account.

      A GS-13 was denied reimbursement for airline tickets on 6 
travel vouchers and was advised that the claim was denied because he 
had not paid for the ticket. In spite of the warning, the traveler 
submitted 6 additional claims for reimbursement of airline tickets and 
was reimbursed $3,600 for 6 airline tickets that were paid by the 
Department of Defense's contract travel agent and not by the traveler. 
This particular traveler also rented luxury automobiles while on 
official travel without the authorization to do so. The traveler 
claimed these were honest mistakes.

      An O-5 claimed and was reimbursed $1,600 for 5 airline 
tickets that were paid by the Department of Defense's contract travel 
agent and not by the traveler. The traveler said that she did not 
notice the improper payment and made full restitution.

    A simple check of a traveler's reimbursement claim that contains 
the cost of an airline ticket against the list of tickets purchased 
with a centrally billed account can disallow these improper and 
potentially fraudulent claims altogether.
    Given the simplicity of the checks that should be performed against 
the potential loss of $20 million taxpayer dollars per year, there is 
no justification for not fully implementing these checks.
    In a February hearing before the Permanent Subcommittee on 
Investigations, we learned that DOD wasted millions of dollars on 
unauthorized unjustified premium airline tickets. The continuing waste 
of DOD's travel dollars clearly points to the need to reform the travel 
system now rather than waiting years for an automated system that may 
or may not reform these abusive practices. I look forward to learning 
what the Department of Defense plans to do to avoid these unnecessary 
losses.

    Chairman Collins. Senator Pryor.
    Senator Pryor. Madam Chairman, thank you. I don't have any 
opening statement and I would like to hear from these two very 
distinguished witnesses.
    I must say that I have been waiting for a long time to get 
Senator Grassley under oath. [Laughter.]
    Chairman Collins. I'm not going to allow you to question 
him then. I'm going to protect the Chairman.
    We are very pleased and honored to have both Senator 
Grassley and Representative Schakowsky with us. As I noted in 
my opening statement, and as Senator Coleman noted as well, 
they have been true leaders on this issue.
    Senator Grassley.

 TESTIMONY OF HON. CHARLES E. GRASSLEY,\1\ A U.S. SENATOR FROM 
                       THE STATE OF IOWA

    Senator Grassley. Thank you very much. And I'm going to 
tell Senator Pryor's dad on him. [Laughter.]
---------------------------------------------------------------------------
    \1\ The prepared statement of Senator Grassley appears in the 
Appendix on page 27.
---------------------------------------------------------------------------
    I have crossed out a lot because I have listened to these 
three statements and you have covered a lot of ground that I 
was going to cover, so I would like to have my entire statement 
put in the record and hopefully make it much shorter.
    Chairman Collins. Without objection.
    Senator Grassley. Obviously, thank you for holding this 
hearing. Just as a reminder of my participation, I started 
investigating the breakdown in financial controls in the 
Department of Defense credit card program several years ago. I 
started out that work with the General Accounting Office and 
then Chairman Horn, who was then in the House and chairman of a 
House subcommittee.
    Centrally-billed accounts are another way of paying for 
travel costs, where tickets are purchased using a centrally 
accountable paying system and paid directly by our government. 
This is done instead of using an individually billed card for 
which the traveler would be reimbursed. This method of paying 
for travel is intended to be more convenient and cost 
effective. However, not surprisingly, the way it is being 
administered, or maybe you could say nonadministered, has 
opened the door to waste, fraud, and abuse.
    The first General Accounting Office report released today 
revealed an appalling level of waste in the form of unused 
airline tickets to the tune of $100 million since 1997. Imagine 
if you would purchase a fully refundable airline ticket for 
$600 or $700 and didn't use it, would you just put it in your 
dresser drawer and forget about it? Of course, you would not.
    Well, that is exactly what the Defense Department had done, 
except that they have done it many times over with millions of 
dollars of taxpayers' money.
    Federal agencies are authorized to recover payments from 
these airlines, as you said, Madam Chairman, for 6 years, and 
under some conditions, up to 10 years. Given the large amount 
of travel throughout the Department of Defense, it is 
inevitable that plans will change at the last minute and people 
reschedule their trips or cancel, for whatever reason. That 
leaves an unused ticket that can be fully refundable.
    When government employees pay for anything on their 
individually billed travel cards, the employees then either 
submit a voucher to be reimbursed or apply for a refund for an 
unused ticket. However, a great many tickets are paid for using 
the centrally-billed account system where the agency is 
responsible. This leaves no personal incentive for a traveler 
to seek a refund. Yet, this is precisely who the Department of 
Defense has relied upon to see that tickets are refunded. As a 
result, the Department of Defense sometimes gets a refund for 
those unused tickets, and sometimes not.
    The problem is there are really no controls in place to see 
that the Department of Defense systematically gets its money 
back for tickets that are not used. This has resulted in at 
least $100 million of taxpayer money that is essentially just 
sitting in a dresser drawer. The American taxpayers deserve 
better than to have their hard earned income squandered, 
particularly when we ought to be putting every last dime we can 
into winning the war on terrorism. I can't believe that the 
Department of Defense can't find a better use of the $100 
million than just, in a sense, to let it sit there unclaimed. 
The time value of money is a common sense rationale for putting 
good controls in place.
    Now, the good news is that the Department of Defense, as we 
have said, can reclaim this money. The bad news is that before 
the General Accounting Office brought this issue to light, the 
Department of Defense had no idea that these millions of 
dollars in unused airline tickets were just sitting out there. 
Since the Department of Defense kept no records of unused 
airline tickets, the General Accounting Office made this 
discovery by combing through data that was provided not by the 
Department of Defense but by the airlines. In many cases, the 
airlines' data was incomplete and it becomes more difficult to 
acquire, of course, the further back in time you go. Clearly, 
the Department of Defense will never collect all the money that 
could potentially be recouped from these unused tickets, but it 
would have recovered no money at all if the General Accounting 
Office hadn't been there helping us in Congress. This is yet 
another example where, if the Department of Defense simply had 
a system of effective controls, a considerable amount of money 
would be saved.
    The first of the General Accounting Office reports on 
problems with the DOD centrally-billed accounts dealt with 
waste. The second is about fraud and abuse. I have several 
examples, and some of them you have already given, that I am 
going to skip over.
    There is one person, like a Mr. Johnson, who referred to 
these attempts of his billing for things that were centrally 
paid for, which obviously is fraudulent, as somehow ``honest 
mistakes.'' These honest mistakes apparently also include 
improperly approving his own travel voucher, improperly renting 
luxury vehicles while on travel, improperly purchasing airline 
tickets for family members with a government rate, and using 
his individual travel card for personal items, like monthly 
rental fees for musical instruments. The General Accounting 
Office has referred these cases, of course, to the DOD 
Inspector General.
    Still, before we celebrate another congressional oversight 
success story, we should remind ourselves that this should 
never have been allowed to happen in the first place, and will 
happen again unless the Department of Defense gets serious 
about establishing these internal controls. Even when the 
presence of some controls highlights potentially fraudulent 
activity, as is sometimes the case with stolen centrally-billed 
account numbers mentioned later in the report, the Department 
of Defense does not always follow through to investigate and 
avoid paying fraudulent charges.
    The Department of Defense must set to work immediately to 
establish a positive control environment throughout the agency 
which will involve a change in culture. It is becoming almost 
routine for Congress, working with the GAO, to uncover a 
breakdown of controls in one aspect of the Department of 
Defense leading to waste, fraud, and abuse. We hold hearings at 
which officials from the Department of Defense come with their 
tails between their legs admitting that they could do better 
and will fix the specific problem. What I would like to start 
hearing is how the Department of Defense is going to fix its 
culture of indifference to internal controls and lack of 
respect for the American taxpayers. Thank you.
    Chairman Collins. Thank you, Mr. Chairman. Representative 
Schakowsky.

   TESTIMONY OF HON. JAN SCHAKOWSKY,\1\ A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you, Madam Chairman, and Senators 
Coleman, Lautenberg, and Pryor. I really appreciate your 
holding this important hearing today and for the opportunity to 
testify before you, and for your leadership on this important 
issue.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Schakowsky appears in the 
Appendix on page 30.
---------------------------------------------------------------------------
    I especially want to thank Senator Grassley, who has been 
such a strong leader on government accountability issues. It 
has been a real pleasure to work with him toward accomplishing 
our mutual goal of rooting out waste, fraud, and abuse in the 
Federal Government.
    As we will hear today, the GAO's latest investigation into 
the epidemic of waste, fraud, and abuse at the Pentagon has 
uncovered more of the same. Because of a culture, as Senator 
Grassley said, at the Department of Defense that seems to 
persistently tolerate abuse of public dollars and public trust, 
precious taxpayer funds continue to be wasted. Meanwhile, the 
Congress is providing DOD with increased budgets at record 
levels. With all of the new homeland security needs our Nation 
is facing, we cannot afford to waste a single penny that might 
otherwise be making America safer.
    The GAO estimates potential losses valuing at least $100 
million as a result of unused and unclaimed airline travel 
tickets by DOD employees. And after reviewing just a few years 
of data, GAO found that DOD employees wasted over $21 million 
by failing to use or claim 58,000 airline tickets. Some of 
those tickets were for first and business class travel and cost 
DOD and taxpayers as much as $9,800 a piece. Eighty-one-
thousand tickets were partially unused by DOD employees, and 
the price of those tickets equaled $62 million.
    Madam Chairman, while we should, as you indicated, expect 
individual employees to take responsibility, it is also 
indicative of what the GAO in its typically understated way 
calls weak controls on the part of DOD. It is the 
responsibility of the Department of Defense to detect unused 
tickets and the GAO has made important systemic 
recommendations.
    In addition to wasted taxpayer dollars, GAO uncovered fraud 
and abuse of the DOD travel system. DOD employees were 
improperly reimbursed for air travel tickets that they did not 
purchase. Examples include employees receiving improper and 
unjustified reimbursements of as much as $1,000, $3,600, and 
$10,000 each. In violation of the rules, some DOD employees 
even approved their own travel and reimbursement forms and 
billed the government for rental of luxury cars. One employee 
had the nerve to sell tickets that DOD had paid for to third 
parties, making a personal profit.
    These are just a few examples of the mismanagement and 
abuse that is ongoing at the Pentagon. To my knowledge, none of 
the perpetrators have been disciplined and DOD has yet to put 
in place the system-wide changes necessary to prevent future 
abuse.
    The GAO also discovered a potentially major security flaw 
in DOD's travel system. Working undercover, GAO personnel were 
able to obtain tickets based on a fictitious travel order, fake 
identification, and an unnamed DOD office. GAO's undercover 
agents would have been able to travel on major U.S. airlines 
for free, under fake identification. This could have been any 
criminal, even a terrorist, utilizing fake identification. This 
raises serious concerns for our air travel industry and our 
national security. Not only can individuals travel under fake 
ID, but the DOD, which is supposed to protect us, may actually 
be unknowingly facilitating criminal activity that could 
endanger the American public.
    Enough is enough. Whenever Congress shines the light on any 
aspect of the Department of Defense's financial management, we 
uncover more waste, fraud, and abuse that are costing taxpayers 
billions of dollars. The abuses continue to exist and thrive 
and come on top of the fact that the Department of Defense 
already, according to its own Inspector General, cannot account 
for $1.2 trillion--that's $1.2 trillion--in financial 
transactions.
    At a time when our soldiers are patrolling the streets of 
Iraq in unarmored Humvees, when critical domestic programs are 
being cut, and when the administration is asking for record 
defense spending, hundreds of millions of dollars that could be 
used to protect our troops and our country are going to waste.
    We have known for some time that DOD's financial management 
is atrocious. These latest GAO reports show that it is not only 
irresponsible but dangerous for our country to have the Defense 
Department continue business as usual. I share Senator 
Grassley's concern over the inexcusable behavior of individual 
employees, and I think they should be appropriately 
disciplined. But again, we need to also change the culture at 
the Pentagon. Our Pentagon leaders need to fix the problems 
that persist. If they cannot, or will not, President Bush 
should replace them.
    At a time when Americans are being asked to sacrifice so 
much in terms of lives, resources, and our economy, the 
administration has a particular duty to protect taxpayer 
dollars from any further waste, fraud, and abuse and the 
security threats that we are facing as a result.
    I want to thank our GAO witnesses and all of those at the 
General Accounting Office who worked so hard on these reports. 
They have done yet another great service to the Congress and to 
the American public. I just hope those of us here in Washington 
will now exercise our oversight responsibilities and demand 
changes from the Pentagon.
    Again, Madam Chairman, and Members of the Committee, I 
thank you for the opportunity to testify.
    Chairman Collins. Thank you. Senator Grassley.
    Senator Grassley. Could I make a clarification, please?
    Chairman Collins. Certainly.
    Senator Grassley. Although it would be correct in my 
written testimony that I submitted in full, I did attribute 
about the honest mistakes to the wrong person. The two examples 
I used was a Mr. Joseph Johnson and a Mr. Robert Carter. The 
honest mistake thing was attributed to Mr. Johnson and it 
should have been attributed to Mr. Carter.
    Chairman Collins. Thank you for that clarification.
    I know both of you have very busy schedules today, so I am 
going to allow you to depart without being subjected to Senator 
Pryor's questions. [Laughter.]
    Senator Grassley. Thank you. I will owe you a lot.
    Chairman Collins. And I'll collect on that. Thank you both 
for your testimony.
    I would now like to call our next panel forward. We will 
hear testimony from Greg Kutz, the Director of Financial 
Management and Assurance Group at the U.S. General Accounting 
Office. He is responsible for financial management issues 
related to the Defense Department, NASA, the State Department, 
and USAID. Accompanying Mr. Kutz is Special Agent John Ryan 
from the GAO's Office of Special Investigations.
    These two gentlemen have teamed up numerous times to 
conduct excellent investigations and audits. They have 
particularly worked on travel and purchase card waste, fraud, 
and abuse, and have testified previously before this Committee. 
We are very pleased to welcome you back and look forward to 
your statements.
    We will then hear from JoAnn Boutelle, the Deputy Chief 
Financial Officer for the Department of Defense. She is 
responsible for developing, implementing, and overseeing 
Department-wide finance accounting and general financial 
management policies. Ms. Boutelle is accompanied by Jerry 
Hinton, the Director of Finance for the Defense Finance and 
Accounting Service, known as DFAS. I am very familiar with DFAS 
because there is a great DFAS center in northern Maine.
    Mr. Hinton is responsible for the Department's policy and 
oversight for vendor and travel pay, as well as for cash and 
debt management, and we appreciate your joining us, also.
    Mr. Kutz, we will begin with you.

TESTIMONY OF GREGORY D. KUTZ,\1\ DIRECTOR, FINANCIAL MANAGEMENT 
 AND ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY 
   SPECIAL AGENT JOHN J. RYAN, ASSISTANT DIRECTOR, OFFICE OF 
     SPECIAL INVESTIGATIONS, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Kutz. Chairman Collins and Members of the Committee, 
thank you for the opportunity to discuss DOD's centrally-billed 
travel accounts.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Kutz appears in the Appendix on 
page 32.
---------------------------------------------------------------------------
    This is a continuation of our series of audits of DOD's $10 
billion credit card program. We previously testified that DOD 
used these accounts to improperly purchase first and business 
class airline tickets. Today, we will discuss additional issues 
of fraud and waste related to these accounts.
    My statement has three parts: First, unused airline 
tickets; second, improper and potentially fraudulent payments 
to DOD employees; and third, as mentioned earlier, security 
issues.
    First, we found that DOD paid for airline tickets that were 
not used and not processed for refund. Unlike non-refundable 
airline tickets purchased by most taxpayers, government tickets 
are generally refundable. Unused tickets occur when a traveler 
cancels their trip or uses only one leg of an airline ticket. 
The airlines provided us with limited data for 2001 and 2002, 
showing that DOD spent $21 million on 58,000 unused airline 
tickets. Our most conservative analysis shows that, for 1997 to 
2003, DOD spent over $115 million for unused airline tickets. 
In effect, taxpayers have been providing the airline industry 
with an unintentional subsidy costing tens of millions of 
dollars annually.
    Although the vast majority of unused tickets were coach 
class, we found several egregious examples of waste related to 
first and business class tickets. As you can see on the poster 
board,\1\ DOD paid as much as $9,800 for airline tickets 
without receiving any benefits. This waste occurred because of 
the lack of integrated travel systems and ineffective 
compensating processes and controls.
---------------------------------------------------------------------------
    \1\ The chart referred to appears in the Appendix on page 60.
---------------------------------------------------------------------------
    Second, we found that DOD sometimes paid twice for the same 
airline ticket, first to the Bank of America as part of the 
monthly credit card bill, and second, to the traveler, who was 
reimbursed for the same ticket. Based on our receipt of limited 
data, the potential magnitude of these improper payments was 
27,000 tickets costing over $8 million. For example, the Navy 
paid a GS-15 $10,000 for 13 tickets he did not purchase. In 
another case, despite five improper claims that were caught by 
the Defense Finance and Accounting Service, an Army GS-13 
continued to file improper claims and was paid $3,600. This 
individual also falsified approval of their own travel voucher, 
abused their government travel card, and rented luxury vehicles 
such as a Mercedes and Lincoln Navigator while on official 
government travel. We have referred both of these cases, as 
mentioned earlier, to DOD for criminal investigation.
    Over the last several years, we have referred thousands of 
cases to DOD of fraud and misuse related to government credit 
cards. Cases include potential bank fraud, improper first and 
business class travel, and today, thousands of cases of 
potential false claims and theft of government property.
    Very few at DOD have been prosecuted, and few, if any, face 
significant administrative actions. If DOD is serious about 
addressing its significant problems with fraud and waste, then 
swift, decisive action must be taken against employees that 
misuse government funds.
    Third, inadequate security over the centrally-billed 
accounts increase the risk of fraud and abuse. For example, DOD 
issued and paid for airline tickets without checking the 
validity of the travel order. To test the system, we used an 
undercover operation to show that an unauthorized individual 
could obtain an airline ticket from DOD using a fictitious 
travel order.
    The poster board shows the results of our undercover 
operation--the boarding pass from Reagan National to Atlanta 
that was paid for by DOD.\1\ Specifically, DOD issued us a 
round trip ticket to Atlanta based on a fictitious travel order 
that we created. We simply picked up this boarding pass at 
National, using a credit card under a bogus name. DOD obtained 
a refund for this ticket 2 months later, after we informed them 
of our operation.
---------------------------------------------------------------------------
    \1\ The chart referred to appears in the Appendix on page 57.
---------------------------------------------------------------------------
    We also found that live credit card numbers were printed on 
traveler's itineraries. This led to several military 
servicemembers fraudulently using the centrally-billed accounts 
for personal gain. For example, one individual used DOD 
accounts for a 6-month period to purchase 70 tickets, costing 
$60,000, that he resold to friends and family.
    These fraudulent transactions were later identified, 
disputed, and were not paid for by the government. However, 
many DOD locations did not file disputes for unauthorized 
tickets. As a result, DOD is vulnerable to the fraudulent usage 
of compromised accounts.
    To its credit, DOD has concurred with all 31 of our 
recommendations to improve management of the centrally-billed 
accounts and has taken action. DOD also has issued claim 
letters to the five airlines requesting repayment of the $21 
million of unused tickets previously discussed.
    We are not aware of any collections to date. However, based 
on our experience with these airlines, and their serious 
financial problems, it is unlikely they will willingly refund 
DOD what could be over $115 million for unused tickets.
    In conclusion, our testimony provides a small example of 
the billions of dollars of waste and inefficiency at the 
Department of Defense. It also shows, as you mentioned, why DOD 
is on our list of high-risk areas, highly vulnerable to fraud, 
waste and abuse. With the significant fiscal challenges facing 
our Nation, it is important that DOD successfully address the 
issues discussed today. We look forward to continuing to work 
with this Committee to improve the economy and efficiency of 
the government's operations.
    This ends my statement. Special Agent Ryan and I will be 
happy to answer your questions.
    Chairman Collins. Thank you very much.
    Mr. Ryan, it is my understanding that you don't have a 
formal statement but will be here to answer questions, is that 
correct?
    Mr. Ryan. That's correct.
    Chairman Collins. Ms. Boutelle. Thank you for being here.

   TESTIMONY OF JOANN R. BOUTELLE,\1\ DEPUTY CHIEF FINANCIAL 
   OFFICER, U.S. DEPARTMENT OF DEFENSE, ACCOMPANIED BY JERRY 
  HINTON, DIRECTOR OF FINANCE, DEFENSE FINANCE AND ACCOUNTING 
              SERVICE, U.S. DEPARTMENT OF DEFENSE

    Ms. Boutelle. Madam Chairman, I have submitted a longer 
statement that I would like submitted for the record, but I 
will be brief in my oral testimony so that it allows more time 
for your questions.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Boutelle appears in the Appendix 
on page 61.
---------------------------------------------------------------------------
    Chairman Collins. Without objection, all statements will be 
submitted in full.
    Ms. Boutelle. OK. Thank you.
    Again, Madam Chairman, and Members of the Committee, I am 
here to discuss with you the actions the Department of Defense 
has taken and will take to correct weaknesses identified by the 
General Accounting Office in the DOD's centrally-billed travel 
card program.
    At the outset, I want to underscore the resolve of the 
Department's leadership to continue progress towards improving 
DOD financial management. We are determined to complete our 
overhaul of our financial processes and systems, which will 
dramatically improve our ability to ensure strong internal 
controls and prevent the kinds of problems identified by the 
General Accounting Office.
    The General Accounting Office reports on unused tickets and 
improper payments demonstrate the value of having automated 
data to analyze and review for anomalies. It also demonstrates 
the weaknesses inherent in manual systems and the many legacy 
systems still being used by the Department.
    As the Department transforms its financial management 
systems, we will do a better job of detecting and addressing 
the kinds of problems identified in these reports. In the 
meantime, we will work hard to correct the policies and 
procedures that contributed to the problems identified by the 
GAO while we work on the automated solutions.
    I want to emphasize that the Department has made 
significant progress in improving the performance of the 
individually-billed travel cards through implementation of 
policy changes, such as split disbursement and salary offset, 
through actions to reduce risk, such as closing unused accounts 
and reviews to identify where individuals have separated 
without properly clearing out and having their account closed.
    The types of problems highlighted in these GAO reports 
underscore the importance of transforming how DOD does 
business. Over the past 2 years, the Department has undertaken 
a massive overhaul of its management and support activities. 
Ultimately, we want to implement a cohesive, comprehensive 
management information system that will enable the DOD to track 
transactions, strengthen our controls, and prevent abuses.
    I assure this Committee that we will continue our close 
working relationship with the GAO as we correct the problems 
identified and monitor the corrective actions to ensure their 
effectiveness.
    I have with me, as you noted, Jerry Hinton, who is the 
program manager for the travel card program, and also Earl 
Boyanton, who is the Assistant Deputy Under Secretary for 
Transportation Policy, so that if you get into questions more 
related to the transportation side and how the central 
transportation offices and the airlines work, Mr. Boyanton is 
the expert on that policy.
    That concludes my oral testimony and we will be happy to 
answer any questions.
    Chairman Collins. Thank you.
    Mr. Hinton, it is my understanding that your situation is 
similar to Mr. Ryan, that you're available for questions. But 
do you have any comments you would like to make first?
    Mr. Hinton. No, ma'am. I'm here to answer questions.
    Chairman Collins. Thank you.
    Mr. Kutz, you have indicated in your testimony that the 
potential unused tickets could total more than $100 million 
since 1997, and you described that as a conservative estimate. 
I understand that you chose a statistical sample from five of 
the largest DOD installations and that you also did not survey 
all of the airlines.
    Could you give us some idea, if you took the percentage of 
unused tickets found in your sample, what you believe the 
actual level of unused tickets may be?
    Mr. Kutz. Yes. We did--a random attribute sample is what 
it's called--using a 95 percent confidence level, the interval 
of the unused tickets of the population that we identified for 
five of the largest CBO locations was .65 percent to 8.9 
percent. Our point estimate was 3.1 percent. So if you applied 
the 3.1 percent to the entire $8 billion that was spent on 
centrally-billed accounts from 1997 to 2003, that would 
indicate almost a quarter of a billion dollars.
    Our estimate, again, the $115 million, we thought was a 
conservative estimate, which was based on the data that the 
airlines gave us, which was different than our independent, 
randomly done sample of the populations of the five locations.
    Chairman Collins. Arguably, the airlines are not eager to 
refund millions of dollars to the Department of Defense, 
particularly airline tickets that may go back a considerable 
amount of time. So do you believe the information that you 
received from the airlines was complete?
    Mr. Kutz. We don't know if it was complete. We relied 
pretty much on what they gave us. What we did, though, to 
identify the unused tickets was we matched exactly the 
information that they gave us to the Bank of America 
information, including the ticket number, and if anything 
didn't match what they gave us, we kicked out. So the $21 
million that we did identify related directly to what we could 
match to Bank of America's information.
    But as you said, their incentive was not to give us the 
data. In fact, some of them, when we first contacted them, said 
we would need a subpoena before you'll even get that data from 
us. American Airlines was the one who gave us the data after 2 
weeks. The rest of them, it took 6 to 8 months after letters 
from Members of Congress to get the information.
    Chairman Collins. I think that's an important point, 
because while the $100 million estimate is an alarming one, it 
is also a very conservative one. If you apply the statistic 
that you explained from your sample, the actual number may be 
as much as $240 million. Is that correct?
    Mr. Kutz. It's possible. Again, our sample was not designed 
to project numbers, but once the airlines responded back, we 
decided we would at least talk about that today, because we did 
do a random sample for those five locations. You would have to 
assume that those five locations are representative of all the 
locations across DOD and other things.
    Again, I think it indicates that this is statistically 
significant. That's what that sample would indicate.
    Chairman Collins. Mr. Ryan, it concerns me that we have 
these cases that appear to be outright fraud--and we talked 
about this during the purchase card hearing--and yet, very 
little action seems to be taken against the individual 
employee.
    Was that the case with the individual case studies that you 
undertook in this analysis?
    Mr. Ryan. In this particular situation, we conducted the 
investigations based on the data provided to us by Greg's 
group. We conducted the investigations, we determined that 
certain cases needed to be referred for criminal investigations 
to the Executive agencies.
    In the cases that we looked at here, the two that Senator 
Grassley specifically mentioned, we did send those to the 
appropriate investigative agencies to conduct. We know that on 
one of the gentlemen the investigation has been completed by 
the Army CID and the case has been presented to the U.S. 
Attorney's office. In the other case, we're not aware of any 
action that has been taken against him in regards to the 
$10,000.
    But the cases we have referred, we have asked DOD to get 
back to us in 60 days. We have sent the referrals and we're 
getting close to the 60 days.
    I think it's important for the Committee to realize that 
since June 2002, we have sent well over 130 individual 
referrals. Now, those referrals could be one person or, as 
Senator Coleman mentioned, we sent 44,000 names over to DOD to 
do investigations.
    They're seeming to be finding like a black hole, because of 
the 130 individual referrals we sent over, over 124 of those, 
no action has been taken. We have not received any notification 
of what action has been taken, neither criminally or 
administratively. So I guess, after a while, you get hit in the 
head with a brick and you realize you have to change the way 
you do business.
    I think what we're going to try to do now is to get this 
information to the investigative units as expeditiously as 
possible so that we can start these investigations and get some 
type of action against these employees. If you realize between 
the unused business and first class tickets and the potential 
of the 27,000 transactions associated with this case, we're 
talking well over 50,000 people within DOD that some action 
needs to be taken. We just don't seem to be able to get a 
response.
    I guess that's a long answer to your question, but I can't 
really give you an answer because I don't know what DOD has 
done with these employees. Maybe Ms. Boutelle can give us an 
update on the two individuals that Senator Grassley spoke to, 
but I don't have the latest information.
    Chairman Collins. I will be asking for that, but I am going 
to honor the time restrictions and call on my colleagues.
    I would note to my colleagues that I am going to enforce 
the time restrictions on questions, and we will do a second 
round, so don't feel that you won't have another opportunity.
    Senator Lautenberg.
    Senator Lautenberg. Thank you, Madam Chairman. Even if we 
occasionally differ, I never accuse you of being unfair. I am 
delighted to hear the testimony of our witnesses.
    I have a personal question to put first to Mr. Hinton. Do 
you have family in Patterson, New Jersey by any chance?
    Mr. Hinton. No, sir, I do not, Senator.
    Senator Lautenberg. Well, I went to high school with 
several good friends, and someone I see even occasionally now. 
I was just curious about that. Now I don't have to be nice to 
you.
    Mr. Hinton. I hope that was the right answer. [Laughter.]
    Chairman Collins. I would have answered that ``yes'' had I 
been you, regardless. [Laughter.]
    Mr. Hinton. I wanted to be honest.
    Senator Lautenberg. Thanks anyway. They were a very 
distinguished family.
    I would like to ask this question, Ms. Boutelle. I commend 
you for the search you're on for better systems and trying to 
get hold of this. You have an enormous responsibility. I don't 
know what the size of the search is for flaws in the process, 
but the volume of transactions is enormous, when I hear that 
50,000 individuals were referred for review.
    I come out of the computer business. I am considered a 
pioneer in the field. As a matter of fact, I'm such a pioneer 
that I don't know what's happening any more.
    As you look at things and the process of audit, would you 
also be looking beyond raw numbers for the systems that got us 
to where we are? Are they under review as well, rather than 
drawing your conclusions from numbers that don't quite stand up 
to scrutiny?
    Have I made it clear? It's not simply an audit function, 
the traditional function of auditing, but rather an examination 
of internal procedures.
    Ms. Boutelle. We are actually doing a few things. The 
overarching process that we have in place is called the 
Business Management Modernization Program, where we are trying 
to build an architecture of our end to end processes, to truly 
look at the processes and build them in a way to where they're 
integrated with controls. What we have done in the past has 
been--and why we have all these stand-alone systems--if I can 
use a simple example of buying something, we have an 
acquisition system that stands alone. We have then----
    Senator Lautenberg. A purchasing system?
    Ms. Boutelle. A purchasing system, yes. So it's a system 
that issues contracts that doesn't go over and check with the 
accounting system first to make sure funds are available. They 
have a piece of paper that someone has signed saying funds are 
available, but they don't do that check the way the systems are 
designed.
    Then you move on to receiving whatever it was that you 
bought. Again, we do not have an integration of systems that 
says, ``gee, let me call up that purchase order and make sure 
that I'm receiving in what I bought.'' So we are looking at 
developing the processes from end to end, from the start of a 
transaction through finalizing it, after paying for it or 
issuing whatever it is, building that type of an overarching 
process.
    Senator Lautenberg. Not to cut you off, because what I'm 
looking for is to understand whether or not a no-bid contract, 
a commitment made--I don't know how that's verified. Are there 
letters that say, OK, here's what we want you to do? Do you 
look at no-bid contracts? Are you aware of contracts given 
without a bidding process that might run, say, over $100 
million? Does that catch your eye?
    Ms. Boutelle. Under my area of responsibility, I would have 
to say that how the acquisition folks went about awarding a 
contract I am not privy to. Once a contract has been awarded, 
then, of course, I want to make sure the obligation is recorded 
in the accounting system.
    Senator Lautenberg. How, then, can you check and see 
whether a commitment by the Defense Department has not gone 
awry if you have no guide as to what the magnitude of the 
expense might be? How do you check that?
    Ms. Boutelle. I'm going to attempt to answer what I think 
you're asking me.
    If someone was getting ready to do some type of a contract, 
they would have to go to the resource manager and obtain 
approval that funds were available, thus a commitment of funds, 
to go to the contracting officer so that there is a reservation 
of those funds prior to doing an award of a contract.
    Now, whatever part of the Department would be awarding that 
contract, there should be a record of that reservation of 
funds.
    Senator Lautenberg. I don't see the clock, Madam Chairman, 
but I'm trying to behave here, honestly.
    Chairman Collins. You have 14 seconds. [Laughter.]
    Senator Lautenberg. Very quickly, then--thank you. I will 
stop here, with the promise I will get another turn. Thank you 
very much.
    Chairman Collins. Thank you. Senator Pryor.
    Senator Pryor. Thank you, Madam Chairman.
    Mr. Kutz, I'm curious about how the Department of Defense 
compares to other agencies when it comes to reimbursable 
travel. Could you comment on that?
    Mr. Kutz. Are you talking from a volume perspective?
    Senator Pryor. Well, from volume, and a quality control 
perspective.
    Mr. Kutz. We haven't audited particular travel at other 
agencies that I'm aware of, but I think from a volume 
standpoint, DOD is enormous. For centrally-billed accounts in 
the government, DOD is over half of the several billion dollars 
a year that is spent on that.
    From a financial management perspective, from a broader 
perspective that's been discussed here, DOD financial 
management is one of four agencies that are on our high-risk 
list, so they are one of the ones that face the most 
significant challenges.
    I would say that the degree of difficulty that they face 
compared to any other agency in the government, and possibly 
any other organization in the world, is much more significant. 
But they have probably the most challenging environment and 
potentially the biggest problem with fraud, waste and abuse.
    Senator Pryor. Is it your view that the problems at DOD are 
related to lack of proper controls within the agency, or is it 
because DOD is such a large agency that it's next to impossible 
to manage? I would like to hear your thoughts on what the cause 
of this is.
    Mr. Kutz. I would say today indicates clearly, and all the 
other testimonies that Special Agent Ryan and I do on this, 
that there is a combination of human capital problems, 
breakdowns in the processes and controls, and the lack of 
effective automated systems. They all contribute.
    The questions from Senator Lautenberg to Ms. Boutelle 
talked about the automated systems not being integrated, making 
manual workarounds necessary and compensating controls 
necessary, to identify things like unused tickets and duplicate 
payments to employees. Effectively, both break down here. You 
have the systems that can't identify it, and then when you have 
the controls in place, the people aren't effectively following 
them, so the tickets don't get identified.
    Senator Pryor. In listening to all of this, I'm trying to 
think of a private sector example where a large company out 
there has the same type of problems. I'm not aware of one, and 
I don't think the stockholders would stand for it, and I don't 
think the taxpayers in our country should stand for this.
    I would like to ask Mr. Ryan something, a comment you made 
a few moments ago--if I can put it in my own words--it sounded 
like the DOD had been unresponsive to a number of complaints or 
files or cases that you had sent over. Could you comment on 
that further? I'm curious about DOD's attitude toward this.
    Mr. Ryan. Senator, I think you're correct. I don't believe 
that much time is given to thinking about how they're going to 
handle punishment in DOD, either administratively or 
criminally. I know from my previous life as an agent in the 
Federal Government, when we identified employees that were 
committing these types of crimes in the private industry we 
were asked to investigate, the first thing that was done was 
the employee was fired. The money was withheld or some type of 
administrative action was done.
    In the case that Senator Coleman spoke about in his 
statement, of the 44,000 employees--I believe it was some 9 
months ago when we had that hearing--no one has told me what 
has happened. I know that Colonel Kelly, who has testified 
before this Committee, has called me on several occasions 
trying to get data, but it didn't seem that the information was 
being passed down to managers in units and commands to do 
anything about these employees. There just didn't seem to be an 
urgency in trying to get to the root of the problem.
    In the case of one of the individuals that Senator Grassley 
spoke about, his supervisor didn't even know the employee was 
turning the vouchers in. He was not aware of when the employee 
was traveling, which allowed--I think oversight being the 
problem--it just allowed it to continue. It just continues.
    Senator Pryor. Ms. Boutelle, let me ask you a question--and 
I don't want this to be impertinent at all. It's just a matter 
of curiosity.
    I see you have a very thick three-ring binder in front of 
you, about four inches thick it looks like. What is that? Is 
that the DOD way?
    Ms. Boutelle. Actually, I have been on travel for the last 
2 weeks, so I came back in on Friday and, in preparation for 
this hearing, all of the good folks that are the subject matter 
experts, attempted to give me something to study, so that I 
would have the latest information to try to answer your 
questions. That's what this book is.
    Senator Pryor. I'm almost out of time here, but let me ask 
one last question just for general consideration.
    If you have an Army colonel, let's say, at Fort Knox, and 
he needs to fly to the West Coast on official business, what 
does he have to go through to get that ticket, to get there and 
back and make all those arrangements? What does he have to go 
through? What does he do?
    Ms. Boutelle. He has to go to his supervisor and request to 
travel. His supervisor has to approve the travel and identify 
the funding. Then the orders are used to obtain--Jerry, you 
correct me if I'm wrong on any of this--then his orders are 
used with the commercial travel office to obtain transportation 
for him. He has to make hotel reservations and whatever else he 
needs to do, and then a copy of his travel orders, of course, 
are sent to the transportation office.
    Most of the travel today is done on electronic ticketing. 
He gets an itinerary back from the transportation office. He 
shows up at the airport to get his ticket. He travels, he 
returns, and he files a settlement voucher to be reimbursed. It 
then has to go to his supervisor to be approved. It goes to 
whatever office is paying. If it is the Army, it would be DFAS, 
which computes the payment. If it's the Navy or Air Force, they 
have their own.
    Somebody at those locations would then do the review, 
compute the payment and disburse it, either completely to his 
account or a split disbursement, with part to the travel card 
account and part to the individual.
    That's kind of a quick summary. I don't know if I'm getting 
to whatever part of the process you're concerned about.
    Senator Pryor. That's great.
    Madam Chairman, that's all I have right now.
    Chairman Collins. Thank you, Senator.
    Ms. Boutelle, when we see the size of that notebook now, I 
feel like we have a lot of unanswered questions that you have 
the answers for. [Laughter.]
    Ms. Boutelle. I thought you were going to feel sorry for me 
reading this all weekend.
    Chairman Collins. I do.
    I do want to follow up on Mr. Ryan's comments about the 
lack of disciplinary action that appears to be a pattern in 
cases where DOD employees are suspected of committing fraud 
against the Department.
    Do you know what happened in the two cases that we have 
specifically discussed this morning?
    Ms. Boutelle. I can share with you the updates that I was 
given.
    I am told in the Mr. Johnson case that they have finished 
the investigation and that it has gone to the Navy, the Navy 
management folks, and they will be making a decision on what to 
do.
    I am told that in the Mr. Carter situation that he is being 
charged with five counts of embezzlement of public money, three 
counts of attempt to embezzle, eight counts of making false 
demands against the government, and that this is being sent to 
the U.S. Attorney for action. That is what I am told.
    Chairman Collins. Thank you. I would ask that you keep the 
Committee informed of subsequent actions in those two cases.
    It is my understanding, Ms. Boutelle, that the vast 
majority of the Department's airline tickets are electronic; 
they are what are known as e-tickets. Shouldn't e-tickets 
provide an opportunity to receive automatic credits for unused 
tickets, and isn't there also a possibility that the Department 
could institute some sort of policy that automatically cancels 
unused e-tickets after a certain period of time? It seems to me 
that would allow for recovery of refunds in a very pragmatic, 
straightforward way.
    Ms. Boutelle. You're absolutely correct. The fact that the 
vast majority are electronic tickets, there is the capability, 
I am told, by most of the commercial travel offices, to pull a 
report of unused electronic tickets, which we were not 
requiring through the contracts with those contractors in the 
past.
    Since GAO identified this, and we've been looking at it, we 
have issued a letter out of Mr. Boyanton's area, that Mr. Wynne 
has signed, requesting that the components modify those 
contracts to, in fact, have those reports pulled.
    We also had the Comptroller issue a letter that requires 
the components and the Defense agencies to cancel any ticket 
that is unused after 30 days from the last leg of the travel, 
so after that date has passed 30 days and they haven't 
traveled, to cancel that ticket also. So we are doing those 
things now.
    Chairman Collins. I think those are excellent reforms that 
really would make a difference.
    Mr. Ryan, I want to return to you and ask you more about 
GAO's undercover operation in which you were able to get an 
airline ticket based on a fake travel order. I recognize that 
there are certain details of this operation that you don't want 
to reveal, so if you believe any of my questions would 
compromise your ability to conduct future undercover 
operations, please feel free to just state that for the record.
    Could we start by your explaining who did you contact to 
get the ticket?
    Mr. Ryan. We contacted the commercial travel office, 
informed them we were a new employee in DOD with special 
project, and that we didn't have anything set up yet, but could 
they arrange for us to get an airline ticket. They were very 
accommodating.
    Again, as you have said in the past, you make business 
decisions over security decisions. We believe that this is 
where you can get the best bang for your buck when you're doing 
an undercover deal. So we made the phone call and they went 
ahead and made the airline arrangements and told us that we 
needed to fill out the proper travel authorization.
    Chairman Collins. Where did you find the form that you 
needed?
    Mr. Ryan. Everything that we needed is on DOD's web-site.
    Chairman Collins. So it's right on line, accessible to 
everyone?
    Mr. Ryan. Yes, and they actually give you instructions on 
how to create your own appropriation number. So that's what we 
did. By using everything that you can get off the website, we 
were able to do exactly what you guys all asked us to do.
    Chairman Collins. Did they ask you where your unit was 
located?
    Mr. Ryan. Ours was a special unit. We really couldn't tell 
them, so we told them it was black project.
    Chairman Collins. So you told them it was a classified 
unit, much too secret for you to reveal that information?
    Mr. Ryan. Yes, and we were new employees, so there was no 
real data on us yet.
    Chairman Collins. Did you just make up the names of the 
traveler and the approving official, or were they the names of 
actual DOD employees?
    Mr. Ryan. There's a lot of DOD employees, but I can assure 
you that----
    Chairman Collins. As far as you know, did you make up the 
names?
    Mr. Ryan. We have a series of names that we use for 
operations, and we just happened to use one of the names that 
was part of a package that we were using on another job. So 
that's what we did.
    Chairman Collins. You have done a lot of undercover work. 
We have worked with you before on a lot of different projects. 
It sounds to me like this was pretty easy to pull off. Is that 
a fair assessment?
    Mr. Ryan. It is a fair assessment. It is. Quite honestly, 
of all the stuff that the Committee has asked us to do, this 
was one of the easiest that we were able to do.
    Chairman Collins. What does that tell us then about the 
vulnerability of the DOD travel system?
    Mr. Ryan. I think that in working with Greg and his group, 
and John Kelly, who really was very instrumental in helping 
pull this together, too, it shows that DOD's travel system is 
vulnerable, not only vulnerable to a person who is creating a 
fictitious travel order, but as Mr. Kutz mentioned earlier, the 
fact that when there are discrepancies, no one is following up 
on those discrepancies.
    In this particular case, it was done for three reasons: 
One, to see if we could create the travel authorization, which 
we did; two, to see if we could travel--actually, there was a 
fourth reason--the third, to see if DOD would pay for it, 
because really, there was no obligation set aside to pay for 
this, so as it went through the cycle, they even paid for the 
ticket. They didn't know, until we told them. And the fourth 
element of this was to actually look to see if they would try 
to collect on the unused ticket because we had already told 
them in December about unused tickets. They actually didn't 
collect on the unused ticket. So it completed the circle of 
what we were trying to do.
    Mr. Kutz. I would add to that, Senator, that even when they 
did identify things in DOD--for example, I mentioned in my 
opening statement traveler No. 2 that Ms. Boutelle discussed, 
five times they were caught basically trying to put their 
airline ticket on their voucher and it got rejected. So there 
was clearly a pattern there of someone trying to get paid for 
something that they shouldn't have been paid for. The next 
seven that they filed, DOD paid them. So again, there was the 
situation where DOD identified five cases in a row and they 
sent it back and rejected the claim, and the next seven were 
paid.
    Chairman Collins. Did DOD explain why the next seven were 
paid?
    Mr. Kutz. I can't explain it. I don't know if Ms. Boutelle 
can, but I think some of them got caught as part of the voucher 
review process at Defense, and some didn't. But again, you had 
a pattern there that certainly should have raised--and maybe 
there are so many different people working these vouchers that 
they don't necessarily identify these suspicious activities for 
purposes of looking for fraud.
    Chairman Collins. Senator Lautenberg.
    Senator Lautenberg. Thank you, Madam Chairman.
    First I would like to ask you if we can keep the file open 
for a couple of days so that we can submit questions for the 
record.
    Chairman Collins. The record will be open for 15 days.
    Senator Lautenberg. Fine. Thank you.
    Couldn't there be a more positive identification for 
someone using a ticket? I mean, we now have identification 
developing even more skills for identifying terrorists. We 
ought to be able to identify who it is that is coming up with a 
ticket, as to whether or not they were the person for whom the 
ticket was really issued. I'm not talking about fingerprinting, 
but there are relatively simple systems. I'm surprised that we 
are not able to implement something like that. I don't know if 
there is so much movement of people around that it's 
impossible.
    Suppose there was a system--and the Chairman identified 
that, the fact that we should be able to have in place a 
routine examination of unused tickets. With the technology we 
have available now, it could be run once a week, identifying 
how many weeks behind since the ticket was issued where it has 
not been used. It's possible there's a legitimate reason, where 
someone may be doing some world travel on behalf of the Defense 
Department and they haven't gotten to the last leg of the 
journey for 3 months. But it would seem to me a very easy thing 
to highlight this and say here's a ticket that was supposed to 
be used on June 10, and here we are at June 17 and the ticket 
hasn't been used, and the next week, June 24, etc. It's such a 
simple system.
    I would suggest this. What would happen if we had a system 
of chargebacks, if a receipt was not turned in for that trip? 
That employee would then have to pay it back if they didn't 
have a receipt, as we all get when we take an airline trip in 
particular. You get a receipt. Either you turn that back or you 
turn in the cash. I think that's fairly simple. Would that 
sound like a decent idea?
    Mr. Kutz. From the standpoint of automatically identifying 
e-tickets that are unused--and I think Ms. Boutelle addressed 
that--there is the technology now to do that on a routine basis 
and not have to go through this refund process 6 months or a 
year after the fact. So hopefully the Department, working with 
the travel offices, will do that.
    With respect to the chargebacks, that's more of a 
Department policy. What we have seen, though, in the past, when 
employees have wasted government resources, we have never seen 
the Department ever require someone to pay a dime back. That's 
been our experience.
    Senator Lautenberg. But this is property that was obtained 
under a pledge that the employee automatically makes when they 
go to work for the Federal Government.
    By the way, Ms. Boutelle, is this auditing strictly related 
to employees of the Defense Department? How about employees of 
contractors? Do those bills, those requests, come under your 
jurisdiction?
    Ms. Boutelle. No, sir. Again, if a contractor employee was 
traveling, I believe the process is that it would be bought 
through the contractor, would be billed to us on the contract. 
So no, I would not be looking at that.
    Senator Lautenberg. So we have employees, and if an 
employee steals a chair or a computer from the government, 
that's a felony. I'm not saying there should be felonious 
processing if someone didn't turn in their voucher, but if they 
paid for it, I think that would sure get their attention. It's 
turn in the receipt or turn in the cash. It's pretty basic.
    I would ask another question, if I may. If there is a no-
bid contract, or cost-plus contract, how do you monitor that? 
If it's a no-bid contract, assuming it's a contract, but there 
is no bid, no formal arrangement, how do you know whether it's 
fair or unfair, appropriate or not?
    Ms. Boutelle. I wish I could answer that question. I'm not 
an expert in that area. We could certainly go back to our 
acquisition folks and take that question to them on how they 
oversee those types of contracts.
    Senator Lautenberg. Mr. Kutz.
    Mr. Kutz. No, I'm not that familiar with it. I believe 
that, again, without being an expert, there are certain 
procedures you have to go through for a no-bid that would have 
to be documented a certain way, so there should be a trail of 
documentation supporting a no-bid scenario, but it would not 
necessarily be a routine situation.
    Senator Lautenberg. I think Chairman Collins is absolutely 
correct, identifying this as a telltale about something going 
on, as I mentioned in this significant New Jersey newspaper. 
Can we assume it's a tip of the iceberg kind of thing? Is that 
a fair assumption, Mr. Ryan?
    Mr. Ryan. Senator, without looking at the details, and 
without getting involved in the case, it's hard to comment in 
generalities. I haven't done any work in that particular area, 
but until you actually pull back the layers, you ask the 
questions, look at the documents, that's when you find your 
answer. In all honesty, sir, I wouldn't want to make a comment 
because I don't have the facts.
    Senator Lautenberg. Fair enough. That doesn't prevent us in 
the Senate from answering those questions. [Laughter.]
    Chairman Collins. Senator Lautenberg, excuse me for 
interrupting, but the Majority Leader has just sent a note 
requesting that we be in our seats for the 11:30 vote. I just 
wanted to alert you both to that in case you want to comply 
with that request.
    Senator Lautenberg. I will do that, and I thank you, Madam 
Chairman.
    Chairman Collins. Senator Pryor.
    Senator Pryor. Madam Chairman, under those circumstances, 
maybe I should just submit my questions for the record and 
allow us to wrap up and get over there.
    Chairman Collins. Thank you.
    I do apologize to our witnesses. I did not realize that the 
vote was going to be a vote where we were supposed to be in our 
seats. That is an unusual situation, but certainly appropriate 
given the resolution that we're voting on.
    Ms. Boutelle, I'm going to ask you for the record to 
outline what steps DOD is taking to ensure that travel orders 
are valid, given the success of the GAO's undercover effort, 
and I will ask you to submit that for the record.
    Just one very quick question for Agent Ryan. Did DOD get a 
refund for the unused ticket that you bought?
    Mr. Ryan. Yes, after we told them.
    Chairman Collins. So you did bring it to their attention?
    Mr. Ryan. Yes, we did.
    Chairman Collins. Good.
    I want to thank our witnesses for being with us. I 
apologize that we weren't able to get to all of the questions 
because of the vote. That probably disappoints some of you and 
makes others of you happy. [Laughter.]
    Again, I want to commend GAO for its excellent work in this 
area. I think it is really important that we have an obligation 
to the taxpayers--and I know the DOD employees and officials 
agree with that--to make sure we're not wasting dollars. The 
work that you do is just critical to highlighting 
vulnerabilities in the system so that we can act to correct 
them. So thank you for your good work. We look forward to 
working with DOD to correct these problems and to strengthen 
the Department's financial management.
    The hearing record will be held open for 15 days. I want to 
thank my staff for their excellent work, also. This hearing is 
now adjourned.
    [Whereupon, at 11:27 a.m., the Committee adjourned.]


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