[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
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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
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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
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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.]
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\1\ The prepared statement of Senator Grassley appears in the
Appendix on page 27.
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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.
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\1\ The prepared statement of Ms. Schakowsky appears in the
Appendix on page 30.
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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.
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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.]
A P P E N D I X
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