[Congressional Record (Bound Edition), Volume 148 (2002), Part 3]
[Senate]
[Pages 3359-3362]
[From the U.S. Government Publishing Office, www.gpo.gov]




                 DEPARTMENT OF DEFENSE CREDIT CARD USE

  Mr. GRASSLEY. Mr. President, it is quite obvious to everybody that 
the United States is at war and that every effort must be made to 
support our men and women in uniform, particularly those who are 
putting their lives on the line. And who knows, that might be anybody 
who is in the military at a time of war. You don't go to war if you 
don't go to war to win.
  It is with some frustration that I address the Senate on a problem 
within the Department of Defense where it seems as if everybody is not 
pulling together as a team ought to pull together in order to win the 
war.
  I want to share my views on the latest results of an ongoing 
oversight investigation of the Department of Defense credit card use. 
This is a joint effort supported by the General Accounting Office. I 
have had the privilege of teaming up with Congressman Horn of 
California on this issue. What we are trying to do is put the spotlight 
on a very costly problem at the Department of Defense. The Pentagon is 
a bureaucratic place and, as most bureaucratic places, if there are 
problems, the glare of the public spotlight is never welcome. But 
shedding light is the heart and soul of one of our most important 
responsibilities as Members of Congress, and that is to do oversight 
and make sure the laws are faithfully executed and that the money is 
spent according to the intent of Congress. Too often, we just spend our 
time worrying about passing laws rather than making sure laws are 
followed and money is

[[Page 3360]]

spent according to the intent of Congress. So oversight is very 
important.
  This is a way of bringing exposure to problems, and exposure is a 
great remedy enhancer. Every time I peer into the inner recesses of the 
Department of Defense credit card account, I see more abuse and fraud 
and that makes me ask myself: How bad can it really get? So we need to 
keep the spotlight on full power and the beam focused until we get to 
the bottom of the pit and figure out what needs to be done.
  Today there are 1.7 million Department of Defense credit cards in 
circulation that generate over $9 billion in expenditures annually. 
There are two types of credit cards: purchase cards and travel cards. 
There are 1.4 million travel cards versus only 200,500 purchase cards. 
Most of the dollars, however, are on purchase card transactions, albeit 
that there is only about 12 percent as many purchase cards as travel 
cards. So we have $6.1 billion per year generated versus $3 billion for 
the travel cards.
  A credit card, as everybody knows, is a financial instrument. It is, 
in fact, a license to spend money. Every shred of evidence that I have 
seen says that the internal controls at the Pentagon are weak or 
nonexistent. Credit cards in a zero-controlled environment are very 
dangerous and not very good for the taxpayers of this country. That 
means there is an army of 1.7 million strong, authorized to spend money 
with no checks and balances. The potential for abuse and fraud is 
virtually unlimited.
  I understand the thinking behind the credit cards when they were 
first put out by the Defense Department. That thinking and the theory 
behind it is very good. Unfortunately, it is the execution that is so 
poor. We want the men and women serving in the Armed Forces to have the 
tools they need to carry out their duties effectively. A credit card is 
one of those modern devices that is supposed to make it easier for them 
to get the job done quickly and effectively, without a whole lot of 
wasteful paperwork. Who is going to argue with Government having less 
paperwork? But in simplifying the travel and purchase processors, each 
cardholder is given the authority to spend money. The authority to 
spend money in the name of the taxpayers is an awesome responsibility. 
That authority carries heavy responsibilities.
  Unfortunately, this awesome responsibility is not taken very 
seriously at the Pentagon. That criticism is not directed at Secretary 
Rumsfeld. He is trying hard to clean up a longstanding financial mess. 
My criticism is directed at the bureaucrats who are supposed to oversee 
the program. The Department of Defense credit cards are issued willy-
nilly with no credit checks. Just think of that--credit cards to people 
who are not given credit checks. The results are predictable. The cards 
are being abused with impunity. The Department of Defense credit cards 
are being taken on shopping sprees and the cardholders think they are 
immune from punishment. The sad commentary is that they are immune from 
punishment. They should not be, but they are. That is the way it works 
out, I guess.
  We have zero accountability with purchase cards and zero 
accountability with travel cards--until recently. There is a little 
improvement in the area of travel cards. Now, the fact that there is 
zero accountability is a root cause of the problem. That is why we have 
to be overseeing this issue regularly--because of the lack of 
accountability. If there was accountability, none of this would be 
happening.
  The General Accounting Office is reporting on how bad the problem 
really is. The General Accounting Office has examined 300 transactions 
at two Navy offices in San Diego. Now, just 300 transactions might 
sound to be too little to draw some conclusions, but the results just 
from those 300 are devastating and supports the evidence of a lack of 
accountability. Despite such a small sample, the General Accounting 
Office has uncovered extensive fraud and abuse, and more is being found 
each day.
  This is the tip of the iceberg, and here is a sample of how these 
credit cards are abused: in bars, strip joints, and gambling casinos; 
for large cash withdrawals from ATM machines; clothing at upscale 
department stores, such as Macy's and Nordstrom; designer leather goods 
and expensive luggage; gift certificates, $1,500 each; $200 robots at 
Toys 'R Us; groceries, kitchen appliances, and home computers. Get 
this. They were even used for breast enlargement operations. You name 
it, it seems as if the people who have these credit cards do it, and it 
is all personal business. If they need it, they buy it with Department 
of Defense plastic, and they keep what they buy, no questions asked.
  Now, there is a proposal to raise the purchase limit from $2,500--
where it is now--to $25,000. As I see it, if that price goes up, if 
that purchase limit goes up, new cars and homes are next, rather than 
groceries and home computers.
  The General Accounting Office's 300-transaction sample, with just 300 
people being investigated, yielded over a half million dollars in 
fraudulent and abusive purchases. Either the taxpayers or the bank gets 
stuck with the bill, depending upon which card is used. So in the case 
of the purchase card, when shopping is done, the Government is 
responsible for paying the bill, and most bills are paid promptly with 
no questions asked. With a purchase card, the taxpayers get shafted 
upfront. To my knowledge, the Government has never asked anyone to 
return an unauthorized purchase or repay the money, even when abuse is 
known to the authorities.
  In the case of travel cards, by comparison, the responsibility of the 
individual cardholder goes with the travel card expenses. The taxpayer 
at this point is out of the loop, at least upfront, but I will tell you 
how they get stuck in the end.
  When the cardholder of a travel card incurs legitimate travel 
expenses, that person is supposed to file a travel voucher, get 
reimbursed, and then pass the money on to the bank; in this case, the 
Bank of America has all these credit cards.
  All too often, the cardholder simply pockets the money, the tax 
dollars, and then the bank, when the cardholder does not pay the bill, 
is left holding the bag. When the travel card is used to cover personal 
expenses, which happens with alarming regularity, those bills are paid 
late, very late, sometimes never, and in this case the military 
personnel or the Department of Defense employees have no interest 
charges, so the abuser gets an interest-free loan.
  The bank has equipped the Pentagon with an antifraud detection 
device. It is called EAGLS. It gives agency program coordinators an 
online capability to detect unauthorized transactions on any account, 
and it only takes a second to determine if a trooper is getting cash at 
a local ATM machine without orders, but it does not work because no one 
is minding the store.
  As I said at a hearing last July when I first brought this up, if the 
Pentagon knows this is happening and if the Pentagon does nothing, it 
seems to me that makes the Department of Defense party to this bank 
robbery, and the robbery is still in progress.
  We have a bank upfront sustaining unacceptable losses and all 
consumers doing business with that bank pay higher prices, and in the 
end the taxpayers get shafted, too, because when the bank has to write 
off this bad debt, it is written off as a business expense and that 
bank pays less corporate taxes to the Federal Treasury.
  The only difference with the purchase card is the taxpayers get 
shafted upfront. In the case of Bank of America being shafted first, if 
they have to write this off as bad debt--and there is a lot of bad 
debt--they do not pay as much taxes, and so the taxpayers pay anyway.
  The bank has reached a breaking point. Remember, this is the Bank of 
America. It is losing too much money. So on February 11, 2001, the bank 
fired a warning shot across the bow. The bank is turning up the 
pressure. It declared its intent to cancel the U.S. Army account, 
413,029 of these cards at midnight, this month, this year. That got 
somebody's attention in a hurry, and negotiations are underway between 
the Bank of America and the Department of Defense.
  Mr. President, you might say there is a glimmer of hope on the 
horizon, and

[[Page 3361]]

the reason for hope comes from a brandnew Department of Defense policy 
called salary offsets. One might call it garnishment of salary.
  Before I explain this new policy, it is important to understand why 
the Department of Defense travel card program is teetering on the brink 
of disaster.
  As of November last year, 46,572 Department of Defense personnel had 
defaulted on more than $62 million in official travel expenses, and the 
bad debt was growing at the rate of $1 million per month, making the 
Department of Defense default rate six times the industry average.
  Here is a government, which is supposed to be setting a good example, 
having a default rate six times what the bank would normally expect 
from anybody else using credit cards.
  For a business that is interested in profit, a pile of bad debt, like 
what I am talking about, with no accountability makes for an 
intolerable situation. Something had to give.
  In October of last year, the bank and Department of Defense agreed to 
take action. The salary offset program was born. There are now 31,579 
accounts enrolled in the offset program; in other words, a garnishment 
of wages. So far, the offset payments total $5.2 million.
  Salary offsets provide some measure of accountability, but there are 
limitations. For one, the money was taken from the bank in big chunks, 
but it is repaid in little dribbles here and there over a long period 
of time. There are loopholes. Ten percent of the unpaid accounts will 
slip right through the net due to retirements, bankruptcies, and dollar 
offset limits. The bank still expects about $2 million to $4 million a 
year to fall through the cracks and be written off as bad debt, but 
that is considered somewhat better because that is consistent with the 
industry average.
  In addition, most of the older accounts in default will never be 
captured by offsets. The bank will still have to eat $40 million of 
unrecoverable debt. Even though there is not any hard data yet, the 
bank expects salary offsets to reduce the default rate, in their words, 
to negligible levels. That is the good news, but there is still bad 
news.
  Salary offsets are having little or no effect on the high delinquency 
rates. Delinquencies have actually risen since the salary offset policy 
has been put in place. That is because offsets do not kick in for 120-
plus days, 4 months past billing. Payments are due within 30 days of 
billing.
  Today the Department of Defense has outstanding balances of $370 
million. About 30 percent of the dollars owed for official travel 
expenses are more than 30 days past due, and 15 percent are 60 days 
past due. One in five Department of Defense accounts is overdue for 
payment. That is four to five times the industry average.
  The 3-month gap between the payment due date and offsets means the 
bank has to float a loan--it is a free loan for Department of Defense 
abusers--that costs the bank $4 million to $5 million a year.
  Wouldn't you like to get an interest-free loan this way by using a 
Government credit card?
  A prime driver behind delinquencies is the use of the card to cover 
personal expenses. Mr. President, you may remember I mentioned several 
cases in a speech last year about egregious abuse of the Department of 
Defense credit cards. There is the case of Marine Sgt. A. Lopez who ran 
up a $19,581 bill for personal expenses and then left the service and 
the unpaid bill when his enlistment was up.
  We have a person by the name of P. Falcon, Army, with an unpaid bill 
of $9,847, including $3,100 spent at a nightclub. We have a dead sailor 
named T. Hayes who spent $3,521; Q. Rivera, Army Reserve, whose wife 
spent $13,011 on a shopping spree in Puerto Rico. And we have R. 
Walker, Air National Guard, with an unpaid balance of $7,428, including 
his wife's gambling debts.
  Now, in the past 8 months, since this was exposed, only one of these 
accounts has been paid off, and that was P. Falcon, who had the bill 
for $9,847, including $3,100 spent at the nightclub. He has paid his 
bill. Every expense posted to his account was personal. However, he is 
under investigation.
  The others have the same large, unpaid balances that I told my 
colleagues about last July. Some are under investigation. More 
aggressive offsets and late fees might help to bring this kind of abuse 
to a screeching halt. I hope the Defense Department proceeds down that 
course.
  Some real leadership at the top would also help. One of the most 
powerful elements of leadership is a setting of examples of excellence. 
Setting a good example should include paying credit card bills on time.
  Officers in our military branches should always set the example. 
Unfortunately, the bad news is there are 713 commissioned officers who 
have defaulted on $1.1 million in charges. All of these accounts are in 
chargeoff status or unpaid for 7 months or more. The rank of these 
officers ranges from junior lieutenants up to senior colonels and a 
Navy captain. Individual unpaid balances top out at $8,000. Some of the 
charges on these accounts look suspicious and need investigation.
  Commissioned officers who run up $1.1 million in bad debts set a 
terrible example for the rank and file. Somebody over in the Pentagon 
needs to come down hard on officer scofflaws.
  Credit card abuse in the military will never stop until officers 
clean up their act. I have provided a list of these 713 commissioned 
officers who defaulted on their accounts, along with the unpaid balance 
for each officer. I have also sent a letter to Secretary Rumsfeld 
because I want him to see the list and determine what action should be 
taken in this matter because officers should be setting an example, 
although anybody who commits this sort of action is doing wrong, 
particularly in time of war when every resource we have in the Defense 
Department and elsewhere ought to go towards winning that war.
  One last example: The General Accounting Office has uncovered a 
disturbing case involving alleged purchase and travel card fraud by one 
person, Ms. Tanya Mays. She was assigned to the Navy Public Works 
Department San Diego. Ms. Mays took her purchase card on a Christmas 
shopping spree, and in a few short days ran up a bill of $11,551 at 
Macy's, Nordstrom, and Circuit City. She bought gift certificates worth 
$7,500, a Compaq computer, Amana range, groceries, and clothing, all at 
taxpayer expense.
  She presented the bill to her Navy supervisor who signed and 
certified for payment, and it was paid in full. She also used her 
travel card to buy airline tickets for her son that cost another $722. 
When Ms. Mays left the Public Works Department, she was allowed to keep 
her purchase card. I guess they figured she might need it again, and 
they were right. She did, this time for a personal car rental, and 
Public Works gladly paid the bill.
  I find this Mays case very troublesome. She has allegedly made a 
number of fraudulent purchases. Yet there seems to be a total disregard 
for accountability. Ms. Mays has not been asked to repay the money she 
allegedly stole. No disciplinary action has been taken. In fact, she 
was moved to a bigger job and given a promotion in October 2001. She is 
now assigned to the Army's top level financial management office in the 
Pentagon, and I am told she is in charge of cash integration.
  When one of these cases is put under a microscope, it seems as if the 
whole problem comes into sharper focus.
  Her case is not unique. There is another one. I am going to call him 
Nick. His last name is Fungcharoen. I am not going to repeat that, 
obviously. He used his travel card exclusively for personal expenses. 
Over a period of 2 years, he charged nearly $35,000, including medical 
expenses of $4,000. On the surface, it appears as if he spent most of 
the money romancing a waitress he met at the Hooter's Bar and Grill in 
Jacksonville, FL. Her name was Jennifer Gilpin.
  After they got to know each other, she asked him for money to have 
her breast enlargement operation. He agreed and took her to a surgeon. 
Dr. John J. Obi, M.D., performed the operation, and Nick used his 
Department of Defense credit card to pay the bill.

[[Page 3362]]

  When the relationship soured, the case ended up in small claims 
court. Nick had retired on disability and wanted his money back. The 
judge became alarmed that Nick testified proudly he had used his 
government-issued credit card to pay the doctor. Nick whipped out the 
card in the courtroom and showed it to the judge. The judge examined 
the card and read the inscription that says, ``for official government 
travel only.''
  The judge stated in total disbelief, ``You paid for this breast 
enlargement with a government credit card?''
  After the revelation, the judge simply said, ``Let's not go there.''
  That case is unique. It is unique because the cardholder paid his 
bill, though not always on time. So I have two problems with all of 
that.
  The point is, we have to get this stopped. We have to make sure all 
of the resources of the Defense Department are not used for playing 
games with government credit cards but are used to make sure we win the 
war on terrorism.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Jeffords). The Senator from Indiana is 
recognized.
  Mr. LUGAR. Mr. President, I ask unanimous consent that I be allowed 
to speak for 25 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Senator from Indiana is recognized.
  Mr. LUGAR. I thank the Chair.
  (The remarks of Mr. Lugar pertaining to the introduction of S. 2026 
are located in today's Record under ``Statements on Introduced bills 
and Joint Resolutions.'')
  Mr. LUGAR. Mr. President, I yield the floor. I suggest the absence of 
a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. REID. Mr. President, if morning business is closed, what would be 
the order before the Senate?
  The PRESIDING OFFICER. Under the previous order, the Senate would 
proceed to H.R. 2356.

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