Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud
and Abuse (23-DEC-02, GAO-03-147).
Poor oversight and management of DOD's travel card program has
led to high delinquency rates, costing DOD millions in lost
rebates and increased ATM fees. As a result, the Congress asked
GAO to report on (1) the magnitude, impact, and cause of
delinquencies, (2) the types of fraudulent and abusive uses of
the travel card, and (3) the effectiveness of internal controls
over DOD's travel card program. GAO previously reported on travel
card management at the Army. This report focuses on travel card
management at the Navy, including the Marine Corps.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-147
ACCNO: A05774
TITLE: Travel Cards: Control Weaknesses Leave Navy Vulnerable to
Fraud and Abuse
DATE: 12/23/2002
SUBJECT: Financial management
Smart cards
Strategic planning
Travel allowances
Travel costs
Internal controls
Military cost control
Fraud
Program abuses
Naval personnel
Navy Travel Card Program
Army Travel Card Program
DOD Travel Card Program
Federal Employees Retirement System
Civil Service Retirement System
Electronic Account Government Ledger
System
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-03-147
A
Report to Congressional Requesters
December 2002 TRAVEL CARDS Control Weaknesses Leave Navy Vulnerable to
Fraud and Abuse
GAO- 03- 147
Letter 1 Results in Brief 3 Navy Has High Delinquency and Charge- off
Rates but Recent
Actions Have Resulted in Some Improvements 7 Potentially Fraudulent and
Abusive Travel Card Activity 23 Weak Overall Control Environment and
Ineffective Travel Card
Program Controls 39 Statistical Tests of Key Control Activities 51
Conclusions 54 Recommendations for Executive Action 55 Agency Comments and
Our Evaluation 58
Appendixes
Appendix I: Background 61 Travel Card Program Guidelines 63 The Navy
Travel Process 64
Appendix II: Objectives, Scope, and Methodology 74
Appendix III: Navy Major Command Delinquency Rates 81
Appendix IV: Navy Personnel Grade, Rank, and Associated Basic Pay Rates 82
Appendix V: Comments from the Department of Defense 84 Tables Table 1:
Cumulative Charge- offs and Recoveries and Delinquencies
by Military Service 9 Table 2: Outstanding Balance and Delinquency Rate as
of March 31,
2002, by Major Navy Commands 14 Table 3: Examples of Potentially
Fraudulent Activities 25 Table 4: Examples of Abusive Travel Card
Activity, Fiscal Year 2001 through March 31, 2002 28
Table 5: Examples of Abusive Travel Card Activity Where Accounts Were
Charged Off or Placed in Salary Offset 31 Table 6: Examples of Abusive
Activity Where the Cardholders Paid
the Bills 35 Table 7: Average Ratio of Fiscal Year 2001 Cardholders to
APCs at Navy Sites Audited 45
Table 8: Results of Testing of Key Internal Controls 52
Table 9: Comparison of Number of Individually Billed Travel Cardholders
and Related Charges for DOD versus Total Federal Government Charges for
Fiscal Year 2001 62 Table 10: Population of Fiscal Year 2001 Travel
Transactions at Navy
Units Tested 77 Table 11: Estimates of Fiscal Year 2001 Transactions That
Failed
Control Tests for Approved Travel 78 Table 12: Estimates of Fiscal Year
2001 Transactions That Failed
Control Tests for Accurate Travel Voucher Payments 79 Table 13: Estimates
of Fiscal Year 2001 Transactions That Failed
Control Tests for Timely Submission and Processing of Travel Vouchers 79
Table 14: Navy Major Command Delinquency Rates (By Quarter) for
the 2 Years Ending March 31, 2002 81 Table 15: Navy Military Grades,
Ranks, and Associated Average
Basic Pay Rates for Fiscal Year 2001 82 Table 16: Marine Corp Military
Grades, Ranks, and Associated Basic
Pay Rates for Fiscal Year 2001 82 Table 17: Civilian Grades and Associated
Basic Pay Rates for
Calendar Year 2001 83 Figures Figure 1: Navy, Army, Other DOD, and Non-
DOD Civilian Agencies
Travel Card Delinquency Rates for the 2- Year Period Ending March 31, 2002
8 Figure 2: Navy Delinquent and Total Outstanding Travel Card Balances by
Military Grade and Civilian Populations as of
September 30, 2001 10 Figure 3: Navy Delinquency Rate by Military Grade
and Civilian
Populations Compared to Navy*s Average as of September 30, 2001 11 Figure
4: Fiscal Year 2001 Navy Charge- offs by Military Grades and
Total Civilian Populations 12 Figure 5: Navy Travel Card Charge- off and
Recovery History from October 1, 2000, to March 31, 2002 19
Figure 6: Overview Flowchart of the Navy Travel Process 65 Figure 7:
Travel Card Application 67 Figure 8: Required DOD and Bank of America
Delinquency Process
Management Actions 71
This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
copyrighted graphics, images or other materials. Permission from the
copyright holder may be necessary should you wish to reproduce copyrighted
materials separately from GAO*s product.
Letter
December 23, 2002 The Honorable Charles E. Grassley Ranking Minority
Member Committee on Finance United States Senate The Honorable Stephen
Horn Chairman The Honorable Janice D. Schakowsky Ranking Minority Member
Subcommittee on Government Efficiency, Financial Management and
Intergovernmental Relations Committee on Government Reform House of
Representatives
On October 8, 2002, we testified 1 before the Subcommittee on Government
Efficiency, Financial Management and Intergovernmental Relations, House
Committee on Government Reform, on the results of our audit of internal
controls over travel activity at the Department of the Navy (including the
United States Marine Corps). During fiscal year 2001, the Navy had about
395,000 individually billed travel card accounts and $510 million in
related travel card charges. In contrast to the purchase card program,
where charges are billed directly to the government for payment, the
individually billed travel cardholder is directly responsible for all
charges incurred on his or her travel card account and for remitting
payments on the monthly bill to the card issuer, Bank of America. The
cardholder is expected to use the government travel card only for valid
expenses related to official travel and to submit a properly documented
voucher to get reimbursed for valid expenses. The intent of the travel
card program was to improve convenience for the traveler and to reduce the
government*s costs of administering travel (see app. I for additional
background information on the Navy*s travel card program). While we
support the use of a travel card program to streamline the administration
of official government travel, it is important that agencies have adequate
internal controls in place to protect the government from fraud, waste,
and abuse. 1 U. S. General Accounting Office, Travel Cards: Control
Weaknesses Leave Navy Vulnerable to Fraud and Abuse, GAO- 03- 148T
(Washington, D. C.: Oct. 8, 2002).
This work was performed in response to your request for a comprehensive
examination of the Department of Defense*s (DOD) and the military
services* purchase and travel card programs. We have previously reported
on the results of our Army travel card audit 2 and will be reporting on
the results of our Air Force travel card audit. This report provides
details and results of our Navy travel card audit, which was summarized in
our recent testimony.
The objectives of our audit of the Navy*s travel card program were to
determine, for fiscal year 2001 and the first 6 months of fiscal year
2002, (1) the reported magnitude and impact of delinquent and charged- off
Navy travel card accounts, along with an analysis of related causes and
DOD and Navy corrective actions, (2) whether indications existed of
potentially
fraudulent and abusive activity 3 related to the Navy travel cards, and
(3) the effectiveness of the overall control environment and key internal
controls for the Navy*s travel program. To achieve these objectives, we
analyzed the Navy*s account delinquency and charge- off information and
compared it to
that of non- Navy DOD components and other federal agencies. We also used
data mining techniques to review Navy transactions for potential fraud and
abuse. In addition, we evaluated the effectiveness of selected, specific
internal control policies, procedures, and activities at 3 Navy
installations, representing 3 of the Navy*s 27 major commands. 4
2 U. S. General Accounting Office, Travel Cards: Control Weaknesses Leave
Army Vulnerable to Potential Fraud and Abuse, GAO- 03- 169 (Washington, D.
C.: Oct. 11, 2002). 3 We defined potentially fraudulent activity as any
scheme, or pattern of activity, related to the use of a travel card in
apparent violation of federal or state criminal code. For purposes of this
report, we considered as potentially fraudulent cases where cardholders
wrote three or more nonsufficient fund checks or checks on closed accounts
to pay their Bank of America bills. We considered abusive travel card
activity to include (1) personal use of the card* i. e., any use other
than for official government travel* regardless of whether the cardholder
paid the bill and (2) cases in which cardholders were reimbursed for
official travel and then did not pay Bank of America, and thus benefited
personally. Some of the travel card activity that we categorized as
abusive would be potentially fraudulent if it can be established that the
cardholders violated any element of federal or state criminal code. In
both types of activities in which the cardholders did not pay the bills,
we considered abuses to include cardholders whose accounts were eventually
charged off by Bank of America or referred to a payment plan by salary
offset or other fixed pay agreement.
4 Of the 27 major Navy commands, 13 had outstanding travel card balances
of $1 million or more as of September 30, 2001. We further considered
other factors such as past due and charged- off accounts and inclusion of
a Marine Corps unit for adequate representation in narrowing these 13
commands to the 3 we selected for further audit testing.
We selected the three installations we audited based on the relative
amount of travel card activity at the different Navy commands and of the
installations under these commands, the number and percentage of
delinquent accounts, and the number and percentage of charged- off
accounts. For these installations, we tested a statistical sample of
travel card transactions and conducted other audit work to evaluate the
design
and implementation of key internal control procedures and activities. Our
statistical sample test results can be projected only to the individual
installations where we performed the testing and cannot be projected to
the command level or to the Navy as a whole. Through auditing travel card
transactions at the three installations during fiscal year 2001, and data
mining of transactions incurred throughout the Navy during fiscal year
2001 and the first 6 months of fiscal year 2002, we identified numerous
examples of potentially fraudulent and abusive travel card activity.
However, our work was not designed to identify, and we cannot determine,
the extent of potentially fraudulent and abusive activity. Appendix II
provides details on our scope and methodology. We conducted our audit work
from December 2001 through October 2002 in accordance with U. S. generally
accepted government auditing standards, and we performed our investigative
work in accordance with standards
prescribed by the President*s Council on Integrity and Efficiency. We
received written comments on a draft of this report from the Under
Secretary of Defense (Comptroller) dated December 5, 2002. We addressed
DOD*s comments in the *Agency Comments and Our Evaluation* section and
reprinted them in appendix V. Results in Brief For fiscal year 2001, the
Navy had significant breakdowns in internal
controls over individually billed travel cards. These breakdowns
contributed to the significant delinquencies and charge- offs of Navy
employee account balances and potentially fraudulent and abusive activity
related to the travel card. The breakdowns resulted primarily from a weak
control environment, flawed policies and procedures, and a lack of
adherence to valid policies and procedures. Most Navy travel cardholders
used the travel cards for authorized official government travel expenses
and paid the amounts owed to Bank of America promptly. However, the Navy*s
average delinquency rate of about 12 percent over the last 2 years is
nearly identical to the Army*s, which is the highest delinquency rate in
the federal government, and about 6 percentage points higher than that of
federal civilian agencies. In addition,
from November 1998 through March 2002, Bank of America charged off over
13,800 Navy travel card accounts totaling about $16.6 million. The Navy*s
delinquency and charge- off problems are primarily associated with low- to
midlevel enlisted military personnel. These delinquencies and charge- offs
have cost the Navy millions of dollars in lost rebates, higher fees, and
substantial resources spent pursuing and collecting on delinquent
accounts. In response, in November 2001, the Navy and DOD began offsetting
wages of certain military and civilian employees, as well as retirement
benefits of military retirees whose accounts were delinquent or had been
charged off. DOD and the Navy also encouraged increased use of
the split disbursement payment process, in which cardholders elected to
have part or all of their reimbursements sent directly to Bank of America
for payment of their travel card bills. These and other actions have begun
to significantly reduce the number and dollar value of charge- offs during
fiscal year 2002. However, these actions are primarily focused on treating
the symptoms, or *back- end* problems, such as delinquencies and
chargeoffs, rather than the *front- end,* or preventive controls, such as
the weak overall control environment and specific travel program control
weaknesses.
Our work identified numerous instances of potentially fraudulent and
abusive activity during fiscal year 2001 and the first 6 months of fiscal
year 2002. During this period, more than 250 Navy employees might have
committed bank fraud by writing 3 or more nonsufficient fund (NSF) checks.
In one case, a petty officer wrote 12 NSF checks, totaling $61, 000, to
Bank of America. The government cards were also used for numerous
abusive transactions clearly not related to government travel. As part of
our statistical sampling work at three audit sites, we projected that
personal use of the travel cards in fiscal year 2001 ranged from 7 percent
at one Navy installation to 27 percent at another. Government travel cards
were used for inappropriate transactions at legalized brothels,
gentlemen*s clubs, cruise lines, jewelry stores, and sporting and theatre
venues. During the period under audit, 50 Navy employees purchased more
than $13,000 in prostitution services from two known legalized brothels.
An additional 137 individuals charged more than $29,000 at gentlemen*s
clubs, which provide adult entertainment. Some of these individuals
circumvented their travel card cash limits by converting the card to cash
or *club cash* at these adult entertainment establishments and paying a
surcharge that was as high as 10 percent. To illustrate, one cardholder
charged $2, 420 at one of these clubs
in exchange for $2, 200 in cash. The $2, 200 in cash and the 10 percent
fee of $220 were processed as a restaurant charge.
Another frequent form of abuse was the failure to pay the travel card
bill. Many individuals who used the cards for inappropriate purposes also
failed to pay their accounts. Others abused the travel card by failing to
pay charges associated with official government travel, even though they
had been reimbursed. However, we did not find documented evidence of
disciplinary actions against many Navy personnel who abused the cards. Of
the 10 individuals we reviewed who made improper charges but paid
their bills, only 1 had evidence of disciplinary action. In addition, of
the 57 individuals we reviewed who wrote NSF checks or whose accounts were
charged off or put in salary offset, 37 were apparently not disciplined,
and 27 still had active secret or top- secret clearances as of August
2002. Navy
personnel with security clearances who have financial problems may pose
security risks to the Navy. Our audit found that weaknesses in the Navy*s
overall control environment,
including a number of specific controls that were either flawed in their
design or in their implementation, are the root causes of the Navy*s
inability to prevent and/ or effectively detect the numerous instances of
potentially fraudulent and abusive travel card related activity. During
fiscal year 2001, management at the three units we audited was primarily
focused on delinquencies and did not implement sufficient front- end
controls to prevent severe credit problems or promptly detect or prevent
potentially fraudulent and abusive activities. In general, the Navy did
not provide an adequate control infrastructure* primarily in the area of
human capital*
to manage its travel card program and effectively prevent or provide for
early detection of travel card misuse. Agency program coordinators (APC),
who have the key responsibility for managing and overseeing travel
cardholders* activities, were given little opportunity to succeed. Some
were assigned APC responsibilities as collateral duties, while others had
oversight of a large number of cardholders* for example up to 6,000
cardholders for the APC at one installation. Many did not have adequate
time to follow up with delinquent cardholders and perform detailed review
of transaction activities. Others had not received adequate training and
were not proficient with the tools available for travel card management.
In fact, Bank of America data show that 23 percent of APCs had never
logged on to the Web- based system containing travel card transaction
data. In contrast, proactive actions of the APC at one Navy site we
audited contributed to that site*s low delinquency rate.
Additionally, critical weaknesses existed in other controls the Navy
relied on to manage its travel card program. For example, many problems we
identified were the results of ineffective controls over issuance of the
travel
cards. Although DOD*s policy allows exemptions from the use of travel
cards for certain groups or individuals, we found that, without exception,
any Navy personnel who requested the card were authorized to have one,
regardless of credit history. We found that individuals who had histories
of prior credit problems tended to be those who committed travel card
fraud
and abuse. The prior and current credit problems we identified for Navy
travel cardholders included charged- off credit cards, bankruptcies,
judgments, accounts in collections, and repeated writing of NSF checks.
As a result of similar findings from our work on the Army and Navy travel
card programs, the Congress has taken actions in the fiscal year 2003
Defense Appropriations Act, Public Law 107- 248, to require the Secretary
of Defense to establish guidelines and procedures for disciplinary actions
to
be taken against cardholders for improper, fraudulent, or abusive use of
the government travel card and to deny issuance of government travel cards
to individuals who are not creditworthy. Further, in the Bob Stump
National Defense Authorization Act for Fiscal 2003, (Public Law 107- 314),
the Congress authorized the Secretary of Defense to require the split
disbursement procedure for all travel cardholders, and clarified the
authority of the Secretary to offset delinquent travel card debt against
the pay or retirement benefits of DOD civilian and military employees and
retirees. In this report, we provide additional recommendations to the
Navy to strengthen the overall control environment for its travel card
program and improve specific internal controls. Our recommended actions
are in the areas of card issuance, monitoring, review, and travel voucher
and payment processes.
In written comments on a draft of this report, DOD concurred with 21 of
our 23 recommendations and described actions completed, under way, or
planned. DOD partially concurred with our recommendations regarding
(1) establishing Navy- wide procedures requiring that supervisors and
commanding officers notify the APCs of actions taken with respect to
delinquent cardholders and (2) having commanders at each unit identify
causes of the high error rate related to travel voucher review and provide
refresher training to voucher examiners and auditors. However, DOD*s
planned actions, if effectively implemented, should satisfactorily address
the intent of these two recommendations.
Navy Has High The Navy*s delinquency rate 5 was slightly lower than the
Army*s, which is
Delinquency and the highest delinquency rate in the federal government.
Cumulative Navy
charge- offs since the inception of the Bank of America travel card
program Charge- off Rates but
in November 1998 were nearly $16.6 million. As discussed in further
details Recent Actions Have
in the following sections of this report, weaknesses in the Navy*s overall
Resulted in Some
control environment and a lack of front- end controls over travel card
issuance and use exacerbated the Navy*s delinquency problems. Without
Improvements proper management control, demographics such as the age and
pay rates of
Navy personnel also contributed to delinquencies and charge- offs. These
problems have led to contract modifications with Bank of America that
resulted in the Navy, the federal government, and the taxpayers losing
millions of dollars in rebates, higher fees, and substantial resources
spent pursuing and collecting on past due accounts.
DOD and the Navy have taken a number of positive actions to address the
Navy*s high delinquency and charge- off rates, and results from the first
half of fiscal year 2002 showed a significant drop in charged- off
accounts. Most of this reduction could be attributed to a salary and
military retirement offset program, which began in November 2001. DOD and
the Navy also encouraged cardholders to voluntarily use the split
disbursement payment process (split disbursements) to direct that a
portion or all of their reimbursements be sent directly to the bank for
payment of their travel card bills. The Navy also increased management
attention and focus on the delinquency issue. However, except for split
disbursements, the Navy*s actions primarily address the symptoms of
delinquency and charge- offs after they had already occurred. Control
weaknesses remain in the frontend management of the travel card program,
such as issuing the cards and overseeing the proper use of the cards.
5 Throughout this report, we calculated delinquency rates using the
proportion of dollars of accounts delinquent to the total dollars of
accounts outstanding according to industry standards set by the Federal
Financial Institutions Examination Council.
The Navy*s Delinquencies Over the last 2 years, the Navy*s delinquency
rate fluctuated from 10 to 18 and Charge- offs
percent and on average was 5.6 percentage points higher than other nonArmy
DOD components and 6 percentage points higher than non- DOD federal
civilian agencies. As of March 31, 2002, over 8,000 Navy cardholders had
collectively $6 million in delinquent debt. As discussed below, the nature
of the Navy*s mission, which requires personnel in certain Navy commands
to travel often for training and preparation for deployment, contributes,
at least in part, to the Navy*s high delinquency rate. Figure 1 compares
delinquency rates among the Navy, Army, other DOD, and the 23 largest
civilian agencies. 6 Figure 1: Navy, Army, Other DOD, and Non- DOD
Civilian Agencies Travel Card Delinquency Rates for the 2- Year Period
Ending March 31, 2002
100 Percentage 20 18 16 14 12 10
8 6 4 2 0
2000 2000
2001 2001
2001 2001
2002 2002
3rd qtr. 4th qtr.
1st qtr. 2nd qtr.
3rd qtr. 4th qtr.
1st qtr. 2nd qtr.
Fiscal year
Navy Army Other DOD Non- DOD civilian agencies Source: Bank of America and
General Services Administration data.
6 The civilian agencies included in our analysis are the 23 executive
branch agencies (other than DOD) covered by the Chief Financial Officers
Act, as amended by the Government Management Reform Act.
Since Bank of America took over the DOD travel card contract on November
30, 1998, Bank of America has charged off over 13,800 Navy travel card
accounts with nearly $16.6 million of bad debt. Table 1 provides a
comparison of cumulative charge- offs, recoveries, 7 and delinquencies by
military service as of March 31, 2002.
Table 1: Cumulative Charge- offs and Recoveries and Delinquencies by
Military Service
Dollars in millions
Net Delinquencies Cumulative
Cumulative cumulative as of March 31, DOD service charge- offs a
recoveries a
charge- offs a 2002 b
Navy $16.6 $6.2 $10.4 $6.0 Army $33.5 $12.9 $20.6 $8.4 Air Force $11.6
$4.7 $6.9 $5.0 Source: GAO analysis of Bank of America and General
Services Administration data. a Cumulative charge- offs and recoveries are
for November 1998 through March 2002.
b Delinquencies represent amounts not paid within 60 days of the travel
card monthly statement closing date, which is the cutoff date for charges
to be included in the monthly statement. Under the terms of the travel
cardholder*s agreement with Bank of America, payment of the travel card
statement is due to Bank of America within 25 to 30 days of the statement
closing date.
Age and Pay Grade Are Our analysis showed a correlation between certain
demographic factors
Correlated to Delinquency and high delinquency and charge- off rates.
Available data showed that the
travel cardholder*s rank or grade (and associated pay) 8 is a strong
predictor and Charge- off Problems
of delinquency problems. As shown in figure 2, the Navy*s delinquency and
charge- off problems are primarily associated with low- and midlevel
enlisted military personnel grades E- 1 to E- 6, with relatively low
incomes
and little experience in handling personal finances. 7 Recoveries
represent amounts recovered through collection actions, which include
salary offsets on accounts previously charged off. 8 App. IV provides a
description of each of these military grades and their associated military
rankings and pay, along with corresponding civilian grade and pay data.
Figure 2: Navy Delinquent and Total Outstanding Travel Card Balances by
Military Grade and Civilian Populations as of September 30, 2001 25
Dollars in millions 20 15 10
5 0
E1- 3 E4- 6 E7- 9 W01- 05 O1- 3 O4- 6 O7- 10 Civilian
Delinquent Outstanding balance Source: GAO analysis of Bank of America
data.
Available data indicate that military personnel grades E- 1 (seaman
recruit in the Navy or private in the Marine Corps) to E- 6 (petty officer
first class in the Navy or staff sergeant in the Marine Corps) account for
about 78 percent of all Navy military personnel. These enlisted military
personnel have basic pay levels ranging from $12,000 to $27,000. These
individuals were responsible for 40 percent of the total outstanding Navy
travel card balances as of September 30, 2001.
Figure 3 compares the delinquency rates by military rank and civilian
personnel to the Navy*s average delinquency rate as of September 30, 2001.
As shown, the delinquency rates were as high as 34 percent for E- 1 to E-
3 military personnel and 20 percent for E- 4 to E- 6 military personnel,
compared to the Navy*s overall delinquency rate of 12 percent. These rates
were markedly higher than the rates for officers, which ranged from a low
of 1 percent for O- 7 to O- 10 (admirals in the Navy or generals in the
Marine Corps) to a higher 8 percent for O- 1 to O- 3 (ensign to lieutenant
in the Navy or second lieutenant to captain in the Marine Corps). These
rates were also
substantially higher than that of Navy civilians, which at 5 percent was
comparable with the federal civilian agencies rate shown in figure 1.
Figure 3: Navy Delinquency Rate by Military Grade and Civilian Populations
Compared to Navy*s Average as of September 30, 2001
Rank O7- 10
1
Civilian
5
O4- 6
5
O1- 3
8
W01- 05
11
E7- 9
11
Average
12
Navy E4- 6
20
E1- 3
34
0 5 10 15 20 25 30 35 40 Delinquent amount as a percentage of outstanding
balance
Source: GAO analysis of Bank of America data.
The delinquency rate of military personnel E- 4 to E- 6 in particular had
an important negative impact on the Navy*s delinquency rate. Specifically,
these are petty officers in the Navy and corporals to staff sergeants in
the
Marine Corps. Pay levels for these personnel, excluding supplements such
as housing, ranged from approximately $18, 000 to $27,000. These
individuals also traveled often. As shown by Bank of America data,
personnel E- 4 to E- 6 accounted for 36 percent of the total Navy
outstanding
balance, which was higher than the outstanding balance of all other
military and civilian personnel. This combination of high outstanding
balance and high delinquency rate largely explained the high Navy
delinquency rate. As shown in figure 4, charged- off amounts for military
personnel grades E- 1
to E- 6 during fiscal year 2001 totaled more than $3.6 million. This
represented 72 percent of the almost $5 million in total Navy charge- offs
during fiscal year 2001.
Figure 4: Fiscal Year 2001 Navy Charge- offs by Military Grades and Total
Civilian Populations
3.0 Dollars in millions 2.5 2.0 1.5 1.0 0.5
0 E1- E3 E4- E6 E7- E9 O- 1 to
WO- 1 to Civilian
O- 10 WO- 5
Grade/ classification
Source: GAO analysis of Bank of America data.
According to Navy representatives, these individuals often had little
experience handling personal resources. Although their basic pay rates are
supplemented with housing and food allowances, the low salaries may not
permit payment of excessive personal charges on travel cards. If these
individuals get into financial difficulty, they have fewer resources at
their disposal to pay their travel card balances in full every month.
Also, if cardholders in these lower grade levels do not receive their
travel card reimbursements promptly because of either delays in filing
their vouchers
or voucher processing, they may lack the financial resources to make
timely payments on their travel card accounts. In addition, as discussed
later in this report, the Navy did not exempt personnel with poor credit
histories from required use of travel cards. Consequently, these low- and
midlevel enlisted military personnel are often issued travel cards even
though some may already be in serious financial trouble and, therefore,
may not have been appropriate credit risks. Lack of adequate training and
the failure to adequately monitor travel card use may also have
exacerbated the delinquency rates for these individuals. Delinquency Rates
Vary
Navy delinquency rates also varied widely across commands. Table 2 Across
Navy Commands shows the outstanding balance and delinquency rates of major
Navy commands as of March 31, 2002. As shown, the delinquency rates as of
March 31, 2002, ranged from 22 percent for the Naval Reserve Force to as
low as 2 percent for four commands, including the Naval Air Systems
Command. Table 2 also shows that high credit card activity was not
necessarily associated with high delinquency rates. In fact, some Navy
commands with high credit card activity also had low delinquency rates.
Table 2: Outstanding Balance and Delinquency Rate as of March 31, 2002, by
Major Navy Commands Outstanding Major Navy command with outstanding
balance of
balance as of Delinquency $1 million or over as of 3/ 31/ 2002 3/ 31/ 2002
rate
Naval Reserve Force $9,751,402 22% Naval Sea Systems Command 8,058,740 3%
U. S. Atlantic Fleet 5,447,558 14% Naval Air Systems Command 4,363,939 2%
U. S. Pacific Fleet 4,096,954 12% U. S. Marine Corps Forces Pacific
2,631,628 16% U. S. Marine Corps Forces Atlantic 2,330,153 17% Chief of
Naval Operations a 1,944,676 4% Space and Naval Warfare Systems Command
1,726,445 2% Marine Forces Reserve 1,657,040 18% Bureau of Medicine and
Surgery 1,452,869 8% Chief of Naval Education and Training a 1,258,219 7%
Bureau of Naval Personnel 1,272,454 11% Naval Special Warfare Command
1,264,380 9% Naval Facilities Engineering Command 1,182,028 2% Office of
the Undersecretary of the Navy a 1,094,918 2% Source: GAO calculation
based on information from Bank of America. Note: Table shows only commands
with outstanding balances greater than $1 million as of March 31, 2002.
Delinquency rates shown represent the total amount delinquent (amounts not
paid within 61
days of the travel card monthly statement closing date) as a percentage of
total amount outstanding for all travel card accounts in the command at
that point in time. a These units had outstanding balances of $1 million
or more, but are not considered major commands.
The six major commands with the highest delinquency rates* ranging from 22
to 12 percent* as of March 31, 2002, were the Naval Reserve Force, the U.
S. Atlantic Fleet, the U. S. Pacific Fleet, U. S. Marine Corps Forces
Pacific, U. S. Marine Corps Forces Atlantic, and Marine Forces Reserve.
Navy officials expressed the belief that demographics and logistics were
important contributing factors to these high delinquency rates. According
to Navy officials, Atlantic and Pacific fleet personnel, as well as Marine
Corps Forces Atlantic and Pacific, travel frequently for training and
preparation for deployment. Because they are always on the move, these
individuals might not be filing vouchers and making payments in a timely
manner. In addition, fleet personnel often consist of low- and midlevel
recruits, demographics which, as discussed previously, are a contributing
factor to the high delinquency rate.
Navy officials attributed the delinquency problems with the reserve forces
to logistics of a different kind. Reserve forces are spread throughout the
country and report to duty only once a month. Reservists typically fill
out their vouchers when they return home and then mail them to the
processing centers, sometimes weeks after the training. According to Navy
officials, the high delinquency rates in the reserve forces could be
attributed partly to the fact that some had not received travel
reimbursement by the time their bills became delinquent. In contrast, some
commands, such as Naval Sea Systems Command and Naval Air Systems Command,
had large numbers of travel card accounts and high travel card activity,
yet low delinquency rates. According to Navy officials, this is because
personnel in these commands are typically civilians, are older and more
mature, and therefore are better at managing
their finances. These demographic factors, coupled with the fact that
these sites typically have full- time APCs and a better control
environment, may explain why their delinquency rates are lower than the
Navy average, and sometimes even lower than the average rate for federal
civilian agencies.
The case study sites we audited followed the pattern described above. For
example, at Camp Lejeune, a principal training location for Marine air and
ground forces, over one- half of the cardholders are enlisted personnel.
Representative of the Navy*s higher delinquency rate, Camp Lejeune*s
quarterly rates over the 18 months ending March 31, 2002, averaged over 15
percent. As of March 31, 2002, the delinquency rate at this site was
nearly
10 percent. In contrast, at Puget Sound Naval Shipyard, where the mission
is to repair and modernize Navy ships, civilian personnel earning more
than $38,000 a year made up 84 percent of total government travel
cardholders and accounted for 86 percent of total fiscal year 2001 travel
card transactions. This site*s delinquency rate had declined to below 5
percent as of March 31, 2002.
High Delinquency and High delinquencies and charge- offs have resulted in
increased costs to the
Charge- off Rates Have Navy. In fiscal year 2001, DOD entered into an
agreement with Bank of
Resulted in Increased Costs America to adjust the terms of its travel card
contract. DOD agreed to to the Government increased fees and a change in
rebate calculation. These changes have cost
the Navy an estimated $1.5 million in lost rebates on combined
individually and centrally billed accounts in fiscal year 2001 alone and
will cost, in
addition, about $1.3 million in automated teller machine (ATM) fees
annually. Other costs, such as the administrative burden of monitoring
delinquent accounts, are harder to measure, but no less real. For example,
employees with delinquent accounts must be identified, counseled, and
disciplined, and their account activity must be closely monitored. In
addition, employees with financial problems who have access to sensitive
data may pose a security risk, as discussed later in this report. Dispute
between Contractor and
Unexpectedly high defaults by DOD*s travel cardholders, including the DOD
Navy*s, resulted in a 5- month legal dispute with Bank of America over the
continuation of the travel card contract. In 1998, under the provisions of
the General Services Administration*s (GSA) master contract with Bank of
America, DOD entered into a tailored task order with Bank of America to
provide travel card services for a period of 2 years, ending November 29,
2000. Under the terms of the task order, DOD had three 1- year options to
unilaterally renew the contract. On September 29, 2000, prior to the
expiration of the initial task order, DOD gave notice to Bank of America
that it intended to exercise its option to extend the task order for an
additional year. In November 2000, Bank of America contested the
provisions of the DOD task order with the GSA contracting officer. Bank of
America claimed that the task order was unprofitable because of required
*contract and program management policies and procedures* associated with
higher- than- anticipated credit losses, because an estimated 43,000 DOD
employees had defaulted on more than $59 million in debts. Consequently,
in April 2001, the master contract and the related DODtailored
task order for travel card services were renegotiated. Specifically, Bank
of America was able to reduce its financial risk by instituting additional
fees, such as higher cash advance and late payment fees; offsetting credit
losses against rebates, as explained later; facilitating the collection of
delinquent and charged- off amounts through salary and military retirement
pay offset; and participating in split disbursements, in
which the government sends part or all of the travel voucher
reimbursements directly to Bank of America.
Effect of Increased Fees One of the terms of the renegotiated task order
between Bank of America and DOD was that, effective August 10, 2001, the
travel card cash advance fee would be increased from 1.9 percent to 3
percent, with a minimum fee of $2. The Navy reimburses all cash advance
fees 9 related to authorized cash withdrawals. We estimate that this
contract modification will result in approximately $1.3 million of
increased costs to the Navy each year. Our estimate was made by applying
the new fee structure that went into effect in August 2001 to cash
advances made throughout fiscal year 2001 to ascertain how much more Bank
of America would have charged. Other fee increases agreed to in the
renegotiation, such as the fee for expedited travel card issuance, will
also result in additional costs to the Navy.
Delinquent Account Payment The GSA master contract modification also
changed the rebate calculation, Affects Rebates to the Navy
making it imperative that the Navy improve its payment rates to receive
the full benefits of the program. Under the GSA master contract, credit
card companies are required to pay a quarterly rebate, also known as a
refund, to agencies and GSA based on the amount charged to both
individually billed and centrally billed cards. The rebate to the agency
is reduced, or eliminated, if significant numbers of an agency*s
individual cardholders do not pay their accounts on time. Specifically,
credit losses or balances that
reach 180 calendar days past due reduce the rebate amounts. Effective
January 2001, the contract modification changed the way that rebates are
calculated and how credit losses are handled. If the credit loss of an
agency*s individually billed travel card accounts exceeds 30 basis points*
or 30 one- hundredths of a percent (. 003)* of net sales 10 on the card,
the agency is assessed a credit loss fee, or rebate offset, against the
rebate associated with both individually billed and centrally billed
travel card
accounts. This credit loss fee, or rebate offset, which resulted solely
from individually billed account losses, significantly affected the amount
of rebates that the Navy received as a result of combined individually and
centrally billed net sales in fiscal year 2001. In fiscal year 2000, the
Navy received approximately $2.0 million in rebates from the travel card
program. In
9 Cash advance fees are also referred to as ATM fees. ATMs allow
cardholders to withdraw cash with a travel card. For each cash advance
withdrawal, cardholders are charged either a set amount or a percentage of
the amount of the withdrawal.
10 Net sales consists of all purchases and other charges less any credits,
such as returns, other than payments to the accounts. Other charges
include ATM use, traveler*s checks, and any other fees.
contrast, in fiscal year 2001, the Navy collected only about $800,000 of
the $2.3 million in rebates that we estimated it would have received,
based on fiscal year 2001 net sales, had individually billed account
payments been timely. This is due to a contract modification in January
2001, which changed the way rebates were calculated. In fact, during the
first quarter of fiscal year 2001, the Navy collected almost $470,000 in
total rebates from Bank of America. However, rebates for the last three
quarters affected by the contract change had dwindled to $351,000. Navy
and DOD Have Taken
The Navy has taken a number of positive actions to address its high Steps
to Reduce
delinquency and charge- off rates, and results from the first half of
fiscal Delinquencies and Chargeoffs, year 2002 showed a significant drop
in charged- off accounts. Most of this
but Additional Actions reduction may be attributed to a salary and
military retirement payment
offset program* similar to garnishment* started in November 2001. Other
Are Needed
Navy actions included increasing the use of split disbursements, in which
Navy disburses a portion of a travel reimbursement directly to the bank
(instead of sending the entire amount of the reimbursement to the
cardholder), and increased management attention and focus on delinquency.
Except for split disbursements, the actions primarily
addressed the symptoms, or back- end result, of delinquency and chargeoffs
after they have already occurred. As noted in the remaining sections of
this report, the Navy has significant control weaknesses, particularly
with respect to the front- end management of the travel card program, such
as issuing the cards and overseeing their proper use, which it has not yet
effectively addressed.
Charge- offs Have Decreased As shown in figure 5, the amount of charge-
offs has decreased substantially at the same time that recoveries have
increased. At the start of fiscal year 2001, the charge- off balance
greatly exceeded the recovery amount. Starting in the third quarter of
fiscal year 2001, the amount charged off
started to decline and by the quarter ended December 31, 2001, the amount
charged off was about the same as the recovery amount. By March 31, 2002,
recoveries for the first time exceeded the charged- off amount.
Figure 5: Navy Travel Card Charge- off and Recovery History from October
1, 2000, to March 31, 2002
1.8 Dollars in millions
1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2
0 2001
2001 2001
2001 2002
2002 1st qtr. 2nd qtr. 3rd qtr. 4th qtr. 1st qtr. 2nd qtr. Fiscal year
Charge- offs Recoveries Source: GAO analysis of Bank of America data.
Note: The charge- off and recovery history is for Navy only and does not
include the Marine Corps. The recovery data for the Marine Corps were not
available.
Salary and Military Retirement Starting in fiscal year 2002, DOD began to
offset the retirement benefits of
Offset Program military retirees and the salaries of certain civilian and
military employees
against the delinquent and charged- off balances on travel card accounts.
The DOD salary offset program 11 implements a provision of the Travel and
Transportation Reform Act of 1998 (TTRA) 12 that allows any federal
agency, upon written request from the travel card contractor, to collect
by deduction from the amount of pay owed to an employee (or military
member) any amount of funds the employee or military member owes on his or
her travel card as a result of delinquencies not disputed by the employee.
13 The salary and military retirement offset program was implemented DOD-
wide.
DOD*s offset program came into being as part of the task order
modification. From April to August 2001, DOD and Bank of America worked
together to establish program protocols. Starting in August 2001, Bank of
America sent demand letters to cardholders whose accounts were more than
90 days delinquent. The Defense Finance and Accounting Service (DFAS)
processed the initial offsets of delinquent accounts in October 2001 in
the various DOD pay systems. The first deductions were
made from the November pay period and paid to Bank of America starting in
December 2001. Bank of America can also use the offset program to recover
amounts that were previously charged off. January 2002 was the first month
in which Bank of America requested offsets for accounts that had already
been charged off. The offset program works as follows. When an account is
90 days
delinquent, Bank of America is to send a demand letter to the individual
cardholder requesting payment in full within 30 days. The demand letter
specifies that salary offsets will be initiated if payment is not made in
full within 30 days. The cardholder may negotiate an installment agreement
or
dispute the charges with the bank. The cardholder has a right to review
all records such as invoices and to request a hearing if the bank*s
disposition of the dispute is not satisfactory.
11 DOD*s salary offset program includes individuals* salaries paid by DOD
through its active duty, reserve, and civilian pay systems, and retirement
benefits paid through its military retirement pay system.
12 Sec. 2( d), Public Law 105- 264, 112 Stat. 2350 (5 U. S. C. 5701 note).
13 Cardholder debts to Bank of America are not subject to the Debt
Collection Improvement Act of 1996, which is limited to the collection of
certain debts owed to the federal government.
After the 30 days have elapsed, if payment is not made and the cardholder
does not dispute the debt, the bank includes the account in the list of
accounts requested for offset. Individuals in the following categories may
not be accepted for offset.
Civilian employees in bargaining units that have not agreed to the
salary offset program cannot be accepted. According to a DFAS official, as
of July 2002, 1,002 of 1,227 DOD bargaining units have agreed to
participate
in the program. Individuals with debts to the federal government or
other garnishments
already being offset at 15 percent of disposable pay are considered to be
in protected status and are not eligible for the offset program.
Individuals who cannot be located in the various payroll and military
retirement (i. e., active, reserve, retired military, or civilian) systems
cannot be accepted for offset.
Civilian retirees were not subject to offset during the period covered
by our audit. The authorizing statutes for both the Civil Service
Retirement System 14 and the Federal Employees Retirement System 15
specify that retirement benefits may be offset only to the extent
expressly authorized by federal statutes. TTRA, Section 2, provides
authority to offset salaries of *employees* of agencies but does not
provide such authority for civilian employee retiree annuitants. However,
Public Law 107- 314 authorizes the Secretary of Defense to offset
delinquent travel card debt against the retirement benefits of DOD
civilian retirees.
Once an individual is accepted for offset, the related debt is established
in the appropriate pay system and DFAS can deduct up to 15 percent of
disposable pay. Disposable pay is defined in GSA*s Federal Travel
Regulation 16 as an employee*s compensation remaining after the deduction
from an employee*s earnings of any amounts required by law to be withheld
(e. g., tax withholdings and garnishments). The amounts collected are paid
to the bank monthly for military personnel and retirees and biweekly for
civilian personnel.
14 5 U. S. C. section 8346. 15 5 U. S. C. section 8470. 16 41 C. F. R.
section 301- 54. 2.
According to DFAS, from October 2001 through July 2002, Bank of America
referred 53,462 DOD- wide cases with debt of approximately $77.5 million
to DOD for offset. DOD accepted and started offset for 74 percent of the
cases and 69 percent of the debt amounts referred. The number and debt
amount of Navy- specific cases forwarded by Bank of America were not
available. From November 2001 through July 2002, DFAS collected
approximately $5.2 million from active and retired Navy military personnel
through the offset program. Although DFAS was unable to break down the
amount of civilian offset by military service, the amount collected from
all DOD employees was $1.6 million during the same period. The salary and
retirement offset program is expected to continue to reduce the amount of
accounts that need to be charged off, at the same time increase the amount
of recoveries.
Split Disbursement Payment DOD has recently encouraged cardholders to make
greater use of split
Process disbursements, a payment method by which cardholders elect to have
all or
part of their reimbursement sent directly to Bank of America. A standard
practice in many private sector companies, split disbursements have the
potential to significantly reduce delinquencies. However, during the
period covered by our audit no legislative authority existed requiring the
use of split disbursements by Navy employees. This practice was voluntary,
resulting in a low participation rate. As shown by Bank of America data,
only 14 percent of fiscal year 2001 travel card payments were made using
this method. Although payments made through split disbursements have
increased during the first three quarters of fiscal year 2002, they made
up only 25 percent of all travel card payments.
Our report on the Army travel card program included a matter for
congressional consideration that would authorize the Secretary of Defense
to require that employees* travel allowances be used to pay the travel
card issuers directly for charges incurred using the travel card. 17 We
believe that
this action would help to reduce DOD*s travel card delinquency and
chargeoff rates. Public Law 107- 314 authorized the Secretary of Defense
to require split disbursement for all DOD travel cardholders.
Management Focus and The Navy has also initiated actions to improve the
management of travel
Attention card usage. The Navy*s three- pronged approach to address travel
card issues is as follows: (1) providing clear procedural guidance to APCs
and
17 GAO- 03- 169.
travelers, available on the Internet, (2) providing regular training to
APCs, and (3) enforcing proper use and oversight of the travel card
through data mining to identify problem areas and abuses. Noting that the
delinquency rates for many Navy commands still exceeded the Navy*s
established goal of no more than 4 percent, the Assistant Secretary of the
Navy, Financial Management and Comptroller, in April 2002 issued a
memorandum on travel card control procedures and policies. This memorandum
addressed a number of travel card issues, including (1) requiring that the
travel card be deactivated when employees are separated from the service,
(2)
changing the definition of infrequent travel to traveling four times or
less a year, (3) lowering the delinquency goal to 4 percent, (4)
deactivating all cards whenever the cardholders are not scheduled for
official travel, and (5) requiring spot checks for travel card abuse. The
Assistant Secretary also required all units with delinquency rates higher
than 4 percent to take immediate actions to lower the delinquency rates
and to report on these
results within 30 days of receiving the memorandum. Further, the DOD Under
Secretary of Defense (Comptroller) created a DOD- wide Charge Card Task
Force in March 2002 to address management issues related to DOD*s purchase
and travel card programs. The task force issued its final report on June
27, 2002. We have reviewed the report and believe that many of the actions
proposed by the task force will improve the controls over the travel card
program. Important task force recommendations include canceling inactive
accounts and expanding the salary offset program. However, actions to
implement additional front- end or preventive controls, such as
strengthening the critical role of the APCs and denying cards to
individuals with prior credit problems, were not addressed in the report.
We believe that strong preventive controls will be critical if DOD is to
effectively address the high delinquency rates and charge- offs, as well
as the potentially fraudulent and abusive activity discussed in this
report. Potentially Fraudulent
Our review identified numerous instances of potentially fraudulent and and
Abusive Travel
abusive activity associated with the Navy*s travel card program during
fiscal year 2001 and the first 6 months of fiscal year 2002. For purposes
of Card Activity
this report, cases where cardholders wrote three or more NSF checks or
wrote checks on closed accounts to pay their Bank of America bill were
characterized as potentially fraudulent. We considered abusive travel card
activity to include (1) personal use of
the cards* any use other than for official government travel* regardless
of
whether the cardholders paid the bills and (2) cases in which cardholders
were reimbursed for official travel and then did not pay Bank of America,
thus benefiting personally. In addition, some of the travel card activity
that we categorized as abusive may be fraudulent if it can be established
that the cardholders violated any element of federal or state criminal
codes. Failure to implement controls to reasonably prevent such
transactions can
increase the Navy*s vulnerability to additional delinquencies and
chargeoffs. Potentially Fraudulent
Our review identified numerous examples of potentially fraudulent activity
Transactions
where the cardholders wrote checks against closed checking accounts or
repeatedly wrote NSF, or *bounced,* checks as payment for their travel
card accounts. Knowingly writing checks against closed accounts or writing
three or more NSF checks may be bank fraud under 18 U. S. C. 1344. 18
Further, it is a violation of the Uniform Code of Military Justice (UCMJ)
19 article 123a when a soldier makes, draws, or utters (verbally
authorizes) a check, draft, or order without sufficient funds and does so
with intent to defraud. During fiscal year 2001 and the first 6 months of
fiscal year 2002, in total over 5,100 Navy cardholders wrote NSF checks,
or made NSF payments by phone, as payment to Bank of America for their
travel card bills. Of these, over 250 20 might have committed bank fraud
by writing three or more NSF checks to Bank of America during either
fiscal year period. Table 3 shows the 10 cases we selected for review
where the cardholders wrote three or more NSF checks to Bank of America,
and their accounts were charged off or placed in salary offset or another
fixed pay agreement due in part to repeated use of NSF checks. We have
referred the cases in which potential bank fraud has occurred to the Navy
Criminal
Investigation Service for further review. 18 Bank fraud is defined by 18
U. S. C. 1344 as any execution of, or attempt to execute, a scheme or
artifice to defraud a financial institution or to obtain any of the
moneys, funds, credits, assets, securities, or other assets owned by, or
under the custody or control of, a
financial institution, by means of false or fraudulent pretenses,
representations, or promises. 19 UCMJ is a federal law enacted by the
Congress. UCMJ articles 77- 134 are known as *punitive offenses,* that is,
specific offenses which, if violated, can result in punishment by court-
martial. 20 Of the over 250 cardholders who wrote three or more NSF
checks, 100 had accounts that were eventually charged off or put in salary
offset.
Table 3: Examples of Potentially Fraudulent Activities Total amount
charged off (CO), Total in salary offset amount
(SO), or Documented Cardholder
(number) of voluntary fixed disciplinary
NSF checks pay (FP) Grade Unit Credit history problems action
1 SO *
E- 5 U. S. Pacific Fleet, Multiple bankruptcies and Administrative $61,
004 $20, 535 Honolulu numerous charge- offs prior to card
counseling/ warning (12) issuance
2 FP *
E- 6 Naval Recruiting, Multiple judgments and None 37, 150
4,094 Omaha merchandise repossession prior to (15)
card issuance 3
SO * E- 6 U. S. Marine
Charged- off and referral to Dishonorable discharge 11,310 Corps, Marine
collection prior to card issuance;
for misconduct directly 23, 894 Aircraft Group 12,
one account in collection and one related to travel card (9)
Japan charged off prior to card issuance
misuse 4
CO * E- 4 U. S. None prior to card issuance Prosecution pending for 22,
873 2,579 Transportation travel card misuse and
(11) Command, Illinois
absence without leave 5
CO * E- 5 Mobile Inshore
Charged- off account prior to card None; promotion to E- 6 4,589;
UnderseaWarfare, issuance; delinquencies since card after charge- off;
account in SO
San Jose issuance
pending investigation for 20, 052
desertion, theft, and (9)
issuance of NSF checks 6
CO * GS- 11 Navy Inventory
Bankruptcies and charge- offs prior None; cardholder retired 18, 148
7,229 Control Point * to card issuance; delinquencies
(13) Mechanicsburg
since card issuance 7
CO * E- 5 Navy Seals, San
None prior to card issuance; Administrative action 1,381 Diego
delinquencies since card issuance related to abuse of the 10, 908
government travel card; (16)
honorable discharge 8 SO *
E- 8 U. S. Marine Charged- off account prior to card
Counseling; article 15 4,530;
Corps, Camp issuance pending for credit card 8,231
account paid off Lejeune
misuse (6)
Sept. 2002 9
CO * E- 4 Navy and Marine
Bankruptcies and judgment prior to None 5,785
4,923 Corps Reserve card issuance; serious (4) Center, Bessemer
delinquencies since card issuance 10
CO * E- 4 Naval Air Warfare Bankruptcy and charged- off
None 3,250
5,347; Center, Patuxent
account prior to card issuance; (12)
account in FP River
delinquencies since card issuance Source: GAO analysis.
Note: NSF includes accounts with nonsufficient funds, closed accounts,
accounts not located, and stop payment orders.
The 10 cardholders in table 3 wrote a total of 107 checks that were
returned by Bank of America because they were NSF, drawn on closed
accounts, and/ or had payments stopped for other reasons. These checks
totaled over $211,000. Eight of the 10 cardholders had significant credit
problems prior to card issuance, such as bankruptcies, charged- off credit
card accounts, accounts in collection, and serious delinquencies. Two of
the cardholders did not have credit problems prior to card issuance;
however, one of these two experienced serious financial problems after
issuance of the Bank of America travel card. The following provides
illustrative detailed information on two of these cases.
Cardholder #1 was a petty officer second class with the U. S. Pacific
Fleet in Honolulu. The cardholder wrote 12 NSF checks totaling more than
$61,000 for payment on his Bank of America travel card account. These
checks were written partly to cover charges incurred while on official
travel, but records showed that the cardholder made many more
charges at convenience stores, restaurants, gas stations, and travel
agencies in the vicinity of his hometown. An examination of the
cardholder*s credit history also revealed that, prior to receiving his
government travel card in May 2000, the cardholder had multiple
chargeoffs, in addition to filing personal and business bankruptcies.
Despite his financial history, the cardholder was issued a standard card,
instead of a restricted card with a lower credit limit.
From March 2001 through December 2001, the cardholder wrote about one NSF
check a month, with three of these NSF checks, totaling more than $12,500,
written in the month of December 2001 alone. Financial industry
regulations require that an account be credited immediately upon receipt
of a check. Consequently, when Bank of America posted
the NSF checks, the account appeared to have been paid, which provided
credit to the cardholder to make additional purchases. Thus, by writing
NSF checks, and submitting NSF payments over the phone, which Bank of
America had to credit to his travel card account, the petty officer was
able to, in effect, increase his credit limit to more than $20,000* a
practice known as *boosting.* He used each of these
successive increases in his effective credit limit to charge additional
items on his travel card. Thus, despite the repeated NSF checks written
throughout 2001, the individual was able to continue making charges
through December 2001. The cardholder*s APC did not know of the NSF check
problems until
Bank of America notified him of the fact. Because the cardholder was
considered a good sailor, he was given administrative counseling for
potential fraud and abuses related to his travel card. The terms of the
administrative counseling specified that the cardholder would face an
administrative discharge in case of continued abuse of the credit card or
any other misconduct. Cardholder #5 was a petty officer (E- 5) assigned
to the Naval Reserve
Forces in San Jose, California. Prior to receiving the Bank of America
travel card in June 2000, the individual had a number of unpaid accounts
with other creditors. The individual was given a restricted card, which
should have been issued in *inactive* status and only activated when
needed for travel. However, records showed that the cardholder was
able to make about 130 separate purchases and ATM transactions in the
vicinity of his hometown while not on official travel. These transactions
totaled more than $5,000. In addition, from September 2000 through
December 2001, the cardholder wrote eight NSF checks and one stop payment
check totaling $20,052 to Bank of America. During fiscal year 2001, not a
single valid payment was made to Bank of America for this account. The
cardholder had an unpaid balance of $4,589 at the time his account was
charged off in July 2002. The cardholder also had three other unrelated
charge- offs to accounts other than the government travel card in July
2002.
We found no documentation that disciplinary actions had been taken against
the cardholder. The APC assigned to the cardholder told us that he had
received little training for his APC responsibility, which is a collateral
duty. He recalled advising the cardholder once to pay off his travel card
balance. Although a Bank of America official informed us that access to
NSF check information had been available to APCs since 2000, the APC said
he was not aware of the NSF checks written by the cardholder. The APC also
informed us that he was not aware that the cardholder*s account was
charged off until he was notified by Bank of America. Despite having his
Bank of America account charged off and other financial problems, the
cardholder was recently promoted from petty officer second class (E- 5) to
petty officer first class (E- 6). 21 His account had been referred to
salary offset.
21 Subsequent to his promotion, the cardholder did not report to duty. His
command is taking action to declare him a deserter. He is also a subject
of law enforcement agencies* investigations.
Abusive Travel Card Use We found instances of abusive travel card activity
by Navy cardholders that covered charges for a wide variety of personal
goods and services,
including prostitution, jewelry, gentlemen*s clubs, gambling, cruises, and
tickets to sporting and other events. Further, we found abusive card
activities where (1) cardholders who were reimbursed for official travel
did not pay Bank of America and (2) cardholders used the card for personal
charges and failed to pay Bank of America.
Abusive Card Activities Related We found that the government cards were
used for numerous abusive
to Inappropriate Purchases transactions that were clearly not for the
purpose of government travel. As
discussed further in appendix II, we used data mining tools to identify
transactions we believed to be potentially fraudulent or abusive based
upon the nature, amount, merchant, and other identifying characteristics
of
the transactions. Through this procedure, we identified thousands of
suspect transactions. Government travel cards were used for purchases in
categories as diverse as legalized prostitution services, jewelry,
gentlemen*s
clubs, gambling, cruises, and tickets to sporting and other events. In
addition, we found evidence that cardholders circumvented prescribed ATM
procedures by obtaining cash at adult entertainment establishments. Table
4 illustrates a few of the types of abusive transactions and the
amounts charged to the government travel card in fiscal year 2001 and the
first 6 months of fiscal year 2002 that were not for valid government
travel. The number of instances and amount shown include cases in which
the cardholders paid the bills and where they did not pay the bills.
Table 4: Examples of Abusive Travel Card Activity, Fiscal Year 2001
through March 31, 2002
Number of Dollar Category Examples of vendors transactions amount
Legalized James Fine Dining, Chicken Ranch brothels 80 $13, 250
Jewelry Kay Jewelers, Zales Jewelers 199 20, 800 Gentlemen's
Spearmint Rhino, Mr. Magoo's clubs Lounge, Cheetah's Lounge 247 28, 700
Gambling, www. proccy2, Seinpost Holding, GCA including Internet (cash
advance) 80 34, 250
(Continued From Previous Page)
Number of Dollar Category Examples of vendors transactions amount
Cruises Carnival, Disney, Norwegian, Princess 72 38, 300 Entertainment
NY Yankees, LA Lakers, Atlanta (sporting events,
Braves, Phantom of the Opera, other theatre, concerts)
Ticketmaster purchases 502 71, 400 Source: GAO analysis of Bank of America
data.
We found that Navy cardholders used their government travel cards to
purchase prostitution services. We arrived at this information by first
identifying that two institutions frequented by Navy cardholders were
legalized brothels in Nevada. Based on a price list provided by one of the
brothels, we eliminated transactions that were most likely for bar charges
and determined that 50 cardholders used their government travel card to
purchase over $13, 000 in prostitution services. These charges were
processed by the brothels* merchant bank, and authorized by Bank of
America, in part because a control afforded by the merchant category code
(MCC), 22 which identifies the nature of the transactions and is used by
DOD and other agencies to block improper purchases, was circumvented by
the establishments. In these cases, the transactions were coded to appear
as restaurant and dining or bar charges. For example, the merchant James
Fine Dining, which actually operates as a brothel known as Salt Wells
Villa, characterizes its services as restaurant charges, which are
allowable and not blocked by the MCC control. According to one assistant
manager at the establishment, this is done to protect the confidentiality
of its customers. Additionally, the account balances for 11 of the 50
cardholders purchasing
services from these establishments were later charged off or put into
salary offset. For example, one sailor, an E- 2 seaman apprentice, charged
over $2,200 at this brothel during a 30- day period. The sailor separated
from the Navy, and his account balance of more than $3,600 was eventually
charged off.
22 MCCs are established by the banking industry for commercial and
consumer reporting purposes. Currently, about 800 category codes are used
to identify the nature of the merchants* businesses or trades, such as
airlines, hotels, ATMs, jewelry stores, casinos, gentlemen*s clubs, and
theatres.
We also found instances of abusive travel card activity where Navy
cardholders used their cards at establishments such as gentlemen*s clubs,
which provide adult entertainment. Further, these clubs were used to
convert the travel card to cash by supplying cardholders with actual cash
or *club cash* 23 for a 10 percent fee. For example, we found that an E- 5
second class petty officer circumvented ATM cash withdrawal limits 24 by
charging, in a single transaction, $2,420 to the government travel card
and receiving $2, 200 in cash. Subsequently, the club received payment
from Bank of America for a $2,420 restaurant charge. Another cardholder,
an E7 chief petty officer, obtained more than $7, 000 in cash from these
establishments. For fiscal year 2001 and through March 2002, 137 Navy
cardholders made charges totaling almost $29,000 at these establishments.
These transactions represented abusive travel card use that was clearly
unrelated to official government travel. The standard government travel
card used by most Navy personnel is clearly marked *For Official
Government Travel Only* on the face of the card. Additionally, upon
receipt of their travel cards, all Navy cardholders are required to sign a
statement of understanding that the card is to be used only for authorized
official government travel expenses. However, as part of our statistical
sampling results at three Navy locations, we estimated that 7 percent of
fiscal year 2001 transactions at one site to 27 percent at another site
were for purposes not related to official travel, 25 and therefore, were
abusive.
Personal use of the card increases the risk of charge- offs related to
abusive purchases, which are costly to the government and the taxpayer. Of
the 50 cardholders who purchased prostitution services described above, 11
were
later charged off or put into salary offset. As we discussed earlier in
the report, charged- off and delinquent accounts resulted in contract 23
Club cash is used to tip dancers, waitresses, and bartenders, but cannot
be exchanged for
currency. 24 Typically, the ATM limit for a 1- month cycle is set at $500
for a standard card and $200 for a restricted card. 25 We considered
personal use to include (1) any transaction charged to the government
travel card that was not supported by a valid travel order and (2) any
transaction for which the Navy was unable to provide supporting
documentation. The following are the personal use estimates for the three
case study locations: Camp Lejeune, U. S. Marine Forces Atlantic, 26.6
percent; Patuxent River, Air Systems Command, 10.8 percent; and Puget
Sound Naval Shipyard, Sea Systems Command, 6. 6 percent.
modifications and other monitoring efforts, which have cost the Navy
millions of dollars.
Travel Card Abuse Due to Failure Our work at three case study sites and
our Navy- wide data mining
to Pay Bank of America Charges identified numerous examples of abusive
travel card use where cardholders failed to pay their travel card bills.
This abusive activity
included (1) authorized transactions incurred in conjunction with approved
travel orders where the cardholders received reimbursement but did not pay
the bills or (2) transactions incurred by cardholders that were not
associated with approved travel orders. These accounts were subsequently
charged off or placed in salary offset or other fixed pay agreement. In
many cases, APCs, commanders, and supervisors did not effectively monitor
travel card usage or take documented disciplinary actions against
cardholders. Table 5 provides specific examples of cardholders who failed
to pay their travel card bills.
Table 5: Examples of Abusive Travel Card Activity Where Accounts Were
Charged Off or Placed in Salary Offset Total amount charged off (CO) or in
Documented Cardholder salary offset
Transactions contributing to disciplinary Grade Unit (SO) charge- off or
salary offset Credit history problems
action
1 E- 5 U. S. Marine CO * Did not use reimbursement to
Account charge- offs, None; court- martial Corps
$19,971 pay travel card charges; referral to collection
being considered Reserve, numerous large cash
agency, and other account Camp Lejeune
withdrawals delinquency prior to card issuance 2 E- 7 Naval Shore
SO * ATM withdrawals totaling Bankruptcy, account
None Intermediate
11, 190 $15,000 from October 2000 charge- offs, and serious
Maintenance through July 2001; nearly credit card delinquency Activity,
$7, 000 in cash and other prior to card issuance Mayport
expenses at Platinum Plus and Mr. Magoo gentlemen*s clubs
3 E- 4 LeMoore CO * Over $6, 250 of computer Numerous unpaid
Administrative Naval Air 8,036 equipment from Best Buy and accounts prior
to card discharge in lieu of Station
other Web sites issuance and charge- off on court- martial for the
American Express card
misuse of the travel card and other offenses
(Continued From Previous Page)
Total amount charged off (CO) or in Documented Card salary offset
Transactions contributing to disciplinary holder Grade Unit (SO) charge-
off or salary offset Credit history problems
action
4 O- 5 Naval and SO * Over $700 worth of candles
Numerous account chargeoffs, None Marine Corps
5,678 and cookware; over $1, 400 delinquencies, and
Reserve charged to D. B. Entertainment,
bankruptcy prior to card Center,
which owns Baby Dolls and issuance Washington,
other adult entertainment D. C. clubs
5 E- 3 Marine Forces CO * $3, 800 at local restaurants and Serious
delinquencies, Court- martialed for Reserve, San
4,041 $1, 400 in ATM withdrawals unpaid accounts, and
misuse of the Diego
over a 2- month period referrals to collection
government travel agencies prior to card card; appeal issuance
ongoing 6 O- 6 Naval and CO * $2, 000 in cash withdrawals
None None Marine Corps
3,511 and nearly $1,500 at local Reserve
grocery and drug stores Center, Washington, D. C.
7 WS- 10 a Puget Sound CO Numerous personal charges, None prior; serious
credit
Removal from Naval
3,243 including groceries, gasoline, card delinquencies and employment due
to Shipyard,
cash advances, and $150 at mortgage foreclosure in
unauthorized Naval Sea Bethel Animal Hospital
2001 and 2002 absence and travel Systems
card misuse Command
8 GS- 12 Naval Air SO *
Airline tickets totaling $608 Serious delinquencies, None Systems
1,202 account charge- offs, Command,
mortgage foreclosure in Patuxent River
2000, bankruptcies prior to and since card issuance
9 O- 5 Marine Forces SO *
Car rental transactions and Serious delinquencies prior
None Reserve, New
1,674 numerous charges at local to and since card issuance Orleans
restaurants
10 E- 6 U. S. Marine CO * Unauthorized use of card for
Serious delinquency and None Corps, Camp 672 charges associated with
bad debts at the time of Lejeune
permanent change of station card issuance move Source: GAO analysis.
a Wage supervisors designation used to denote supervisory workers on
hourly salary.
Eight of the 10 cardholders included in table 5 had significant credit
problems prior to card issuance, such as charged- off credit card
accounts, mortgage foreclosures, bankruptcies, serious delinquencies,
unpaid accounts, and referrals to collection agencies. One cardholder had
similar problems subsequent to issuance of the Bank of America travel
card. The
following provides illustrative detailed information on abusive activities
for three of these cases. Cardholder #1 was a sergeant (E- 5) with the
U. S. Marine Corps Reserve
assigned at Camp Lejeune. Despite a history of credit problems, which
included several charged- off and delinquent commercial credit accounts,
Bank of America issued the cardholder a standard card, with a credit limit
of $10,000, in March 2000. The cardholder was deployed to Europe in August
2000 and his credit limit was increased to $20,000. Within a month of his
deployment, the cardholder had charged $10,700
to the card, including $8,500 in ATM withdrawals. Although the cardholder
received reimbursements for his travel expenses, he failed to settle his
account in full. In December 2000, the cardholder informed the APC that
his account was 30 days past due and promised to pay the full outstanding
balance. He again failed to do so and his account balance of $11,467 went
delinquent in January 2001. The APC did not deactivate the travel card
account but put the cardholder in *mission critical* status as his tour in
Europe was coming to a close. The
cardholder*s credit limit was then raised to $25,000 to enable the
cardholder to return to the United States. Consequently, when the account
was closed on February 8, 2001, the outstanding balance had increased to
$19,971. The APC admitted to us that he failed to carefully monitor this
account. No disciplinary action was taken against the cardholder, who had
returned to civilian life; however, judicial action against the cardholder
is pending. We have referred this matter to DOD*s Office of Inspector
General for appropriate action.
In addition, our review indicated that the cardholder might have filed a
fraudulent travel voucher in January 2001. This travel voucher claimed
reimbursement for expenses in Germany over the holiday period from late
December 2000 to early January 2001, allegedly for official purposes.
However, Bank of America data showed that the government
travel card belonging to this cardholder was used to make transactions in
the vicinity of the traveler*s hometown during this holiday period. It
appeared that the cardholder might have returned to the United States for
the holiday, yet continued to claim expenses as if he was still in
Germany, a potentially fraudulent act.
Cardholder #3 was a petty officer third class (E- 4) assigned to the
LeMoore Naval Air Station in California. Our review indicated that the
cardholder had numerous unpaid cable, medical, and communication accounts
and serious delinquency of more than $5,000 on his personal
credit card account prior to receiving the travel card. The unit to which
the cardholder was assigned had a policy of activating the government
travel card only when a cardholder travels. However, from February through
April 2001, while not on travel, the cardholder purchased over $6,250
worth of electronic and computer equipment from Best Buy and various Web
sites using the government travel card. The cardholder did not pay his
balance and thus came to the attention of the APC when his
name appeared in the delinquency report. Upon determining that the
cardholder was able to use the card when not on travel, the APC contacted
Bank of America, which was unable to tell the APC who had activated the
account. The cardholder*s balance of more than $8,000
was charged off, and he was granted an administrative separation in lieu
of a court- martial for offenses unrelated to the travel card misuse,
including absence without leave, making false statements, and stealing
government property of less than $100.
Cardholder #4 was a commander (O- 5) with the Naval Reserves assigned to
the Naval and Marine Corps Reserve Center in Washington, D. C. Our review
showed that Bank of America issued the cardholder a standard card in May
2000, although the cardholder*s credit history indicated serious financial
problems before and at the time of card issuance. For example, in October
1998, the cardholder filed for
Chapter 7 bankruptcy with only $37,169 in assets against $542, 063 in
liabilities. Further, in January 2000, right before the Bank of America
card was issued, an account with a balance of more than $30, 000 was
charged off. This Navy commander continued, after the issuance of the
government travel card, a pattern of delinquencies on numerous accounts,
and in one instance had merchandise repossessed for nonpayment.
During fiscal year 2001 and the first 3 months of fiscal year 2002, the
cardholder used the government travel card to make numerous personal
transactions. Transactions included more than $1,400 to D. B.
Entertainment, which owns Baby Dolls Saloon, a gentlemen*s club in Dallas,
and more than $700 to Wearever cookware and Partylite Gifts, a
manufacturer of candles and candle accessories. A delinquency letter was
sent to the cardholder on August 9, 2002, when the account was 120 days
past due; however, no documentation existed to indicate that any action
was taken prior to this date. Although the cardholder had been placed in
salary offset, no other disciplinary action had been taken against the
cardholder.
Travel Card Abuse Where As discussed above, some individuals who used the
card for improper
Cardholder Paid Bank of purposes paid their travel card bills when they
became due. We considered
America Charges these occurrences to be abusive travel card activity
because these
cardholders benefited by, in effect, getting interest- free loans.
Personal use of the card increases the risk of charge- offs, which are
costly to the government and the taxpayer. In addition, the high rate of
personal use is indicative of the weak internal control environment and
the failure of APCs to monitor credit card activities, as discussed later
in this report.
Table 6 provides examples of the types of abusive charges we found during
our review.
Table 6: Examples of Abusive Activity Where the Cardholders Paid the Bills
Documented Cardholder disciplinary
Unit Grade Vendor Amount Nature of transaction action
1 PEO Theatre Air and GS- 15 Seinpost 35 transactions for Internet
gambling Written Surface, Naval Sea
Holdings Over reprimand Systems Command,
$23,000 Washington D. C.
in charges 2 Mobile Inshore Undersea E- 5 Cardholder*s Bogus charges of
$7,222 to None
Warfare, Newport own business $8,622 cardholder*s own limousine company 3
Portsmouth Naval Shipyard WG- 10 a Herbal Life 17 purchases for vitamins
and health
None 6,758 supplements 4 Naval Undersea Warfare
ND- 5 b Carnival Cruise Alaskan cruise for two for 7 nights None Center,
Newport 3,790 5 U. S. Naval Academy,
MIDN c Best Buy Home electronics None Annapolis 2,442 6 U. S. Marine
Corps, Camp
E- 7 United Vacation United Airlines plane ticket for
None Pendleton 1,326 cardholder*s spouse 7 U. S. Marine Corps, Camp
E- 6 DeAngelo Tax For preparation of tax returns from None Pendleton
Service 800 1997- 2000 8 Naval Reserves Forces
E- 7 Ticketmaster Four concert tickets to the Backstreet
None Command, Virginia 460 Boys 9 Norfolk Naval Air Station E- 4 Fredricks
of
Women*s lingerie None Hollywood 184 10 Naval Medical Research E- 4 GTEAir
Airplane telephone call None Center, San Antonio 148 Source: GAO analysis.
a Wage grade system used for workers who are on hourly salary. b
Scientific and engineering career path equivalent to GS- 14 to GS- 15. c
Midshipmen are cadets in training to become Navy officers. They may
receive stipends while in college.
As shown in table 6, cardholders used their travel cards for a wide
variety of personal goods or services. Some transactions were similar to
the services procured in table 4. The cards were also used to purchase
home electronics, women*s lingerie, tax services, and in one instance, to
make
bogus charges to the cardholder*s own business. In this instance, an E- 5
second class petty officer reservist, whose civilian job is with the U. S.
Postal Service, admitted making phony charges of over $7,200 to operate
his own limousine service. In these transactions, the reservist used the
travel card to pay for bogus services from his own limousine company
during the first few days of the card statement cycle. By the second day
after the charges were posted, Bank of America would have deposited funds*
available for the business* immediate use* into the limousine business*
bank account. Then, just before the travel card bill became due, the
limousine business credited the charge back to the reservist*s government
travel card and repaid the funds to Bank of America. This series of
transactions had no impact on the travel card balance, yet allowed
the business to have an interest- free loan for a period. This pattern was
continued over several account cycles. Navy officials were unaware of
these transactions until we brought them to their attention and are
currently considering what, if any, action should be taken against the
cardholder.
Few Documented It is critical that cardholders who misuse their travel
cards are identified
Disciplinary Actions Taken and held accountable for their actions. The DOD
Financial Management
against Cardholders Who
Regulation (FMR) states that *commanders or supervisors shall not Misused
the Travel Card
tolerate misuse of the DOD travel cards and cardholders who do misuse
their cards shall be subject to appropriate disciplinary action.* However,
DOD and Navy policies and procedures do not define appropriate
disciplinary action to help ensure that consistent punitive actions are
taken against cardholders who abuse their travel cards. Lacking such
guidance, disciplinary actions are left solely to the discretion of
commanders and supervisors. As a result, we did not find documentation
indicating that
commanders and supervisors took any disciplinary actions against almost
two- thirds of individuals we reviewed who abused or misused their cards
during fiscal year 2001 and the first 6 months of fiscal year 2002.
Failure to identify and discipline abusive cardholders will likely result
in the Navy continuing to experience the types of potentially fraudulent
and abusive activity identified in our work.
For many cardholders we inquired about, the misue or abuse of the travel
card led Navy officials to counsel cardholders on proper use of the card
and the cardholders* responsibility for timely payment of travel card
bills. We found only a few cases where the Navy court- martialed or issued
administrative warnings to individuals solely because of card misuse. More
often than not, severe disciplinary actions were taken in response to
travel card abuse in conjunction with other more serious offenses* such as
failing to obey orders or unauthorized absences. In these instances,
documented disciplinary actions included dismissal from the Navy. At the
sites we audited, the Navy could not provide documentation of disciplinary
actions taken against cardholders in 37 of the 57 NSF check
cases and charged- off or salary offset accounts we reviewed. For example,
cardholder #9 in table 3, whose account was charged off for more than
$4,900, did not receive any disciplinary action. Cardholder #5 in table 3
was promoted after his unpaid account balance of almost $4,600 was charged
off.
Also, we found little evidence that cardholders faced adverse consequences
for personal use of the card as long as they paid their travel card bills.
Of the 10 cases detailed in table 6, only 1 had evidence of disciplinary
action. We saw few indications that supervisors were aware that these
abusive transactions occurred. To the extent we found that APCs or
supervisors were aware of such travel card abuse, we saw little evidence
of disciplinary actions.
Further, we found that some individuals who abused their travel card
privileges held high- level positions, where they may have been
responsible for taking appropriate disciplinary action in response to
travel card abuse by personnel within their commands. In instances where
these individuals abused the card, they rarely received disciplinary
action. For example, a commander became severely delinquent in January
2002 after making more than $2,000 in purchases of inappropriate items
such as cookware and adult entertainment. However, there was no indication
that this officer*s
superior was informed of his delinquency or misuse of the travel card
until the account was at least 120 days past due. Consequently, although
the cardholder*s account was placed in salary offset, the cardholder was
not disciplined.
We have reported similar problems with the Army travel card program and in
our testimony on the Navy travel card program. As a result, the fiscal
year 2003 Department of Defense Appropriations Act, Public Law 107- 248,
contains provisions that address this problem. Specifically, the Act
requires the Secretary of Defense to establish guidelines and procedures
for disciplinary actions to be taken against cardholders for improper,
fraudulent, or abusive use of the government travel card.
Cardholders with Credit We found that many cardholders who had abused the
travel card or been
Problems Continued to involved in potentially fraudulent activities
continued to have active
Have Active Security security clearances. Both DOD and Navy rules provide
that an individual*s
Clearance finances are one of the factors to be considered in determining
whether an
individual should be entrusted with a security clearance. The U. S.
Department of the Navy Central Adjudication Facility (commonly referred to
as DON CAF) is responsible for issuing and updating security clearances
for Navy personnel. Secret clearances are updated every 10 years and
topsecret clearances are updated every 5 years. During the interim
periods, Navy instructions 26 require commanders of personnel with
clearances, such as secret or top secret, to submit to DON CAF any
evidence of financial
irresponsibility on the part of an individual that would affect his or her
clearance. Such evidence would include information on financial
impropriety, such as excessive indebtedness. DON CAF is to evaluate this
information and determine whether to revoke or downgrade the clearance.
We found that commanders responsible for referring evidence of financial
irresponsibility to DON CAF were sometimes not aware of their
subordinates* financial problems. Consequently, Navy security officials
might not be in possession of all information necessary to assess an
individual*s security clearance. Our audit found that 27 of 57 travel
cardholders we examined whose accounts were charged off or placed in
salary offset as of March 2002 still had active secret or top- secret
security clearances in August 2002. These financially troubled individuals
may present security risks to the Navy. We provided the information we
collected on individuals with charged- off accounts to DON CAF for its
consideration in determining whether to revoke, change, or renew the
individuals* security clearances.
Further guidance for this procedure is also contained in the fiscal year
2003 Defense Appropriations Act. In addition to requiring the Secretary of
Defense to establish guidance and procedures for disciplinary actions, the
act states that such actions may include (1) review of the security
clearance of the cardholders in cases of misuse of the government travel
26 Secretary of the Navy Instruction 5510.30A, Department of the Navy
Personnel Security Program, dated March 10, 1999, Chapter 10, Appendix F,
Personnel Security Standards.
card and (2) modification or revocation of the security clearance in light
of such review.
Weak Overall Control A weak overall control environment and ineffective
internal controls over Environment and
the travel card program contributed to the potentially fraudulent and
abusive travel card activity and the Navy*s high rates of delinquency and
Ineffective Travel Card
charge- offs. The foundation of all other controls, a strong control
Program Controls
environment provides discipline and structure as well as the climate that
positively influences the quality of internal controls. Although we
observed improvements in the first half of fiscal year 2002, we identified
several factors that contributed to a weak overall control environment for
fiscal year 2001, including, as discussed previously, few documented
disciplinary actions taken against cardholders who abused their travel
cards and a lack of management attention and focus on establishing and
maintaining the
organizational structure and human capital needed to support an effective
Navy travel card management program. We found that this overall weak
control environment contributed to design flaws and weaknesses in six
management control areas needed for an effective travel card program.
Specifically, we identified weaknesses in the Navy travel program controls
related to (1) travel card issuance, (2) cardholders* training, (3) APCs*
capacity to carry out assigned duties, (4) procedures for limiting card
activation to meet travel needs, (5) procedures for terminating accounts
when cardholders leave military service, and (6) access controls over Bank
of America*s travel card database.
All six of these areas related to two key overall management weaknesses:
(1) lack of clear, sufficiently detailed Navy policies and procedures and
(2) limited travel card audit and program oversight. First, during fiscal
year
2001, the sites we audited used DOD*s travel management regulations DOD
FMR (Vol. 9, Ch. 3) as the primary source of policy guidance for
management of Navy*s travel card program. 27 However, in many areas, the
existing guidance was not sufficiently detailed to provide clear,
consistent travel management procedures to be followed across all Navy
units. Second, as recognized in the DOD Inspector General*s March 2002
summary report 28 on the DOD travel card program, *[ b] ecause of its
dollar
magnitude and mandated use, the DOD travel card program requires continued
management emphasis, oversight, and improvement by the DOD. Independent
internal audits should continue to be an integral component of management
controls.* However, the DOD Inspector General report noted that no
internal review reports were issued from fiscal year 1999 through fiscal
year 2001 concerning the Navy*s travel card program. According to the NAS,
no internal review report related to Navy*s travel card had been issued
since then. Ineffective Controls over
The Navy*s ability to prevent potentially fraudulent and abusive Issuance
of Travel Cards
transactions that can eventually lead to additional delinquencies and
charge- offs is significantly weakened if individuals with histories of
financial irresponsibility are permitted to receive travel cards. Similar
to
what we found at Army, the Navy*s practice is to facilitate the issuance
of travel cards* with few credit restrictions* to all applicants
regardless of whether they have histories of credit problems. Although the
DOD FMR provides that all DOD personnel are to use the travel card to pay
for official business travel, the policy also provides that exemptions may
be granted under a number of circumstances, including for personnel who
are denied travel cards for financial irresponsibility. However, DOD*s
policy is not clear as to what level of financial irresponsibility by a
travel card applicant would constitute a basis for such an exemption. We
found no evidence that the Navy exempted any individuals or groups from
required acceptance and use of travel cards, even those with histories of
severe credit problems. 27 During fiscal year 2002, the Navy*s eBusiness
Operations Office issued Navy- specific
guidance for the management of the travel card program. 28 Department of
Defense Office of Inspector General, Acquisition: Summary of DOD Travel
Card Program Audit Coverage, D- 2002- 065 (Washington, D. C.: Mar. 18,
2002).
The DOD FMR provides that credit checks be performed on all travel card
applicants, unless an applicant declines the conduct of a credit check. In
July 1999, Bank of America began conducting credit checks on DOD travel
card applicants and used the resulting information as a basis for
determining the type of account* restricted or standard* it would provide
to new DOD travel applicants. While, as mentioned above, DOD FMR would
allow the Navy to exempt individuals with financial irresponsibility from
the use of the government travel card, in practice any applicant who does
not authorize a credit check, has no credit history, or has a history of
credit problems, is issued a restricted travel card with a $2, 500 credit
limit.
All other applicants are issued standard travel cards with a $10, 000
credit limit. In January 2002, the Navy further reduced the credit limit
on a restricted travel card to $2, 000 and the limit on a standard card to
$5, 000. However, DOD and Navy policy also permit APCs to raise the credit
and
ATM limits of all cards after they have been issued to meet travel and
mission requirements.
As discussed previously, many of the Navy travel cardholders that we
audited who wrote numerous NSF checks, were severely delinquent, or had
their accounts charged off had histories of delinquencies and charge- offs
relating to other credit cards, accounts in collection, and numerous
bankruptcies. Our analysis of credit application scoring models and credit
risk scores used by major credit bureaus confirmed that applicants with
low credit scores due to histories of late payments are poor credit risks.
Credit bureau officials told us that if their credit rating guidelines for
decisions on commercial credit card application approvals were used to
make decisions on travel card applicants, a significant number of low- and
midlevel enlisted Navy cardholders would not even qualify for the
restricted limit cards. A credit history showing accounts with collection
agency action or charge- offs poses an even higher credit risk. Any of
these problems can be a reason for denying credit in the private sector.
However, individuals with no credit history, or little credit history, are
generally issued cards with lower credit limits, as reflected by current
DOD policy. By authorizing all individuals regardless of past credit
history who apply for cards to get them, the Navy has exposed the
government to increased losses from increased fees and lost rebates
associated with these individuals. Credit industry research and the
results of our work demonstrate that individuals with previous late
payments are much more likely to have payment problems in the future.
Further, as a result of our audit findings and an amendment proposed by
Senators Byrd and Grassley, the fiscal year 2003 Department of Defense
Appropriations Act requires that the Secretary of Defense evaluate whether
an individual is creditworthy 29 before authorizing the issuance of any
government travel charge card. An individual found not to be creditworthy
may not be issued a government travel charge card. Implementing procedures
to assess the creditworthiness of an individual prior to issuing a credit
card, and denying a credit card to anyone found not creditworthy as
required by the fiscal year 2003 Department of Defense Appropriations Act,
should improve delinquency rates and reduce fraud and abuse. Inadequate
Cardholder
The DOD FMR requires that APCs provide training to cardholders on the
Training
proper use of the government travel card prior to card issuance. The FMR
also requires DOD components to ensure that current cardholders are
informed of policy and procedure changes to the travel card program.
However, we found that the three case study sites we visited did not
provide consistent and periodic training to cardholders. The APCs we
interviewed generally informed us that they viewed the signature on a
travel card application as indication that the cardholder had read, and
understood, the regulations governing the use of the government travel
card. In addition, the APCs stated that the cardholders also received a
statement of understanding when they were issued a travel card. Only one
APC informed us that she discussed travel card restrictions with employees
at the time they submitted the travel card applications, and that the
fleet support group periodically provided individuals with briefings on
proper travel card use. The failure to provide standardized, consistent,
and periodic training on travel card procedures might have contributed, in
part, to high incidences of misuse because individuals did not fully
understand the rules governing travel card usage.
Unrealistic APC DOD policy provides that APCs are the primary focal points
for day- to- day Performance Expectations
management of the travel card program. However, at units with low- and
midlevel military personnel who are often deployed, APC duties are
generally *other duties as assigned.* This exacerbated an already existing
disposition towards delinquency of these individuals, as discussed above.
29 The statutory provision does not define the term creditworthy. However,
the conferees on the DOD appropriations act expressed their view that the
statutory prohibition would permit "an individual with no credit history
to be issued a restricted- use charge . . . card."
Further, the sheer number of responsibilities assigned to APCs, coupled
with issues concerning APC span of control and training, greatly affected
the APCs* abilities to carry out their critical duties effectively.
Consequently, we found that APCs were generally ineffective in performing
their key travel card program management oversight duties. However, the
proactive measures by a full- time APC contributed to a low delinquency
rate at one installation we audited. APC Responsibilities As prescribed by
the DOD FMR, APCs *are responsible for the day- to- day operations of the
DOD Travel Card Program.* DOD FMR volume 9, chapter 3, provides that APCs
are responsible for a variety of key duties, including establishing and
canceling cardholder accounts, tracking cardholder transfers and
terminations, monitoring and taking appropriate actions with respect to
account delinquencies, interacting with the bank, and fielding questions
about the program from both cardholders and supervisors. APCs are also
required to notify commanders and supervisors of all travel card misuse so
they can take appropriate actions.
We found distinct differences in how APC duties were assigned at the three
case study sites. At Camp Lejeune, a military installation, the six APCs
that we interviewed were primarily responsible for other duties. For
example, some were assigned duties as personnel officers in units
providing
specialized training for infantry and engineering. These individuals* APC
responsibilities were *other duty as assigned,* and most spent less than
20 percent of their time carrying out these duties. Additionally, one APC
indicated to us that it was a challenge to keep up with his APC
responsibilities, mainly because he was expected first and foremost to
perform his primary duties. In contrast, at Patuxent River and Puget Sound
Naval Shipyard, two installations with mainly civilian cardholders, the
APC
role is a full- time post and therefore the APCs spend all of their time
carrying out APC responsibilities.
Most of the APCs at the case study sites focused monitoring efforts on
delinquencies, and rarely conducted detailed review of charge card
transactions. All APCs have access to account transaction activity reports
and declination reports, which detail activities that were rejected by
Bank of America and thus would be useful in identifying individuals who
might have attempted to misuse the card. One APC interviewed told us that
detailed transaction reviews were too time- consuming. If she reviewed
account activities at all, it was in conjunction with, and after she had
identified delinquent accounts. Failure to systematically and regularly
review transaction activities meant that most APCs were not able to
promptly detect, and therefore take further actions to prevent, abusive
travel card activity. This is illustrated by the fact that personal use of
the card was estimated to be 27 percent at one site we audited. In
contrast, the APC at another case study site informed us that she
reviewed delinquency reports several times a month to identify and
promptly notify supervisors about the status of delinquent accounts. She
also told us that, in addition, she monitored transactions in the Bank of
America database for improper and abusive uses of the card monthly, and
sent out notices to the cardholders and the cardholder supervisors if such
transactions were identified. We believe these proactive actions
contributed to that site*s low delinquency rate and fewer incidences of
personal use.
Failure to review cardholder transactions and take action to address
inappropriate card usage can lead to delinquencies and account chargeoffs.
For example, one APC was not aware that a cardholder within her sphere of
responsibility made 17 personal use transactions to Herbalife
International, as shown in table 6, from January 2001 to May 2001 until
the cardholder became delinquent in August 2001. By that time, the
cardholder had charged over $6,750 to the vitamin company. In another
example, an APC did not detect that a cardholder had misused his card to
purchase over $6,250 in electronic and computer equipment until he
appeared in the delinquency report. His account balance of more than
$8,000 was subsequently charged off.
APC Span of Control The DOD*s FMR guidance does not address the
appropriate span of control for an APC* the number of cardholders that an
APC should be responsible for managing and overseeing. A reasonable span
of control is critical for effective management and proper travel program
oversight. In addition, because APC duties often are assigned as
collateral duties, the span of control should be commensurate with the
time available to carry out APC responsibilities effectively. As shown in
table 7, at the three sites we audited, the average ratio of cardholders
to APCs ranged from 214 to 1 to 5, 984 to 1.
Table 7: Average Ratio of Fiscal Year 2001 Cardholders to APCs at Navy
Sites Audited
Puget Sound Naval Camp LeJeune, Patuxent River, Shipyard, Sea
U. S. Marine Naval Air Systems Systems Span of control Forces Atlantic
Command Command
Number of cardholders 1,713 8,804 5,984 Number of APCs 8 2 1 Average ratio
of cardholders to APCs 214: 1 4,402: 1 5,984: 1
Source: GAO analysis of Bank of America data.
While table 7 shows the average span of control, the actual span of
control for the APCs at the three sites we audited ranged from a low of 25
to about 6,000 cardholders. Bank of America guidance provides that an
optimal span of control is 100 cardholders per APC. While we did not
evaluate the guidance provided by Bank of America, we believe that one APC
cannot effectively carry out all management and oversight responsibilities
discussed previously if he or she, even working full time, has
responsibility for hundreds or thousands of cardholders. In fact, the
supervisor of one APC with about 6,000 cardholders informed us that the
APC simply did not have time to systematically perform other types of
monitoring beyond identifying and notifying supervisors and commanders of
delinquent accounts.
Decisions on the optimal span of control must take into account not only
the number of accounts for which the APC has direct responsibility, but
also the number of accounts for which a lower- level APC has direct
responsibility. 30 For example, an APC at Patuxent River had direct
responsibility for 2,244 cardholders and oversight responsibility for
another 5,560 cardholders.
30 APC responsibilities vary depending on the APC*s level in the Navy*s
organizational hierarchy from headquarters down through the Navy*s
organizational chain of command to the individual Navy unit level. That
is, individuals with APC responsibilities at the Navy unit level have
direct responsibility for monitoring cardholder account activity whereas
individuals at higher levels in the Navy*s organizational hierarchy may
have responsibility for overseeing the activities of one or more APCs as
well as direct responsibility for monitoring the account activity of a
number of cardholders.
APC Training Our internal control standards state that management*s
commitment to competence and good human capital practices are key factors
in establishing and maintaining a strong internal control environment.
Specifically, our standards provide that management identify appropriate
knowledge and skills required for various jobs and provide needed
training. They also state that establishing appropriate human capital
practices,
including hiring, training, evaluating, counseling, and disciplining
personnel, is another critical environmental factor.
DOD policy provides that travel card training materials are to be
distributed throughout the department and that APCs are to be informed of
policy and procedural changes relating to the travel card program.
However, neither DOD nor Navy procedures detail requirements for the
extent, timing, and documentation of travel program training for APCs.
APCs are not required to receive training on the duties of the position or
on how to use available Web- based tools and reports from Bank of America
before they assume their APC duties. We found that APC training had not
been considered a priority. Of the nine
APCs we spoke to, only one had received official APC training. The other
eight told us they relied heavily upon on- the- job learning, trial and
error, or other program coordinators for advice on how to carry out their
duties when they assumed their APC responsibilities. One full- time APC
had been in her position for more than 2 years but had not attended formal
Bank of America training, even though training seminars are offered
annually. Some APCs we interviewed indicated that they were not proficient
in using the tools available through the Bank of America Web- based system
containing travel card transaction data* Electronic Account Government
Ledger System (EAGLS)* to monitor cardholders* travel activities. The lack
of emphasis on training could negatively affect APCs* ability to monitor
delinquencies and promptly detect and prevent potentially
fraudulent and abusive activities. According to data provided by Bank of
America, as of May 2002 about 23 percent of the Navy*s APCs had never
logged on to EAGLS. Controls over
Allowing Navy travel cardholders to maintain accounts in an active status
Activating/ Deactivating when not needed for government travel
unnecessarily increases the risk of
Travel Cards to Meet Travel misuse* through cardholders either mistakenly
or intentionally using the
Needs card for personal purposes. DOD*s FMR provides that restricted cards
are
issued to cardholders in an *inactive* status and initially activated only
when the cardholders have authorized government travel needs. Standard
cards, however, are *active* when they are issued to cardholders. DOD
policy guidance does not address deactivating restricted and standard
travel cards when not needed for official purposes.
Lacking overall policy and procedural guidance in this area, we found
instances in which individual commands or sites established their own
practices for deactivating restricted cards when individuals were not on
travel. In fact, APCs at the case study sites we audited informed us that
they generally deactivated restricted cards when individuals were not on
travel. In contrast, during fiscal year 2001 and most of fiscal year 2002,
the standard cards were issued in an *active* status, and remained active
when individuals were not traveling. Leaving cards in active status
increased the
risk of misuse, as supported by our statistical sampling work, which
showed that most improper use occurred while the individuals were not on
official travel. Recognizing this internal control weakness, the Navy
issued a directive in April 2002 requiring that the U. S. Marine Corps,
which continued to have a high delinquency rate, deactivate cards for all
personnel not scheduled for official travel. The directive also required
that, once activated for official travel, the cards be deactivated
immediately
upon the conclusion of official travel. Exit Control Procedures for We
found that the Navy lacks clear, sufficiently detailed procedures that
Separating Employees
would ensure that travel cards are deactivated or terminated when
cardholders leave the Navy. DOD*s FMR provides that APCs are responsible
for terminating travel cards when cardholders retire, separate, or are
dismissed from DOD. Operating procedures established by individual Navy
commands and installations to notify APCs in the case of retirement or
separation of employees were neither consistent nor effective. Controls
were also ineffective in ensuring that prompt actions were taken to
deactivate or terminate cards even when the APC is notified. Consequently,
some cardholders* accounts remained active, creating an opportunity for
abuse.
In general, the three case study sites had standard exit procedures, which
required a signature from the APC, or the unit where the APC worked,
before individuals could complete outprocessing. The purpose of such
procedures is to ensure that travel cards are promptly deactivated or
closed. However, our work found that these procedures were not always
followed. For example, at one case study site, the APC is a checkpoint on
the checkout list, and cardholders are expected to obtain the APC*s
signature before completing outprocessing. However, there was no control
at the unit where the cardholder turned in the checkout list to ensure
that the list was complete. Consequently, the APC informed us that exit
procedures were not effective.
We also found that the Navy did not have procedures requiring periodic
comparisons between active travel card accounts and their employees to
ensure that accounts of separated or retired employees were closed. All
three case study sites we visited maintained databases of their active
employees. However, the APCs at these locations generally did not compare
these records against the list of active travel card accounts to identify
accounts that should have been deactivated and/ or closed but
remained open. Periodic reconciliation of the two lists would have enabled
these units to identify separated cardholders with active accounts so that
appropriate, timely actions could be taken.
Ineffective exit procedures and the inability to effectively identify and
terminate travel cards of individuals no longer in the Navy led to
numerous travel card abuses and charge- offs. These separated Navy
employees benefited by using the travel cards to purchase a variety of
goods and services, possibly at discounted government rates. Some did not
pay their monthly bills, thereby essentially obtaining the personal items
for no cost. The following cases are examples of what can happen when
travel cards are not effectively deactivated or closed upon separation.
In one Navy unit, a cardholder died in October 1999. However,
ineffective controls over the notification process resulted in the APC not
being aware that this had occurred. Therefore, the APC did not take
actions to close this individual*s government travel card account.
Consequently, in October 2000, when the old card was about to expire, Bank
of America mailed a new card to the address of record. When the card was
returned with a forwarding address, the bank remailed the card and the
personal identification number, which is used to activate the card, to the
new address without performing other verification procedures. The card was
activated in mid- December 2000, and within a month, 81 fraudulent
transactions for hotel, food, and gas totaling about $3, 600 were charged
to the card. In January 2001, in the course of her monthly travel card
monitoring, the APC noticed suspicious charges in the vicinity of the
cardholder*s previous post- of- duty. The APC took immediate action to
deactivate the card, thus preventing additional
charges from occurring. Upon finally learning of the cardholder*s death
from the cardholder*s unit, the APC immediately reported the case to a
Bank of America fraud investigator. Investigations indicated that a
family member of the cardholder might have made these charges. No payment
was ever made on this account, and the entire amount was subsequently
charged off. We referred this case to the U. S. Secret Service Credit Card
Task Force for further investigation and potential prosecution. A chief
warrant officer (W- 3) at Naval Air Force, U. S. Atlantic Fleet,
repeatedly used his travel card after his retirement on December 1, 2000.
The cardholder currently works for a private company. He used the
government travel card since his retirement to make charges totaling more
than $41, 000 for hotels, car rentals, restaurants, and airline tickets
for personal and business purposes. In a number of instances, the
cardholder was able to obtain the government rate* which can be
substantially lower than the commercial rate* for lodging in San Diego,
Philadelphia, and Cincinnati. Because the Navy does not routinely monitor
cardholder transactions for abusive activity and because this particular
account was always paid in full, abusive activity was not detected. Bank
of America data showed that the cardholder*s account was still open in
early September 2002 and thus available for further charges.
In another instance, a mechanic trainee at the Puget Sound Naval
Shipyard was convicted of a felony for illegal possession of a firearm in
October 2000 and placed on indefinite suspension by his employer in
November 2000. However, neither the security office, which took action
against the employee, nor the office where the individual worked notified
the APC to cancel or deactivate the cardholder*s government
travel card account. Following his suspension, the cardholder used the
government travel card to make numerous cash withdrawals and purchases
totaling almost $4,700. The APC was not aware of these abusive charges
until the monthly delinquency review identified the account as delinquent.
The account balance of $1,600 was subsequently charged off in January
2002. Although security officers at the Puget
Sound Naval Shipyard referred the case to DON CAF in October 2000, our
work indicated that the employee, who was still in suspended status as of
August 2002, continued to maintain a secret clearance, despite the travel
card charge- off and felony conviction. We also found instances where the
APC did not promptly deactivate or
terminate the travel card upon being notified of an employee*s death,
retirement, dismissal, or separation from the Navy. At one case study
site, we audited 10 accounts of employees who died, retired, separated, or
were
otherwise removed since November 2000. Of the 10, 4 cardholders obtained
signatures from the travel branch, where the APC works, upon leaving the
unit. However, 3 of these 4 accounts were not deactivated or terminated in
a timely manner. In one case, a cardholder continued to use the card to
make numerous charges totaling $4, 900 for more than 9 months following
separation. The cardholder failed to make timely payments on
her account and became delinquent in September 2001. The APC did not
report this cardholder*s delinquent status to the appropriate unit
supervisor until the account was 90 days past due. The supervisor stated
that she took actions to have the card deactivated immediately upon
learning of the delinquency. The individual*s account was charged off on
November 27, 2001, and as of July 13, 2002, had a remaining balance of
$4,800. Available data also indicated that another cardholder who retired
in August 2001 continued to maintain possession of an active card until
September 2002, although he did not use the card. Failure to promptly
deactivate or terminate travel card accounts of individuals no longer with
the Navy increases the risk of delinquencies and charge- offs and can lead
to increased cost to the Navy.
Access Controls over Bank Thousands of Bank of America and DOD employees
have access to Bank of
of America*s Travel Card America*s travel card transaction data system,
known as EAGLS. System
Computer system access controls are intended to permit authorized users to
access the system to perform their assigned duties and preclude
unauthorized persons from gaining access to sensitive information. Access
to EAGLS is intended to be limited to authorized users to meet their
information needs and organizational responsibilities. Authorized EAGLS
users access levels include customer- level access (APCs requiring access
to travel data for cardholders under their purview and individual
travelers requiring access to their own travel transaction histories) and
bank employee- level access (Bank of America employees may be granted one
of five different levels of access depending on their assigned duties).
The highest level of Bank of America employee access to EAGLS is the
*super user* level. According to Bank of America security officials, this
level of access* which provides users the ability to add, delete, or
modify anything in the system, including creating accounts and editing
transaction data in the system* should be granted to as few individuals as
possible.
We found that 1,127 Bank of America employees had some level of access to
the EAGLS system, including 285 with super- user- level access. After we
brought this matter to the attention of Bank of America security
officials, they reviewed employee access and deactivated access for 655
employees
that they determined should not have had any level of access. This
included 22 employees with super- user access. Further, Bank of America
has since initiated periodic reviews to ensure that it maintains
appropriate levels of employee access.
In addition, DOD employees retained APC access to EAGLS after
relinquishing their APC duties or after they may have been transferred or
terminated. In a 2000 survey of 4,952 individuals with APC- level access
to EAGLS, DOD found that approximately 10 percent could not be located and
may have been transferred or terminated or no longer had APC
responsibilities. Because of concern that many of these accounts should be
deactivated, Bank of America has begun a review to determine if DOD
employees with APC- level access no longer have APC responsibilities or
have left the service.
Statistical Tests of Key With the weak control environment and related
program control
Control Activities weaknesses we identified, it is not surprising that we
found weaknesses in
the implementation of selected key control activities we statistically
tested at the three Navy sites we audited. We selected four key control
activities to test related to basic travel transaction and voucher
processing. As discussed previously, for the three locations, we estimate
that the percentage of transactions during fiscal year 2001 that
represented personal use varied from 7 percent at one location to 27
percent at another location.
We tested the implementation of the following internal control activities
for a statistically valid sample of travel card transactions.
Was there a travel order associated with the transaction that was
approved prior to the start of travel?
Was there a travel voucher associated with the transaction that was
properly reviewed to ensure that payment was accurate and properly
supported?
Did the traveler submit a travel voucher associated with the transaction
to the installation travel office for processing within 5 days of
completion of travel, as required by government travel regulations?
In accordance with TTRA and the DOD FMR, was the traveler paid within 30
days of the date a properly approved travel voucher associated with the
transaction was submitted for payment? Table 8 shows the results of our
statistical samples. Appendix II includes the specific criteria we used to
assess the effectiveness of these controls.
Table 8: Results of Testing of Key Internal Controls Percentage of failure
Travel Travel Travel vouchers Travel orders are
voucher are submitted vouchers are approved reimburse within 5 days
paid within prior to
ments are of travel 30 days of Navy unit
travel accurate
completion submission
Camp Lejeune 11.5 32.6 11.5 3.1 Patuxent River 3.1 35.4 36.5 1.0 Puget
Sound Naval Shipyard 49.0 a 39.6 34.4 1.0
Source: GAO analysis. Note: The numbers in the table represent point
estimates of the percentage of failure in the population based on our
sampling tests. The confidence intervals for our sampling estimates are
presented in app. II. a The high failure rate is attributable to
management*s failure to maintain copies of the original signed travel
orders, which were sent to the travelers.
Controls over Travel Order Timely approval of the travel orders is the
first step in ensuring that travel
Approval is authorized. At one of the three installations we audited,
Patuxent River, the controls over travel order approval were partially
effective. In contrast,
Puget Sound Naval Shipyard, which had a failure rate of 49 percent, had
ineffective controls over travel order approval. At Puget Sound, the high
failure rate was primarily attributable to travel personnel not
consistently ensuring that all copies of the six- part travel orders used
in fiscal year 2001 were signed before sending the originals to the
travelers. Consequently, this unit was unable to provide us with signed
copies of the travel orders. Puget Sound Naval Shipyard management
informed us that it had recently
instituted procedures that require signed copies of travel orders be
maintained by the unit.
Controls over Travel Once travel is completed, the traveler is required to
submit a voucher for all Voucher Review and reimbursable expenses and must
include receipts for certain claimed
Accuracy Were Not amounts. The voucher review process is intended to
ensure that only
Effective authorized, properly supported travel charges are reimbursed and
that the
amounts are accurately calculated. All three case study sites we audited
had ineffective controls to ensure that travel orders were properly
reviewed for accuracy and support. The estimated failure rates during
fiscal year 2001 for the three case study sites ranged from 33 to 40
percent.
Travel voucher errors resulted in both over- and underpayments to the
traveler and created an additional administrative burden for the Navy,
which had to take additional actions to recover overpayments or make
payments on previous underpayments. Travel voucher errors were attributed
to ineffective review and audit of travel vouchers. At one case study site
we audited, a communication breakdown had occurred between the office that
helped travelers prepare vouchers and the office that entered voucher data
into the automated system used to record relevant travel voucher data so
that payment could be made by DFAS. 31 At this site, each office thought
that the other was responsible for reviewing the vouchers for accuracy. As
a result, the vouchers were not consistently reviewed to ensure that they
were filed in accordance with travel regulations. In addition, we found
that the voucher auditing process was not effective, resulting in payment
errors that should have been detected. In our samples, we found that most
errors were in the following categories.
Missing or inconclusive receipts * We found instances in which voucher
packages did not include all receipts required to support claims, as
required by DOD and Navy regulations, yet payments were made. For example,
a cardholder at Puget Sound Naval Shipyard who claimed cell phone charges
totaling more than $1,000 on several partial vouchers did not submit a
detailed breakdown of these phone charges. As a result, there was no
indication that all of the charges were for
official use. However, the voucher was processed and full payment was made
to the traveler.
Errors in calculating amounts paid * We found instances in which the
voucher processing units paid for lodging expenses not incurred and
31 DFAS is responsible for disbursing payments to the travelers after
voucher data have been entered, reviewed, and audited by the voucher
processing offices at Navy installations.
made other errors in calculating incidental expenses, resulting in both
over- and underpayments to the traveler. At Patuxent River, one traveler
was reimbursed $395 in lodging expenses and $33 in lodging taxes; however,
the hotel receipt for this travel claim indicated lodging expenses of $316
and lodging taxes of $24. Thus, the traveler was
overpaid a total of $88. Other errors related to the reimbursement of
telephone calls and car mileage, and the failure to pay excess baggage
fees expressly authorized in the travel order. Other errors related to the
transposition of numbers. Most of these errors were relatively small in
terms of dollar amounts. However, we found errors that were significant in
comparison to the travel voucher amount. For example, at one case study
site a traveler claimed an ATM fee of $17.25 on a voucher totaling less
than $1,000, but the amount was entered into the travel reimbursement
system as $1,725. As a result, the cardholder was overpaid by more than
$1,700. Although this voucher was audited by the voucher processing unit,
the
error was not detected. As a result of our audit, the Navy unit has taken
actions to recover this and other overpayments.
Conclusions The intent of the travel card program was to improve
convenience for the traveler and to reduce the government*s costs of
administering travel.
However, when the Navy implemented the travel card as part of its travel
program, it did not provide the control infrastructure* primarily human
capital* necessary to manage and oversee the use of government travel
cards. Consequently, a weak internal control environment in the travel
card program has resulted in a significant level of delinquencies and
charge- offs of bad debts, as well as travel card fraud and abuse. This
has
resulted in millions of dollars of costs to the Navy, including higher
fees, lost rebates, and substantial time pursuing and collecting
delinquent travel card accounts.
DOD and the Navy have taken positive steps to reduce the delinquencies and
charge- offs, including establishing a system of wage and retirement
payment offset for many employees, encouraging the use of split
disbursements where travel reimbursements are sent directly to the bank
rather than the employee, and making management of the travel program a
priority for the Navy commands. These actions have resulted in significant
collections of previously charged- off and delinquent accounts. DOD and
the Navy have also proposed additional steps as reported in the June 27,
2002, DOD Charge Card Task Force report to improve the controls over the
travel card program. However, these Navy and DOD actions have primarily
addressed the symptoms rather than the underlying causes of the problems
with the program. Specifically, actions to date have focused on dealing
with accounts that are seriously delinquent, which are back- end or
detective controls rather than preventive controls. To effectively reform
the travel program, DOD and the Navy will need to work to prevent
potentially fraudulent and abusive activity and severe credit problems
with the travel card. The fiscal year 2003 Department of Defense
Appropriations Act requires the Secretary of Defense to establish
guidelines and
procedures for disciplinary actions to be taken against cardholders for
improper, fraudulent, or abusive use of the government travel card and to
deny issuance of the government travel card to individuals who are not
creditworthy. Further, the Bob Stump National Defense Authorization Act
for Fiscal Year 2003 provides authority for the Secretary of Defense to
require (1) use of the split disbursement payment process, where any part
of a DOD employee*s or service member*s travel reimbursement is paid
directly to the travel card- issuing bank, and (2) deductions of
prescribed amounts from salary and retirement pay of DOD employees or
service members, including civilian and military retirees, who have
delinquent travel card balances and payment of those amounts to the travel
cardissuing bank.
Recommendations for To strengthen the overall control environment and
improve internal control Executive Action
for the Navy*s travel card program, we recommend that the Secretary of the
Navy take the following actions. We also recommend that the Under
Secretary of Defense (Comptroller) assess the following recommendations
and, where applicable, incorporate them into or supplement the DOD Charge
Card Task Force recommendations to improve travel card policies and
procedures throughout DOD.
Travel Card Issuance We recommend that the Secretary of the Navy establish
specific policies and procedures governing the issuance of individual
travel cards to military and civilian employees, including the following:
Provide individuals with no prior credit histories with *restricted*
travel
cards with low credit and ATM limits. Develop procedures to periodically
evaluate frequency of card usage to identify accounts of infrequent
travelers.
Cancel accounts for current infrequent travelers, as noted in the Charge
Card Task Force report, in order to minimize exposure to fraud and abuse.
Evaluate the feasibility of activating and deactivating all cards,
regardless of whether they are standard or restricted cards, so that cards
are available for use only during the periods authorized by the
cardholders* travel orders. At a minimum, this policy should focus on
controlling travel card use by *high- risk* enlisted military personnel in
the E- 1 to E- 6 grades.
Develop comprehensive, consistent Navy- wide initial training and
periodic refresher training for travel cardholders, focused on the purpose
of the program and appropriate uses of the card. The training should
emphasize the prohibitions on personal use of the card, including
gambling, personal travel, and adult entertainment. Such training should
also address the policies and procedures of the travel order, voucher, and
payment processes. For entry- level personnel, the training should also
include information on basic personal financial management techniques to
help avoid financial problems that could affect an individual*s ability to
pay his or her travel card bill.
Monitoring, Review, and We recommend that the Secretary of the Navy
establish the following Disciplinary Actions
specific policies and procedures to strengthen controls and disciplinary
actions for improper use of the travel card:
Establish guidance regarding the knowledge, skills, and abilities
required to carry out APC responsibilities effectively. Establish
guidance on APC span- of- control responsibilities so that such
responsibilities are properly aligned with time available to ensure
effective performance. Determine whether certain APC positions should be
staffed on a full- time basis rather than as collateral duties.
Establish Navy- wide procedures to provide assurance that APCs receive
training on their APC responsibilities. The training should include how to
use EAGLS transaction reports and other available data to monitor
cardholder use of the travel card* for example, reviewing account
transaction histories to ascertain whether transactions are incurred
during periods of authorized travel and appear to be appropriate travel
expenses and are from approved MCCs.
Establish guidance requiring APCs to review EAGLS reports to identify
cardholders who have written NSF checks for payment of their account
balances, and refer these employees for counseling or disciplinary action.
Investigate and, if warranted, take appropriate disciplinary actions
against cardholders who wrote three or more NSF checks to Bank of America.
Establish Navy procedures to develop a data mining program to further
facilitate APCs* ability to identify potentially inappropriate
transactions for further review.
Establish Navy- wide procedures requiring that supervisors and
commanders notify APCs of actions taken with respect to delinquent
cardholders. Establish a Navy requirement for cognizant APCs to retain
records
documenting cardholders* fraudulent or abusive use of the travel card.
Establish appropriate, consistent Navy- wide procedures as a guide for
taking disciplinary actions with respect to fraudulent and abusive
activity and delinquency related to the travel card.
Review records of individuals whose accounts have been charged off or
placed in salary offset to determine whether they have been referred to
DON CAF for security reviews. Strengthen procedures used to process
employees separating from the
service to ensure that all accounts are deactivated or closed, and
repayment of any outstanding debts is arranged.
Perform periodic review of exit procedures to determine that accounts of
separated cardholders are deactivated or closed in a timely manner.
Develop procedures to identify active cards of separated cardholders,
including comparing cardholder and payroll data.
Review, in conjunction with Bank of America, individuals with APClevel
access to EAGLS to limit such access to only those with current APC
duties.
Develop a management plan to ensure that audits of the Navy travel card
program are conducted regularly, and the results are reported to senior
management.
Voucher and Payment To improve travel voucher accuracy, we recommend that
commanders at
Processes each unit identify causes of the high error rates related to
travel voucher
review and provide refresher training to ensure that voucher examiners and
auditors are informed and can accurately apply travel regulations and
updates.
To ensure that travel vouchers are consistently reviewed prior to
processing, we recommend that the Commander of Puget Sound Naval Shipyard
take the following actions:
Issue procedures to clearly assign responsibilities for reviewing the
accuracy of the travel vouchers.
Conduct periodic review to assess the effectiveness of the new
procedures in reducing the frequency and amount of voucher errors.
Agency Comments and In written comments on a draft of this report, which
are reprinted in Our Evaluation
appendix V, DOD concurred with 21 of 23 recommendations and partially
concurred with the remaining 2 recommendations. DOD partially concurred
with our recommendations regarding (1) establishing Navy- wide procedures
requiring that supervisors and commanding officers notify the APCs of
actions taken with respect to delinquent cardholders and (2) having
commanders at each unit identify causes of the high error rates
related to travel voucher review and provide refresher training to voucher
examiners and auditors. We believe that DOD*s planned actions for these
two areas, if effectively implemented, will address the intent of our
recommendations.
Concerning our recommendation that APCs be notified of actions by
supervisors with respect to delinquent cardholders, DOD responded that
providing this type of sensitive information to APCs is not appropriate.
DOD considers it to be more appropriate that actions taken with respect to
delinquent cardholders be reported up the chain of command and that the
department decide at what level and at what frequency this reporting
occur. Our recommendation did not contemplate that APCs would
necessarily need details of disciplinary action, only that the APCs be
informed that actions have been taken and by whom. Often the actions taken
include verbal counseling. The written documentation maintained by the
APC, which should refer to the official from whom authorized personnel may
obtain details of the disciplinary actions, will provide a
record that actions were taken and be a source for new commanders/
supervisors in identifying people with previous credit card problems.
Regarding having commanders identify causes of the high error rate related
to travel voucher review and provide refresher training, DOD has requested
that NAS conduct a review of the department*s end- to- end travel process
and make recommendations to improve accountability and efficiency. Upon
completion of the NAS review, DOD said it will distribute the appropriate
guidance to all major commands. We agree that it would be beneficial for
NAS to perform a comprehensive review of the travel
process. In addition, to ensure immediate results, we believe that
commanders, who are ultimately responsible and are more involved in the
day- to- day operations, should take proactive steps in reviewing and
correcting the weaknesses identified in this report.
In addition, although DOD concurred with our recommendations to establish
policies and procedures governing the issuance of individual travel cards
to military and civilian employees, its response regarding employees with
no prior credit history indicated that some may be issued cards with **
higher than *restricted* limits to accomplish their mission.* While this
may be required on a case- by- case basis, we believe that additional
preventive managerial oversight to monitor these accounts would be
beneficial. Management should also consider lowering the limit to
established restricted levels once the mission is completed. As agreed
with your offices, unless you announce the contents of this
report earlier, we will not distribute this report until 30 days from its
date. At that time, we will send copies of this report to interested
congressional committees, the Secretary of Defense, the Under Secretary of
Defense (Comptroller), the Secretary of the Navy, and the Director of the
Office of Management and Budget. We will make copies available to others
upon request. In addition, the report will be available at no charge on
the GAO Web site at http:// www. gao. gov.
Please contact Gregory D. Kutz at (202) 512- 9095 or kutzg@ gao. gov or
John J. Ryan at (202) 512- 9587 or ryanj@ gao. gov if you or your staffs
have any questions concerning this report.
Gregory D. Kutz Director Financial Management and Assurance Robert J.
Cramer Managing Director Office of Special Investigations
Appendi Appendi xes x I
Background In 1983, the General Services Administration (GSA) awarded a
governmentwide master contract with a private company to provide
government- sponsored, contractor- issued travel cards to federal
employees to be used to pay for costs incurred on official business
travel. The intent of the travel card program was to provide increased
convenience to the traveler and lower the government*s cost of travel by
reducing the need for cash advances to the traveler and the administrative
workload associated with processing and reconciling travel advances. The
travel card program includes both individually billed accounts* accounts
held and paid by individual cardholders* and centrally billed accounts
that are used to purchase transportation or for the travel expenses of a
unit and are paid directly by the government. As of the end of fiscal year
2001, over
2.1 million individually billed travel cards were issued to federal
government travelers. These travel cardholders charged $3.6 billion in the
same fiscal year.
Under the current GSA master contract, the Department of Defense entered
into a tailored task order with Bank of America 32 to provide travel card
services to DOD and the military services, including the Navy. Table 9
provides the number of individually billed travel cards outstanding and
related dollar amount of travel card charges by DOD and its components in
relation to the total federal government.
32 The Department of Defense contracted with NationsBank of Delaware, N.
A., which subsequently merged into the Bank of America, N. A., under a
Tailored Task Order under the GSA Master Contract Award for the travel
card program. The period of performance under the task order was November
30, 1998, through November 29, 2000, with three 1- year options. The task
order also allowed for five additional 1- year options under the GSA
master contract renewal provisions.
Table 9: Comparison of Number of Individually Billed Travel Cardholders
and Related Charges for DOD versus Total Federal Government Charges for
Fiscal Year 2001
Fiscal year 2001 Number of individually individually billed travel billed
travel cardholders
card charges Entity
as of September 30, 2001 (dollars in millions)
Navy (includes Marine Corps) 394,952 $510 Army 432,460 $619 Air Force
501,306 $831 Other DOD 86,922 $174
Total DOD 1,415,640 $2, 134
Total federal government 2,132,031 $3, 634 DOD percentage of total
government 66% 59%
Source: Bank of America.
As shown in table 9, DOD accounts for about 1.4 million, or 66 percent, of
the total number of the individually billed travel cards issued by the
entire federal government and DOD*s cardholders charged about $2.1
billion, or about 59 percent of the federal government*s travel card
charges during fiscal year 2001. Table 9 also shows that the Navy provided
about 395,000
individually billed cards to its civilian and military employees as of
September 2001. These cardholders charged an estimated $510 million to
their travel cards during fiscal year 2001.
Travel Card Program The Travel and Transportation Reform Act of 1998
(Public Law 105- 264) Guidelines
expanded the use of government travel cards by mandating the use of the
cards for all official travel unless specifically exempted. The act is
intended to reduce the overall cost of travel to the federal government
through reduced administrative costs and by taking advantage of rebates
from the travel card contractor. These rebates are based on the volume of
transactions incurred on the card and cardholders paying their monthly
travel card bills on time. To help timely payments, the act requires that
agencies reimburse cardholders for proper travel claims within 30 days of
submission of approved travel vouchers by the cardholders. 33 Further, the
act allows, but does not require, agencies to offset a cardholder*s pay
for amounts the cardholder owes to the travel card contractor as a result
of travel card delinquencies not disputed by the cardholder. The act calls
for
GSA to issue regulations incorporating the requirements of the act. GSA
incorporated the act*s requirements into the Federal Travel Regulation.
The Federal Travel Regulation governs travel and transportation and
relocation allowances for all federal government employees, including
overall policies and procedures governing the use of government travel
cards. Agencies are required to follow the requirements of GSA*s Federal
Travel Regulation, but can augment these regulations with their own
implementing regulations.
DOD issued its Financial Management Regulations (FMR), Volume 9, Chapter
3, Travel Policies and Procedures to supplement GSA*s travel regulations.
DOD*s Joint Travel Regulations, Volume 1 (for Uniformed Service Members),
and Volume 2 (for Civilian Personnel) refer to the FMR as the controlling
regulation for DOD*s travel cards. Further, in January 2002, the Navy
eBusiness Operations Office issued Instruction 4650. 1,
Policies and Procedures for the Implementation and Use of the Government
Travel Charge Card to supplement the FMR. In addition,
33 The act also requires agencies to pay cardholders a late payment fee if
they do not reimburse cardholders within the 30- day period allowed.
Specifically, Federal Travel Regulations prescribed by the Administrator
of General Services require agencies to either
(1) calculate late payment fees using the prevailing Prompt Payment
Interest Rate beginning the 31 st day after submission of a proper travel
claim and ending on the date on which payment is made or (2) reimburse the
traveler a flat fee of not less than the prompt pay amount, based on an
agencywide average of travel claim payments. In addition to the fee
required in the items above, the agency must also pay the traveler an
amount equivalent to any late payment charge that the card contractor
would have been able to charge the traveler had the traveler not paid the
bill. 41 C. F. R. Section 301- 52.20.
some of the Navy*s individual commands and units have issued their own
instructions supplementing GSA and DOD guidelines.
The Navy Travel As shown in figure 6, the Navy*s travel card management
program for
Process individually billed travel card accounts encompasses card
issuance, travel
authorization, cardholders charging goods and services on their travel
cards, travel voucher processing and payment, and managing travel card
usage and delinquencies.
Figure 6: Overview Flowchart of the Navy Travel Process
Traveler requests travel card Agency Program Coordinator (APC) Bank issues
travel card
processes travel card application approved by supervisor and controls
credit limits
Official government travel authorized (travel order)
Traveler charges goods Merchant (e. g., rental car co.)
Payment
provides goods/ services and and services on travel card
charges travel card
Billing Payment
Billing Payment
information
Traveler prepares voucher Bank processes card
Merchant bank accepts and provides to supervisor
charges, pays merchant transaction deposit slips and
for review and submission to bank, and bills traveler
transfers payment voucher processing unit
Installation voucher processing Bank credit card data in EAGLS c
unit processes voucher and submits to DFAS
DFAS pays a voucher APC monitors card usage and
delinquencies b by accessing EAGLS
Traveler leaves services APC terminates or suspends card
or moves for traveler leaving Navy or moving Source: GAO analysis.
a The Defense Finance and Accounting Service allows travelers to direct a
portion, or all, of their voucher reimbursement to Bank of America. b See
figure 8 for specific actions to be taken by the Agency Program
Coordinator.
c Electronic Account Government Ledger System
Travel Card Issuance and When a Navy civilian or military employee or the
employee*s supervisor
Termination determines that he or she will need a travel card, the
employee contacts the
unit*s travel card agency program coordinator (APC) to complete an
individually billed card account application form. As shown in figure 7,
the application requires the applicant to provide pertinent information,
including full name and social security number, and indicate whether he or
she is an active, reserve, or a civilian employee of the Navy. The
applicant is also required to initial a statement on the application
acknowledging that he or she has read and understands the terms of the
travel card agreement and agrees to be bound by these terms, including a
provision acknowledging that the card will be used only for official
travel. The APC is required to complete the portion of the member*s
application concerning who will be responsible for managing the use and
delinquencies related to
the card. Bank of America is required to issue a travel card to all
applicants for whom it receives completed applications signed by the
applicants, the applicants* supervisors, and the APCs.
Figure 7: Travel Card Application
Individually Billed Card Account Setup/ Application Form (Department of
Defense Travel Card Program)
PART 1: TO BE COMPLETED BY EMPLOYEE (Optional fields are italicized and
noted by an asterisk) PLEASE TYPE OR PRINT ALL INFORMATION Cardholder name
as it should appear on the card (First Name , Middle Name or Middle
Initial and Last Name): Social Security Number: Employment Status: * *
Active Reserve Guard Civilian Military Rank and Pay Grade/ Civilian Pay
Grade (example: E- 05, O- 03, GS- 09, WG- 07, etc.): Military Rank:
Military Pay Grade: * Civilian Pay Grade: * Commercial Office Phone: Home
Phone: Statement Mailing Address: (Indicate Street or P. O. Box) Card
Mailing Address*: (if different from statement address) City or APO/ FPO:
State: City or APO/ FPO*: State*: Zip/ Postal Code: Country: Zip/ Postal
Code*: Country*: E- mail Address*: Card Delivery*: The card will arrive
approximately 10 to 14 business days after Bank of America receives the
application. Expedited card delivery is available, however, the applicant
will be charged $20. Is expedited card delivery needed? Yes No . Signature
and Agreement: After reading the attached Agreement between Department of
Defense Employee and Bank of America, N. A. (USA) (* Agreement*): 1.
Initial either A or B below; 2. Sign; 3. Obtain your supervisor*s
approval; and 4. Forward the completed form to your APC. A. ____ By
signing below, I acknowledge that I have read and
B. ____ By signing below, I acknowledge that I have read and understand,
and understand, and agree to be bound by, the terms and conditions of
agree to be bound by, the terms and conditions of the Agreement; however,
I do the Agreement including Bank of America*s right to obtain credit not
authorize Bank of America to obtain credit reports and therefore I will
not be reports as described in the Agreement. I attest to the best of my
eligible for a standard account. I attest to the best of my knowledge,
that the knowledge, that the information I have provided herein is true
and
information I have provided herein is true and correct. correct. This
application is for a Government Card Account, which may be standard or
restricted, as described in the attached Agreement. I expressly agree to
accept whichever type of account is established. Applicant*s Signature:
Date: Supervisor*s Approval Signature: Date: PART 2: TO BE COMPLETED BY
AGENCY PROGRAM COORDINATOR (APC) PLEASE TYPE OR PRINT ALL INFORMATION
(Optional fields are italicized and noted by an asterisk) Central Account
No. 4 4 8 6 * 1 2 * * Account Hierarchy: Specify the complete Hierarchy
Level (HL) number that pertains to your organization. For example, 0000001
2000005 3012345. HL1 HL2 HL3 HL4 HL5 HL6 HL7 HL8 0000001 Organization/
Unit Name: FIPS Code: Is the applicant eligible to obtain Contract City
Pair airline fares?* +If eligible, participation is*: Yes+ No Mandatory
Non- mandatory Account Type*: (Check one. If the applicant initialed B in
the above Signature and Agreement section, then only a restricted card may
be issued. For a restricted card, if no activation/ deactivation dates are
provided below, the card will issued in a deactivated status and can only
be activated by the APC.) Standard Restricted If Restricted, Date to
Activate: Month Day Year Date to Deactivate: Month Day Year Card Design
Type*: Cash Access* : Authorized to Receive Travelers Checks*: Standard
Quasi- Generic Yes No Yes No By signing below, I hereby authorize, on
behalf of the Agency/ Organization indicated above, that a Government Card
be issued to the employee named above. PLEASE RETAIN COPY FOR YOUR
RECORDS. Return copy to: Bank of America, Attn: GCSU, P. O. Box 52304,
Phoenix, AZ, 85072- 9419, Facsimile: 1.877.217.1033 or 1.888.698.5631 APC:
Date: Name & Title/ Rank (Please print) Signature Address Line 1: City:
State: Address Line 2*: Zip Code: Country: Address Line 3*: Commercial
Telephone: Form: S02D0400/ OC R 24000 Revised: 05/ 29/ 01 Source:
Department of Defense.
Bank of America issues travel cards with either a standard or restricted
credit limit. If an employee has little or no credit history or poor
credit based on a credit check performed by Bank of America, it will
suggest to the service that the applicant receive a restricted credit
limit of $2, 500 instead of the standard credit limit of $10,000. 34
However, as shown in
figure 7, the application allows the employee to withhold permission for
Bank of America to obtain credit reports. If this option is selected, Bank
of America automatically issues a restricted credit limit card to the
applicant. When cardholders leave the Navy, they are required to contact
their APCs
and notify them of their planned departure. Based on this notification
from the cardholders, the APCs are to deactivate or terminate the
cardholders* accounts.
Travel Authorization When a cardholder is required to travel for official
government purposes, he or she is issued a travel order authorizing
travel. The travel order is required to specify the timing and purpose of
the travel authorized. For example, the travel order is to authorize the
mode of transportation, the duration and points of the travel, and the
amounts of per diem and any cash advances. Further, the Navy can limit the
amount of authorized reimbursement to military members based on the
availability of lodging and dining facilities at military installations.
Using the Travel Card for Official For authorized travel, travelers must
use their cards to pay for allowable
Travel Expenses expenses such as hotels and rental cars. The Navy
generally uses a
centrally billed transportation account to pay for air and rail
transportation. Also, some units utilize unit cards, a form of centrally
billed account, in lieu of travel charge cards for individually billed
accounts for meals and lodging for group trips. When the travel card is
submitted to a merchant, the merchant will process
the charge through its banking institution, which in turn charges Bank of
America. At the end of each banking cycle (once each month), Bank of
America prepares a billing statement that is mailed to the cardholder for
the amounts charged to the card. The statement also reflects all payments
and credits made to the cardholder*s account. Bank of America requires
that the cardholder make payment on the account in full within 30 days of
the statement closing date. If the cardholder does not pay his or her
34 Starting January 2002, the standard and restricted credit limits were
reduced to $5,000 and $2,000, respectively, per instructions issued by the
Navy*s eBusiness Operations Office.
monthly billing statement in full, and does not dispute the charges within
60 days of the statement closing date, the account is considered
delinquent.
Travel Voucher Submission and Within 5 working days of return from travel,
the cardholder is required to
Processing submit a travel voucher claiming legitimate and allowable
expenses
incurred while on travel. Further, the standard is for the cardholder to
submit an interim voucher every 30 days for extended travel of more than
45 days. The amount that cardholders are reimbursed for their meals and
incidental expenses and hotels is limited by geographical rates
established by GSA.
Upon submission of a proper voucher by the cardholder, the Navy has 30
days in which to make reimbursement without incurring late payment fees.
Cardholders are required to submit their travel vouchers to their
supervisors or other designated approving officials who must review the
vouchers and approve them for payment. If the review finds an omission or
error in a voucher or its required supporting documentation, the approving
official must inform the traveler of the error or omission. If the payment
of the approved proper voucher takes longer than 30 days, the Navy is
required to pay the cardholder a late payment fee plus an amount equal to
the amount Bank of America would have been entitled to charge the
cardholder had the cardholder not paid the bill by the due date. After the
supervisor approves a cardholder*s travel voucher package for payment, it
is processed by a voucher processing unit at the location to which the
cardholder is assigned. The voucher processing unit enters
travel information from the approved voucher into DOD*s Integrated
Automated Travel System (IATS). IATS calculates the amount of per diem
authorized in the travel order and voucher and the amount of mileage, if
any, claimed by the cardholder. In addition, any other expenses claimed
and approved are entered into IATS. Once the travel information from the
voucher has been entered into IATS, the voucher may be selected for
further review or *audit.* IATS selects 10 percent of vouchers under
$2,500 and all vouchers $2,500 or greater for audits. If problems with the
voucher are found during the initial entry of the information into IATS or
during the audit of the information, the transaction can be rejected and
returned to the cardholder for correction. Once the vouchers are processed
and audited, they are sent to DFAS for payment to the cardholder or to
Bank of America and the cardholder, if the cardholder elected split
disbursements whereby part of the DFAS reimbursement is sent to Bank of
America.
Monitoring Travel Card In addition to controlling the issuance and credit
limits related to the travel
Transaction Activity card, APCs are also responsible for monitoring the
use of and delinquencies related to travel card accounts for which they
have been assigned management responsibility. Bank of America*s Web- based
Electronic Account Government Ledger System (EAGLS) provides on- line
tools that are intended to assist APCs in monitoring travel card activity
and related delinquencies. Specifically, APCs can access EAGLS to monitor
and extract reports on their cardholders* travel card transaction activity
and related payment histories.
Managing Delinquent Cardholder Both the Navy and Bank of America have a
role in managing travel card
Accounts delinquencies under GSA*s master contract. While APCs are
responsible for monitoring cardholders* accounts and for working with
cardholders*
supervisors to address any travel card payment delinquencies, Bank of
America is required to use EAGLS to notify the designated APCs if any of
their cardholders* accounts are in danger of suspension or cancellation.
When Bank of America has not received a required payment on any travel
cardholder*s account within 60 days of the billing statement closing date,
it
is considered delinquent. As summarized in figure 8, there are specific
actions required by both DOD and Bank of America based on the number of
days a cardholder*s account is past due.
Figure 8: Required DOD and Bank of America Delinquency Process Management
Actions
DOD actions Bank of America actions Statement
Sends statement to cardholder.
date 30 days
45 days
Sends a delinquency reminder to cardholder.
55 days
Sends a presuspension letter to the cardholder. Agency Program Coordinator
(APC) issues
60 days
Suspends the account prohibiting purchases. 60- day delinquency
notification memorandum
Mails suspension letter to cardholder. to the cardholder and immediate
supervisor. Supervisor investigates and takes appropriate disciplinary
action.
75 days
Assesses late fee every 30 days. APC issues 90- day delinquency
notification
90 days
Sends 90- day letter to cardholder memorandum to the cardholder, immediate
Sends letter to cardholder of intent supervisor, and the company commander
to initiate salary offset. who investigates and takes appropriate
disciplinary action. APC issues a 120- day delinquency
120 days
Sends a precancellation letter to the cardholder. notification memorandum
to the company commander. The company commander
Requests Defense Finance and Accounting Service investigates and takes
appropriate
(DFAS) to offset salary. disciplinary action.
126 days
Closes account, mails notice of cancellation letter to cardholder.
DFAS offsets salary.
150 days 180 days
Mails a precharge- off letter to the cardholders for accounts not in
salary offset or other payment agreements.
210 days
Charges off account for which no payments were being made.
Source: GAO analysis. Note: Starting in fiscal year 2002, DOD began to
offset the salaries of certain civilian employees and military and retired
military members from all services including the Navy, for the amounts
delinquent or charged off on travel card accounts.
The following is a more detailed explanation of the required actions by
DOD and/ or Bank of America with respect to delinquent travel card
accounts.
45 days past due* Bank of America is to send a letter to the cardholder
requesting payment. Bank of America has the option to call the cardholder
with a reminder that payment is past due and to advise the cardholder that
the account will be suspended if it becomes 60 days past due.
55 days past due* Bank of America is to send the cardholder a
presuspension letter warning that Bank of America will suspend the account
if it is not paid. If Bank of America suspends an account, the card cannot
be used until the account is paid.
60 days past due* The APC is to issue a 60- day delinquency notification
memorandum to the cardholder and to the cardholder*s immediate supervisor,
informing them that the cardholder*s account has been suspended due to
nonpayment. The next day, a suspension letter is to be sent by Bank of
America to the cardholder providing notice that the card has been
suspended until payment is received.
75 days past due* Bank of America is to assess the account a late fee.
The late fee charged by Bank of America was $20 through August 9, 2001.
Effective August 10, 2001, Bank of America increased the late fee to $29
under the terms of the contract modification between Bank of
America and DOD. Bank of America is allowed to assess an additional late
fee every 30 days until the account is made current or charged off.
90 days past due* The APC is to issue a 90- day delinquency notification
memorandum to the cardholder, the cardholder*s immediate supervisor, and
the company commander (or unit director). The company commander is to
initiate an investigation into the delinquency and take appropriate
action, at the company commander*s discretion. At the same time, Bank of
America is to send a *due process letter* to the cardholder providing
notice that the account will be canceled if payment is not received within
30 days unless he or she enters into a payment plan, disputes the charge(
s) in question, or declares bankruptcy.
120 days past due* The APC is to issue a 120- day delinquency
notification memorandum to the cardholder*s commanding officer. At 126
days past due, the account is to be canceled by Bank of America. Beginning
in October 2001, once accounts were 120 days past due, Bank of America
began sending files to DFAS listing these accounts for salary offset.
180 days past due* Bank of America is to send *precharge- off* or last
call letters to cardholders whose accounts were not put in salary offset
informing them that Bank of America will charge off their accounts and
report them to a credit bureau if payment is not received. A credit bureau
is a service that reports the credit history of an individual. Banks and
other businesses assess the creditworthiness of an individual using credit
bureau reports.
210 days past due* Bank of America is to chargeoff any delinquent
account that it was unable to put in the offset program and, if the
balance is $50 or greater, report it to a credit bureau, unless another
form of payments was forthcoming.
Some accounts are pursued for collection by Bank of America*s recovery
department, while others are sent to attorneys or collection agencies for
recovery. The delinquency management process can be suspended when a
cardholder*s APC informs Bank of America that the cardholder is on
official travel, but is unable to submit vouchers and make timely payments
on his or her account, through no fault of his or her own. Under such
circumstances, the APC is to notify Bank of America that the cardholder is
in *mission- critical* status. By activating this status, Bank of America
is precluded from identifying the cardholder*s account as delinquent until
45 days after such time as the APC determines the cardholder is to be
removed from mission- critical status. According to Bank of America,
approximately 800 to 1,000 cardholders throughout DOD were in this status
at any given time throughout fiscal year 2001.
Appendi x II
Objectives, Scope, and Methodology Pursuant to a joint request by the
Chairman and Ranking Minority Member of the Subcommittee on Government
Efficiency, Financial Management and Intergovernmental Relations, House
Committee on Government Reform, and the Ranking Minority Member of the
Senate Committee on Finance, we audited the controls over the issuance,
use, and monitoring of individually billed travel cards and associated
travel processing and
management for the Department of the Navy. Our assessment covered the
reported magnitude and impact of delinquent and charged- off Navy
travel card accounts for fiscal year 2001 and the first 6 months of fiscal
year 2002, along with an analysis of causes and related corrective
actions;
an analysis of the universe of Navy travel card transactions during
fiscal year 2001 and the first 6 months of fiscal year 2002 to identify
potentially fraudulent and abusive activity related to the travel card;
the Navy*s overall management control environment and the design of
selected Navy travel program management controls, including controls over
(1) travel card issuance, (2) APCs* capacity to carry out assigned duties,
(3) limiting card activation to meet travel needs, (4) transferred and
*orphan* accounts, (5) procedures for terminating accounts when
cardholders leave military service, and (6) access for Bank of America*s
travel card database; and
tests of statistical samples of transactions to assess the
implementation of key management controls and processes for three Navy
units* travel activity including (1) travel order approval, (2) accuracy
of travel voucher payments, (3) the timely submission of travel vouchers
by travelers to the approving officials, and (4) the timely processing and
reimbursement of travel vouchers by the Navy and DOD.
We used as our primary criteria applicable laws and regulations, including
the Travel and Transportation Reform Act of 1998 (Public Law 105- 264), 35
the General Services Administration*s (GSA) Federal Travel Regulation, 36
and the Department of Defense Financial Management Regulations,
Volume 9, Travel Policies and Procedures. We also used as criteria our
Standards for Internal Control in Federal Government 37 and our Guide to
Evaluating and Testing Controls Over Sensitive Payments. 38 To assess the
management control environment, we applied the fundamental concepts and
standards in our internal control standards to the practices followed by
management in the six areas reviewed.
To assess the magnitude and impact of delinquent and charged- off
accounts, we compared the Navy*s delinquency and charge- off rates to
other DOD services and federal agencies. We did not verify the accuracy of
the data provided to us by Bank of America and GSA. We also analyzed the
trends in the delinquency and charge- off data from fiscal year 2000
through the first half of fiscal year 2002.
We also used data mining to identify Navy travel card transactions for
individually billed accounts for audit. Our data mining procedures covered
the universe of individually billed Navy travel card activity during
fiscal
35 Travel and Transportation Reform Act of 1998 (Public Law 105- 264, Oct.
19, 1998) includes requirements that federal employees use federal travel
charge cards for all payments of expenses of official government travel,
requires the government to reimburse employees who have submitted proper
vouchers within 30 days of submission of the vouchers, and allows for the
offset of pay for employees with undisputed travel card charge
delinquencies in an amount up to 15 percent of the amount of disposable
pay of the employee for a pay period.
36 Federal Travel Regulation, 41 (C. F. R.) chapters 300- 304, issued by
the Administrator of General Services, governs travel and transportation
allowances and relocation allowances for federal civilian employees.
37 U. S. General Accounting Office, Standards for Internal Control in the
Federal Government, GAO/ AIMD- 00- 21. 3.1 (Washington, D. C.: November
1999). This document was prepared to fulfill our statutory requirement
under 31 U. S. C. 3512 (c), (d), the Federal Managers* Financial Integrity
Act, to issue standards that provide the overall framework for
establishing and maintaining internal control and for identifying and
addressing major performance and management challenges and areas at
greatest risk of fraud waste, abuse,
and mismanagement. 38 U. S. General Accounting Office, Guide to Evaluating
and Testing Controls Over Sensitive Payments, GAO/ AFMD- 8. 1.2
(Washington, D. C.: May 1993), provides a framework for evaluating and
testing the effectiveness of internal controls that have been established
in various sensitive payment areas.
year 2001 and the first 6 months of fiscal year 2002 and identified
transactions that we believed were potentially fraudulent or abusive based
upon the nature, amount, merchant, and other identifying characteristics
of the transaction. However, our work was not designed to identify, and we
did not determine, the extent of any potentially fraudulent or abusive
activity related to the travel card.
To assess the overall control environment for the travel card program at
the Department of the Navy, we obtained an understanding of the travel
process, including travel card management and oversight, by interviewing
officials from the Office of the Undersecretary of Defense, Comptroller;
Department of the Navy; Defense Finance and Accounting Service (DFAS);
Bank of America; and GSA. We reviewed applicable policies and procedures
and program guidance they provided. We visited three Navy units to *walk
through* the travel process including the management of travel card usage
and delinquency. Further, we contacted one of the three largest U. S.
credit bureaus to obtain credit history data and information on how credit
scoring models are developed and used by the credit industry
for credit reporting. At each of the Navy locations we audited, we also
used our review of policies and procedures and the results of our *walk-
throughs* of travel processes and other observations to assess the
effectiveness of controls over segregation of duties among persons
responsible for issuing travel orders, preparing travel vouchers,
processing and approving travel vouchers, and certifying travel voucher
payments. We also reviewed computer system access controls for Electronic
Account
Government Ledger System (EAGLS)* the system used by Bank of America to
maintain DOD travel card data. To determine whether these controls over
EAGLS were effective, we interviewed Bank of America officials and
observed EAGLS functions and capabilities.
To test the implementation of key controls over individually billed Navy
travel card transactions processed through the travel system* including
the travel order, travel voucher, and payment processes* we obtained and
used the database of fiscal year 2001 Navy travel card transactions to
review random samples of transactions at three Navy locations. Because our
objective was to test controls over travel card expenses, we excluded
credits and miscellaneous debits (such as fees) from the population of
transactions used to select random samples of travel card transactions to
review at each of the three Navy units we audited. Each sampled
transaction was subsequently weighted in the analysis to account
statistically for all charged transactions at each of the three units,
including those transactions that were not selected.
We selected three Navy locations for testing controls over travel card
activity based on the relative size of travel card activity at the 27 Navy
commands and of the units under these commands, the number and percentage
of delinquent accounts, and the number and percentage of accounts written
off. We selected one unit from the Naval Sea Systems Command because that
command represented 19 percent of the total travel card activity, 9
percent of past due accounts, and 7 percent of accounts charged off during
fiscal year 2001. We also selected one unit from Naval Air Systems Command
because that command represented approximately 12 percent of travel card
activity, 4 percent of past due accounts, and 4 percent of accounts
charged off during fiscal year 2001 across the Navy. We also selected U.
S. Marine Corps Forces Atlantic because this command
represented about 24 percent of Corps charge card activity, 23 percent of
accounts past due, and 26 percent of accounts charged off. Each of the
units within the commands was selected because of the relative size of the
unit within the respective command. Table 10 presents the sites selected
and the number of fiscal year 2001 transactions at each location. 39
Tabl e 10: Population of Fiscal Year 2001 Travel Transactions at Navy
Units Tested Number of fiscal year Dollar value of fiscal year Navy unit
tested 2001 travel transactions a 2001 travel transactions a
Camp Lejeune 14,209 $1,747, 316 Patuxent River 179,547 $20,335, 864 Puget
Sound Naval Shipyard 80,583 $11,025, 669 Source: GAO analysis based on
Bank of America data.
a Transactions represent charges for sales and cash advances and exclude
credits and fees.
We performed tests on statistical samples of travel card transactions at
each of the three case study sites to assess whether the system of
internal
39 The populations from which we selected our samples included some
transactions that were not supported by travel orders or vouchers, such as
personal charges made by a cardholder. We excluded such transactions from
our assessment of the effectiveness of controls over the travel order,
voucher, and payment processes. However, we included such transactions in
order to project the percentage of personal use transactions.
controls over the transactions was effective, as well as to provide an
estimate of the percentage of transactions by unit that were not for
official government travel. For each transaction in our statistical
sample, we assessed whether (1) there was an approved travel order prior
to the trip, (2) the travel voucher payment was accurate, (3) the travel
voucher was submitted within 5 days of the completion of travel, and (4)
the traveler was paid within 30 days of the submission of an approved
travel voucher. We considered transactions not related to authorized
travel to be abuse and incurred for personal purposes. The results of the
samples of these control
attributes, as well as the estimate for personal use* or abuse* related to
travel card activity, can be projected to the population of transactions
at the respective test case study site only, not to the population of
travel card transactions for all Navy cardholders. We concluded that a
control was effective if both the projected point estimate of the failure
rate and the upper bound of a one- sided 95 percent
confidence interval associated with the estimate were no more than 5
percent. We concluded that a control was ineffective if both the point
estimate of the failure rate and the lower bound of a one- sided 95
percent confidence interval associated with the estimate were greater than
10 percent. Otherwise, we concluded that the control was partially
effective.
Tables 11 through 13 show (1) the results of our tests of key attributes,
(2) the point estimates of the failure rates for the attributes, and (3)
the twosided 95 percent confidence intervals for the failure rates for
each attribute. Table 11 shows the results of our test of the key control
related to the authorization of travel*( approved travel orders were
prepared prior to dates of travel).
Tabl e 11: Estimates of Fiscal Year 2001 Transactions That Failed Control
Tests for Approved Travel
Estimated failure rate Number of failed
(2- sided 95% Navy unit tested transactions
confidence interval)
Camp Lejeune 11. 5% 11 of 96 (5.9%, 19.6%)
Patuxent River 3.1 % 3 of 96 (0.6%, 8.9%)
Puget Sound Naval Shipyard 49. 0% 47 of 96 (38.6%, 59.4%)
Source: GAO analysis .
Table 12 shows the results of our test for effectiveness of controls in
place over the accuracy of travel voucher payments.
Table 12: Estimates of Fiscal Year 2001 Transactions That Failed Control
Tests for Accurate Travel Voucher Payments
Estimated failure rate Number of failed
(2- sided 95% Navy unit tested transactions confidence interval)
Camp Lejeune 32. 6% 14 of 43 (19.1%, 48.5%)
Patuxent River 35. 4% 34 of 96 (25.9%, 45.8%) Puget Sound Naval
39. 6% Shipyard 38 of 96 (29.8%, 50.1%)
Source: GAO analysis.
Table 13 shows the results of our tests of two key controls related to
timely processing of claims for reimbursement of expenses related to
government travel* timely submission of the travel voucher by the employee
and timely approval and payment processing.
Table 13: Estimates of Fiscal Year 2001 Transactions That Failed Control
Tests for Timely Submission and Processing of Travel Vouchers
Timely reimbursement to the Timely voucher submission by traveler employee
(5- day rule)
(30- day rule) Estimated
Estimated failure rate
failure rate Number (2- sided 95% Number (2- sided 95% Navy unit
of failed confidence
of failed confidence
tested transactions
interval) transactions
interval)
Camp Lejeune 11.5% 3.1% 11 of 96 (5.9%, 19.6%) 3 of 96 (0.6%, 8.9%)
Patuxent River 36.5% 1.0% 35 of 96 (26.9%, 46.9%) 1 of 96 (0.03%, 5.7%)
Puget Sound Naval
34.4% 1.0% Shipyard 33 of 96 (25.0%, 44.8%) 1 of 96 (0.03%, 5.7%)
Source: GAO analysis.
To determine if cardholders were reimbursed within 30 days, we used
payment dates provided by DFAS. We did not independently validate the
accuracy of these reported payment dates.
We briefed Navy managers, including Assistant Secretary of the Navy
(Financial Management and Comptroller) officials; and unit commanders and
APCs of the details of our audit, including our findings and their
implications. We incorporated their comments where appropriate. We
conducted our audit work from December 2001 through October 2002 in
accordance with generally accepted government auditing standards, and
we performed our investigative work in accordance with standards
prescribed by the President*s Council on Integrity and Efficiency. We
received DOD comments on a draft of this report from the Under Secretary
of Defense (Comptroller) dated December 5, 2002, and have reprinted those
comments in appendix V.
Appendi x III
Navy Major Command Delinquency Rates Table 14 shows the travel card
delinquency rates for Navy*s major commands (and other Navy organizational
units at a comparable level) that had outstanding balances over $1 million
as of March 31, 2002. Commands with a March 31, 2002, balance outstanding
under $1 million have been combined into "other." The Navy*s commands and
other units are listed in descending order based on their respective
delinquency rates as of March
31, 2002. The delinquency rates shown represent the total amount
delinquent (amounts not paid within 61 days of the travel card monthly
statement closing date) as a percentage of total amount owed by the
command*s travel cardholders at the end of each quarter. Tabl e 14: Navy
Major Command Delinquency Rates a (By Quarter) for the 2 Years Ending
March 31, 2002
June Sept. Dec. Mar. June Sept.
Dec. Mar. Major Command 2000 2000 2000 2001 2001 2001 2001 2002
Naval Reserve Forces 14% 18% 42% 17% 14% 15% 30% 22% Marine Reserve Forces
15% 21% 30% 15% 16% 24% 26% 18% U. S. Marine Forces Atlantic 16% 17% 25%
13% 14% 19% 26% 17% U. S. Marine Forces Pacific 16% 18% 26% 12% 16% 16%
25% 16% U. S. Atlantic Fleet 18% 21% 20% 15% 14% 19% 17% 14% U. S. Pacific
Fleet 17% 18% 17% 12% 13% 15% 16% 12% Bureau of Naval Personnel 15% 14%
15% 10% 12% 12% 14% 11% Naval Special Warfare Command 14% 16% 17% -11% b
12% 11% 13% 9% Bureau of Medicine and Surgery 11% 13% 16% 9% 9% 13% 12% 8%
Chief of Naval Education and Training 9% 12% 14% 10% 9% 14% 12% 7% Chief
of Naval Operations 6% 8% 11% 5% 5% 7% 7% 4% Naval Sea Systems Command 6%
7% 8% 4% 5% 6% 4% 3% Office of the Undersecretary of the Navy 5% 6% 7% 3%
3% 5% 3% 2% Space and Naval Warfare Systems Command 4% 4% 6% 3% 4% 4% 2%
2% Naval Air Systems Command 6% 7% 9% 4% 4% 5% 4% 2% Naval Facilities
Engineering Command 5% 5% 7% 3% 4% 5% 3% 2% All other commands combined 9%
10% 14% 7% 8% 9% 11% 7% Navy Wide 11% 13% 18% 10% 10% 12% 15% 11% Source:
GAO calculation based on information provided by Bank of America.
a The delinquency rates shown represent the total amount delinquent
(amounts not paid within 61 days of the travel card monthly statement
closing date) as a percentage of total amounts owed by the command*s
travel cardholders at a point in time. b The negative delinquency rate was
caused by the correction of a $2. 3 million posting error by Bank of
America. The rate adjusted to remove the effect of the error is 10
percent.
Navy Personnel Grade, Rank, and Associated
Appendi x IV
Basic Pay Rates Tables 15, 16, and 17 show the grade, rank (where
relevant), and the associated basic pay rates for 2001 for Navy*s and
Marine Corps* military personnel and civilians. The basic 2001 pay rates
shown exclude other considerations such as locality pay and any allowances
for housing or cost of living.
Tabl e 15: Navy Military Grades, Ranks, and Associated Average Basic Pay
Rates for Fiscal Year 2001
Military grade Military rank 2001 Pay Enlisted personnel
E- 1 to E- 3 Seaman recruit to seaman $11,976 to $14, 973 E- 4 to E- 6
Petty officer 3 rd class to 1 st class $17,931 to $26, 860 E- 7 to E- 9
Chief petty officer to master chief
petty officer $31,739 to $45, 514
Officers a
WO- 2 to WO- 4 Warrant officer $37,722 to $53, 514 O- 1 to O- 3 Ensign to
lieutenant $27,398 to $44, 649 O- 4 to O- 6 Lieutenant commander to
captain $54,476 to $83, 982 O- 7 to O- 10 Admiral $98, 257 to $127, 695
Source: U. S. Navy a Officers* ranks include warrant officers (denoted by
WO) and commissioned officers (denoted by O).
Tabl e 16: Marine Corp Military Grades, Ranks, and Associated Basic Pay
Rates for Fiscal Year 2001
Military grade Military rank 2001 pay Enlisted personnel
E- 1 to E- 3 Private to lance corporal $11,871 to $15, 093 E- 4 to E- 6
Corporal to staff sergeant $17,675 to $26, 018 E- 7 to E- 9 Gunnery
sergeant to sergeant
major or master gunnery sergeant. $31,533 to $46, 646
Officers a
WO- 1 to WO- 5 Warrant officer $32,098 to $59, 587 O- 1 to O- 3 2 nd
Lieutenant to captain $25,653 to $45, 120 O- 4 to O- 6 Major, lieutenant
colonel, colonel $56,951 to $85, 628 O- 7 to O- 10 General $98, 484 to
$130, 200 Source: U. S. Navy.
a Officer*s rank includes warrant officers (denoted by WO) and
commissioned officers (denoted by O).
Tabl e 17: Civilian Grades and Associated Basic Pay Rates for Calendar
Year 2001 Civilian grade 2001 pay General Schedule employees
GS- 1 to GS- 3 $14,244 to $22, 712 GS- 4 to GS- 5 $19,616 to $28, 535 GS-
6 to GS- 8 $24,463 to $39, 143 GS- 9 to GS- 12 $33,254 to $62, 686 GS- 13
to GS- 15 $57, 345 to $103, 623
Senior Executive Service
ES- 01 to ES- 06 $109, 100 to $125, 700 Source: Office of Personnel
Management.
Appendi x V Comments from the Department of Defense
(192064)
a
GAO United States General Accounting Office
As of March 31, 2002, over 8,000 Navy cardholders had $6 million in
delinquent debt. For the prior 2 years, the Navy*s average delinquency
rate of 12 percent was nearly identical to that of the Army, which had the
highest federal agency delinquency rate. Since November 1998, Bank of
America had charged off nearly 14,000 Navy accounts totaling almost $17
million, and placed many more in a salary offset program similar to
garnishment.
During the period covered under this review, over 250 Navy personnel might
have committed bank fraud by writing three or more nonsufficient fund
(NSF) checks to Bank of America. In addition, as shown in the table, many
cardholders abusively used the card for inappropriate purchases including
prostitution and gambling without Navy management being aware of it. Many
of these purchases were made when individuals were not on travel.
Category Examples of vendors Number of
transactions Dollar
amount
Legalized brothels James Fine Dining, Chicken Ranch 80 $13,250 Jewelry Kay
Jewelers 199 20,800 Gentlemen's clubs Spearmint Rhino, Cheetah's Lounge
247 28,700 Gambling Seinpost Holding 80 34,250 Cruises Carnival, Norwegian
72 38,300 Sports, theatre, and concert tickets New York Yankees,
Ticketmaster 502 71,400
The Navy*s overall delinquency and charge- off problems were primarily
associated with lower- paid, low- to midlevel enlisted military personnel.
A significant relationship also existed between travel card fraud, abuse,
and delinquencies and individuals with substantial credit history
problems. For example, some cardholders had accounts placed in collections
while others had filed bankruptcies prior to receiving the card. The
Navy*s practice of authorizing issuance of the travel card to virtually
anyone who asked for it compounded these problems.
We also found inconsistent documented evidence of disciplinary actions
against cardholders who wrote NSF checks, or had their accounts charged
off or put in salary offset. Further, almost one- half of these
cardholders still had, as of August 2002, active secret or top- secret
clearances. Other control breakdowns related to the Navy*s failure to
provide the necessary staffing and training for effective oversight, and
infrequent, or nonexistent, monitoring of travel card activities.
As a result of these and similar findings in the Army travel card program,
the recently enacted fiscal year 2003 Defense Appropriations Act included
provisions requiring the Secretary of Defense to establish guidelines and
procedures for disciplinary actions and to deny issuance of the travel
card to individuals who are not creditworthy.
TRAVEL CARDS
Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse
www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 147. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Gregory Kutz at (202) 512- 9505 or kutzg@ gao. gov.
Highlights of GAO- 03- 147, a report to
Congressional Requesters
December 2002
Poor oversight and management of DOD*s travel card program has led to high
delinquency rates, costing DOD millions in lost rebates and increased ATM
fees. As a result, the Congress asked GAO to report on (1) the magnitude,
impact, and cause of delinquencies, (2) the types of fraudulent and
abusive uses of the travel card, and (3) the effectiveness of internal
controls over DOD*s travel card program. GAO previously reported on travel
card management at the Army. This report focuses on travel card management
at the Navy, including the Marine Corps.
GAO makes numerous recommendations to the Navy in the areas of card
issuance, account monitoring, and disciplinary actions, including:
evaluate the feasibility of deactivating all cards when the cardholders
are not on authorized travel; review the adequacy of
program staffing; provide sufficient training to
APCs to ensure proper oversight of the travel card program, including
effective monitoring for inappropriate transactions; and review security
clearances of
cardholders with financial problems.
Page i GAO- 03- 147 Navy Travel Cards
Contents
Contents
Page ii GAO- 03- 147 Navy Travel Cards
Contents
Page iii GAO- 03- 147 Navy Travel Cards
Page 1 GAO- 03- 147 Navy Travel Cards United States General Accounting
Office Washington, D. C. 20548
Page 1 GAO- 03- 147 Navy Travel Cards
A
Page 2 GAO- 03- 147 Navy Travel Cards
Page 3 GAO- 03- 147 Navy Travel Cards
Page 4 GAO- 03- 147 Navy Travel Cards
Page 5 GAO- 03- 147 Navy Travel Cards
Page 6 GAO- 03- 147 Navy Travel Cards
Page 7 GAO- 03- 147 Navy Travel Cards
Page 8 GAO- 03- 147 Navy Travel Cards
Page 9 GAO- 03- 147 Navy Travel Cards
Page 10 GAO- 03- 147 Navy Travel Cards
Page 11 GAO- 03- 147 Navy Travel Cards
Page 12 GAO- 03- 147 Navy Travel Cards
Page 13 GAO- 03- 147 Navy Travel Cards
Page 14 GAO- 03- 147 Navy Travel Cards
Page 15 GAO- 03- 147 Navy Travel Cards
Page 16 GAO- 03- 147 Navy Travel Cards
Page 17 GAO- 03- 147 Navy Travel Cards
Page 18 GAO- 03- 147 Navy Travel Cards
Page 19 GAO- 03- 147 Navy Travel Cards
Page 20 GAO- 03- 147 Navy Travel Cards
Page 21 GAO- 03- 147 Navy Travel Cards
Page 22 GAO- 03- 147 Navy Travel Cards
Page 23 GAO- 03- 147 Navy Travel Cards
Page 24 GAO- 03- 147 Navy Travel Cards
Page 25 GAO- 03- 147 Navy Travel Cards
Page 26 GAO- 03- 147 Navy Travel Cards
Page 27 GAO- 03- 147 Navy Travel Cards
Page 28 GAO- 03- 147 Navy Travel Cards
Page 29 GAO- 03- 147 Navy Travel Cards
Page 30 GAO- 03- 147 Navy Travel Cards
Page 31 GAO- 03- 147 Navy Travel Cards
Page 32 GAO- 03- 147 Navy Travel Cards
Page 33 GAO- 03- 147 Navy Travel Cards
Page 34 GAO- 03- 147 Navy Travel Cards
Page 35 GAO- 03- 147 Navy Travel Cards
Page 36 GAO- 03- 147 Navy Travel Cards
Page 37 GAO- 03- 147 Navy Travel Cards
Page 38 GAO- 03- 147 Navy Travel Cards
Page 39 GAO- 03- 147 Navy Travel Cards
Page 40 GAO- 03- 147 Navy Travel Cards
Page 41 GAO- 03- 147 Navy Travel Cards
Page 42 GAO- 03- 147 Navy Travel Cards
Page 43 GAO- 03- 147 Navy Travel Cards
Page 44 GAO- 03- 147 Navy Travel Cards
Page 45 GAO- 03- 147 Navy Travel Cards
Page 46 GAO- 03- 147 Navy Travel Cards
Page 47 GAO- 03- 147 Navy Travel Cards
Page 48 GAO- 03- 147 Navy Travel Cards
Page 49 GAO- 03- 147 Navy Travel Cards
Page 50 GAO- 03- 147 Navy Travel Cards
Page 51 GAO- 03- 147 Navy Travel Cards
Page 52 GAO- 03- 147 Navy Travel Cards
Page 53 GAO- 03- 147 Navy Travel Cards
Page 54 GAO- 03- 147 Navy Travel Cards
Page 55 GAO- 03- 147 Navy Travel Cards
Page 56 GAO- 03- 147 Navy Travel Cards
Page 57 GAO- 03- 147 Navy Travel Cards
Page 58 GAO- 03- 147 Navy Travel Cards
Page 59 GAO- 03- 147 Navy Travel Cards
Page 60 GAO- 03- 147 Navy Travel Cards
Page 61 GAO- 03- 147 Navy Travel Cards
Appendix I
Appendix I Background
Page 62 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 63 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 64 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 65 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 66 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 67 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 68 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 69 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 70 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 71 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 72 GAO- 03- 147 Navy Travel Cards
Appendix I Background
Page 73 GAO- 03- 147 Navy Travel Cards
Page 74 GAO- 03- 147 Navy Travel Cards
Appendix II
Appendix II Objectives, Scope, and Methodology
Page 75 GAO- 03- 147 Navy Travel Cards
Appendix II Objectives, Scope, and Methodology
Page 76 GAO- 03- 147 Navy Travel Cards
Appendix II Objectives, Scope, and Methodology
Page 77 GAO- 03- 147 Navy Travel Cards
Appendix II Objectives, Scope, and Methodology
Page 78 GAO- 03- 147 Navy Travel Cards
Appendix II Objectives, Scope, and Methodology
Page 79 GAO- 03- 147 Navy Travel Cards
Appendix II Objectives, Scope, and Methodology
Page 80 GAO- 03- 147 Navy Travel Cards
Page 81 GAO- 03- 147 Navy Travel Cards
Appendix III
Page 82 GAO- 03- 147 Navy Travel Cards
Appendix IV
Appendix IV Navy Personnel Grade, Rank, and Associated Basic Pay Rates
Page 83 GAO- 03- 147 Navy Travel Cards
Page 84 GAO- 03- 147 Navy Travel Cards
Appendix V
Appendix V Comments from the Department of Defense Page 85 GAO- 03- 147
Navy Travel Cards
Appendix V Comments from the Department of Defense Page 86 GAO- 03- 147
Navy Travel Cards
Appendix V Comments from the Department of Defense Page 87 GAO- 03- 147
Navy Travel Cards
Appendix V Comments from the Department of Defense Page 88 GAO- 03- 147
Navy Travel Cards
Appendix V Comments from the Department of Defense Page 89 GAO- 03- 147
Navy Travel Cards
Appendix V Comments from the Department of Defense Page 90 GAO- 03- 147
Navy Travel Cards
Appendix V Comments from the Department of Defense
Page 91 GAO- 03- 147 Navy Travel Cards
GAO*s Mission The General Accounting Office, the investigative arm of
Congress, exists to support Congress in meeting its constitutional
responsibilities and to help improve
the performance and accountability of the federal government for the
American people. GAO examines the use of public funds; evaluates federal
programs and policies; and provides analyses, recommendations, and other
assistance to help Congress make informed oversight, policy, and funding
decisions. GAO*s commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO*s Web site (www. gao. gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as *Today*s Reports,* on its
Web site daily. The list contains links to the full- text document files.
To have GAO e- mail this
list to you every afternoon, go to www. gao. gov and select *Subscribe to
GAO Mailing Lists* under *Order GAO Products* heading.
Order by Mail or Phone The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO
also accepts VISA and Mastercard. Orders for 100 or more copies mailed to
a single address are discounted 25 percent. Orders should be sent to:
U. S. General Accounting Office 441 G Street NW, Room LM Washington, D. C.
20548 To order by Phone: Voice: (202) 512- 6000 TDD: (202) 512- 2537 Fax:
(202) 512- 6061
To Report Fraud, Waste, and Abuse in Federal Programs
Contact: Web site: www. gao. gov/ fraudnet/ fraudnet. htm E- mail:
fraudnet@ gao. gov Automated answering system: (800) 424- 5454 or (202)
512- 7470
Public Affairs Jeff Nelligan, Managing Director, NelliganJ@ gao. gov (202)
512- 4800 U. S. General Accounting Office, 441 G Street NW, Room 7149
Washington, D. C. 20548
United States General Accounting Office Washington, D. C. 20548- 0001
Official Business Penalty for Private Use $300 Address Service Requested
Presorted Standard Postage & Fees Paid
GAO Permit No. GI00
*** End of document. ***