Travel Cards: Control Weaknesses Leave Army Vulnerable to	 
Potential Fraud and Abuse (11-OCT-02, GAO-03-169).		 
                                                                 
The Army's individually billed travel card program is different  
from the purchase card program in that the cardholder is directly
responsible for all charges incurred on his or her travel card	 
account, and the monthly bill is sent to the cardholder for	 
payment. The cardholder is responsible for submitting a properly 
documented voucher and is reimbursed by the Army for all valid	 
expenses related to official government travel. The intent of the
travel card program was to improve convenience for the traveler  
and to reduced the government's costs of administering travel.	 
GAO found substantial delinquencies and charge-offs of Army	 
travel-card accounts during fiscal year 2001, and delinquencies  
continued into the first half of fiscal year 2002. GAO's analysis
shows a correlation between delinquency problems and the travel  
cardholder's age and pay grade. GAO found that the Army's	 
delinquency and charge-off problems are primarily associated with
young, low- to mid-level enlisted military personnel. In	 
addition, a weak internal control environment compounded by	 
instances of delays in processing travel reimbursements to Army  
military and civilian personnel contributed to the high 	 
delinquency rates. The Army and the Department of Defense have	 
taken action to address and focus command- and installation-level
attention on management of delinquent travel card accounts.	 
However, these actions are primarily focused on treating the	 
symptoms or "back-end" problems rather than the "front-end" or	 
preventive controls. GAO's work identified numerous instances of 
potentially fraudulent and abusive activity related to the travel
card. During fiscal year 2001, 1,200 of the over 4,200 Army	 
account holders who had written at least one nonsufficient funds 
(NSF) check to pay their travel card bill had their accounts	 
charged off. In the same period, more than 200 cardholders whose 
accounts were eventually charged off may have also committed bank
fraud by writing three or more NSF checks to the Bank of America.
GAO's audit found that weaknesses in the Army's overall control  
environment, including a number of specific controls that were	 
either flawed in their design or in their implementation, are the
root source of the Army's inability to prevent or effectively	 
detect the numerous instances of potentially fraudulent and	 
abusive travel card related activity previously detected.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-169 					        
    ACCNO:   A05284						        
  TITLE:     Travel Cards: Control Weaknesses Leave Army Vulnerable to
Potential Fraud and Abuse					 
     DATE:   10/11/2002 
  SUBJECT:   Army personnel					 
	     Credit						 
	     Credit sales					 
	     Fraud						 
	     Internal controls					 
	     Program abuses					 
	     Army Travel Card Program				 

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GAO-03-169

                                       A

Report to Congressional Requesters

October 2002 TRAVEL CARDS Control Weaknesses Leave Army Vulnerable to
Potential Fraud and Abuse

GAO- 03- 169

Letter 1 Results in Brief 3 Army Has Highest Delinquency and Charge- off
Rates but Recent

Actions Have Resulted in Some Improvements 8 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 53
Conclusions 59 Matter for Congressional Consideration 60 Recommendations
for Executive Action 60 Agency Comments and Our Evaluation 64

Appendixes

Appendix I: Background 68

Appendix II: Objectives, Scope, and Methodology 81

Appendix III: Army Major Command Delinquency Rates 89

Appendix IV: Army Personnel Grade, Rank, and Associated Basic Pay Rates 90

Appendix V: Comments from the Department of Defense 91 Tables Table 1:
Cumulative Charge- offs and Delinquencies by Military

Service as of March 31, 2002 10 Table 2: Examples of NSF Checks Written on
Charged- off Accounts 25

Table 3: Examples of Abusive Activity Where the Account Was Charged Off 29
Table 4: Examples of Abusive Activity Where the Cardholders Paid

the Bill 34 Table 5: Average Ratio of Cardholders to APCs at Army Sites

Audited 43 Table 6: Results of Testing of Key Internal Controls 54 Table
7: Comparison of Number of Individually Billed Travel

Cardholders and Related Charges for DOD Versus Total Federal Government
for Fiscal Year 2001 69 Table 8: Population of Fiscal Year 2001 Travel
Transactions at Army

Units Tested 85

Table 9: Estimate of Fiscal Year 2001 Transactions That Failed Control
Tests for Approved Travel 86 Table 10: Estimate of Fiscal Year 2001
Transactions That Failed

Control Tests for Accurate Travel Voucher Payments 87 Table 11: Estimate
of Fiscal Year 2001 Transactions That Failed

Control Tests for Timely Submission and Processing of Travel Vouchers 87
Table 12: Army Major Command Delinquency Rates (by Quarter) for

the 2 Years Ending March 31, 2002 89 Table 13: Army Military Grades,
Ranks, and Associated Basic Pay

Rates for Fiscal Year 2001 90 Table 14: Army Civilian Grades and
Associated Basic Pay Rates for

Calendar Year 2001 90 Figures Figure 1: Army, Non- Army DOD, and Civilian
Agency Travel Card

Delinquency Rates for the 2- Year Period Ending March 31, 2002 11 Figure
2: Army Delinquent and Total Outstanding Travel Card

Balances by Military Grade and Total Civilian Populations as of September
30, 2001 13 Figure 3: Fiscal Year 2001 Army Charge- offs by Military
Grades and

Total Civilian Populations 14 Figure 4: Army Travel Card Charge- off and
Recovery History from October 1, 2000, to March 31, 2002 19

Figure 5: The Army Travel Process 72 Figure 6: Travel Card Application 74
Figure 7: Required Army and Bank of America Delinquency Process Management
Actions 78

Letter

October 11, 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 July 17, 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 associated with about 430,000 individually
billed Army travel card accounts, and $619 million in related travel card
charges for fiscal year 2001. The individually billed travel card program
is

significantly different from the purchase card program in that the
cardholder is directly responsible for all charges incurred on his or her
travel card account and the monthly bill is sent to the cardholder for
payment. The cardholder is responsible for submitting a properly
documented voucher and is reimbursed by the Army for all valid expenses
related to official government travel. In contrast, all purchase card
charges are billed directly to the government for monthly payment. The
intent of the travel card program was to improve convenience for the
traveler and to reduce the government*s costs of administering travel.
Appendix I provides additional background information on the Army*s travel
card program.

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. This report provides details
and results of our Army travel card audit, which was summarized in our
recent testimony.

1 U. S. General Accounting Office, Travel Cards: Control Weaknesses Leave
Army Vulnerable to Potential Fraud and Abuse, GAO- 02- 863T (Washington,
D. C.: July 17, 2002).

The objectives of our audit of the Army*s travel card program were to
determine (1) the reported magnitude and impact of delinquent and charged-
off Army travel card accounts for fiscal year 2001 and the first 6 months
of fiscal year 2002, along with an analysis of related causes and DOD and
Army corrective actions, (2) whether indications existed of potentially
fraudulent and abusive activity 2 related to the Army travel card during
fiscal year 2001, and (3) the effectiveness of the overall control
environment and key internal controls for the Army*s travel program. We
analyzed the Army*s account delinquency and charge- off information and

compared it to non- Army DOD components and other federal agencies. In
addition, we evaluated the adequacy of selected, specific internal control
policies, procedures, and activities at four Army installations,
representing 3 of the Army*s 13 major commands.

We selected the four installations we audited based on the relative amount
of travel card activity, the number and percentage of accounts past due,
and the number and percentage of accounts charged off. 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 Army as a whole. Through auditing travel card transactions at the four
installations and data mining of fiscal year 2001 transactions incurred by
units throughout the Army, 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. 2 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, the only cases we
characterized as potentially fraudulent were those where cardholders wrote
three or more nonsufficient fund checks, or wrote checks on closed
accounts to pay their Bank of America bills. These cases are potentially
fraudulent because

they indicate a pattern of activity in apparent violation of one or more
elements of federal or state criminal code. In addition, for purposes of
this report, we considered abusive travel card activity to include (1)
personal use of the card* 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 benefiting personally. Some of the travel
card activity that we categorized as abusive would be potentially
fraudulent if it can be established that the cardholder violated any
element of federal or state criminal code.

We conducted our audit work from December 2001 through July 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 comments on a draft of this report from the Under Secretary of

Defense (Comptroller) dated September 30, 2002. We addressed DOD*s
comments in the *Agency Comments and Our Evaluation* section and reprinted
them in appendix V. See appendix II for details on our scope and
methodology.

Results in Brief For fiscal year 2001, the Army had significant breakdowns
in key internal controls over individually billed travel cards. These
breakdowns

contributed to the significant delinquencies and charge- offs of Army
employee account balances and potentially fraudulent and abusive activity
related to the travel card. The breakdowns resulted primarily from a weak
overall control environment, flawed policies and procedures, and a lack of
adherence to valid policies and procedures. We found substantial
delinquencies and charge- offs of Army travel card accounts during fiscal
year 2001, and delinquencies continued into the first half of fiscal year
2002. Upon receipt of their travel cards, all cardholders are required to
sign a statement of understanding that the card is to be used only for
authorized official government travel expenses. Most Army cardholders
properly used their travel cards and paid amounts owed to Bank of America
timely. However, we found that the Army*s delinquency rate is higher than
that of any other DOD component or executive branch agency in the federal
government. For the eight quarters ending March 31, 2002, the Army*s
delinquency rate fluctuated between 10 and 18 percent, and on average was
about 5 percent higher than the rest of DOD and 7 percent higher than
federal civilian agencies.

In addition, from November 1998 through March 2002, over 23,000 Army
travel card accounts totaling about $34 million were charged off by Bank
of America. Our analysis of available data shows a correlation between
delinquency problems and the travel cardholder*s age and pay grade. We
found that the Army*s delinquency and charge- off problems are primarily

associated with young, low- to midlevel enlisted military personnel. In
addition, a weak control environment compounded by instances of delays in
processing travel reimbursements to Army military and civilian personnel
contributed to the high delinquency rates. These delinquencies and charge-
offs have cost the Army millions of dollars in lost rebates,

higher fees, and substantial resources spent pursuing and collecting past
due accounts.

The Army and DOD have taken action to address and focus command- and
installation- level attention on management of delinquent travel card
accounts. Beginning in November 2001, the Army began offsetting wages of
certain military and civilian employees and the retirement benefits of
military retirees who had either delinquent or charged- off accounts.
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 charge- offs, rather than the *front- end* or
preventative controls, such as the weak overall internal control
environment and specific travel program control weaknesses.

Our work identified numerous instances of potentially fraudulent and
abusive activity related to the travel card. During fiscal year 2001,
about 1, 200 of the over 4,200 Army account holders who had written at
least one nonsufficient funds (NSF) check to pay their travel card bill
had their accounts charged off. In the same period, more than 200
cardholders whose accounts were eventually charged off may have also
committed bank fraud by writing three or more NSF checks to Bank of
America. In

one case, an Army employee, who had been convicted for writing NSF checks
prior to receiving the government travel card, wrote over 86 NSF checks to
Bank of America. Further, as part of our statistical sampling results at
the four sites we audited, we estimated that personal use of the travel
card ranged from 15 percent of fiscal year 2001 transactions at one site
to 45 percent at another site. Cardholders used their travel cards for a

wide variety of personal goods or services. For example, government travel
cards were used for adult entertainment; dating and escort services;
casino and Internet gambling; cruises; tickets to musical and sporting

events; personal clothing; closing costs on a home purchase; and, in one
case, the purchase of a used automobile. We found that charged- off
accounts included those of both (1) cardholders who were reimbursed by the
Army for official travel expenses but failed to pay Bank of America for
the related charges, and thus pocketed the reimbursement, and (2) those
who used their travel cards for personal purchases for which they did not
pay Bank of America.

We also found several instances of abusive travel card activity where Army
cardholders used their cards at establishments, such as gentlemen*s clubs,
which provide adult entertainment. Further, in some cases, these clubs

were used to convert the travel card to cash by supplying cardholders with
actual cash or *club cash* for a 10 percent fee. To illustrate, a
cardholder who charged $330 to the government travel card at one of these
clubs would receive $300 in cash. Subsequently, the club receives a
reimbursement from Bank of America for a $330 restaurant charge. For
fiscal year 2001, we identified about 200 individuals who charged almost
$38,000 at these establishments. For example, we found that one cardholder
obtained more than $5,000 in cash from these establishments.

We found little evidence of documented disciplinary action against Army
personnel who misused the card. Further, in many cases, evidence was
lacking that Army travel program managers or supervisors were even aware
that Army personnel were using their travel cards for personal use. For
example, a civilian employee working at the Pentagon on a classified
program used her travel card for personal purchases of $3,600 and
subsequently wrote two NSF checks for over $7,700 to Bank of America. The
cardholder*s account was subsequently charged off when the cardholder
failed to pay the bill. The employee*s supervisor was not aware of any
potentially fraudulent and abusive activity related to the travel card. In
another example, a California National Guard employee with a $5,400

charge- off associated with authorized travel, for which the Army
reimbursed the cardholder, was subsequently promoted from Major to
Lieutenant Colonel. In addition, we found that 38 of 105 travel
cardholders we reviewed who had their accounts charged- off still had
active secret or top- secret clearances as of June 2002. Some of the Army
personnel holding security clearances who have had difficulty paying their
travel card bills may present security risks to the Army. Army regulations
provide that an individual*s finances are one of the key factors to be
considered in determining whether an individual should continue to be
entrusted with a secret or top- secret clearance. However, we found that
Army security officials were unaware of these financial issues and
consequently could not consider their potential effect on whether these
individuals should continue to have security clearances.

Our audit found that weaknesses in the Army*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 Army*s
inability to prevent and/ or effectively detect the numerous instances of
potentially fraudulent and abusive travel card related activity previously
discussed. Our work demonstrated that the Army has not

provided for an adequate control infrastructure* primarily human capital
related* to effectively manage its travel card program. At the four units
we audited, we found that management was focused primarily on

delinquencies and often only after severe problems were discovered and
major commands began demanding improved performance in reducing such
delinquencies. There were few indications that management emphasized
controls designed to prevent or provide for early detection of travel card
misuse. Our audit of seven controls relied on to manage the Army*s travel
card

program revealed critical weaknesses. For example, many problems we
identified were the result of ineffective controls over issuance of travel
cards. Although DOD*s policy allows exemptions from the use of travel
cards for certain groups or individuals, we found that without exception
the Army issued travel cards to all personnel who requested cards

regardless of their travel or credit history. We found a significant
correlation between travel card fraud, abuse, and delinquencies and
individuals with substantial credit history problems. The prior and
current credit problems we identified for Army travel cardholders included
charged- off credit card and automobile loans, defaulted and foreclosed

home mortgages, bankruptcies, and convictions for writing NSF checks.
Also, agency program coordinators (APC), who have the key responsibility
for managing and overseeing travel cardholders* activities, are
essentially set up to fail in their duties because they are given
substantial responsibility for a large number of cardholders* for example
up to 1,000 cardholders per APC* and little time to do this collateral
duty. Military personnel who are responsible for and rated on other job
responsibilities* such as airport security* are given the APC role as
*other duty as assigned.* With a high level of APC turnover (particularly
military APCs,

which at the locations we audited were reassigned about every 6 months),
and only minimal time allotted to perform this collateral duty, we found
that APCs generally were ineffective in carrying out their key travel card
program management and oversight responsibilities.

Further, our statistical tests of key internal controls and processes in
place at four Army locations showed errors in travel voucher processing
that resulted in both overpayment and underpayment of the amounts that
travelers should have received for their official travel expenses. In
addition, substantial delays in travel reimbursements contributed to the

high delinquency rates for at least one of these locations. Delays in
reimbursement were often due to the traveler not submitting a travel

voucher within the required 5 days of completion of travel, and/ or the
paying office not making payment within the required 30 days. We also
found a substantial number of California National Guard employees and
several employees at other units audited who should have been paid late
fees for late reimbursements. However, the Defense Finance and Accounting
Service (DFAS) does not have the systems in place to identify late
payments and thus reported that it made no late fee payments for fiscal
year 2001.

This report includes a matter for congressional consideration that would
provide DOD the ability to require the split disbursement payment process
for all of its employees. We also provide recommendations to the Army to
strengthen the overall control environment for the Army*s travel card

program and improve internal controls. Our recommended actions are in the
areas of travel card issuance; monitoring, review, and disciplinary
actions; and travel voucher and payment processes.

In written comments on a draft of this report, DOD concurred with 23 of
our recommendations and partially concurred with the remaining 3
recommendations and described actions completed, under way, or planned to
implement them. DOD partially concurred with our recommendations

regarding (1) training APCs to refer cardholders who write NSF checks for
disciplinary actions, (2) establishing an Army- wide disciplinary action
policy for abusive travel card activity, and (3) developing a process to
identify travel reimbursements that exceed the 30- day requirement so that
individuals not paid within the statutory period are paid late fees in
accordance with the law. With regard to the first two issues, DOD*s

response indicated that they have taken or plan to take actions that we
believe will address the intent of our recommendations. With regard to the
third issue, DOD agreed that the current systems for processing and
computing travel vouchers for the Army do not provide for automated means
of calculating interest due on voucher payments exceeding the 30day
requirement. DOD also stated that the Defense Travel System (DTS)
currently being deployed automates the voucher submission process and

should reduce the instances where reimbursements extend beyond 30 days.
However, according to the DOD Office of Inspector General, DTS remains at
high risk of not being an effective solution in streamlining the DOD
travel management process and is not expected to be deployed until fiscal
year 2006. Based on this evaluation, we do not consider DTS to be a timely
or viable solution for identifying those reimbursements outside of the 30-
day requirement. We continue to recommend that, until DTS is fully

implemented and operational, DOD develop an interim process to identify

late reimbursements and pay cardholders the appropriate fees in accordance
with the law.

In addition, in one area, although DOD concurred with our recommendation,
we do not believe that its response indicates full agreement or
understanding of the intent of the recommendation. Specifically, with
regard to our recommendation that credit check results be used to make
decisions on travel card applicants, DOD responded that those with prior
credit problems are issued a restricted card and that mandatory use of the
government travel card is required by TTRA. This is

not correct. Both the DOD FMR and TTRA provide for exemptions from the
mandatory use requirements under certain conditions, including evidence of
financial irresponsibility. We continue to believe that until the Army
takes action to consider past credit problems in determining whether to
issue government travel cards, it will continue to increase the risk that
individuals will repeat a pattern of fraud, abuse, and delinquency or
nonpayment.

Finally, in concurring with our recommendations regarding the lack of
segregation of duties and other voucher processing problems at the
California Army National Guard, DOD indicated that it had a number of
detective and compensating controls in place. While these appear
responsive to our recommendations, we have not evaluated the effectiveness
of their implementation and therefore cannot determine whether these
measures will resolve the problems we identified.

Army Has Highest The Army*s travel card delinquency rate and amounts
charged- off are

Delinquency and substantially higher than non- Army DOD components and
civilian agencies

in the federal government. Cumulative Army charge- offs since the Charge-
off Rates but

inception of the travel card program with Bank of America in November
Recent Actions Have

1998 are nearly $34 million. Our analysis of available data shows the
travel Resulted in Some

cardholder*s age and pay rate are strong predictors of delinquency
problems. We found that the Army*s delinquency and charge- off problems
Improvements are primarily related to young, low- and midlevel enlisted
military employees. Further, as discussed in the following sections of
this report, weaknesses in the Army*s overall control environment and
delays and errors in processing and paying valid travel vouchers
exacerbate the Army*s delinquency problems. The Army*s high delinquency
and default rates have also resulted in contentious relations with Bank of
America. The bank threatened to end its participation in the program, but
eventually agreed to contract modifications that included increased fees.
The

delinquencies and charge- offs have cost the Army, the federal government,
and the taxpayers millions of dollars in lost rebates, higher fees, and
substantial resources spent pursuing and collecting on past due accounts.

The Army has taken a number of positive actions to address its high
delinquency and charge- off rates, and results from the first half of
fiscal year 2002 show a significant drop in charged- off accounts. Most of
this reduction is attributable to a salary and military retirement offset
program* similar to garnishment. These offsets began in November 2001.
Other Army actions included encouraging the use of a split disbursement
payment process, in which DFAS sends a portion of the traveler*s
reimbursement directly to the bank rather than the cardholder, and
increased management attention and focus on the delinquency issue. The
Army*s actions, however, primarily address the symptoms or *back- end*
result of delinquency and charge- offs after they have already occurred.
As noted in the remaining sections of this report, the Army*s control

weaknesses that are the root cause of the problem are generally related to
the *front- end* management of the travel card program, such as issuing
the cards and overseeing the proper use of the cards.

The Army*s Delinquencies Since the inception of the travel charge card
task order between DOD and

and Charge- offs Bank of America on November 30, 1998, Bank of America has
charged off

over 23,000 Army travel card accounts with nearly $34 million of bad debt.
As of March 31, 2002, over 11,000 Army cardholders had $8.4 million in
delinquent debt. The amount of delinquencies and charge- offs at the Army
is the highest in DOD. Table 1 provides a comparison of cumulative charge-
offs and delinquencies by military service as of March 31, 2002.

Table 1: Cumulative Charge- offs and Delinquencies by Military Service as
of March 31, 2002

Dollars in millions

Tot al Net

Delinquencies DOD

cumulative Cumulative

cumulative as of March 31, service

charge- offs a recoveries a, b charge- offs a

2002 c Army $33.5 $12.9 $20. 6 $8.4

Air Force 11.6 4. 7 6.9 5. 0 Navy d 16.6 6. 2 10. 4 6.0 a Cumulative
charge- offs and recoveries are from November 1998 through March 2002. b
Recoveries represent amounts recovered through collection actions on
accounts that have been charged off by Bank of America. c 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. d Includes Marine
Corps.

Source: GAO analysis of Bank of America and General Services
Administration data.

Figure 1 compares delinquency rates 3 among the Army, non- Army DOD
components including the other military services, and the 23 largest
civilian agencies. 4

3 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. 4 The civilian agencies
included in our analysis are the 23 executive branch agencies covered
under the Chief Financial Officers (CFO) Act, as amended by the Government
Management Reform Act.

Figure 1: Army, Non- Army DOD, and Civilian Agency Travel Card Delinquency
Rates for the 2- Year Period Ending March 31, 2002

20 Percentage

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

Governmentwide delinquency rate excluding DOD DOD delinquency rate
excluding Army Army delinquency rate

Source: GAO analysis of General Services Administration data.

As of March 31, 2002, the Army had the highest delinquency rate in the
federal government. Army*s delinquency rate over the last 2 years
fluctuated between 10 and 18 percent, and on average was about 5 percent
higher than the other non- Army DOD components and about 7 percent higher
than the federal civilian agencies. 5 According to Army officials, the
nature of the Army*s mission, which includes extensive travel for extended
periods in remote, often hostile locations around the world, contributes,
at least in part, to the Army*s high delinquency rate. Appendix III
provides a breakdown of the Army*s delinquency rates by major command.

5 We did not analyze in detail the reason that the Army delinquency rates
are substantially higher than those of the non- Army DOD component
delinquencies. However, we will be issuing separate reports that include
analysis of delinquency rates for the departments of the Navy and the Air
Force.

Age and Pay Grade Are A number of factors contributed to the Army*s high
delinquency rates.

Correlated to Delinquency Many of the problems related directly to the
control environment at the

and Charge- off Problems Army and at the sites we visited. Other problems
related to the

implementation of the travel card program and a lack of controls over
travel card use and travel processing. A detailed discussion of the
control environment and specific internal control issues is provided in
the following sections of this report. Without proper management control,
demographics such as the age and pay rates of Army personnel also
contributed to delinquencies and charge- offs.

Our analysis of available data showed that there was a correlation between
certain demographic factors and high delinquency and charge- off rates.
According to Army representatives, and based on our analysis, most Army
travel cardholders responsible for delinquencies and charge- offs were
young (generally married), low- and midlevel enlisted military personnel
(E- 1- privates to E- 6- staff sergeants), 6 with relatively low incomes
and little experience in handling personal finances. If these individuals
get into financial difficulty, they have fewer resources at their disposal
to pay their travel card balances in full every month.

6 Appendix 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: Army Delinquent and Total Outstanding Travel Card Balances by
Military Grade and Total Civilian Populations as of September 30, 2001 25

Dollars in millions 20 15 10

5 0

E1- E3 E4- E6 E7- E9 O1- O3 O4- O6 O7- O10 WO1- WO5 Civilian Grade/
classification

Delinquent Total outstanding balance

Source: GAO analysis of Bank of America data.

In the Army, grades E- 1 through E- 6 account for about 73 percent of all
military personnel. Consequently, it is not surprising that they have the
highest outstanding travel card balance. As shown in figure 2, the travel
cardholder*s grade (and associated pay) is a strong predictor of
delinquency problems. We found that the Army*s delinquency and chargeoff
problems are primarily associated with young, low- and midlevel enlisted
military personnel with basic pay levels ranging from $11,000 to

$26,000. Delinquency rates were as high as 40 percent and 25 percent for
E1 to E- 3 and E- 4 to E- 6, respectively, compared to Army civilians
whose delinquency rate is consistent with rates for federal civilian
agencies, as shown in figure 1.

As shown in figure 3, personnel in grades E- 1 through E- 6 account for
about $8 million of the $10 million in total Army charge- offs for fiscal
year 2001.

Figure 3: Fiscal Year 2001 Army Charge- offs by Military Grades and Total
Civilian Populations 8

Dollars in millions 7 6 5 4 3 2 1 0

E1- E3 E4- E6 E7- E9 O1- O3 O4- O6 O7- O10 WO1- Civilian

Grade/ classification WO5

Source: GAO analysis of Bank of America data.

Enlisted personnel in the E- 1 to E- 6 grade level range in rank from
privates to staff sergeants, respectively, and receive basic pay ranging
from $11, 033 to $26,253. Although these basic pay rates are supplemented
with amounts such as housing and food allowances, these salaries may not
permit payment of excessive personal charges on travel cards. 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 in voucher processing, they may lack the financial resources to make
timely required payments on their travel card accounts. Further, as
discussed later, because of the Army*s failure to take any action to
exempt personnel with

poor credit histories from required use of travel cards, these low- and
midlevel enlisted military personnel are often issued travel cards even
though they may already be in serious financial trouble and, therefore,
may not have been appropriate credit risks. The failure to provide proper
training and monitoring of travel card use, as well as maintain firm
credit limits, may also have exacerbated the delinquency rates for these
individuals.

High Delinquency and Although the bank generally absorbs the losses
associated with

Charge- off Rates Have delinquencies and charge- offs, this problem has
significant consequences

Resulted in Increased Costs to the Army. The high delinquency and charge-
off rates resulted in

to the Government increased costs in terms of increased fees imposed by
Bank of America

following a contract dispute with DOD and the loss of potential refunds
associated with the program. Other costs are real but not easily
measurable, such as the increased administrative burden to the Army
associated with additional resources required to address delinquent and

charged- off accounts. For example, to effectively manage the travel card
program, employees with delinquent accounts must be identified, counseled,
disciplined, and closely monitored. In addition, employees with financial
problems who also have access to sensitive data may pose a security risk,
as discussed later in this report. While most employees properly manage
their travel card accounts and pay their bills on time, the high
delinquency and charge- off rates may undermine the professional image of
the Army and its personnel.

Dispute between Contractor and Unexpectedly high defaults by DOD*s travel
cardholders, including the

DOD Army*s, resulted in a 5- month legal dispute with DOD*s contractor,
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 for
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 Bank of America 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.
Bank of America officials estimated that 43, 000 DOD employees defaulted
on more than $59 million in debts. Bank of America only agreed to drop its
legal dispute with DOD after GSA renegotiated the terms of the master
contract and DOD renegotiated the related tailored task order for travel
card services in April 2001. Specifically, under the renegotiated master
contract and related task order 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;
facilitating the collection of delinquent and charged- off amounts through
salary and

military retirement pay offset; and participating in the split
disbursement payment process, in which the government pays the bank
directly.

Effect of Increased Fees One of the terms of the renegotiation of the task
order between Bank of America and DOD was an increase in travel card cash
advance fees from 1.9 percent to 3 percent, or $2, whichever would be the
higher fee amount,

effective August 10, 2001. The Army reimburses cash advance fees 7
incurred by a traveler while on authorized travel. We estimate that this
contract modification will result in approximately $1.4 million of
increased costs to the Army each year for the reimbursement of cash
advance fees. Our estimate was made by applying the increase in the
advance fees to cash advances made during fiscal year 2001. Other fee
increases agreed to in the renegotiation increased the cost to the Army,
such as the fee for expedited travel card issuance, and to delinquent
cardholders, such as the increase in

late fees from $20 to $29. 7 Cash advance fees are also referred to as
automated teller machine (ATM) fees. ATMs allow cardholders to withdraw
cash with a travel card. For each cash advance withdrawal, cardholders are
charged a fee of a set amount or percentage of the amount of the
withdrawal.

Delinquent Account The GSA master contract modification also changed the
rebate calculation, Payment Affects Rebates to

making it imperative that the Army improve its payment rates to receive
the the Army 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 as a result of a combination of both individually
billed and centrally billed card usage. The rebate to the agency is
reduced, or eliminated, if significant numbers of an agency*s individual
cardholders do not pay their accounts timely. Specifically, credit losses
or balances that

reach 180 calendar days past the closing date on the statement of account
reduce the rebate amounts. Effective January 2001, one of the terms of 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 8 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 credit losses, significantly affected the
amount of rebate that the Army received as a result of combined
individually and centrally billed

net sales in fiscal year 2001. The Army collected approximately $635, 000
of the $3 million in rebates for fiscal year 2001 that we estimated that
the Army would have received, based on fiscal year 2001 dollar volume, had
individually billed account payments been timely. Prior to the change in
the way the rebates were calculated, in fiscal year 2000, the Army
received approximately $2.7 million in rebates from the travel card
program, net of $450, 000 that was paid to GSA for an industrial funding
fee (contract administration fee).

GSA receives a contract administration fee of four basis points or four
onehundredths of a percent (. 0004)* of net sales on both the individually
and centrally billed accounts. For fiscal year 2001, GSA received
approximately $485, 000 for the Army*s net sales. Bank of America pays
this fee to GSA regardless of whether the agency or service receives any
rebates. For example, for the last three quarters of fiscal year 2001, the
Army had negative rebates after the credit loss fees were deducted and GSA
received approximately $386,000 from Bank of America for those three
quarters. 8 Net sales consist 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.

The negative net rebates are carried over to subsequent quarters until
they can be offset by positive net rebates that the agency earns.

Army and DOD Have Taken The Army has taken a number of positive actions to
address its high

Some Steps to Reduce delinquency and charge- off rates, and results from
the first half of fiscal

Delinquencies and Chargeoffs, year 2002 show 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. This program began to offset Are
Needed

amounts from delinquent cardholders* salaries and military retirement
benefit payments in November 2001. Other Army actions include a limited
split disbursement payment plan, in which DFAS disburses a portion of a
travel reimbursement directly to the bank (instead of disbursing the
entire amount of the reimbursement to the cardholder), and increased
management attention and focus on the delinquency issue. The Army*s
actions, however, primarily address the symptoms or *back- end* result of

delinquency and charge- offs after they have already occurred. As noted in
the remaining sections of this report, the Army has significant control
weaknesses, particularly with respect to the front- end management of the
travel card program, such as issuing the cards and overseeing the proper
use of the cards, which it has not yet effectively addressed.

Charge- offs Have Decreased As shown in figure 4, the Army*s charge- offs
have decreased substantially.

Figure 4: Army Travel Card Charge- off and Recovery History from October
1, 2000, to March 31, 2002

4.0 Dollars in millions

3.5 3.0 2.5 2.0 1.5 1.0 0.5

0 2001

2001 2001

2001 2002

2002 1st qtr.

2nd qtr. 3rd qtr.

4th qtr. 1st qtr.

2nd qtr. Fiscal year

Charge- offs Charge- off recoveries

Source: GAO analysis of Bank of America data.

Specifically, although Army delinquency rates have not changed
substantially in the last 2 years, the total dollars charged off by Bank
of America have decreased for each of the last four quarters. Figure 4
also shows that recoveries of charge- offs increased markedly in the
second quarter of fiscal year 2002. The primary causes of the decrease in
chargeoffs

and recent increase in recoveries are DOD*s new salary and military
retirement benefit offset program as well as other positive steps,
including encouraging the use of split disbursements and increased
management focus and attention.

Salary and Military Retirement Starting in fiscal year 2002, DOD began to
offset the salary of certain

Offset Program civilian and military employees and retired military
members for all

services, including the Army, for the amounts delinquent or charged off on
travel card accounts. The DOD salary offset program 9 implements a
provision of the Travel and Transportation Reform Act of 1998 (TTRA) 10
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 to the contractor, as a result of delinquencies not disputed
by the employee, on his or her travel card. 11 With the task order
modification, DOD agreed with Bank of America to

implement an offset program. From April 2001 through August 2001, DOD
worked with the Bank of America to establish protocols and to set up the
program. In August 2001, Bank of America sent demand letters to
cardholders with accounts over 90 days delinquent. DFAS processed the
initial offsets of delinquent accounts in October 2001 in the various DOD
pay systems. The first deduction was made from the November pay period.
Collections were paid to Bank of America starting in early 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 charged- off accounts.

The process takes approximately 2 months from initiating the offset
through payment to the bank. Specifically, after 90 days delinquency, Bank
of America sends a demand letter to the individual cardholder that
requests payment in full within 30 days. The demand letter provides for
initiating offset if payment is not made in full within 30 days. The
cardholder may negotiate an installment agreement or may dispute the
charges with the bank. The cardholder has a right to review all records,
such as invoices, and to request a hearing if he or she is not satisfied
with the bank*s disposition of the dispute.

9 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.

10 Sec. 2( d), Public Law 105- 264, 112 Stat. 2350 (5 U. S. C. 5701 note).
11 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 the federal government.

After the 30 days have passed, 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
cannot be accepted for offset.

 Civilian employees in bargaining units that have not agreed to offset
cannot be accepted. According to a DFAS official, as of the end of April
2002, 789 of 1,227 DOD bargaining units have agreed.

 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 (active, reserve, retired military, or civilian) systems cannot
be accepted for offset.

 Civilian retirees are not currently subject to offset. The authorizing
statutes for both the Civil Service Retirement System 12 and the Federal
Employee*s Retirement System 13 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.

Once an individual is accepted for offset, the related debt is established
in the respective pay system and DFAS can deduct up to 15 percent of
disposable pay. Disposable pay is defined in GSA*s Federal Travel
Regulation 14 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.

According to DFAS, from October 2001 through April 2002, Bank of America
referred 49,014 DOD- wide cases with debt of $72.4 million to DOD

12 5 U. S. C. section 8346. 13 5 U. S. C. section 8470. 14 41 C. F. R.
section 301- 54. 2.

for offset. DOD accepted and started offset for 73 percent of the cases
and 68 percent of the debt amounts referred. The number and debt amount of
Army cases forwarded by Bank of America were not available. From November
2001 through April 2002, DFAS collected $6.3 million from Army military
and retired military members through the offset program. DFAS was unable
to provide the amount of collections for civilian employees by military
service. However, the amount of total collections from November 2001
through April 2002 for civilian employees of DOD services and agencies was
about $702,000.

Split Disbursement Payment DOD has recently encouraged cardholders to make
greater use of the split

Process disbursement payment process. This payment method, by which

cardholders elect to have all or part of their reimbursement sent directly
to Bank of America, has the potential to significantly reduce
delinquencies. Split disbursements are a standard practice of many private
sector companies. DOD reported that for about 27 percent of the travel
vouchers paid in April 2002 at one of its major disbursing centers,
cardholders elected this payment option.

However, the use of the split disbursement payment process by employees is
currently voluntary, as shown by DOD*s low participation rate. The defense
authorization bill for fiscal year 2003 passed by the Senate would change
this by authorizing the Secretary of Defense to require that any part of
an employee*s travel allowance be disbursed directly to the employee*s
travel card issuer for payment of official travel expenses. The defense

authorization bill for fiscal year 2003 passed by the House does not
contain comparable authority. As of early October 2002, the bill (H. R.
4546) was in conference.

Management Focus and In response to the excessive delinquency rate, in
October 2000, the Vice

Attention Chief of Staff of the Army issued a directive to cut the Army*s
delinquencies

by 50 percent by the end of March 2001. Further, the Vice Chief of Staff
established a goal of a delinquency rate of no more than 4 percent of
active cardholders as soon as possible and ordered commanders throughout
the Army to provide additional attention to the government travel card
program. 15 Army officials emphasized setting goals, monitoring results,

15 For performance measurement purposes, the Army is calculating
delinquency rates using the number of delinquent accounts compared to the
total number of active accounts. The dollar amount method we used is the
industry standard and is also used by the CFO Council and by the DOD
Charge Card Task Force.

providing feedback, providing training, and coordinating efforts with DOD
and Bank of America. We have also seen increased management attention and
focus on reducing delinquencies at the Army command level. For example,
commanders at both Ft. Bragg locations we audited told us they hold
monthly meetings to discuss the status of any outstanding delinquencies
and related corrective actions. 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. For example, as previously
discussed, we support the provision of the fiscal year 2003 defense
authorization bill that would authorize DOD to require the use of the
split disbursement payment process. If enacted and required DOD- wide,
this authority has the potential to significantly reduce DOD*s and the
Army*s delinquency rates. Other 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 Army*s travel card program during
fiscal year 2001. Failure to implement controls to reasonably prevent such
Card Activity transactions can increase the Army*s vulnerability to
additional delinquencies and charge- offs. As discussed previously, about
$34 million associated with over 23,000 Army accounts was charged off
since the inception of the travel card program with Bank of America.

We considered any scheme or pattern of activity related to the use of the
travel card, in apparent violation of federal or state criminal code, as a
potentially fraudulent activity. For purposes of this report, the only
cases we characterized as potentially fraudulent were those where
cardholders wrote three or more NSF checks or wrote checks on closed
accounts to pay their Bank of America bills. These cases are potentially
fraudulent

because they indicate a pattern of activity in violation of one or more

elements of federal or state criminal codes. In addition, some of the
travel card activity that we categorized as abusive may be fraudulent if
it can be established that the cardholder violated any element of federal
or state criminal codes.

For purposes of this report, 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 and thus benefited personally.

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. 16
Further, it is a violation of the Uniform Code of Military Justice (UCMJ)
17 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, of the over 4,200 account
holders who wrote NSF checks, close to 1,200 Army personnel had their
accounts charged off. In the same period, more than 200 personnel whose
accounts were eventually charged off may have committed bank fraud by
writing three or more NSF checks to Bank of America. Table 2 shows the 10
cases we selected for review where the cardholders wrote three or more NSF
checks to Bank of America, and whose accounts were charged off due in part
to repeated use of NSF checks.

16 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. 17 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.

Table 2: Examples of NSF Checks Written on Charged- off Accounts Total
amount (number)

of NSF Total

checks in amount

Documented follow- up/ Cardholder

FY 2001 charged off Grade Unit Credit history/ problems disciplinary
action

1 $269, 301 $35, 883 E- 6 Ft. Jackson Criminal conviction for writing

Undergoing courtmartial. (86) NSF checks and serious credit

card delinquency a prior to card issuance.

2 12, 327 7,942 O- 3 Ft. Hood None. None. (8) 3 7, 737

3, 257 GS -13 Pentagon Charge- offs and referrals to None. Bank of America

(4) collection agencies b and serious account paid in full after

credit card delinquencies prior to we identified it as a card issuance.

charge- off. 4 6, 099

7,373 GS- 12 Ft. McPherson Serious credit card Counseled. (3)
delinquencies prior to card Salary offset program.

issuance. Mortgage foreclosure and other charge- offs and referrals to
collection agencies since card issuance.

5 3, 995 5,259 E- 7 West Virginia Bankruptcy judgment,

Letter of reprimand. (3) ROTC automobile repossession, and Salary offset
program.

serious delinquencies prior to card issuance.

6 4, 845 3, 380 E- 6 Ft. Hood Referrals to collection agencies

None. (11) prior to card issuance. 7 2, 709

7,846 E- 4 Ft. Drum/ Prior charge- off and referral to

Administrative discharge (3) Ft. Lewis collection agency. for misconduct
directly related to misuse of the

travel card. 8 900

3,104 E- 3 Ft. Drum None prior to travel card None. Honorable (5)
issuance. Automobile discharge. repossession and delinquencies since 2000.

9 840 2,137 E- 7 Army National Serious delinquencies prior to

None. (3) Guard Utah card issuance. Salary offset program.

10 263 2,763 GS- 5 U. S. Army Referral to collection agency and Counseled.
(3) Europe serious delinquency before card Salary offset program.

issuance. a Serious delinquency is defined as 90 or more days past due on
payment submission.

b These included referrals to collection agencies for unpaid bills from
utility companies, cable companies, and department stores. Source: GAO
analysis.

Eight of the 10 cardholders included in table 2 had significant credit
problems prior to card issuance, such as charged- off credit card accounts
and automobile loans; mortgage foreclosures; bankruptcies; serious
delinquencies; referrals to collection agencies for unpaid utility bills,
medical fees, and department store accounts; and, in one case, prior
criminal convictions for writing NSF checks. The remaining two had similar
credit problems subsequent to issuance of Bank of America travel cards.
These examples are illustrative of many of the breakdowns in the
management and oversight over the Army travel card program, as discussed
in the following sections of this report. The following provides

detailed information on some of these cases.  Cardholder #1 was a staff
sergeant who wrote 86 NSF checks totaling

almost $270,000 for payment on his Bank of America travel card account for
charges incurred when the cardholder was not on official government
travel. This cardholder had a previous criminal record for writing NSF
checks. The cardholder also had numerous other financial problems,
including mortgage foreclosure and claims discharged in December 2001 for
Chapter 7 bankruptcy. Among the claims discharged in bankruptcy was a
$2,199 claim on the cardholder*s previous

government travel card issued by American Express and a $114, 750 real
estate loan. This cardholder applied for and received a new Social
Security number when he legally changed his name in 1998, and since then
has had two Social Security numbers* one under each name. The individual
authorized a credit check at the time of his application for a government
travel card from Bank of America. However, it appeared that the credit
check was not performed and the individual was issued a standard card with
a $10,000 limit in April 1999, instead of a restricted card with a $2,500
credit limit.

From July 1999 through November 2000, the cardholder wrote approximately
86 NSF checks* some on closed or invalid accounts* to Bank of America.
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 successively larger NSF checks, which Bank of
America credited to his travel card account, the staff sergeant was able
to, in effect, successively increase his credit limit to over $35,000* 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. Despite the 86 NSF checks and associated

increases in the cumulative unpaid balance on the cardholder*s government
travel card account, records we obtained indicate that Bank of America did
not close this individual*s account until February 2001, when the account
was charged off. The cardholder was undergoing court- martial in late May
2002 for NSF checks related to his Bank of America account as well as to
the Army and Air Force Exchange Services. Bank of America acknowledged
that it erred in not closing this

account sooner. This has resulted in the bank changing its policy to
require accounts to be closed when a cardholder has written three NSF
checks.  Cardholder #3 currently works at the Pentagon as a GS- 13
employee on

a classified program. Because of her position, the cardholder has a
topsecret clearance. Prior to applying for the Bank of America travel
card, the employee had credit problems, including several charged- off
accounts. Because the employee did not authorize a credit check on her
travel card application, she was given a restricted card with a credit
limit of $2,500, which should have been issued in *inactive* status and
only activated when needed for travel. However, Bank of America records
showed that in July 2000, immediately after receiving the travel card, the
employee used the card to pay for a personal move and other

charges totaling more than $3, 600* more than $1, 000 in excess of the
credit limit on restricted travel cards. The cognizant APC told us that
while a credit check authorization should have been done for the
cardholder to exceed the $2,500 credit limit, she could not confirm that
one was done in this case. In addition, from October 2000 through
September 2001, the employee

wrote four NSF checks totaling more than $7, 700 to Bank of America. The
cardholder*s account had an unpaid balance of $3,257 at the time it was
charged off in September 2001. Although the cardholder had a restricted
card that should have been activated only for the first official travel,
the fact that she was able to use the card immediately upon issuance while
not on travel indicated that Bank of America issued the

card in an *active* status. Shortly after our investigators contacted this
cardholder, she paid her account balance in full. We also found that no
disciplinary action had been taken against this

individual. The two APCs were not aware that the employee had problems
with her account, much less that the account was charged off, until
contacted by our investigators. The APCs told us they had little time to
devote to reviewing the over 500 individual accounts for

which they had oversight responsibilities assigned as a collateral duty.
In addition, while, according to a Bank of America official, APCs have had
access to NSF check information in its database since 2000, one of the
APCs told us she only recently received training on how to identify
delinquent accounts in Bank of America*s database.

 Cardholder #6 exhibited a pattern of writing NSF checks about once a
month. During fiscal year 2001, the cardholder wrote 11 NSF checks to Bank
of America that ranged from $250 to $630. Some checks were written to pay
charges that appeared to be for personal travel. The cardholder*s account
balance of $3,380 was charged off in February 2002. Further, when the
cardholder was assigned from Ft. Hood, Texas, to the U. S. Army Recruiting
Command in Tampa, Florida, her travel card account was not transferred and
assigned to the APC responsible for travel card oversight in her new unit.
Consequently, the APC in Florida was not aware of the cardholder*s
problems because the cardholder did not appear in any of the Recruiting
Command*s delinquency reports.

Abusive Travel Card Activity We found instances of abusive travel card
activity by Army cardholders that covered charges for a wide variety of
personal goods and services,

including cruises; sports and music event tickets; personal clothing
items; casino and Internet gambling; transactions to obtain cash at adult
entertainment establishments; and, in one case, the purchase of a used
automobile. There should be no misunderstanding by Army personnel that

personal use of the card is not permitted. The standard government travel
card used by most Army personnel is clearly marked, *For Official
Government Travel Only* on the face of the card.

In addition, all Army travel card applicants sign a statement that
provides, in part, that *I also understand that I am authorized to use the
card only for those necessary and reasonable expenses incurred by me for
official travel.* As part of our statistical sampling tests of travel card
activity at four Army locations, we estimated that 15 percent to 45
percent of the fiscal year 2001 travel card transactions at those
locations appeared to be

for charges not related to official travel and, therefore, were abusive.
Further, abusive use of the card related to failure to pay Bank of America
was the result of (1) cardholders who were reimbursed for official travel
and then did not pay Bank of America and (2) cardholders who used the card
for personal charges and failed to pay Bank of America.

Travel Card Abuse due to Failure Our work at four case study sites and our
Army- wide data mining identified

to Pay Bank of America Charges 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, leading to
charge off of the cardholders* accounts, or (2) transactions incurred by

cardholders that were not associated with approved travel orders where
unpaid accounts were also charged off. In all cases, we found that
ineffective monitoring contributed to charge- offs. Specifically, many
APCs, commanders, and supervisors did not effectively monitor travel card
usage or address delinquencies timely. We found little documentation
indicating

that the APCs, commanders, and supervisors were aware of the problems with
individual cardholders, conducted follow- up, and took appropriate
disciplinary actions. Table 3 provides examples of the two types of
abusive transactions related to nonpayment and the related follow- up and
disciplinary actions.

Table 3: Examples of Abusive Activity Where the Account Was Charged Off
Total

Transactions Documented charged- off contributing to follow- up/
Cardholder Grade Unit

amount charge- off Credit history/ problems

disciplinary action

1 a GS- 12 Ft. McPherson $7,373 Used reimbursed travel Serious credit card

Counseled; salary money for closing costs delinquencies prior to travel
offset. on a house. Wrote NSF

card issuance; mortgage checks.

foreclosure and other charge offs and referrals to collection agencies
since 2000.

2 b E- 7 ROTC 5, 259 $4, 100 to Budget- Rent Bankruptcy judgment,

Letter of reprimand. A- Car for purchase of a

automobile repossession, and Salary offset. used automobile.

serious delinquencies prior to travel card issuance, 3 E- 6Army Forces
2,278 $110 in *club* cash

Serious credit card and other None. Command from Spearmint Rhino
delinquencies prior to travel Adult Cabaret.

card issuance. 4 E- 4Army Reserve 1,253 $500 to Cryptologic, Numerous
referrals to collection

None. Command Inc. by spouse for

agencies prior to travel card Internet gambling.

issuance. 5 O- 5 California

5,419 Did not use Serious delinquencies, Salary offset. c National
reimbursement to pay

including delinquency on the Guard c

travel card charges. American Express government

travel card, prior to travel card issuance.

(Continued From Previous Page)

Total Transactions

Documented charged- off contributing to follow- up/ Cardholder Grade Unit

amount charge- off Credit history/ problems

disciplinary action

6 E- 8 Ft. Bragg, 4, 704 ATM withdrawals in Serious delinquency prior to

Verbal counseling. Special

hometown area without travel card issuance. Operations travel order.

7 E- 4 Ft. Bragg, 8, 709 Numerous charges at

Serious delinquency prior to None. Forces Wal- Mart Supercenter. travel
card issuance. Command

8 E- 3Ft. Drum, 1,058 Cash from Dream Girls None prior. Serious credit
card

None. Forces Escort Service. delinquencies in 2002. Command

9 E- 4Ft. Drum, 10, 029 Numerous personal Referral to collection agency

None. Forces charges, including

prior to travel card issuance. Command casino gambling.

10 E- 4 Ft Drum, 7, 643 Numerous charges at

Referrals to collection agencies None. Forces local restaurants, gas

prior to travel card issuance. Command stations, grocery stores, and
hotels in vicinity of Ft. Drum. a Same as NSF case #4.

b Same as NSF case #5. c See disciplinary action section for a discussion
of this cardholder.

Source: GAO analysis.

Similar to individuals who wrote NSF checks, many of the 105 cardholders
that we reviewed whose accounts were charged off had significant prior
credit problems, such as charged- off credit card account balances and
automobile loan defaults, and referrals to collection agencies. Many of
these individuals experienced further credit problems, including mortgage
foreclosure, after issuance of the government travel card. As shown in
table 4, some charged- off accounts resulted from the use of the card for

transactions that were not proper travel expenses covered by valid travel
orders, while others resulted from official travel expenses that were
reimbursed but the cardholders failed to pay the bills. The magnitude and
range of abusive transactions reflect the poor control environment and
other internal control weaknesses discussed later in this report. The
following include details of some of these.

 Cardholder #1 was a GS- 12 employee in Army Forces Command at Ft.
McPherson, Georgia. In August 2000, the cardholder used the card to pay
for authorized charges associated with a permanent change of station move
from Qatar to Ft. McPherson. The cardholder did not elect split
disbursement of his travel reimbursement between himself and

Bank of America when filing travel vouchers. Thus, the entire
reimbursement for travel expenses was electronically deposited in the
cardholder*s checking account. The cardholder did not pay his travel card
bill, but instead used the reimbursement to, among other things, pay the
closing costs on the purchase of a home. The cardholder was counseled by
the APC and his supervisors after his travel card account became
delinquent, but no disciplinary action was taken. The cardholder is now in
the salary offset program. The cardholder informed us that he was briefed,
at the time of card issuance, of his responsibility to make timely
payments to Bank of America in payment of expenses claimed on approved
travel vouchers.

 Cardholder #2 was a sergeant first class (E- 7) with an Army Reserve
Officers* Training Corps unit. Army investigative records showed that in
January 2001, the cardholder*s spouse used his government travel card to
make two payments of $2,050 each to Budget Rent- A- Car for the purchase
of a used automobile. The spouse was able to use the travel card because
of the general military power of attorney provided to her by the sergeant.
In addition, several automated teller machine (ATM) withdrawals were made
using the card at times when the sergeant was not on official travel
status. The cardholder received a letter of reprimand and subsequently
retired. In February 2002, after his account was charged off, the
cardholder*s account was put into the offset program and a portion of his
annuity automatically withheld for repayment to Bank of America.

 Cardholder #9 was an Army specialist (E- 4) at Ft. Drum and received a
total of three travel card accounts. Shortly after receiving his first
card he incurred over $5, 000 in personal charges, including casino
gambling. He then notified Bank of America that his wallet, which
contained his

government travel card and driver*s license, had been stolen and that the
charges on the card were not made by him and therefore were fraudulent
charges. Bank of America closed this account, charged off the amount as a
fraud loss, and issued the soldier a second account. The soldier then
incurred over $8,000 in personal charges for casino gambling and notified
Bank of America that this card was lost. Bank of

America again closed this account and issued a third account to the
soldier. The soldier incurred approximately $5,000 in personal charges on
this account, including casino gambling. Bank of America personnel began
to question the soldier regarding the transactions made on both the first
and second accounts because both accounts showed transactions at the same
casino and the signatures on the charge

receipts were similar to the soldier*s signature. As of April 17, 2002,
the soldier*s travel card account was in charge- off status, with an
unpaid balance of $10,029. The soldier told us that he falsified the
report to Bank of America that his first card was stolen and that the
charges were fraudulent because he could not pay the bill. He also told us
that he falsely reported his second card lost again because he could not
pay the bill. In addition, the soldier stated that he made personal
charges on the third card, including casino gambling, in hopes of winning
enough to pay the bill. In October 2000, the soldier received an Article
15 for misuse of his travel cards. He received a reduction in grade from
an E- 4 to an E- 1, forfeited a half- month*s pay, and was to serve 45
days of extra duty beyond his November 30, 2000, discharge date. The
soldier informed us that the Commander waived the 45 days and he received
an honorable discharge as an E- 4. In February 2002, the Army enrolled
this soldier in the offset program. The soldier is currently an E- 5 with
the Pennsylvania National Guard. According to the National Guard, the
Army* official personnel file for this soldier contains no information

concerning any adverse action.  Cardholder #10, another Army specialist
(E- 4) at Ft. Drum used his

government travel card to make numerous purchases of personal items
totaling $2,841 over a 3- month period from May through July 2000. The
personal items included 38 restaurant charges, 37 charges at gas stations,
14 charges at grocery stores, and 5 hotel charges in the vicinity of Ft.
Drum. The specialist, who had received a $10,000 credit limit on his
government travel card, had an unpaid balance of $7,643 as of

December 11, 2000. As of April 17, 2002, the travel card was in chargeoff
status and the specialist no longer worked for the Army. Our review of the
soldier*s credit report showed that he received his government travel card
from Bank of America in May 1999. Since that time, the soldier opened
numerous credit card and other consumer accounts with other vendors,
almost all of which had unpaid balances and were in

collection status or had been charged off. We found no evidence that the
APC detected the soldier*s personal use of the government travel card. As
a result, the Army could not take timely action to cancel or suspend the
soldier*s travel card account. We also found no evidence that disciplinary
action was taken to address personal use of the travel card or the unpaid
debt once the Army became aware of the problem. In contrast to the
charged- off accounts discussed above, we found some

instances where the failure to pay the travel card bill was attributable
to the delays and errors in processing vouchers and reimbursing the
travelers.

This issue is discussed in more detail in a later section on testing of
key internal controls.

Travel Card Abuse Where We also found instances in which cardholders used
their travel cards for

Cardholder Paid Bank of personal purposes, but paid their travel card
bills when they became due.

America These cardholders benefited by, in effect, getting interest- free
loans. Personal use of the card increases the risk of charge- offs related
to abusive

purchases, which are costly to the government and the taxpayer. In
addition, the high rate of abuse with respect to travel card activity is
indicative of the weak internal control environment and the failure of the
APCs to monitor credit card activities, as discussed later in this report.
Table 4 provides examples of the types of abusive charges we found during

our review.

Table 4: Examples of Abusive Activity Where the Cardholders Paid the Bill
Documented disciplinary Cardholder Unit Grade Vendor Amount Nature of
transaction

action

1 U. S. Army Europe E- 5 Celebrity Cruises $5,192 Reservations for 4 on
the None. Allied Command Millennium cruise ship, which sails

to the Bahamas and Caribbean. 2 U. S. Army Reserve

O- 5 Purdue University 3,998 Accommodations for two for 4 None. Command
Rose Bowl Tour nights during the Rose Bowl.

Package includes pep rally, New Year*s Eve event, and premium seats to the
parade.

3 U. S. Army Reserve O- 2 Louisiana

1,395 45 tickets to the Essence Music None. Command Superdome festival on
July 5, 2001. 4 Army Corps of

GM- 15 a Georgetown Prep 826 Tennis club membership. None. Engineers
Tennis Club 5 California National

E- 4 GEICO 491 Automobile insurance. None. Guard 6 Ft. Bragg, Special

E- 7 Russell*s For Men 191 Purchases made through a toll- free None.
Operations number for *fine gifts for men.* 7 Ft. Bragg, Forces E- 5
Victoria*s Secret 172 Women*s lingerie. None.

Command 8 Ft. Bragg, Forces E- 4 1- 800- CONTACTS 80 Contacts and contact
solutions. None. Command 9 Ft. Drum,

E- 5 Gateway Direct 392 Computer equipment. None. Forces Command 10 Ft.
Drum,

E- 6 Sunshine 275 Personal escort service. None. Forces Command
Entertainment a Equivalent to GS- 15.

Source: GAO analysis.

As shown in table 4, cardholders used their travel cards for a wide
variety of personal goods or services, including cruises, sporting and
music event tickets, membership dues, and personal clothing items. For
example, we were able to determine that, during fiscal year 2001,
approximately $45,000 was spent Army- wide to purchase cruise packages or
to pay for a variety of

activities or services on cruise ships. Some individuals who abused their
travel card privileges held positions where they may have been responsible
for taking appropriate disciplinary action with respect to travel card
abuse by personnel within their commands. For example, a Lieutenant
Colonel used his travel card to

purchase accommodations and tickets to attend the Tournament of Roses in
Pasadena, California, as shown in example 2 in table 4. Abusive Travel
Card Use at Adult

We also found instances of abusive travel card activity in which Army
Entertainment Establishments

personnel used travel cards to obtain cash at establishments, such as
*gentlemen*s clubs,* instead of following prescribed ATM procedures.
Specifically, we found cases in which these clubs provided adult
entertainment services and helped the cardholders circumvent travel card
ATM cash withdrawal limits, by supplying cardholders with actual cash or

*club cash* for a 10 percent fee. We were able to identify about 200 Army
travel cardholders who during fiscal year 2001 charged almost $38,000 on
their government travel cards at these establishments. Some of these
individuals also did not pay their related travel card bills, and their
travel

card accounts were charged off. DOD*s travel card policy sets limits on
the amount of cash a cardholder can withdraw using ATMs. Typically, the
ATM limit is set at $500 for a standard card and $200 for a restricted
card, meaning that in any 1- month cycle, Army cardholders could only
obtain cash up to the limit specified on their cards. However, Army
cardholders circumvented these policies by obtaining cash or club cash at
a substantial fee from such clubs.

The gentlemen*s clubs typically sell adult entertainment, many sell
alcohol, and some sell food. DOD and other federal agencies use merchant
category codes (MCC) 18 to identify and block merchants in certain
categories from accepting travel cards as payment for goods and services
at those establishments. However, some merchants with blocked codes
circumvented this control by using an allowable MCC to submit cash
transactions at their establishments. For instance, Crazy Horse Too is an

entertainment establishment that provides topless dancing and sells
alcohol, but not food. This establishment allows customers to use their
travel cards to obtain club cash from the bar for a 10 percent fee. Club
cash can only be used to tip dancers, waitresses, and bartenders, but
cannot be exchanged for currency and cannot be used to purchase alcohol.
Crazy Horse Too codes the club cash that it provides to customers as a
*bar charge* in the name of its operating company, the Power Company. This

18 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 merchants* businesses or trades, such as
airlines, hotels, ATMs, jewelry stores, casinos, gentlemen*s clubs, and
theaters.

coding allows these charges to bypass the MCC blocking control. Other
clubs, such as Cheetahs Lounge Club, provide actual cash instead of club
cash, and also code the transactions as *bar charges.*

For example, one cardholder used his restricted travel card to obtain more
than $5,000 in cash. As discussed previously, a restricted card has a
maximum credit limit of $2,500 and an ATM cash withdrawal limit of $200
per monthly statement cycle. In this instance, the cardholder*s restricted
travel card was activated about 20 days prior to his official travel. The

cardholder used the card to make numerous ATM cash withdrawals and pay for
large restaurant and grocery store charges prior to departure for
government travel. After arrival at his temporary assignment location, the
cardholder requested that his APC raise his credit limit from $2,500 to
$10,000 based on his *mission- critical status.* 19 The APC took the
requested

action, without reviewing the cardholder*s account history. The cardholder
then frequented gentlemen*s clubs near his temporary assignment location,
where he obtained more than $5,000 in cash. The cardholder told our
investigators that he sent approximately $2,000 to his spouse, leaving him
with about $3,000 for personal use and entertainment. The cardholder also
told us the ability to obtain cash from these clubs was common knowledge
among military personnel at his temporary assignment location. In this
case, the APC subsequently discovered the abuse of the travel card and
took steps that resulted in closing the cardholder*s account, and the

cardholder received an administrative reprimand for unacceptable behavior.

Few Documented We found that disciplinary actions were taken against the
cardholders in Disciplinary Actions Taken

less than half of the cases of cardholder abuse that we reviewed. It is
against Cardholders Who

critical that cardholders who misuse their travel cards are identified and
Misused the Travel Card

held accountable for their actions. Lacking such an environment, the Army
is likely to continue to experience the types of potentially fraudulent
and abusive activity identified in our work. The DOD Financial Management
Regulation (FMR) states that *commanders or supervisors shall not tolerate
misuse of the DOD travel cards and cardholders who do misuse their cards
shall be subject to appropriate disciplinary action.* However, 19 Mission-
critical status is a determination made by the APC that the cardholder*s
credit card

limit needs to be increased or the delinquency process needs to be
suspended because the cardholder needs the card to travel, but is unable
to obtain reimbursement* and, therefore, pay the bill* timely.

DOD and Army 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. Available
documentation indicates that commanders or supervisors did not take any
disciplinary

actions against the majority of individuals who abused or misused their
cards during fiscal year 2001. We found little documentation demonstrating
that APCs forwarded cardholder delinquency information to appropriate
commanders and supervisors to consider in determining

whether disciplinary actions were warranted. For the cardholders we
inquired about, the primary action taken when Army officials identified
misuse or abuse of the travel card was to counsel cardholders on proper
use of the card and responsibility for timely payment of travel card
bills. In some cases, APCs took actions to cancel the cardholder*s travel
card account. To the extent that more severe disciplinary actions were
taken, they were often in response to travel card abuse in conjunction
with other more serious offenses* such as failing to obey orders or drug
abuse. In these instances, documented disciplinary actions included
dismissal from the Army and criminal prosecutions resulting in prison
sentences.

At the sites we audited, we were not provided any documentation of
disciplinary actions taken against cardholders in 65 of 105 charge- off
cases we reviewed. For example, we found one instance in which a
cardholder (whose account was charged off for more than $5,000) was not
subject to any disciplinary action, and was subsequently promoted from
Major to Lieutenant Colonel. As shown in table 3 (cardholder #5), this
individual had a history of substantial credit problems, including writing
three NSF checks. In this instance, records indicated that the cardholder
was

reimbursed for official travel, but did not pay the travel card bill. The
individual was subsequently placed in the salary offset program.

Also, we found little evidence that cardholders faced adverse consequences
for personal use of the card as long as they paid the bills received from
Bank of America. For example, we identified cardholder transactions of
$5,192 for a Celebrity Cruise Line vacation for four people, $2, 195 for a
stock market investing course, and $1, 395 in tickets to a musical event.
In these instances, the cardholders essentially obtained interest- free
loans with no adverse consequences. We saw few indications that
supervisors were aware that these abusive transactions occurred. To the
extent that we saw documentation that APCs or supervisors were

aware of such travel card abuse, we saw little evidence of any
disciplinary actions.

Credit Problems Generally We also found many instances in which there was
no evidence that Army

Not Referred to Security security officials were informed of travel card
charge- offs for consideration

Officials in reevaluating security clearances. Army regulations provide
that an

individual*s finances are one of the key factors to be considered in
whether an individual should continue to be entrusted with a secret or
top- secret clearance. However, we found that Army security officials were
unaware of travel card debt problems and, consequently, did not consider
this information in determining whether these individuals should continue
to receive their security clearances. Our review of the 105 charge- off
cases discussed previously showed that of 43 cardholders who had secret or
topsecret clearances at the time their accounts were charged off, 38
maintained the same level of clearance as of June 2002. The clearances for
the remaining 5 cardholders had expired. These financially troubled
individuals may present security risks to the Army.

The U. S. Army Central Personnel Security Clearance Facility (commonly
referred to as Army CAF) is responsible for issuing and updating security
clearances for Army personnel. Secret clearances are updated every 10
years and top- secret clearances are updated every 5 years. During the
interim periods, Army regulations 20 require commanders of personnel with
clearances, such as secret and top secret, to submit to Army CAF any

evidence of financial irresponsibility on the part of the personnel that
would affect their clearance. Such evidence would include information on
financial impropriety by the security clearance holder, such as excessive
indebtedness. Army CAF is to evaluate this information and determine

whether to revoke the clearance. We found that commanders responsible for
referring evidence of financial irresponsibility information to Army CAF
were, for the most part, unaware of their subordinates* financial
problems. We provided the information we collected on individuals with
charged- off accounts to Army CAF for its consideration in determining
whether to revoke, change, or renew their security clearances.

20 U. S. Department of the Army, Regulation 380- 67, Security, Personnel
Security Program, Chapter 8, *Unfavorable Administrative Actions* (Sept.
9, 1988).

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 activity related to the travel card and the Army*s high rates of
Ineffective Travel Card

delinquency and charge- offs. The foundation of all other controls, a
Program Controls

positive control environment provides discipline and structure as well as
the climate that 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 abuse the card and a
lack of management attention and focus on establishing and maintaining the
organizational structure and human capital needed to support an effective
Army travel card management program. We found that this

overall weak control environment contributed to design flaws and
weaknesses in seven management control areas needed for an effective
travel card program. Specifically, we identified weaknesses in the Army
travel program controls related to (1) travel card issuance, (2) APCs*

capacity to carry out assigned duties, (3) limiting card activation to
meet travel needs, (4) controls over transferred and *orphan* accounts,
(5) procedures for terminating accounts when cardholders leave military

service, (6) segregation of duties to ensure that no one individual can
control all aspects of a travel transaction, and (7) access controls for
Bank of America*s travel card database.

All seven of these areas related to two key overall management weaknesses:
(1) the lack of clear, sufficiently detailed policies and procedures and
(2) limited travel card audit and program oversight. First, the units we
audited used DOD*s travel management regulations (DOD FMR, Volume 9,
Chapter 3) as the primary source of policy guidance for

management of Army*s travel card program. However, in many areas, the
existing guidance was not sufficiently detailed to provide clear,
consistent travel management procedures to be followed across all Army
units. Second, as recognized in the DOD Inspector General*s March 2002
summary report 21 on the DOD travel card program, *[ b] ecause of its
dollar

magnitude and mandated use, the DOD travel card program remains an area
needing continued emphasis, oversight, and improvement. Independent
internal audits should continue to be an integral component of

21 U. S. Department of Defense Inspector General, Acquisition: Summary of
DOD Travel Card Program Audit Coverage, D- 2002- 065 (Washington, D. C.:
Mar. 18, 2002).

management controls.* However, the DOD Inspector General report noted that
only two internal review reports were issued from fiscal year 1999 through
fiscal year 2001 concerning the Army*s travel card program. These

reports, issued by the Army*s Assistant Secretary for Financial Management
(and Comptroller) *s Internal Review Office, covered government travel
card usage in the Army during fiscal year 2000. In

addition, each of the Army installations we audited had internal review
groups that did some level of review of the travel program and identified
deficiencies in the Army*s travel program at their installations.

To the extent that oversight reviews were conducted, we saw few
indications that management took action to address the deficiencies
auditors identified. For example, the Army*s two fiscal year 2000 internal
review reports disclosed that existing review procedures were not
effective in identifying card misuse and identified additional actions
needed to address travel card abuses, such as unauthorized usage of the
card and unauthorized cash withdrawals. We identified these same issues in
our fiscal year 2001 work.

Ineffective Controls over The Army*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 who had histories of
financial irresponsibility are permitted to receive travel cards. The
Army*s practice is to facilitate Bank of America issuing travel cards*
with few

credit restrictions* to all applicants regardless of whether they have
histories of credit problems. DOD guidance in FMR, Volume 9, Chapter 3,
provides that all DOD personnel are to use the travel card to pay for
official business travel. However, the policy also provides that
exemptions from using the travel card 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. In addition, the DOD FMR provides that credit
checks are to be performed on all travel card applicants, unless an
applicant declines a credit check. We found no evidence that the Army

exempted any individuals or groups from required acceptance and use of
travel cards, even those with histories of previous credit problems. In
July 1999, Bank of America began obtaining credit checks on DOD travel
card applicants and used the credit history obtained through these checks
as a basis for determining the type of account* restricted or standard* it

would provide to new DOD travel applicants. An applicant who did not
authorize a credit check, or with either no credit history or 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. DOD policy also permits commanders or supervisors to
raise the credit limits and ATM limits of restricted travel cardholders to
whatever level they deem necessary to meet mission requirements, except
when the cardholder declined a credit check. 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 Army
cardholders would not have qualified for credit cards even with the
restricted limits. 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.

Consequently, until the Army takes action to prevent applicants with past
credit problems from receiving government travel cards, it will continue
to unnecessarily increase the risk that individuals will continue a
pattern of fraud, abuse, and delinquency or nonpayment. 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. As discussed previously, many of the Army 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; defaulted automobile loans that resulted
in repossession of the vehicles; defaulted mortgage payments and
foreclosure proceedings on homes; numerous bankruptcies; and, in several
cases, prior

arrests and convictions for crimes such as writing bad checks. Unrealistic
APC

DOD policy provides that APCs are the primary focal points for day- to-
day Performance Expectations management of the travel program. However,
APC duties are generally *other duties as assigned.* As discussed in the
following sections, the

sheer number of responsibilities assigned to APCs, coupled with issues
concerning APC span of control, selection, turnover, training, and
performance evaluation, result in unrealistic expectations for the
effectiveness of APCs in carrying out their critical duties. Consequently,

we found that APCs were generally ineffective in performing their key
travel program management oversight duties.

APC Responsibilities As prescribed by DOD*s FMR guidance, APCs *are
responsible for the dayto- 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 any account delinquencies,
interacting with the bank, and fielding questions about the program from
both cardholders and supervisors. APCs are also required to monitor
delinquent cardholders and notify commanders/ supervisors of such
delinquencies for appropriate action. Further, DOD*s FMR also provides
that APCs are to receive reports from Bank of America showing cardholder
transaction activity during the most recent billing cycle. However, DOD*s
guidance does not further

specify APC responsibilities for actions based on their review of Bank of
America reports.

We were told that individuals were given APC responsibilities as a
collateral duty. APC estimates of the percentage of time spent on their
APC responsibilities ranged from 2 percent to as high as 80 percent, with
most indicating they spent about 5 to 20 percent of their time on APC
duties. Several of the APCs we interviewed indicated that keeping up with
their APC responsibilities was a challenge because they were expected to
perform many other duties as well. For example, at the sites we audited,
civilians with APC responsibilities were often program or budget analysts

who worked in the installations* resource management offices. While some
of the military personnel assigned APC responsibilities at the sites we
audited had primary job responsibilities that were finance related, such
as budget and resource managers, others had more mission- related duties.
For example, one of the APCs at the sites we audited was responsible for
security at an airport, and another was a transportation officer. At Ft.
Bragg, Special Operations, entire units, along with the APCs,

were deployed at the time of our audit. Such deployments make it
increasingly difficult for military personnel assigned APC duties to carry
out their responsibilities.

Few of the APCs we interviewed performed any account transaction reviews
beyond those conducted in conjunction with delinquencies. Consequently,
instances of abuse of the travel cards were seldom detected promptly. Some
units* operating procedures specify that APCs monitor

credit card activities to identify misuse. For example, in its operating
procedures, the California National Guard requires that APCs review credit
card activity to identify misuse, that such misuse be brought to the
attention of the commanders/ supervisors, and that the commanders/
supervisors take actions to address the problems. However, one California
National Guard APC told us that she does not have sufficient

time available to monitor the travel activity of all the cardholders under
her purview. Another California National Guard APC told us that, as time
permits, he monitors the travel card transaction activity of the
cardholders that are his responsibility on a weekly basis.

APC Span of Control 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.
Bank of America guidance provides that an optimal span of control is 100
cardholders per APC. In addition, because APC duties 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 5, at the four sites we audited, the average ratio of cardholders
with open accounts to APCs ranged from 65 to 1 to 804 to 1.

Table 5: Average Ratio of Cardholders to APCs at Army Sites Audited Ft.
Drum,

California Ft. Bragg,

Ft. Bragg, Forces

National Forces

Special Span of control

Command Guard

Command Operations

Number of cardholders with open travel card accounts 6,498 4, 022 11,424
5, 696

Number of APCs 39 5 120 88 Average ratio of cardholders to APCs 167: 1
804: 1 95: 1 65: 1

Source: GAO analysis of Bank of America data.

The span of control responsibilities for the APCs at the four sites we
audited ranged from about 5 open accounts to over 1,000. 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 another lower- level APC has direct responsibility,
but for which the higher- level APC has oversight responsibility. 22 For
example, an APC at the California National Guard site we audited who had
direct

responsibility for managing the travel activities of over 1,000
cardholders also had oversight monitoring responsibility for about another
400 cardholders. An APC at Ft. Bragg, Forces Command, with direct
responsibility for managing 287 travel card accounts told us that he was
in the process of working with Bank of America to identify and deactivate
the cards of any infrequent travelers within his purview. He reported that
he hoped to reduce the number of accounts he was responsible for to about
100. The sites we audited were consistent in that few of the APCs we

interviewed performed any account transaction reviews beyond those
conducted in conjunction with delinquencies. Several of the APCs told us
that they received detailed account transaction activity reports from Bank
of America. But, outside of reviews of account activity associated with

delinquencies, they told us that detailed transaction reviews were too
timeconsuming to carry out for their other cardholders. Another APC we
talked to, who attempted to compare reports on travel card transactions
received from Bank of America with valid travel orders for the cardholders
within

her purview, said this activity was time- consuming and almost impossible
to perform for all of the people under her span of control. Failure to
review available cardholder transaction activity reports available from
Bank of America and take action to address any inappropriate card usage
can result in delinquencies and account charge- offs. For example, one APC
was not aware that a cardholder within his sphere of responsibility made
multiple personal use transactions, including purchases at Wal- Mart,
Vitamin World, General Nutrition Center, and

22 APC responsibilities vary depending on the APC*s level in the Army*s
organizational hierarchy from headquarters down through the Army*s
organizational chain of command to the individual Army unit level. That
is, individuals with APC responsibilities at the Army unit level have
direct responsibility for monitoring cardholder account activity whereas
individuals at higher levels in the Army*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.

Hecht*s, until 3 months after the cardholder*s name appeared in a
delinquency report in January 2001. By that time, the cardholder owed
$5,655 and was from 30 to 59 days delinquent. The cardholder*s account

was eventually charged- off on August 10, 2001, with a balance of $6, 997.
APC Selection, Turnover,

Our internal control standards state that management*s commitment to
Training, and Performance

competence and good human capital practices are critical factors in
Evaluation

establishing and maintaining a strong internal control environment.
Specifically, our standards provide that management needs to identify
appropriate knowledge and skills needed for various jobs and provide
needed training, as well as candid and constructive counseling, and
performance appraisals. They also state that establishing appropriate
human capital practices, including hiring, training, evaluating,
counseling, and disciplining personnel, is another critical environmental
factor.

APC selection and turnover. As discussed previously, the DOD FMR assigns a
number of key duties for government travel card management to APCs.
However, neither DOD nor the Army had procedures in place that addressed
the requisite knowledge and skills needed, or the expected tenure, for
those selected to carry out these key APC responsibilities. We found that
APC assignments were based on the commanding officer*s

judgment as to who could best carry out assigned APC duties. At three of
the four sites we audited, the individuals assigned overall APC duties for
the sites were civilians, and the majority of the individuals assigned as
subordinate- level APCs were military personnel. We did not identify any
information indicating that individuals appointed as APCs were expected to
serve in this role for any specified period. We found that civilians
appointed as APCs generally served longer terms than military APC
appointees. For example, at the Ft. Bragg Special Operations site we
audited, we were told that the civilian APC had served for over 2 years in
this role, while most of the military APCs turned over roughly every 6
months. At the Ft. Bragg, Forces Command, site we audited, only 1 of the
11 APCs we attempted to interview who had been in position during fiscal
year 2001 remained in that position.

APC training. 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 to the travel card program.
There are no supporting DOD or Army- wide procedures detailing
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. A number of the
APCs we interviewed told us they relied heavily on on- thejob learning and
other program coordinators for advice on how to carry out their duties
when they assumed their APC responsibilities. At the Ft. Bragg, Special
Operations, site we audited, we were told that the command- level APC
provided training every 3 months and expected all APCs to attend, unless
they were deployed or on an assignment that would not allow them to attend
the training. APCs at Ft. Bragg, Special Operations, also told us they
received annual or semiannual briefings from Bank of America on the
electronic tools available in its Web- based system containing travel card
transaction data* EAGLS (Electronic Account Government Ledger System).
According to the APCs we interviewed, the briefings they received on EAGLS
included guidance on how to use the system to establish a travel account,
how to extract individual cardholder delinquency and transaction activity
reports, and how to contact Bank of America for additional help with the
Web- based tools. Some of the APCs we talked with reported that they have
become proficient in, and routinely use, the tools available through EAGLS
to assist them in their APC duties with respect to delinquency monitoring.
Other APCs indicated that they either did not use the tools available
through EAGLS or were not proficient in using them to monitor cardholders*
travel activities. According to data provided by Bank of America, about 23
percent of the Army*s APCs have never logged into EAGLS.

APC performance evaluation. Generally, APC responsibilities were assigned
as an *other duty assignment.* Individuals serving as APCs had, and were
rated on, other job duties and responsibilities. The extent to

which the performance of APCs was recognized as a major duty, and rated as
such, varied. At Ft. Bragg, Special Operations, none of the individuals
serving as APCs were rated on how well they performed those duties. At

the Ft. Drum location, one of the APCs had a position description that
included *serves as travel card program manager* as a major duty (with the
recognition that this duty, combined with duties as the unit*s program
manager for cost accounting, should require about 30 percent of the
employee*s time).

Controls over Allowing Army travel cardholders to maintain accounts in an
active status

Activating/ Deactivating when not needed for government travel
unnecessarily exposes the Army to

Travel Cards to Meet Travel an increased risk of misuse* through
cardholders either mistakenly or

Needs intentionally using the 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. By contrast, standard cards 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 cards when cardholders were not on travel.
For example, the California National Guard*s August 2001 guidance to all
of its APCs required them to deactivate all travel card accounts for
cardholders

not on official travel. In addition, APCs at Ft. Bragg, Special
Operations, told us that, as a matter of practice, they deactivate the
cards of cardholders in military grades of E- 5 or below when they are not
on official travel. Accountability for

We also found that the Army lacks clear, sufficiently detailed procedures
Transferred and Orphaned

with respect to maintaining effective day- to- day accountability for
Accounts

cardholders* travel card accounts. Until the Army takes action to work
with Bank of America to clearly establish accountability for accounts that
are not under the control of a specific APC, it will continue to be
vulnerable to undetected, potentially fraudulent, or abusive use of these
accounts.

In practice, the Army relies on cardholders to inform the transferring
location*s APC that they will be moving to another Army unit. After a
cardholder notifies the transferring APC of his or her upcoming move, the
APC is to inform the cardholder that he or she is required to report to
the APC at the new location within 10 days of arrival. If the cardholder
does not check in with the APC at the gaining location at the end of 10
days, the losing APC is to deactivate the cardholder*s account. However,
transferring units* APCs told us that cardholders do not always inform
them of upcoming moves and, therefore, they do not deactivate the cards
when the

cardholders fail to report to the new APC within 10 days. As a result,
many accounts fell into *limbo* and are also referred to as *orphan
accounts.* Accounts for transferred cardholders can remain in

this limbo status for lengthy periods. For example, 2 California National
Guard accounts out of the 166 that we examined for our statistical tests
belonged to cardholders who had transferred from their units in 1998 and
2000, respectively. The responsible APC was not aware that the transfers
had taken place until we brought the matter to her attention. According to
Army officials, this breakdown in accountability is one of the

primary causes for the Army*s large number of orphaned accounts. 23 These
are Army travel card accounts that are not under the purview of any APC,
according to Bank of America records. Bank of America officials also told
us that some of the accounts in this group might not even be Army

accounts. As shown in appendix III, Bank of America data show that as of
the end of fiscal year 2001, orphaned accounts had about a 20 percent
delinquency rate.

Without an APC assigned to oversee these accounts, orphan accounts pose a
higher risk of charge- offs. In fiscal year 2001, Bank of America charged
off 717 accounts of the approximately 7, 479 active orphan Army accounts,
accounting for almost $1 million. In May 2002, Bank of America issued

letters to all cardholders in the orphan grouping informing them that
unless they took action to identify accountable APCs, their accounts would
be closed.

Exit Control Procedures for As with transferred employees, neither DOD nor
Army procedures are

Separating Employees sufficiently detailed to ensure that APCs are
notified and take prompt

action to terminate cardholders* accounts when cardholders leave the Army.
DOD*s FMR provides that APCs are responsible for terminating travel cards
when cardholders are dismissed, retire, or are separated from DOD.
Operating procedures established by individual Army commands and
installations to notify APCs in the case of retirement, separation, or
death of employees were neither consistent nor effective.

In general, we found that APCs relied on cardholders to notify them that
they were leaving the Army. Some APCs informed us that their units* exit
procedures for separated, retired, or dismissed employees require that 23
Bank of America also includes in this grouping accounts inherited from the
previous

government travel card contractor that were not linked to any Army command
and accounts for which the accountable APC left or was relocated without
having a replacement designated.

individuals turn in their travel cards as part of the exit process before
leaving the organizations. For example, the National Guard*s standard
operating procedures provide that *All departing cardholders that are

terminating their federal employment status will turn in their Travel
Charge Card to their APC as a part of their out processing.* However, we
found instances in which these procedures were difficult to implement. For
example, a California National Guard official told us that this procedure
is difficult to implement because some guard employees are hundreds of

miles from the location of their cognizant APC. The official told us that
many of the separations from the guard are handled through mail, e- mail,
and fax, and not through face- to- face contact with unit officials or the
APC. One APC told us that she sometimes becomes aware that cardholders are

departing when she receives their travel cards through the mail. If an APC
does not receive messages or paperwork to cancel the cards, or if there is
a delay in notifying the APC of the cardholders* departure, the
cardholders* accounts would remain active and the separated cardholders
may abuse the cards.

Due to the lack of procedures to effectively identify and terminate the
cards of individuals no longer in the Army, we found the following
examples of separated or retired individuals who abused the travel card.
These separated or retired Army employees benefited by using travel cards
to purchase a variety of goods and services and then not paying their
monthly bills, essentially obtaining the personal items for no cost and
possibly receiving discounted government rates by using their government
travel cards.

 A service member (E- 4) assigned to Ft. Knox was released from active
duty on September 16, 2000, but his travel card was not deactivated at
that time as required. In May 2001, over 8 months after he separated,
charges started appearing on his travel card. Charges included ATM
withdrawals, restaurant charges, and monthly fees for a fraternal
organization. In addition, the cardholder spent more than $110 at Platinum
Plus, an adult entertainment establishment. The cardholder continued to
use the card through August 2001, almost 1 year after he left the service.
Although the cardholder charged more than $1,125 on the card, he did not
submit any payments on his Bank of America bills. The account balance was
charged off in January 2002.

 An air reservist (E- 6) assigned to military postal service was
discharged on February 4, 2000, but did not turn in his card. The
individual continued to use his government- issued travel card for
personal use. In

fiscal year 2001, the individual made charges totaling approximately
$5,800 on his travel card, including over $5,000 of cash advances in the
vicinity of his home in New York. The soldier*s travel card account was
closed on March 11, 2002, and the unpaid balance of $3,419 was charged
off.

 A first sergeant (E- 8) at Ft. Hood, Texas, repeatedly used his travel
card after his retirement on September 30, 2000. During fiscal year 2001,
he used the travel card for personal goods and services totaling more than
$8, 000. The charges consisted of almost $2,000 in car rentals, another
$2,000 in hotel charges, and approximately $2,951 in restaurant charges*
including a one- time catering charge of $1, 455* primarily in Hawaii and
Texas. In addition, he spent $1,119 on two cruises with

Royal Carribean cruise line. Because the Army does not routinely monitor
cardholders* transaction reports for abusive activity and because this
particular account was always paid in full, the abusive activities were
not detected for more than a year. In February 2002, while scanning travel
card activities of all cardholders under her sphere of responsibility, the
APC became aware that the cardholder had retired. The APC deactivated the
cardholder*s account in March 2002.  A sergeant first- class (E- 7)
retired from the active duty National Guard

in February 2000, but continued to use the government travel card in
fiscal year 2001. Subsequent to his retirement, the individual became a
state guard employee. State employees are not entitled to hold federal
government travel cards. Bank of America and National Guard records
indicated that the individual used the government travel card for onbase
lodging and rental car charges related to official travel with the state
guard. As of the time of our audit, more than 2 years after the
cardholder*s retirement, the cardholder*s account was still open, although
we noted that the account was not delinquent.

An APC told us that out processing procedures should include APC or
supervisor verification that the cardholder*s account was closed. In fact,
her unit has established an informal procedure that has helped ensure that
APCs receive timely notification of a cardholder*s departure. The
procedure involves the departing cardholder*s supervisor sending e- mails
to the cognizant APC notifying him or her of the date the service member
is leaving and to close the cardholder*s account as of that date.

We also found that the Army did not have procedures requiring periodic
comparisons between active travel card accounts and employees to ensure

that accounts of separated or retired employees are closed. For example,
each Army unit we visited maintained records of retired, dismissed, and
separated employees and the respective dates of these actions. However,
none of the APCs we interviewed compared these records against the list of

active accounts to identify accounts that should have been closed but were
not. Periodic reconciliations of the two lists would have enabled the Army
to identify employees who had left and should no longer have had travel

cards. Segregation of Duties

Adequate controls must be in place to ensure that no one individual can
Controls Were

control all key aspects of a travel transaction. Such controls are key to
Compromised at One effectively reducing the risk of error or fraud at the
four sites we audited. Installation Our observations and walk- throughs
showed that proper segregation occurred because no one individual was
responsible for the major functions associated with the voucher approval
and payment process. Specifically, we found the traveler and person
approving the travel orders were generally located at the installation,
whereas a DFAS center prepared the final vouchers and entered the data
into the DOD travel payment

system, the Integrated Automated Travel System (IATS). For example, in the
case of Ft. Drum, located in Watertown, New York, its vouchers were
processed and paid by the DFAS center in Orlando, Florida. Further, we
found that no one individual at the DFAS centers was responsible for (1)
entering payment information into IATS and (2) auditing travel voucher
summaries for accuracy and completeness.

However, at the California National Guard, we did identify weaknesses that
compromised segregation of duties controls. Specifically, controls were
not in place to prevent California National Guard members, who also served
as voucher examiners, from validating, approving, and auditing their

own final travel vouchers and submitting them to DFAS for payment. In
addition, weak controls over the California National Guard*s usernames and
passwords for *temporary* voucher examiners further increased the risk
that voucher examiners could prepare, validate, and receive payment for
erroneous or fraudulent travel vouchers without detection. Temporary
voucher examiners* those California National Guard members who are
employed as voucher examiners on a part- time or intermittent basis* were
given generic usernames and passwords for accessing IATS. However,
according to the permanent travel voucher examiners we talked to, these

generic usernames and passwords for temporary voucher examiners were well
known to the permanent travel voucher examiners as well.

Consequently, any of the California National Guard*s permanent travel
voucher examiners could use one of these well- known generic usernames and
passwords to access IATS to enter, delete, or modify travel data in the
system* including data related to their own travel voucher processing and
payment* without detection. Access Controls over Bank

Thousands of Bank of America and DOD employees had 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 a 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 user access levels
include APC- level (APCs requiring access to travel data for cardholders
under their purview), individual- level (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.
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 APC duties or
after they may have been terminated or transferred. 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 terminated
or transferred or no longer had APC responsibilities. Over 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, as
shown in table 6, we

found a significant percentage of failures in several of the key control
activities we statistically tested at the four Army locations we audited.
We selected four key control activities to test related to basic travel
transaction

and voucher processing. Specifically, 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 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? Appendix II includes the specific
criteria we used to conclude on the effectiveness of these controls.

Table 6: Results of Testing of Key Internal Controls Percentage of failure

Travel vouchers Travel

are submitted vouchers are

Travel orders Travel voucher

within 5 days paid within

are approved reimbursements

of travel 30 days of

Army unit prior to travel

are accurate completion

submission

Ft. Drum, Forces Command 0.0 10. 4 21. 9 5. 2

Ft. Bragg, Special Operations 3.1 7. 3 30. 2 7.3 Ft. Bragg, Forces Command
6.2 18. 8 38. 5 8. 3

California National Guard 1. 0 41. 9 27. 9 60.5 Note: The numbers in the
table represent point estimate percentages for the number of failures in
the population based on our sampling tests. The confidence intervals for
our sampling estimates are presented in app. II. Source: GAO analysis.

The Army*s inability to establish effective controls in several of these
key control areas, particularly relating to timeliness of payment,
contributed to its high delinquency rate. As discussed previously, for the
four locations, we estimate that the percentage of transactions during
fiscal year 2001 that represented personal use varied from 15 percent at
one location to 45 percent at another location. 24

Controls over Travel Order Timely approval of the travel orders is the
first step in ensuring that travel

Approval Were Generally is authorized. At three of the four installations
we audited, the controls

Effective over travel order approval were effective. We estimate that 0 to
3 percent

of transactions at these installations did not have documented evidence
that travel orders were approved prior to the beginning of travel. At Fort
Bragg, Forces Command, travel order controls had an estimated 6 percent

24 Our estimates of the percentage of apparent personal use of the travel
card at the four sites we audited were: Ft. Bragg, Forces Command (45.0
percent); Ft. Drum, Forces Command (14.8 percent); Ft. Bragg, Special
Operations (18.0 percent); and California Army National Guard (29.5
percent).

failure rate associated with travel orders that were not approved prior to
travel. The control breakdown we noted in our sample transactions occurred
when the travel took place prior to written approval of the travel order.
For example, one traveler had travel duty from April 8, 2001, to April 19,
2001, but did not get his travel order approved until April 27, 2001.
According to Army officials, this often occurred because travelers
neglected to document the date of verbal travel authorization on their
written travel orders.

Controls over Travel Once the travel is complete, the traveler is 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 accurate and properly calculated. At the four installations
audited, we estimate that about 7 percent to 42 percent of transactions
were associated with travel vouchers that were not accurate or were not
properly supported. The California National Guard had an estimated failure
rate for voucher review that was two to six times higher than that of the
other three installations. We found undetected instances of travel voucher
errors by travelers, voucher reviewers (both installation- level and DFAS-
level), and DFAS.

Travel voucher errors result in either over- or underpayments to the
traveler and create an additional administrative burden for Army and DFAS
when the traveler must file a supplemental voucher to claim amounts that
were not paid initially or when the initial travel vouchers are incomplete
or erroneous. For example, according to DFAS Orlando officials, during
fiscal year 2001 DFAS Orlando returned an estimated 12,000 vouchers to
Army installations because of errors or omissions in the initial voucher
packages submitted to DFAS. Further, delays in paying valid amounts to
travelers can result in delinquent accounts when the cardholder has not
been fully reimbursed by the time the monthly travel card bill is
received. In our samples, we found that most errors were in the following
categories.

 Missing receipts * We found instances in which voucher packages did not
include all required receipts to support claims based on DOD and Army
regulations. DFAS paid the vouchered amounts in these cases despite the
lack of receipts. For example, for a Ft. Drum cardholder, DFAS paid hotel
charges on a voucher for which the cardholder did not

attach the required receipt. At the California National Guard, we found

that a cardholder was paid for 4 nights of lodging when the receipt was
for 3 nights.

 Errors in amounts paid * We found instances in which DFAS used an
incorrect per diem rate 25 for lodging and meals and incidental expenses
to calculate the reimbursement amount, resulting in both over- and
underpayments to the traveler. We also found that DFAS made errors in
calculating reimbursements for ATM fees and car mileage. Most of

these errors were relatively small in terms of dollar amounts. In one
instance, we found that DFAS underpaid a cardholder about $814. In this
case, the cardholder, an E- 8, master sergeant at Ft. Bragg, Special
Operations, filed a voucher package with required supporting documentation
for lodging, transportation, and other expenses totaling about $814
incurred while on extended travel. DFAS erroneously excluded these
expenses from its reimbursement calculation and consequently understated
the amount paid to the cardholder by this amount. While the cardholder
paid his bill from Bank of America that included these expenses, it was
not until we brought this matter to the attention of Army and DFAS
officials that the cardholder was reimbursed. In another instance, we
found that an E- 5 cardholder at Ft. Drum filed a travel voucher with DFAS
Orlando claiming and receiving reimbursement for taxi fares totaling
$48.50. However, according to the related travel order, a government
vehicle was provided. After we brought this matter to its attention, DFAS
Orlando obtained a $48.50 reimbursement from the cardholder. At the
California National Guard, we found that a cardholder*s per diem
reimbursement was less than the allowed amount, and the traveler was paid
$75 for parking expense when the receipt showed $86.

The California National Guard*s procedures for reviewing travel vouchers
differed from the other locations we audited in that the United States
Property and Fiscal Office (USPFO)* an organizational component of the
California National Guard* reviews all travel vouchers submitted by
California National Guard personnel for validity and accuracy before

submitting voucher payment requests to DFAS. California National Guard
officials attributed the high error rate to staff shortages in the voucher
examination branch and difficulty in retaining high- quality personnel in
these low- paying positions. 25 Per diem is a daily allowance paid to
travelers in lieu of actual subsistence expenses. Per

diem rates for various geographic areas are published by GSA.

For the other Army units we audited, DFAS was responsible for reviewing
the vouchers for accuracy and proper support prior to payment. We visited
DFAS Orlando* the DFAS location responsible for processing travel vouchers
for two of our four test sites. We found that DFAS Orlando made some
voucher processing errors, which officials at that location attributed, at
least in part, to the large volume of vouchers processed at that location,
the number of vacant positions, and the significant amount of overtime

needed to process vouchers and disburse funds within a 4- to 5- day time
frame. For example, DFAS Orlando officials reported processing over
115,000 travel vouchers during fiscal year 2001, averaging approximately
11,000 vouchers per month, and had six vacancies that they were unable to

fill. Also, in May 2002, DFAS Orlando reported 912 hours of overtime
associated with processing 13,422 of the estimated 17, 500 travel vouchers
received during the month. Travel Processing

We tested two key areas where prompt action is needed to ensure that
Timeliness Was a Significant

travelers are reimbursed for valid expenses within required time frames.
Problem Resulting in Late

First, DOD policy requires the traveler to submit a travel voucher within
5 days of return from travel. 26 We estimated significant failure rates
for this Payments to Travelers

requirement at all four installations, ranging from 22 percent to 39
percent of fiscal year 2001 transactions. When this control failed in our
sample transactions, the delay in submitting a travel voucher ranged from
6 days to as long as 228 days. Numerous travelers took up to 3 weeks to
submit vouchers upon return from travel. Installation officials told us
that travelers on extended travel for deployment to a war zone do not
always have an opportunity to file interim vouchers. Also, the officials
stated that many travelers return from travel, only to leave within a day
or 2 for annual leave or another business trip and, therefore, do not have
an opportunity to

submit their travel vouchers promptly. Delays in filing travel vouchers
cause delays in travel reimbursements, which can ultimately result in
delinquent accounts. For example in one of the sampled Ft. Bragg, Special
Operations, transactions, the cardholder was on extended travel and did
not file an interim voucher. This traveler*s account became delinquent,
but he paid the balance due after being

reimbursed. In another instance, a member of the California National Guard
who completed travel in February 2001 did not complete a travel 26 DOD*s
FMR provides that for long- term travel, cardholders are expected to file
interim vouchers every 30 days.

voucher until mid- April 2001. It took another 3 months for the voucher to
arrive at the USPFO facility responsible for processing it. Although DFAS
paid the voucher 2 days after receipt of the payment request, the
cardholder*s account was delinquent for the 3 months.

Second, upon submission of a proper voucher by the employee, DOD has 30
days in which to make reimbursement without incurring late payment fees
and charges. Once the approving official receives a properly documented
travel voucher, the 30- day payment period begins. If payment

is not made in 30 days, the traveler is owed a late payment fee that is to
be calculated using, at a minimum, the Prompt Payment Act interest rate,
as required by TTRA 27 and GSA regulations. 28 GSA*s regulations also
require the cardholder to be paid 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.

Failure rates for this control activity ranged from about 5 percent to 8
percent for three of the four installations we tested, which we considered
to be partially effective. Delays in these cases were generally attributed
to the review process at the installation, while DFAS generally made
payments within 7 days of receipt of the approved voucher package.
However, the fourth installation, the California National Guard, had an
estimated 61 percent of transactions that were associated with vouchers
that were not paid within the 30- day time frame. Given the delays in
initial

submission of the vouchers, as discussed previously, these additional
processing delays will result in travelers receiving payment well after
they receive their monthly travel card bills. Unless travelers use
personal funds to pay the bills, many accounts will remain delinquent
until payment is received. For example, we found that one Ft. Drum travel
voucher was submitted 34 days after travel ended and another Ft. Drum
voucher was paid 131 days after the travel ended. A California National
Guard cardholder did not receive payment for a $3,554 voucher until 36
days after

he submitted his voucher. While the cardholder paid Bank of America the
full amount due following receipt of his reimbursement, the cardholder*s
account was initially delinquent because it was not paid within the
required

30- day time frame. 27 Public Law. 105- 264, Section 2 (g), 112 Stat. 2352
(Oct. 19, 1998). 28 41 C. F. R. Section 301- 52.20.

In another case we reviewed, an individual had planned to retire from the
Army and subsequently withdrew his retirement paperwork and was reassigned
to another location. DFAS rejected the employee*s travel vouchers for
reimbursement of official travel expenses because its records showed that
he had retired. At the time of our audit, approximately 9 months had
elapsed since the cardholder first sought reimbursement from DFAS, and he
was still not paid. The individual*s account was seriously delinquent, his
card was canceled, and he subsequently paid off his account out of his own
funds* since he had not yet been reimbursed. With respect to the
California National Guard, in many instances, USPFO

took more than 30 days from the date of receipt of the travel voucher to
send a request for voucher payment to DFAS. USPFO officials attributed
these problems to the lack of qualified voucher examiners. Contrary to
TTRA and GSA regulations, DFAS did not pay cardholders the

required late payment fees and charges. According to the DOD FMR, the fees
and charges are only paid if the traveler claims reimbursement by filing a
separate voucher claiming the fees and charges. Currently, DFAS does not
have the systems and data needed to identify and pay applicable fees and
charges due to travelers who are not reimbursed within 30 days.

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 Army 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
program has resulted in a significant level of delinquencies and charge-
offs of bad debts, and potentially fraudulent and abusive travel card
activity. This has resulted in millions of dollars of costs to the Army,
including higher fees, lost rebates, and substantial time pursuing and
attempting to collect delinquent travel card accounts.

DOD and the Army have taken positive steps to reduce the delinquencies and
charge- offs, including establishing a system of wage and retirement
payment offset for many employees, sending travel reimbursements directly
to the bank rather than the employee, and making management of the travel
program a priority for the Army commands. These actions have resulted in
significant collections of previously charged- off and delinquent

accounts and improved relations with Bank of America. DOD and the

Army 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 Army 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 *front- end* or preventive controls. To effectively
reform the travel program, DOD and the Army will need to work

to prevent potentially fraudulent and abusive activity and severe credit
problems with the travel card. Preventive solutions include requiring use
of the split disbursement payment process by all employees; providing a
sufficient control infrastructure to effectively manage the program;
exempting individuals with histories of financial problems from required

use of travel cards; deactivating cards when employees are not on official
travel; and providing appropriate, consistent disciplinary action to
employees who commit fraud or abuse the travel cards.

Matter for To reduce DOD*s travel card delinquency and charge- off rates,
particularly

Congressional the Army*s, which are higher than those of any other
executive branch agency, the Congress should consider authorizing the
Secretary of Defense Consideration

to require using employees* travel allowances to pay the travel card
issuer directly for charges incurred using the travel card. We believe
that this action would provide DOD the ability to require use of the split
disbursement payment process for all of its employees.

Recommendations for To strengthen the overall control environment and
improve internal

Executive Action controls for the Army*s travel card program, we recommend
that the

Secretary of the Army 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 Army establish
specific policies and procedures governing the issuance of individual
travel cards to military

and civilian employees, including the following:

 Evaluate the feasibility of extended use of credit checks for all travel
card applicants.

 For credit check results currently obtained and additional future credit
checks, use the results to make decisions on travel card applicants.
Decisions on whether to issue a travel card should consider prior credit
problems (e. g., bankruptcy; convictions for writing bad checks; and
defaulted credit cards, home mortgages, and automobile loans).  Provide
individuals with prior credit problems who are denied travel

cards with alternative means of travel funding.  Provide individuals with
no prior credit histories with *restricted* travel

cards with low credit and ATM limits.  Develop procedures to periodically
evaluate card usage and close

accounts of infrequent travelers, which will minimize exposure to fraud
and abuse.

 Cancel accounts for current infrequent travelers as noted in the Charge
Card Task Force report.

 Evaluate the feasibility of establishing a policy to activate and
deactivate cards on predetermined start and end dates, which are tied to
the cardholders* authorized travel orders. At a minimum, this policy
should focus on controlling travel card use for the *high- risk* enlisted
military personnel in the E- 1 to E- 6 grades.

 Develop comprehensive, consistent Army- 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 Army
establish the following

Disciplinary Actions specific policies and procedures to strengthen
controls and disciplinary

actions for improper use of the travel card:  Establish Army guidance on
who should be given APC responsibilities

that considers (1) the knowledge, skills, and abilities required to carry
out these responsibilities effectively, (2) the time required to carry out
APC responsibilities on a day- to- day basis effectively, and (3) the
length of time an individual should be required to stay in the APC
position in light of time required to become proficient in the use of the
tools relied on to monitor card usage effectively. Army should evaluate
whether the

APC position should be full- time.  To avoid high APC turnover, evaluate
the feasibility of maximizing the use of civilian rather than military
employees to serve in the role of APC.  Establish guidance on APC span of
control responsibilities so that such

responsibilities are properly aligned with time available to ensure
effective performance.

 Establish procedures to provide assurance that APCs receive training on
their APC responsibilities, including how to use EAGLS transaction reports
and other available data to monitor cardholder use of the travel card* for
example, reviewing account transactional histories to ascertain whether
transactions are incurred during periods of authorized travel and appear
to be appropriate travel expenses and from approved MCCs.  Train APCs to
review EAGLS reports to identify cardholders who have

written NSF checks for payment of their account balances, and refer the
employees for disciplinary action.  Review, in conjunction with Bank of
America, individuals with APClevel

access to EAGLS to limit such access to only those with current APC
duties.  Establish Army procedures detailing how APCs should carry out
their

responsibility to monitor card usage for all cardholders assigned to them.
Included in the procedures should be development of a data mining program
enabling APCs to scan a large number of transactions,

and target potentially inappropriate transactions for further review.

 Establish a requirement for assessing performance of travel monitoring
and other APC duties as a rating factor on all APCs* performance
evaluations.  Establish an Army requirement for cognizant APCs to retain
records

documenting any cardholder*s fraudulent or abusive usage of the travel
card and require this information to be provided to the gaining APC when
the cardholder is transferred.

 Establish appropriate, consistent Army- wide policy as a guide for
taking disciplinary actions with respect to fraudulent and abusive
activity and delinquency related to the travel card.

 Refer any travel cardholders with secret or higher level security
clearances for whom financial problems related to the travel card are
detected to Army CAF for investigation as to whether the individuals
should continue to be entrusted with secret or higher clearances.

 Assign responsibility and accountability over cardholders transferring
between Army units or locations, including cardholders currently in
*orphan* status. Any accounts not assigned to an APC should be immediately
canceled.

 Strengthen procedures for any employee discharging from service so that
all cards are obtained from the cardholders, accounts are closed, and
repayment of any outstanding debts is arranged.  Develop procedures to
identify active cards of departed cardholders,

including comparing cardholder and payroll data. Voucher and Payment

We recommend that the Secretary of the Army, in partnership with the
Processes

Director, Defense Finance Accounting Service, revise the travel voucher
and payment process by developing a process to monitor and track travel
reimbursements that exceed the 30- day requirement so that individuals not
paid within the statutory period are paid late fees in accordance with the
law.

To resolve severe voucher process problems specific to one of the units we
audited, we recommend that the Commander of the California Army National
Guard take the following actions:

 Evaluate travel card procedures from writing travel orders through
documenting expenses on the voucher and completing the reimbursement
process with a goal of reengineering these processes to provide reasonable
assurance that cardholder reimbursement is made within the 30- day
requirement.

 Strengthen segregation of duties controls so that voucher examiners
cannot prepare, validate, and receive payment for erroneous or fraudulent
travel vouchers without detection. Improved controls should include
eliminating the use of generic usernames and passwords for accessing the
travel system. Agency Comments and

In written comments on a draft of this report, which are reprinted in Our
Evaluation appendix V, DOD concurred or partially concurred with all of
our recommendations. DOD partially concurred with our recommendations
regarding (1) training APCs to refer cardholders who write NSF checks for
disciplinary actions, (2) establishing an Army- wide disciplinary action
policy for abusive travel card activity, and (3) developing a process to
identify travel reimbursements that exceed the 30- day requirement so that
individuals not paid within the statutory period are paid late fees in
accordance with the law. Concerning our recommendation that APCs should be
trained to refer

cardholders who write NSF checks for disciplinary action, DOD responded
that commanders of military members, not APCs, determine the appropriate
action when a cardholder has written an NSF check, and not every case
should be a referral for disciplinary action. DOD also stated the Army
intends to publish guidance that will require the APCs to notify
supervisors/ commanders of incidents of abuse, misuse, delinquency, and
other events, including NSF checks. This response appears to address the
intent of our recommendation. We agree that APCs should be trained to
identify NSF checks and to report cardholders who write NSF checks to the
appropriate level of command for review and possible further action. The
supervisors and commanders would still maintain their discretion to select
the specific disciplinary action, if any, depending on the circumstances
of individual cases.

Regarding establishing Army- wide disciplinary action policy for abusive
travel card activity, DOD stated that the Army already has a strong policy
in place against theft, fraud, and other intentionally dishonest conduct
on the part of civilian employees and that it would be inconsistent with
current

law for the Army to establish further mandatory requirements that impose
specific disciplinary actions. With regard to military personnel, DOD
stated that disciplinary actions are addressed as a matter of command
discretion. We never contemplated that the policy would prescribe
mandatory actions.

Rather, we intended the policy to be a guide of possible disciplinary
actions to be taken against cardholders. This guidance would also serve as
an important internal control feature that clearly identifies the
consequences

associated with improper and abusive travel card use and would serve as a
deterrent to such abuse. Further, the policy could include a range of
actions that would be appropriate for various types of travel card misuse.
To eliminate any confusion concerning the intent of our recommendation, we
made a slight modification to the text of the recommendation.

We also recommended developing a system to identify travel reimbursements
that exceed the 30- day requirement so that individuals not paid within
the statutory period are paid late fees in accordance with the law. DOD
agreed that the current systems for processing and computing travel
vouchers for the Army do not provide for automated means of calculating
interest due on vouchers exceeding the 30 days from the proper submission
date. DOD also stated that the Defense Travel System (DTS) currently being
deployed automates the voucher submission process and should reduce the
instances where reimbursements extend beyond 30 days. However, the DOD
Office of Inspector General concluded in a recent report 29 that DTS
remains at high risk of not being an effective solution in streamlining
the DOD travel management process and that it is not expected to be
deployed until fiscal year 2006. This system has been under development
since 1998 with substantial schedule delays and cost overruns as well as
reductions in functionality. Based on this evaluation, we do not consider
DTS to be a timely or viable solution for identifying those

reimbursements outside of the 30- day requirement. TTRA and GSA
regulations require that late fees be paid to those persons reimbursed
outside of the 30- day requirement. TTRA imposes a duty on agencies to pay
the late fees and does not condition the payment of late fees on travelers
identifying late reimbursements and submitting claims for the

fees. Until DTS is fully implemented and operational, we continue to
believe that DOD needs to develop an interim process to identify late

29 Department of Defense Office of the Inspector General, Acquistion:
Allegations to the Defense Hotline on the Management of the Defense Travel
System, Report No. D- 2002- 124 (Washington, D. C.: July 1, 2002).

reimbursements and pay cardholders the appropriate fees in accordance with
the law. In addition, in one area, although DOD concurred with our
recommendation, we do not believe that its response indicates full
agreement or understanding of the intent of the recommendation.
Specifically, with regard to our recommendation that credit check results
be used to make decisions on travel card applicants, DOD responded that
those with prior credit problems are issued restricted cards and that
mandatory use of the government travel card is required by TTRA. This is
not correct. Both the DOD FMR and TTRA provide for exemptions from the
mandatory use requirements under certain conditions, including evidence of
financial irresponsibility. When an exemption is granted from the
mandatory use of the travel charge card, the use of personal funds,
including cash or personal charge card; travel advances; or Government

Travel Requests may be authorized for payment of travel expenses. We
continue to believe that until the Army takes action to consider past
credit problems in determining whether to authorize issuing government
travel cards, it will continue to increase the risk that individuals will
repeat a pattern of fraud, abuse, and delinquency or nonpayment. Our
report includes numerous examples of such individuals, including those who
were issued restricted cards.

Finally, in concurring with our recommendations regarding the lack of
segregation of duties and other voucher processing problems at the
California Army National Guard, DOD indicated that it had a number of
detective and compensating controls in place. While these appear
responsive to our recommendations, we have not evaluated the effectiveness
of their implementation and therefore cannot determine whether these
measures will resolve the problems we identified.

As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute it until 30 days from its date. At
that time, we will send copies to interested congressional committees; the
Secretary of Defense; the Under Secretary of Defense for Acquisition,
Technology, and Logistics; the Under Secretary of Defense (Comptroller);
the Secretary of the Army; the Director of the Defense Finance and
Accounting Service; the U. S. Property and Fiscal Officer, California Army

National Guard; 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 to reduce 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 during the fiscal year. Under the current GSA master
contract, the Department of Defense (DOD)

entered into a tailored task order with Bank of America 30 to provide
travel card services to DOD and the military services, including the Army.
Table 7 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.

30 DOD 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
to renew. The task order also allowed for five additional 1- year options
under the GSA master contract renewal provisions.

Table 7: Comparison of Number of Individually Billed Travel Cardholders
and Related Charges for DOD Versus Total Federal Government 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)

Army 432, 460 $619 Navy (includes Marine Corps) 394, 952 510

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 7, 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 7 also shows that the Army provided
432,460 individually billed cards to its civilian and military employees
as of September 2001. These cardholders charged an estimated $619 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 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 based on the volume of transactions incurred using
the card and on cardholders paying their monthly travel card bills on
time. To help cardholders pay their monthly bills on time, the act also
requires that

agencies reimburse cardholders for proper travel claims within 30 days of
submission of approved travel vouchers by the cardholders. 31 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 with their own implementing
regulations.

DOD issued its Financial Management Regulations (FMR), Volume 9, Chapter
3, Travel Policies and Procedures, which supplements 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, the Army
provided informational pamphlets intended to assist its travelers:
Pamphlet 55- 16, Transportation and Travel: Civilian Travel and
Transportation

Permanent Change of Station Travel; Pamphlet 55- 20, Temporary Duty

31 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 31st 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.

Travel: Uniformed Services Personnel Travel and Transportation; and
Pamphlet 55- 22, Civilian Travel and Transportation: Temporary Duty
Travel. In addition, some of the Army*s individual commands and units

have issued their own instructions supplementing GSA and DOD guidelines.

The Army Travel As shown in figure 5, the Army*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 5: The Army Travel Process

Traveler requests travel card B of A

APC processes travel card issues travel card

application approved by supervisor and controls credit limits

Official government travel authorized (travel order)

Payment

Traveler charges Merchant

goods and services (e. g., rental car co.)

on travel card provides goods/ services

and charges travel card

Billing Payment

Billing

Traveler prepares

Payment information

voucher and provides to supervisor for

B of A processes review with submission

Merchant bank to DFAS

card charges, accepts transaction

pays merchant deposit slips and

bank, and bills transfers payment

traveler DFAS processes and pays b voucher

B of A credit card data in EAGLS

APC monitors card usage and delinquencies a by accessing EAGLS

APC terminates or Traveler leaves

suspends card service or moves

for traveler leaving Army or moving

a See figure 7 for specific actions to be taken by the agency program
coordinator (APC). b The Defense Finance and Accounting Service (DFAS)
allows travelers to direct a portion or all proceeds from the
reimbursement of travel vouchers to Bank of America. Army National Guard
units process travel vouchers at the units and then send electronic files
to DFAS authorizing payment.

Travel Card Issuance and When an Army 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 6,
the application requires the applicant to provide pertinent information,
including full name and Social Security number, and identify whether he or
she is an active, reserve, or guard military member or a civilian employee
of the Army. 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 travel cards to all applicants for whom it receives completed
applications signed by the applicants, the applicants* supervisors, and
the

APCs.

Figure 6: 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 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, Bank of America will
suggest to the service that the applicant receive a restricted card with a
credit limit of $2,500 instead of the standard card with a credit limit of
$10,000. However, as shown in figure 6, the application allows the
employee to withhold permission for Bank of America to obtain a credit
report. If this option is selected, Bank of America automatically issues a
restricted card to the applicant.

When cardholders leave the Army, they are required to contact their APCs
and notify them of their planned departure. Based on this notification
from cardholders, the APCs are to 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
amount of per diem and any cash advances. Further, the Army 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 Army
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 individually billed travel charge cards 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 25- 30 days
of the statement closing date. If the cardholder does not pay his or her
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 Army 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 a supervisor*s 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 voucher takes longer than 30 days, the Army
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.

For all Army units other than those in the Army National Guard, after the
supervisor approves a cardholder*s travel voucher package for payment, it
is sent to a DFAS location for processing and payment. In the Army
National Guard, guard units process, review, and approve all vouchers at
that level before they are sent to DFAS for payment. DFAS (or the guard
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. DFAS travel services supervisors
audit 2 percent of vouchers under $2,500 and all vouchers $2,500 and
greater. In addition, vouchers for amounts $20,000 and over are audited
again by DFAS Indianapolis travel services technicians before payment is
disbursed. If problems with a 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 item is successfully processed through IATS, DFAS makes

payment to the cardholder or to Bank of America and the cardholder, if the
cardholder elected the split disbursement option whereby part of the
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 Army 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,

the account is considered delinquent. As summarized in figure 7, there are
specific actions required by both the Army and Bank of America based on
the number of days a cardholder*s account is past due.

Figure 7: Required Army 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 pre- suspension letter to the cardholder. APC issues 60- day
delinquency notification

60 days

Suspends the account prohibiting purchases. memorandum to the cardholder
and

Mails suspension letter to cardholder. 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 pre- cancellation letter to the cardholder. notification
memorandum to the Commander. The Commander investigates and takes

Requests DFAS to offset salary.

appropriate disciplinary action.

126 days

Closes account, mails notice of cancellation letter to cardholder.

DFAS offsets salary.

150 days 180 days

Mails a pre- charge off letter to the cardholder.

210 days

Charges off account. Note: Starting in fiscal year 2002, DOD began to
offset the salary of certain civilian employees, military members, and
retired military members from all services, including the Army, for the
amounts delinquent or charged off on travel card accounts. Source: GAO
analysis.

The following is a more detailed explanation of the required actions by
Army 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 by Bank of
America 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 his or her 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 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 the
same time, Bank of America is to send a pre- cancellation letter to the
cardholder. 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 a *pre- charge off* or
last call letter to the cardholder informing him or her that Bank of
America will charge off the account and report the cardholder 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
credit- worthiness of an individual using credit bureau reports.

 210 days past due* Bank of America is to charge off the delinquent
account and, if the balance is $50 or greater, report it to a credit
bureau.

Some accounts are pursued for collection by Bank of America*s recovery
department, 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 timely pay his or
her account, through no fault of his or her own. Under such circumstances,
the APC is to notify the Bank of America that the cardholder is in
missioncritical status. Activating this status precludes Bank of America
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
missioncritical 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 Army. Our assessment covered  the
reported magnitude and impact of delinquent and charged- off Army 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 Army travel card transactions
during fiscal year 2001 to identify potentially fraudulent and abusive
activity related

to the travel card;  the Army*s overall management control environment
and the design of

selected Army 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, (6) segregation of duties to ensure
that no one individual can control all aspects of a travel transaction,
and (7) access to 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 four Army
units* travel activity, including (1) travel order approval, (2) accuracy
of travel voucher payments, (3) timely submission of travel vouchers by
travelers to the approving officials, and (4) timely processing and
reimbursement of travel vouchers by the Army 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), 32
the GSA*s Federal Travel Regulation, 33 and the DOD FMR, Volume 9, Travel
Policies and Procedures. We also used as criteria our Standards for
Internal Control in Federal Government 34 and our Guide to Evaluating and
Testing Controls Over Sensitive Payments. 35 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 seven areas reviewed.

To assess the magnitude and impact of delinquent and charged- off
accounts, we compared the Army*s delinquency and charge- off rates to
other DOD services and federal agencies. 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 Army individually billed travel card
transactions for audit. Our data mining procedures covered the universe of
individually billed Army travel card activity during fiscal year 2001 and
identified transactions that we believed were potentially fraudulent or
abusive. However, our work was not designed to identify, and we did not

32 The Travel and Transportation Reform Act of 1998 (Public Law 105- 264,
Oct. 19, 1998) states that, unless specially exempted, federal employees
are required to 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. 33 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.

34 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 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.

35 U. S. General Accounting Office, Guide to Evaluating and Testing
Controls Over Sensitive Payments, GAO/ AFMD- 8. 1.2 (Washington, D. C.:
May 1993). This document provides a framework for evaluating and testing
the effectiveness of internal controls that have been

established in various sensitive payment areas.

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 Army, we obtained an understanding of the travel
process, including travel card management and oversight, by interviewing
officials from the Office of the Under Secretary of Defense (Comptroller);
the Department of the Army; DFAS; Bank of America; and GSA. We reviewed
applicable policies and procedures and program guidance they

provided. We visited four Army units to gain an understanding of the
travel process, including the management of travel card usage and
delinquency. We visited the DFAS Orlando location to gain an understanding
of the voucher review and payment process used for two of the four Army
locations we tested. We also assessed actions taken to reduce the severity
of travel card delinquencies and charge- offs. 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.

We selected four Army locations for testing controls over travel card
activity based on the relative size of travel card activity at the 13 Army
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 two units from Army*s Forces Command
because that command represented approximately 19 percent of travel card
activity, 22 percent of the delinquent accounts, and 28 percent of
accounts charged off during fiscal year 2001 across the Army. We also
selected an Army National Guard location because the Army National Guard
represented 13 percent of the total travel card activity, 22 percent of
the delinquent accounts, and 15 percent of charge- offs for fiscal year
2001. Special Operations Command represents about 6 percent of Army*s
charge card activity, 5 percent of the delinquent accounts, and 4 percent
of Army travel card accounts charged off in fiscal year 2001. Each of the
units within the commands was selected because of the relative size of the
unit within the respective command.

At each of the Army locations we audited we also used our review of
policies and procedures and the results of our understanding of travel
processes and other observations to assess the effectiveness of controls
over segregation of duties among persons responsible for preparing travel
vouchers, processing and approving travel vouchers, and certifying travel

voucher payments. In addition, to ensure that work responsibilities were

properly segregated at the California National Guard so that no single
individual can perform or control all key aspects of computer- related
operations, we performed a limited review of security controls in place at
that location over access to DOD*s Integrated Automated Travel System
(IATS). California National Guard personnel used this system to record and
process travel vouchers. We interviewed managers, users, and
administrators of IATS at the California National Guard and DFAS*s
Financial Services Office. We also conducted limited observations of the

IATS keying process at the California National Guard. We also reviewed
computer system access controls for 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 Army
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 Army travel card transactions.
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 four Army units we audited. Each
sampled transaction was subsequently weighted in the analysis to account

statistically for all charged transactions at each of the four units,
including those that were not selected. Table 8 presents the sites
selected and the number of fiscal year 2001 transactions at each location.
36

36 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 selections for travel order, voucher, and payment process controls.
However, we included such transactions in order to project

the percentage of personal use transactions.

Table 8: Population of Fiscal Year 2001 Travel Transactions at Army Units
Tested Number of fiscal year 2001

Dollar value of fiscal year Army unit tested travel transactions a 2001
travel transactions a

Ft. Drum, Forces Command 109, 443 $ 7,281, 275 Ft. Bragg, Forces Command
128, 583 10,648, 419 Ft. Bragg, Special Operations Command 35, 021 5,035,
743

California National Guard 58, 797 5,035, 457

a Transactions represent charges for sales and cash advances and exclude
credits, fees, and other miscellaneous debits.

We performed tests on statistical samples of travel card transactions at
each of the four case study sites to assess whether the system of internal
control 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 dates of travel, (2) the travel voucher payment was accurate, (3)
the travel voucher was submitted within 5 days of the completion of
travel, and (4) the travel voucher 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, 37 can be projected to the population of transactions at the
respective case study site only, not to the population of travel card
transactions for all Army 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

37 At Ft. Bragg, Forces Command, we found that 85 of 189 transactions
appeared to be personal (projecting to an estimated 45 percent with a 95
percent confidence interval from 37.8 percent to 52.4 percent). At Ft.
Drum, Forces Command, we found that 17 of 115 transactions appeared to be
personal (projecting to an estimated 14. 8 percent with a 95 percent
confidence interval from 8.9 percent to 22.6 percent). At Ft. Bragg,
Special Operations, we found that 21 of 117 transactions appeared to be
personal (projecting to an estimated 18 percent with a 95 percent
confidence interval from 11. 5 percent to 26.1 percent). At the California
National Guard we found that 49 of 166 transactions appeared to be
personal (projecting to an estimated 29.5 percent with a 95 percent
confidence interval from 22. 7 percent to 37. 1 percent).

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. Any point estimate between 5 and 10 percent would generate an

assessment of partially effective. Tables 9 through 11 show (1) the
results of our tests of key attributes, (2) the point estimates of the
failure rates for the attributes, and (3) the two- sided 95 percent
confidence intervals for the failure rates for each attribute. Table 9
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).

Table 9: Estimate of Fiscal Year 2001 Transactions That Failed Control
Tests for Approved Travel Number of failed

Estimated failure rate Army unit tested transactions (95% confidence
interval)

Ft. Bragg, Forces 6.2% Command 6 of 96 (2.3%, 13.1%)

Ft. Drum, Forces 0% Command 0 of 96 (0%, 3.8%)

Ft. Bragg, Special 3.1% Operations Command 3 of 96 (. 6%, 8.9%)

California National Guard 1.04% 1 of 96 (. 03%, 5.7%)

Table 10 shows the results of our test for effectiveness of controls in
place over the accuracy of travel voucher payments.

Table 10: Estimate of Fiscal Year 2001 Transactions That Failed Control
Tests for Accurate Travel Voucher Payments

Number of failed Estimated failure rate Army unit tested transactions (95%
confidence interval)

Ft. Bragg, Forces 18. 8% Command 18 of 96 (11.5%, 28.0%)

Ft. Drum, 10. 4% Forces Command 10 of 96 (5.1%, 18.3%)

Ft. Bragg, Special 7.3% Operations Command 7 of 96 (3.0%, 14.4%)

California National 41. 9% Guard 18 of 43 (27.0%, 57.9%)

Table 11 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 of the travel voucher. Table
11: Estimate of Fiscal Year 2001 Transactions That Failed Control Tests
for

Timely Submission and Processing of Travel Vouchers Timely voucher
submission Timely reimbursement to the by employee (5- day rule) traveler
(30- day rule)

Estimated Estimated failure

failure Number

rate (95% Number

rate (95% of failed

confidence of failed

confidence Army unit tested

transactions interval)

transactions interval)

Ft. Bragg, Forces 38. 5%

8.3% Command 37 of 96 (28.8%, 49.0%) 8 of 96 (3.7%, 15.8%)

Ft. Drum, Forces 21. 9%

5.2% Command 21 of 96 (14.1%, 31.5%) 5 of 96 (1.7%, 11.7%)

Ft. Bragg, Special Operations

30. 2% 7.3% Command 29 of 96 (21.2%, 40.4%) 7 of 96 (3.0%, 14.4%)

California National 27. 9%

60. 5% Guard 12 of 43 (15.3%, 43.7%) 26 of 43 (44.4%, 75.0%)

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 the following officials on the details of our review, including
our objectives, scope, and methodology and our findings and conclusions:
DOD managers, including officials in DFAS; Army managers, including Office
of the Assistant Secretary of the Army (Financial Management and
Comptroller) officials; Army Forces Command and Special Operations Command
unit commanders; unit- level APCs; Army National Guard Bureau management
and the California National Guard Adjutant General; and Bank of America
officials. We incorporated their comments where appropriate. With the
exception of our limited review of access controls at the California
National Guard, we did not review the general or application controls
associated with the electronic data processing of Army travel card
transactions. We conducted our audit work from December 2001 through July
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 DOD comments on a draft of this report from the
Under Secretary of Defense (Comptroller) dated September 30, 2002, and
have reprinted those comments in appendix V.

Appendi x III

Army Major Command Delinquency Rates Table 12 shows the travel card
delinquency rates for Army*s major commands (and other Army organizational
units at a comparable level) that had outstanding balances over $1 million
during the 2- year period ending March 31, 2002. The Army*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
amounts owed by the command*s travel cardholders at a point in time.

Table 12: Army Major Command Delinquency Rates (by Quarter) for the 2
Years Ending March 31, 2002 June

Sept. Dec.

Mar. June

Sept. Dec.

Mar. Command a 2000 2000 2000 2001 2001 2001 2001 2002

U. S. Army Forces Command 22.2 25.1 28. 7 23.1 18. 6 22.1 30.5 23.7 U. S.
Army Pacific Command 19.5 25.1 28. 2 19.8 15. 0 18.7 22.5 18.9 U. S. Army
National Guard 16.9 16.4 22. 9 13.6 13. 4 16.2 20.9 18.4 U. S. Army Europe
and 7th Army Command 17.8 20.4 21. 1 15.8 13. 0 17.1 22.5 16.9 U. S. Army
orphan b 16.2 22.2 40. 1 38.1 23. 1 20.4 24.4 16.9 U. S. Army Reserve 14.3
16.0 20. 9 13.1 11. 6 11.9 21.4 15.3 U. S. Army Recruiting Command 22.5
19.2 17. 4 20.4 13. 6 13.7 10.6 13.1 U. S. Army Special Operations Command
16.9 17.4 17. 9 9. 9 10. 1 10. 6 16.6 12.0 U. S. Army Operating Agency 22
c 8.7 11.1 11. 4 7. 4 7. 0 8. 7 12.2 9. 0 U. S. Army Training and Doctrine
Command 10.8 11.7 13. 9 8. 8 8. 4 10.2 12.1 8. 2 U. S. Army Medical Corps
12.3 13.9 14. 8 9. 9 8. 1 8. 0 12.3 7. 7 U. S. Army Intelligence and
Security Command 10.3 12.1 11. 9 5. 9 5. 6 6. 0 4.2 5. 8 U. S. Army Corps
of Engineers 4. 8 5.6 6. 5 4.5 3. 3 3.9 5. 8 3.6 U. S. Army Material
Command 3.4 3. 6 4.4 2. 1 2.1 2. 3 2.4 1. 5 All other commands combined
8.5 9. 7 11. 1 8.4 5. 9 6.8 7. 2 6.9 Army- wide 13.9 15.5 18. 5 13.3 10. 7
12.5 16.6 12.8

a Commands are ranked by the largest percentage of dollars delinquent as
of March 31, 2002. Commands with a March 31, 2002, balance outstanding
under $1 million have been combined into *All other commands combined.* b
U. S. Army orphan accounts are (1) Army travel card accounts that are not
under the purview of any

APC and (2) accounts Banks of America inherited from the previous
government travel card contractor that were not linked to any Army command
and accounts for which the accountable APC left or was relocated without
having a replacement designated. c U. S. Army Operating Agency 22 consists
of various Army headquarters and administrative offices, such as the
Secretary of the Army, the Assistant Secretary of the Army for Financial
Management and

Comptroller, the Army Audit Agency, and the Army Judge Advocate General.
Source: GAO calculation based on information provided by Bank of America.

Army Personnel Grade, Rank, and Associated

Appendi x IV

Basic Pay Rates Tables 13 and 14 show the grade, rank (where relevant),
and the associated basic pay rates for 2001 for Army*s military and
civilian personnel, respectively. The basic 2001 pay rates shown exclude
other considerations, such as locality pay and any allowances for housing
or cost of living.

Table 13: Army 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 $11,033 to $14, 449 E- 4 to E- 6 Corporal to Staff
Sergeant $17,739 to $26, 253 E- 7 to E- 9 Platoon Sergeant to Sergeant
Major $31, 563 to $46, 445

Officers a

WO- 1 to WO- 5 Warrant Officer $29,302 to $60,152 O- 1 to O- 3 First
Lieutenant, Second Lieutenant,

Captain $26, 731 to $45, 339 O- 4 to O- 6 Major, Lieutenant Colonel,
Colonel $56, 635 to $84, 317 O- 7 to O- 10 General $98, 960 to $132, 826 a
Officers* ranks includes warrant officers (denoted by WO) and commissioned
officers (denoted by O).

Source: U. S. Army.

Table 14: Army 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

(192066)

a

GAO United States General Accounting Office

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Page 1 GAO- 03- 169 Army Travel Cards United States General Accounting
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Appendix I

Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix I Background

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Appendix II

Appendix II Objectives, Scope, and Methodology

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Appendix II Objectives, Scope, and Methodology

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Appendix II Objectives, Scope, and Methodology

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Appendix II Objectives, Scope, and Methodology

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Appendix II Objectives, Scope, and Methodology

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Appendix II Objectives, Scope, and Methodology

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Appendix II Objectives, Scope, and Methodology

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Appendix III

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Appendix IV

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Appendix V

Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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Appendix V Comments from the Department of Defense

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