Travel Cards: Air Force Management Focus Has Reduced		 
Delinquencies, but Improvements in Controls Are Needed		 
(20-DEC-02, GAO-03-298).					 
                                                                 
Poor oversight and management of the Department of Defense (DOD) 
travel card program has led to high delinquency rates costing DOD
millions in lost rebates and increased ATM fees. As a result,	 
Congress asked GAO to report on (1) the magnitude, impact, and	 
cause of delinquencies, (2) the types of fraudulent and abusive  
uses of travel cards, and (3) the effectiveness of internal	 
controls over DOD's travel card program. GAO previously reported 
on travel card management at the Air Force.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-298 					        
    ACCNO:   A05746						        
  TITLE:     Travel Cards: Air Force Management Focus Has Reduced     
Delinquencies, but Improvements in Controls Are Needed		 
     DATE:   12/20/2002 
  SUBJECT:   Air Force personnel				 
	     Bank management					 
	     Civilian employees 				 
	     Fraud						 
	     Internal controls					 
	     Program abuses					 
	     Testing						 
	     Travel						 
	     C-5 Aircraft					 
	     Civil Service Retirement System			 
	     DOD Integrated Automated Travel System		 
	     DOD Travel Card Program				 
	     Federal Employees Retirement System		 

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GAO-03-298

                                       A

Report to Congressional Requesters

December 2002 TRAVEL CARDS Air Force Management Focus Has Reduced
Delinquencies, but Improvements in Controls Are Needed

GAO- 03- 298

Letter 1 Results in Brief 3 Lower Air Force Travel Card Delinquencies and
Charge- offs 6 Improved Travel Card Control Environment Contributed to
Reduced

Delinquencies 21 Further Improvements in Controls Are Needed 24
Statistical Tests of Key Control Activities 30 Potentially Fraudulent and
Abusive Travel Card Activity 35 Recent Actions 49 Conclusions 50
Recommendations for Executive Action 50 Agency Comments and Our Evaluation
53

Appendixes

Appendix I: Background 55 Travel Card Program Guidelines 57 Air Force
Travel Process 57

Appendix II: Objectives, Scope, and Methodology 67

Appendix III: Air Force Major Command Delinquency Rates 75

Appendix IV: Air Force Personnel Grade, Rank, and Associated Basic Pay
Rates 77

Appendix V: GAO Contacts and Staff Acknowledgments 78 Tables Table 1:
Quarterly Air Force Travel Card Delinquency Rates for

Fiscal Years 2000 through 2002 9 Table 2: Cumulative Charge- offs and
Delinquencies by Military

Service between November 30, 1998, and March 31, 2002 10 Table 3: Five
Major Commands with Highest Outstanding

Delinquent Balance and Percentage of Total Air Force Delinquencies as of
March 31, 2002 14 Table 4: APC Span of Control at Selected Air Force
Locations in Fiscal Year 2002 29 Table 5: Results of Testing of Key
Internal Controls 31 Table 6: Examples of Cases in Which Cardholders Wrote
Three or

More NSF Checks to Bank of America and Accounts Were Charged Off and/ or
Placed in Salary Offset from October 2000 through March 2002 36

Table 7: Examples of Abusive Air Force Travel Card Activity (October 1,
2000, to March 31, 2002) 41 Table 8: Examples of Abusive Travel Card
Activity Where Accounts Were Charged Off and/ or Placed in Salary Offset
from

October 2000 through March 2002 42 Table 9: Examples of Abusive Activity
Where the Cardholders Paid

Their Bills from October 2000 through March 2002 47 Table 10: Comparison
of Number of Individually Billed Travel

Cardholders and Related Charges for DOD versus Total Federal Government
for Fiscal Year 2001 56 Table 11: Population of Fiscal Year 2001 Travel
Transactions at Selected Air Force Bases 70

Table 12: Fiscal Year 2001 Transactions That Failed Control Tests for
Approved Travel Orders 72 Table 13: Fiscal Year 2001 Transactions That
Failed Control Tests for

Accurate Travel Voucher Review and Reimbursement 73 Table 14: Fiscal Year
2001 Transactions That Failed Control Tests for

Timely Submission of Travel Vouchers by Employees (5- day Rule) 73 Table
15: Fiscal Year 2001 Transactions That Failed Control Tests for

Timely Approval and Payment Processing of Travel Vouchers (30- day Rule)
74 Table 16: Air Force Major Command Delinquency Rates a (by

Quarter) for the Two Years Ending March 31, 2002 75 Table 17: Outstanding
Balance and Delinquency Rate as of March 31,

2002, by Major Air Force Commands 76 Table 18: Air Force Military Grades,
Ranks, and Associated Basic

Pay Rates for Fiscal Year 2001 77 Table 19: Air Force Civilian Grades and
Associated Basic Pay Rates

for Calendar Year 2001 77 Figures Figure 1: Air Force, Non- Air Force DOD,
and Civilian Agency

Travel Card Delinquency Rates for the 2- Year Period Ending March 31, 2002
8 Figure 2: Army, Navy/ Marines, and Air Force Travel Card

Delinquency Rates for the 2- Year Period Ending March 31, 2002 9 Figure 3:
Air Force Delinquent and Total Outstanding Travel Card

Balances for Military and Civilian Employees as of September 30, 2001 11

Figure 4: Air Force Delinquency Rate by Military Grade and Civilian
Populations Compared to Air Force*s Average as of September 30, 2001 12

Figure 5: Fiscal Year 2001 Air Force Charge- offs by Military Grade and
Total Civilian Populations 13 Figure 6: Air Force Travel Card Charge- off
and Recovery History

from October 1, 2000, to March 31, 2002 18 Figure 7: Overview Flowchart of
the Air Force Travel Process 58 Figure 8: Travel Card Application 60
Figure 9: Required DOD and Bank of America Delinquency Process

Management Actions 64

This is a work of the U. S. Government and is not subject to copyright
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materials separately from GAO*s product.

Letter

December 20, 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

In fiscal year 2001, the Air Force had about 500,000 individually billed
travel card accounts, and about $831 million in related travel card
charges. 1 In contrast to the purchase card program, where charges are
billed directly to the government for payment, the individually billed
travel cardholder is directly responsible for all charges incurred on his
or her travel card account and for remitting payments on the monthly bill.
The cardholder is expected to use the government travel card only for
valid expenses related to official travel and to submit a properly
documented voucher to get reimbursed by

the Air Force for valid expenses. The intent of the travel card program
was to improve convenience for the traveler and to reduce the government*s
costs of administering travel. If properly controlled, the travel card
would provide an efficient and effective method for administering the
travel program. Appendix I provides additional background information on
the

Air Force*s travel card program. 1 The travel card program includes both
individually billed accounts* that is accounts held by individual
cardholders, used to purchase transportation and other related travel
services, and paid by individual cardholders based on reimbursement of
expenses incurred while on official government travel* and centrally
billed accounts that are used for the travel expenses of a unit and are
paid directly by the government. This report covers transactions charged
to individually billed accounts only.

We performed our work in response to your request for a comprehensive
examination of the Department of Defense*s (DOD) and the military
services* purchase and travel card programs. We have previously testified
and reported on the Army*s 2 and Navy*s 3 controls over their travel card
programs. This report provides details and results of our Air Force travel
card audit. The objectives of our audit of the Air Force*s travel card
program were to determine, for fiscal year 2001 and the first 6 months of
fiscal year 2002, (1) the reported magnitude and impact of delinquent and
charged- off Air Force travel card accounts, along with an analysis of
related causes, (2) the effectiveness of the overall control environment
and key internal controls for the Air Force*s travel program, (3) whether
indications existed of potentially fraudulent and abusive activity 4
related to the Air Force travel cards, and (4) whether abusive activity
associated with the travel card is effectively linked to disciplinary
actions and security clearances. To achieve these objectives, we analyzed
Air Force account

delinquency and charge- off information and compared it to non- Air Force
DOD components and federal civilian agencies. We reviewed the adequacy of
DOD and Air Force policies and procedures related to travel card use and
tested the effectiveness of key internal control activities at three Air
Force installations. We also used data mining and analytical procedures to
identify and examine potentially fraudulent and abusive travel card
activity. Appendix II provides details of our objectives, scope, and
methodology.

2 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) and Travel Cards: Control Weaknesses Leave Army
Vulnerable to Potential Fraud and Abuse, GAO- 03- 169 (Washington, D. C.:
Oct. 11, 2002).

3 U. S. General Accounting Office, Travel Cards: Control Weaknesses Leave
Navy Vulnerable to Fraud and Abuse, GAO- 03- 148T (Washington, D. C.: Oct.
8, 2002). 4 We defined potentially fraudulent activity as any scheme, or
pattern of activity, related to the use of a travel card in apparent
violation of federal or state criminal code. For purposes of this report,
we considered as potentially fraudulent, cases where cardholders wrote
three or more nonsufficient fund checks or checks on closed accounts to
pay their Bank of America bills. We considered abusive travel card
activity to include (1) personal use of the card* any use other than for
official government travel* regardless of whether the cardholder paid the
bill and (2) cases in which cardholders were reimbursed for official
travel and then did not pay Bank of America, and thus benefited
personally. Some of the travel card activity that we categorized as
abusive would be potentially fraudulent if it can be established that the
cardholder violated any element of federal or state criminal code. In both
types of activities in which the cardholder did not pay the bill, we
considered abuses to include cardholders whose accounts were eventually
charged off by Bank of America or

referred to a payment plan by salary offset or other fixed pay agreement.

We selected the three installations we audited by first identifying the
three Air Force Commands with the largest number of travel card
transactions, payments, and delinquencies. We then identified one Air
Force installation within each of the three commands based on the
magnitude of travel card transactions, payments, and delinquencies.
Appendix III presents data on delinquency rates by major command. We
tested key control activities, including documented evidence of travel
authorization, accurate travel

voucher processing, timely submission of the travel voucher by the
employee, and timely payment of the travel reimbursement to the employee.
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 Air Force as a whole. We used
data mining procedures across the universe of individually billed Air
Force travel card activity to identify potentially fraudulent and abusive
travel card activity, based on the nature, amount, merchant, and other
identifying

characteristics of the transactions. While we identified numerous examples
of potentially fraudulent and abusive travel card activity, our work was
not designed to identify, and we cannot determine, the extent of
potentially fraudulent and abusive activity.

We conducted our audit work from January 2002 through mid- November 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.

Results in Brief The Air Force had substantially lower delinquency rates
and fewer accounts being charged off than the Army and the Navy in fiscal
year 2001,

and it had lower delinquency rates for the first 6 months of fiscal year
2002. The Air Force*s delinquency rates are slightly higher than the non-
DOD federal civilian agencies delinquency rate; however, the delinquency
rate for Air Force civilian employees of 3.6 percent is 1.4 percentage
points lower than the estimated 5.0 percent delinquency rate for civilian
agencies. We found that Air Force delinquency rates were lower than Army
and Navy delinquency rates due, in part, to measures the Air Force has
taken, such as increased management attention and command focus, numerous
travel card program audits and actions on recommendations for corrective
action, and greater emphasis on the split disbursement payment process, 5
5 Split disbursement payment percentages for the three services as of June
2002 were 39

percent for the Air Force, 34 percent for the Army, and 26 percent for the
Navy.

where all or a portion of the travel card reimbursement is made directly
to the bank. However, even though the Air Force had lower numbers of
delinquent and charged off accounts than the Army and the Navy, we found
control environment weaknesses and breakdowns in key controls at the three
Air Force installations we audited. We also found instances of potential
fraud and abuse similar to those we found in our Army and Navy

work, such as personal use of the travel card for a variety of goods and
services, including at gentlemen*s clubs, and failure to pay travel card
bills after reimbursements were received.

Most Air Force travel cardholders used the travel cards for authorized
government travel expenses and paid amounts owed to Bank of America on
time. From November 1998 through March 2002, Bank of America charged

off about 9,000 Air Force travel card accounts totaling approximately
$11.6 million, the lowest among the three services. The Air Force*s
delinquency and charge- off problems are primarily associated with low-
and midlevel enlisted military personnel. These delinquencies and charge-
offs have cost

the Air Force thousands of dollars in lost rebates, higher fees, and
substantial resources spent pursuing and collecting on delinquent
accounts. To address these problems, the Air Force and DOD began
offsetting wages of certain military and civilian employees in November
2001 as well as retirement benefits of military retirees whose accounts
were delinquent or had been charged off. These and other actions have
significantly reduced 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* result of the problems, such as delinquencies
and charge- offs, rather than addressing weaknesses in the *front- end*
(preventive) controls.

Further, we found a number of areas where additional improvements in DOD
and Air Force controls are needed. For example, many of the problem cases
we reviewed were related to inadequate training and collateral duty
responsibilities of installation agency program coordinators, including
failure to ensure that all unit program coordinators received timely
training. Other problems were caused by ineffective controls over

(1) the issuance of travel cards and (2) the transfer or cancellation of
accounts when individuals transferred, separated, or retired. Air Force
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. We found that those who committed travel
card fraud and abuse tended to be individuals who had histories of prior
credit problems. The prior and current credit problems we identified for

Air Force travel cardholders included charged off credit card accounts,
bankruptcies, judgments, collection actions, and multiple nonsufficient
fund (NSF), or *bounced* checks. As a result of similar findings from our
previous work on DOD travel card

programs, Congress included provisions in the fiscal year 2003 Defense
Appropriations Act, Public Law 107- 248, to require the Secretary of
Defense to establish guidelines and procedures to (1) deny the issuance of
cards to individuals who are not creditworthy and (2) prescribe for
disciplinary actions to be taken against cardholders for fraudulent or
abusive use of government travel cards.

We identified numerous instances of potentially fraudulent and abusive
travel card activity during fiscal year 2001 and the first 6 months of
fiscal year 2002. During this period, more than 400 Air Force employees
may

have committed bank fraud by writing three or more NSF checks. In
addition, Air Force travel cards were used for numerous abusive
transactions that were clearly not related to government travel, including
cruise lines, Internet gambling sites, sporting and concert events, and
gentlemen*s clubs. For example, Air Force personnel used their travel
cards to make 223 charges totaling over $31,000 for tickets to activities
such as Dallas Cowboys football games, Janet Jackson and NSYNC concerts,
and other Ticketmaster purchases; and 121 Air Force personnel charged
nearly $32,000 at gentlemen*s clubs, such as Spearmint Rhino, Can Can,
Cheetah*s Lounge, and Dej`a Vu Showgirls.

Another form of abuse identified was the failure to pay the travel card
bill. Some individuals used the cards for inappropriate purposes and
failed to pay their accounts. Others abused the travel card by failing to
pay charges associated with official government travel, even though they
have been reimbursed. In addition, we did not find documented evidence of
disciplinary actions against many Air Force personnel who abused their

travel cards. Of the 10 cases that we audited involving individuals who
made improper charges but paid their bills, we found evidence that only
two of these individuals had received disciplinary action. In addition, of
the 58 cases we audited involving individuals who wrote NSF checks or

whose accounts were charged off or put in salary offset, we found no
evidence of disciplinary action for 39 of the individuals. Personnel with
security clearances who have financial problems may pose

security risks to the Air Force. Of the 58 cases we audited involving
individuals who wrote NSF checks, or had their travel card accounts

charged off or put in salary offset, 32 had active secret or top- secret
clearances as of August 2002. For example, a technical sergeant maintained
his secret clearance even though he used his travel card reimbursements to
support a gambling habit and had his travel account placed in salary
offset. While the individual was warned several times that the failure to
pay his travel card account *would not be tolerated,* he was allowed to
continue using his travel card because of his expertise on C- 5 cargo
aircraft repairs. To support his gambling habit, the individual eventually
stole and sold protective gear, including body armor and

biochemical and biological masks, which had been loaded on C- 5 aircraft
destined for Afghanistan. These thefts were not discovered, or his
security clearance revoked, until after the C- 5 aircrafts arrived in
Afghanistan during the fall of 2001.

This report includes recommendations to the Air Force and DOD to
strengthen specific internal controls within its travel card program in
the areas of travel card issuance, travel card monitoring, and
disciplinary actions. In oral comments on a draft of this report, DOD and
the Air Force

concurred with all of our recommendations and stated that they had taken
action or had actions underway to address many of them. A detailed
discussion of the DOD and Air Force comments is presented in the *Agency
Comments and Our Evaluation* section of this report.

Lower Air Force Travel Air Force travel card delinquency rates and amounts
charged off were

Card Delinquencies substantially lower than non- Air Force DOD components,
and

delinquencies were about 1 percent higher than non- DOD federal civilian
and Charge- offs

agencies. 6 Cumulative Air Force charge- offs since the inception of the
travel card program with Bank of America in November 1998 are
approximately $11.6 million, the lowest of the three services. Our
analysis of available data showed that the travel cardholder*s rank and
pay rate are strong predictors of delinquency problems. We found that the
Air Force*s delinquency and charge- off problems are primarily associated
with low and mid- level enlisted military employees. As discussed in
following sections of this report, improvements in the Air Force*s overall
control environment improved Air Force delinquency rates, but DOD*s
overall high delinquency and default rates resulted in contentious
relations with Bank of America.

6 We calculated delinquency rates using the proportion of dollars of
accounts delinquent to the total dollars of accounts outstanding,
according to industry standards set by the Federal Financial Institutions
Examination Council.

The bank threatened to end its participation in the program, but
eventually agreed to contract modifications that included increased fees.
Past delinquencies and charge- offs have cost the Air Force, the federal
government, and the taxpayers thousands of dollars in lost rebates, and
substantial resources spent pursuing and collecting on past due accounts.
We also estimate that contract modifications will cost the Air Force
millions of dollars in the future due to higher fees.

The Air Force has taken a number of positive actions to address its
delinquency and charge- off rates, and data for the first half of fiscal
year 2002 show a significant drop in charged- off accounts. For example,
this reduction is, in part, attributable to a salary and military
retirement offset program* similar to garnishment* which was initiated in
November 2001. Other Air Force actions included encouraging the use of the
split disbursement payment process, in which the Defense Finance and
Accounting Service (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. However, except for split
disbursements, Air Force actions primarily address the symptoms or backend
result of delinquency and charge- offs after they have already occurred.
As noted in the following sections of this report, additional emphasis on
front- end management of the travel card program, such as more selective
procedures for issuing the cards and overseeing the proper use of the
cards, could further improve the Air Force travel card program.

The Air Force*s As of March 31, 2002, approximately 8,000 Air Force
cardholders had over

Delinquencies and Chargeoffs $5 million in delinquent debt. Over the last
2 years, Air Force delinquency

rates fluctuated from 5 to 11 percent and on average were about 5
percentage points less than the Army*s and the Navy*s and 1 percentage
point higher than non- DOD federal civilian agencies. The Air Force has
set

a goal of no more than a 4 percent delinquency rate. As discussed later,
greater emphasis on commander responsibility and accountability,
contributed, at least in part, to lower Air Force delinquency rates.
Figure 1 compares delinquency rates among the Air Force, Non- Air Force
DOD, and the 23 largest civilian agencies. 7 7 The civilian agencies
included in our analysis are the 23 executive branch agencies covered

under the Chief Financial Officers Act, as amended.

Figure 1: Air Force, Non- Air Force DOD, and Civilian Agency Travel Card
Delinquency Rates for the 2- Year Period Ending March 31, 2002 100 Percent
20 18 16 14 12 10

8 6 4 2 0

2000 2000

2001 2001

2001 2001

2002 2002

3rd qtr. 4th qtr.

1st qtr. 2nd qtr.

3rd qtr. 4th qtr.

1st qtr. 2nd qtr.

Fiscal year

DOD delinquency rate excluding Air Force Air Force delinquency rate
Government- wide delinquency rate excluding DOD Source: Bank of America
and General Services Administration data.

In addition, as shown in figure 2, Air Force travel card delinquency rates
for the eight quarters ending March 31, 2002, were significantly less than
Army and Navy travel card delinquency rates.

Figure 2: Army, Navy/ Marines, and Air Force Travel Card Delinquency Rates
for the 2- Year Period Ending March 31, 2002

100 Percent 20 18 16 14 12 10

8 6 4 2 0

2000 2000

2001 2001

2001 2001

2002 2002

3rd qtr. 4th qtr.

1st qtr. 2nd qtr.

3rd qtr. 4th qtr.

1st qtr. 2nd qtr.

Fiscal year

Army Navy/ Marines Air Force Source: GAO analysis of Bank of America data.

Further analysis revealed that Air Force travel card delinquency rates
have decreased from 16.9 percent as of December 31, 1999 to 6. 0 percent
as of March 31, 2002. Table 1 shows the decrease in Air Force delinquency
rates since December 1999, as well as the cyclical nature of Air Force
travel card delinquency rates.

Table 1: Quarterly Air Force Travel Card Delinquency Rates for Fiscal
Years 2000 through 2002 Fiscal year 2000 Fiscal year 2001 Fiscal year 2002

First quarter 16.9% 10. 9% 7.7% Second quarter 10.2% 6.5% 6.0% Third
quarter 6.4% 5.3% 4.6% Fourth quarter 8.2% 6.2% 4.9% Source: GAO analysis
of Bank of America data.

Since the inception of the travel charge card task order between DOD and
Bank of America on November 30, 1998, Bank of America has charged off
about 9,000 Air Force travel card accounts with nearly $11.6 million of
bad debt. While not an excellent track record, it is lower than the Army*s
approximate 23,000 charged- off accounts valued at nearly $34 million and

Navy*s approximate 13,800 charged- off accounts valued at nearly $16.6
million. Task order modifications during fiscal year 2001 allowed Bank of
America to institute a salary offset provision against DOD military
personnel whose travel card accounts were previously charged off or were
more than 120 days past due. Table 2 provides a comparison of cumulative
charge- offs and delinquencies by military service as of March 31, 2002.

Table 2: Cumulative Charge- offs and Delinquencies by Military Service
between November 30, 1998, and March 31, 2002

Dollars in millions

Delinquencies Cumulative Cumulative Net charge as of March 31, DOD service
charge- offs a recoveries a, b offs a

2002 c

Air Force $11.6 $4.7 $6.9 $5.0 Navy 16. 6 6.2 10.4 6.0 Army 33. 5 12.9
20.6 8.4 Source: GAO analysis of Bank of America and General Services
Administration data. a Cumulative charge- offs and recoveries are for
November 1998 through March 2002.

b Recoveries represent amounts recovered through collection actions, which
includes salary offsets, on accounts previously charged off. 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.

Rank, Grade, and Pay Rates Our analysis showed a correlation between
certain demographic factors

Are Correlated to and high delinquency and charge- off rates. Available
data showed that the

travel cardholder*s rank or grade (and associated pay) 8 is a strong
predictor Delinquency and Charge- off

of delinquency problems. As shown in Figure 3, Air Force delinquency and
Problems charge- off problems are primarily associated with low- and
midlevel enlisted military personnel in grades E- 1 (airman) to E- 6
(technical

sergeant), with relatively low incomes and little experience in handling
personal finances. Appendix IV presents information on military and
civilian grades and pay rates.

Figure 3: Air Force Delinquent and Total Outstanding Travel Card Balances
for Military and Civilian Employees as of September 30, 2001

35 Dollars in millions

30 25 20 15 10

5

9.9%

0

15.7% 3.8% 2.4%

3.6% E1- E3 E4- E6 E7- E9 O1- O10 Civilian

Delinquent balance Outstanding balance Source: GAO analysis of Bank of
America data.

Available data indicate that military personnel grades E- 1 to E- 6
account for about 69 percent of all Air Force military personnel. These
enlisted military personnel have basic pay levels ranging from $11,500 to
$27,600.

8 App. IV provides a description of each of these military grades and
their associated military rankings and pay, along with corresponding
civilian grade and pay data.

These individuals were responsible for 41 percent of the total outstanding
Air Force travel card balances as of September 30, 2001.

Figure 4 compares the delinquency rates by military grade and civilian
personnel to the average Air Force delinquency rate as of September 30,
2001. As shown, the delinquency rates were as high as 15.7 percent for E-
1 to E- 3 and 9.9 percent for E- 4 to E- 6, compared to the Air Force
overall delinquency rate of 6.2 percent. These rates were markedly higher
than the rates for officers, which was 2.4 percent. These rates were also
substantially higher than that of Air Force civilians, which at 3.6
percent

was 1.4 percentage points lower than the federal civilian agencies rate
shown in figure 1. Figure 4: Air Force Delinquency Rate by Military Grade
and Civilian Populations

Compared to Air Force*s Average as of September 30, 2001 Rank O7 - O10

0.3

O4 - O6

2.0

O1 - O3

2.8

Civilian

3.6

E7 - E9

3.8

Air Force average

6.2

E4 - E6

9.9

E1 - E3

15.7

0 2 4 6 8 10 12 14 16 18 Delinquency rate as a percentage of outstanding
balance

Source: GAO analysis of Bank of America data.

The delinquency rate for military personnel in grades E- 4 to E- 6 in
particular had an important negative impact on the Air Force*s delinquency
rate. Specifically, these are senior airmen to technical sergeants in the
Air

Force. Pay levels for these personnel, excluding supplements such as
housing, range from $18,600 to $27,600. As shown by Bank of America data,
personnel in grades E- 4 to E- 6 accounted for 37 percent of the total Air
Force outstanding balance. High delinquency rates for the E- 1 through E-
6 grades combined with their extensive use of the travel card have a
significant impact on the Air Force wide delinquency rate. Figure 5 shows
Air Force fiscal year 2001 charge- offs. Charge- off amounts of about $2.6
million for military personnel in grades E- 1 through E- 6

accounted for 79 percent of the $3.3 million in total Air Force charge-
offs in fiscal year 2001. Figure 5: Fiscal Year 2001 Air Force Charge-
offs by Military Grade and Total Civilian

Populations 2,000,000

Dollars 1,800,000 1,600,000 1,400,000 1,200,000 1,000,000

800,000 600,000 400,000 200,000

0 E1- E3 E4- E6 E7- E9 O1- O10 Civilians Other Grade/ classification

Source: GAO analysis of Bank of America data.

An Air Force travel card program official told us that a major factor of
the service*s travel card delinquencies relates to first- term enlisted
personnel. An Air Force member can normally attain the E- 4 grade within
3- 1/ 2 years in his or her first term. According to Air Force data, over
half of the personnel in grades E- 1 to E- 6 are in grades E- 4 and below.
The official commented that if the members are not committed to an Air
Force career

and plan to serve only one tour, temptation exists to misuse the card
before they separate from the Air Force. In addition, as discussed below,
the Air

Force did not exempt personnel with poor credit histories from required
use of travel cards. Consequently, these low and mid- level 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.

Five Major Air Force As shown in table 3, five Air Force major commands
accounted for about

Commands Account for 63 percent of the Air Force travel card delinquencies
as of March 31, 2002. Majority of Delinquencies

Table 3: Five Major Commands with Highest Outstanding Delinquent Balance
and Percentage of Total Air Force Delinquencies as of March 31, 2002

Percentage of total Outstanding delinquent

Air Force delinquent Air Force major command balance

balance

Air National Guard $901,864 17.8 Air Force Reserve Command 778,230 15.4
Air Combat Command 650,110 12.9 Air Mobility Command 436,280 8.6 Air Force
Materiel Command 420,982 8.3 Subtotal of above five commands $3, 187,466
63.0

Total all other commands $1, 868,523 37.0 Source: GAO analysis of Bank of
America data.

Air Force National Guard and Air Force Reserve Command officials
attributed their high delinquent balances to the recent activation of
guard and reserve forces, the associated increase in travel card use, and
inadequate employee training on travel voucher preparation. In addition,

the officials explained that National Guard and Reserve forces that report
to duty intermittently may not become aware of problems with travel
voucher accuracy and late submission of payment vouchers until they

report for their next duty assignment* several days to a month after a
problem has occurred. Further, the officials told us that many of their
members have not been trained on proper travel voucher preparation
procedures, and controls over travel card use and payment of travel card
bills are weak. One reserve official cited the lack of specific guidance
for disciplinary action in DOD*s Financial Management Regulation as a
contributing factor.

According to Air Force officials, the Air Combat Command, Air Force
Materiel Command, and Air Mobility Command have all experienced
significant increases in travel and deployments since September 11, 2001.

Our audit work showed instances in which extended travel and back- toback
deployments resulted in delays in travel voucher preparation and
submission. To reduce delinquencies associated with late payment of travel
card bills by deployed units, the Air Force has emphasized the use of the
split disbursement payment process and interim travel vouchers.
Delinquency and Charge- off

Delinquencies and charge- offs within DOD have resulted in increased costs
Rates Have Resulted in to the Air Force and the other services. In fiscal
year 2001, DOD entered

Increased Costs to the into an agreement with Bank of America to adjust
the terms of its travel

Government card contract. DOD agreed to increased fees and a change in
rebate calculation. These changes cost the Air Force about $350,000 in
lost rebates on individually billed accounts and centrally billed accounts
in fiscal year 2001, and could cost an estimated $1.6 million in increased
ATM

fees annually. Other costs are real but not easily measurable, such as the
increased administrative burden to the Air Force to identify and address
delinquent accounts.

Dispute Between Contractor and Unexpectedly high defaults by DOD*s travel
cardholders resulted in a 5-

DOD month legal dispute with Bank of America over the continuation of the

travel card contract. In 1998, under the provisions of the General
Services Administration*s (GSA) master contract with Bank of America, DOD
entered into a tailored task order with Bank of America to provide travel
card services for a period of 2 years, ending November 29, 2000. Under the
terms of the task order, DOD had three 1- year options to unilaterally
renew the contract. On September 29, 2000, prior to the expiration of the
initial task order, DOD gave notice to Bank of America that it intended to
exercise its option to extend the task order for an additional year. In
November 2000, Bank of America contested the provisions of the DOD task
order with

the GSA contracting officer. Bank of America claimed that the task order
was unprofitable due to required *contract and program management policies
and procedures* associated with higher- than- anticipated credit

losses, including an estimated 43,000 DOD employees had defaulted on more
than $59 million in debts. Consequently, in April 2001, the master
contract and the related DOD tailored task order for travel card services
were renegotiated. Specifically, Bank of America was able to increase its
revenue by instituting additional fees, such as higher cash advance and
late payment fees; offsetting credit losses against rebates as explained
later;

facilitating the collection of delinquent and charged off amounts through

salary and military retirement pay offset; and encouraging DOD personnel
participation in split disbursements, in which the government sends part
or all of the travel voucher reimbursements to Bank of America directly.

Effect of Increased Fees One of the terms of the renegotiated task order
was that, effective August 10, 2001, the travel card cash advance fee
would be increased from 1.9 percent to 3 percent, with a minimum fee of
$2. The Air Force reimburses all cash advance fees 9 related to authorized
cash withdrawals. We estimate that this contract modification will result
in approximately $1.6 million of increased costs to the Air Force each
year. Our estimate was made by applying the new fee structure that went
into effect in mid- August 2001 to

cash advances made during fiscal year 2001. Other fee increases agreed to
in the renegotiation, such as the fee for expedited travel card issuance,
will also result in additional cost to the Air Force.

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

making it imperative that the Air Force (and the other services) improve
their payment rates to receive the full benefits of the program. Under the
GSA master contract, credit card companies are required to pay a quarterly
rebate, also known as a refund, to agencies and GSA based on the amount

charged to both individually billed and centrally billed cards. The rebate
to the agency is reduced, or eliminated, if significant numbers of an
agency*s individual cardholders do not pay their accounts timely.
Specifically, credit losses or balances that reach 180 calendar days past
due reduce the rebate amounts. Effective January 2001, the contract
modification changed the way that rebates are calculated and how credit
losses are handled. If the credit loss of an agency*s individually billed
travel card accounts exceeds 30 basis points* or 30 one- hundredths of a
percent (. 003)* of net sales 10 on the card, the agency is assessed a
credit loss fee, or rebate offset, against the rebate associated with both
individually billed and centrally billed travel card accounts.

9 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 either a set amount or a
percentage of the amount of the withdrawal.

10 Net sales consists of all purchases and other charges less any credits,
such as returns, other than payments to the accounts. Other charges
include ATM use, traveler*s checks, and any other fees.

This credit loss fee, or rebate offset, which resulted solely from
individually billed account losses, significantly affected the amount of
rebate the Air Force received as a result of combined individually and
centrally billed net sales in fiscal year 2001. In fiscal year 2001, the
Air Force collected about

$1.4 million of the $1.8 million in rebates that we estimated it would
have received, based on fiscal year 2001 dollar volume if the individually
billed account payments had been timely.

Other costs, such as the administrative burden of monitoring delinquent
accounts, are harder to measure, but no less real. For example, employees
with delinquent accounts must be identified, counseled and disciplined,
and their account activity closely monitored. In addition, employees with
financial problems who have access to sensitive data may pose a security
risk, as discussed later in this report.

Air Force Charge- offs Have In addition to having the lowest net charge-
off amount of the three

Decreased services, $6.9 million, the quarterly dollar amount of Air Force
accounts

charged off has decreased substantially. As shown in figure 6, at the
start of fiscal year 2001, the charged off balance greatly exceeded the
recovery amount. Starting in the third quarter of fiscal year 2001, the
amount

charged off started to decline so that in the first quarter of fiscal year
2002, recoveries, for the first time, exceeded the amounts being charged
off. Recoveries also exceeded charge- offs in the second quarter of fiscal
year 2002. The institution of the salary and military retirement offset
program has contributed to the reduction in Air Force travel card charge-
offs, primarily by eliminating the need to charge off past due balances by
transferring these balances to the salary off- set program.

Figure 6: Air Force Travel Card Charge- off and Recovery History from
October 1, 2000, to March 31, 2002

1.4 Dollars in millions

1.2 1.0 0.8 0.6 0.4 0.2

0 2001

2001 2001

2001 2002

2002 1st qtr.

2nd qtr. 3rd qtr.

4th qtr. 1st qtr.

2nd qtr.

Charge- offs Charge- off recoveries Source: GAO analysis of Bank of
America data.

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

Offset Program military retirees and the salaries of certain civilian and
military employees

against the delinquent and charged off balances on travel card accounts.
The DOD salary offset program 11 implements a provision of the Travel and
Transportation Reform Act of 1998 (TTRA) 12 that allows any federal
agency, upon written request from the travel card contractor, to collect
by deduction from the amount of pay owed to an employee (or military
member) any amount of funds the employee or military member owes on his or
her travel cards as a result of delinquencies not disputed by the
employee. 13 The salary and military retirement offset program was
implemented DOD- wide.

The offset program came into being as part of the task order modification.
Between April and August 2001, DOD and the Bank of America worked together
to establish program protocols. Starting in August 2001, the Bank of
America sent demand letters to cardholders whose accounts were more

than 90 days delinquent. The Defense Finance and Accounting Service
processed the initial offsets of delinquent accounts in October 2001 in
the various DOD pay systems. The first deductions were made from the
November pay period and paid to Bank of America starting December 2001.
Figure 6 illustrates the initial impact salary offset had in the first
quarter of

fiscal year 2002. The 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 such accounts.
The effect, shown in figure 6, was recoveries amounting to over three
times more than charge- offs for the second quarter of fiscal year 2002.

The offset program works as follows. When an account is 90 days
delinquent, Bank of America may send a demand letter to the individual
cardholder requesting payment in full within 30 days. The demand letter
specifies that salary offsets will be initiated if payment is not made in
full within 30 days. The cardholder may negotiate an installment agreement
or

dispute the charges with the bank. The cardholder has a right to review
all 11 DOD*s salary offset program covers salaries paid by DOD through its
active duty, reserve, and civilian pay systems, and retirement benefits
paid through its military retirement pay system.

12 Section 2( d), Public Law 105- 264, 112 Stat. 2350 (5 U. S. C. 5701
note). 13 Cardholder debts to Bank of America are not subject to the Debt
Collection Improvement Act of 1996, which is limited to the collection of
certain debts owed to the federal government.

records such as invoices and to request a hearing if the bank*s
disposition of the dispute is not satisfactory.

After the 30 days have elapsed, if payment is not made and the cardholder
does not dispute the debt, the bank includes the account in the list of
accounts that it sends to DFAS requesting offsets. Individuals in the
following categories may not be accepted for offset.

 Civilian employees in bargaining units that have not agreed to the
salaryoffset program do not qualify for the program. According to a DFAS
official, 1,002 of 1,227 DOD bargaining units had agreed to participate in
the program as of July 2002.

 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. The authorizing statutes for both the Civil Service
Retirement System 14 and the Federal Employee*s Retirement System 15 in
effect at the time of our audit specified that retirement benefits may be
offset only to the extent expressly authorized by federal statutes. TTRA,
Section 2, provided authority to offset salaries of *employees* of
agencies but does not provide such authority for civilian employee retiree
annuitants. 16

14 5 U. S. C. 8346. 15 5 U. S. C. 8470. 16 Section 1008 of the Bob Stump
National Defense Authorization Act for Fiscal Year 2003 granted the
Secretary of Defense authority to offset delinquent travel card debt
against the retired pay of both civilian and military DOD retirees. Public
Law 107- 314 (H. R. Conf. Rep. No. 107- 772).

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

Regulation 17 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 on a monthly basis for military personnel and retirees and
biweekly for civilian personnel. It takes approximately 2 months from the
time an offset is initiated to the first bank payment.

According to DFAS, from October 2001 through July 2002, Bank of America
referred 53,462 DOD- wide cases with debt of $77.5 million to DOD for
offset. DOD accepted and started offset for 74 percent of the cases and 69
percent of the debt amounts referred. The number and debt amount of Air
Force- specific cases forwarded by Bank of America were not available.
From November 2001 through July 2002, DFAS collected $2.7 million from

active and retired Air Force military personnel through the offset
program. During the same period, DOD collected $1.6 million from all DOD
civilian employees. However, DFAS was unable to provide this amount by
military service. Improved Travel Card

We found that Air Force management encouraged a culture that Control
Environment

emphasized the importance of integrity and ethical values and was involved
in monitoring travel card delinquencies. According to travel card program
Contributed to officials and documentation we obtained, Air Force
officials, from the Vice Reduced Delinquencies

Chief of Staff to wing commanders, have strongly emphasized for the past 2
to 3 years that the travel card program is a *commander*s program* and
commanders are responsible for managing their delinquency rates. They

explained that officials throughout the Air Force chain of command have
monitored travel card delinquency rates and discussed the topic at their
respective staff meetings. Documentation we obtained confirmed the use of
detailed statistical reports to monitor installation- level delinquencies.
Commanding officers are holding unit commanders with excessive

delinquency rates accountable to make improvements to reduce
delinquencies. Travel card delinquency statistics are discussed at command
staff meetings, and unit commanders are held accountable for

17 41 C. F. R. section 301- 54.2.

reducing their delinquencies. The importance of the tone at the top cannot
be overstated.

Other factors contributing to the reduction in Air Force delinquency rates
include the following.

 Air Force emphasis on financial management training. Each Air Force
installation has a Financial Services Office with a trained financial
management staff that oversee the travel card program. The Air Force also
provides personal financial training to all inductees, which includes
developing personal budget plans, balancing checkbooks, preparing tax
returns, and financial responsibility. The training also covers
disciplinary action and consequences for financial irresponsibility by
service members. The Air Force also provides financial counseling and
training classes through the Family Services Centers at each base and
contracts for professional counselors and trainers.

 Travel card program audits. The Assistant Secretary of the Air Force
(Financial Management and Comptroller) requested Air Force Audit Agency
audits of the travel card program, which resulted in recommendations to
management and resultant program improvements. According to a DOD
Inspector General report, 18 the Air Force Audit Agency issued 27 audit
reports on the travel card program from fiscal year 1999 through fiscal
year 2001. For example, in April 2001, the Air Force Audit Agency issued
an audit report on Travis Air Force Base (AFB), 19 one of the sites we
audited. The report identified numerous systemic problems, including
inadequate agency program coordinator (APC) oversight due to insufficient
training, which resulted

in unauthorized transactions not being identified. The Air Force Audit
Agency made numerous recommendations for corrective actions, and our audit
work showed that Travis AFB had taken actions on many of

them. 18 Department of Defense Office of the Inspector General,
Acquisition: Summary of DOD Travel Card Program Audit Coverage, Report No.
D- 2002- 065 (Arlington, Va.: Mar. 18, 2002).

19 Air Force Audit Agency, Government Travel Charge Card Program, 60th Air
Mobility Wing, Travis AFB, CA, Report No. WM001042 (Washington, D. C.:
Apr. 26, 2001).

 DOD and Air Force initiatives. In March 2000, Air Force travel card
delinquency rates were in the double digits* 10.2 percent* similar to the
Army and Navy delinquency rates. 20 The Air Force initiated a number of
actions in the fall of 2000 to reduce its delinquency rate. For example,
in December 2000, Air Force headquarters sent an E- mail message to travel
card APCs asking them to (1) promote the split

disbursement payment process, (2) turn off accounts for infrequent
travelers, (3) use Bank of America Electronic Account Government Ledger
System (EAGLS) reports to monitor and detect problem accounts, (4) include
procedures to deactivate the travel card when a member changes duty
location, and (5) correct discrepancies between organizational codes
assigned to cardholder accounts and their current

assigned units to ensure accurate reporting and effective monitoring of
accounts. As an aid in correcting organizational coding, the E- mail
included a directory for APCs to use to resolve problems with accounts
that were incorrectly assigned to them* referred to as *orphan* accounts*
by identifying where those accounts should be properly assigned. Further,
in response to June and September 2001 DOD policy

memorandums to heads of military departments, the Air Force identified
100,000 travel cards for cancellation due to lack of use. According to an
Air Force headquarters official, approximately 90,000

travel cards were cancelled in October 2001. In addition, salary offset
procedures were implemented in November 2001, resulting in a significant
decrease in charged- off accounts in the first 6 months of fiscal year
2002. Also in November 2001, the Air Force Comptroller issued a letter to
all major commands, highlighting the use of the split disbursement payment
process and interim vouchers 21 as options for preventing delinquent
balances when members are on long- term deployments. According to Bank of
America data, the Air Force

increased the number of payments remitted to Bank of America via the split
disbursement payment process from 20,487 payments, or 17 percent of all
payments, totaling $12 million in October 2000, to 54,337

20 In March 2000, the delinquency rates for the three Services were: Air
Force* 10.2 percent, Army 16.9 percent, and Navy 11.5 percent. 21 Interim
vouchers permit cardholders to request reimbursement of their travel
expenditures periodically during long deployments, thereby enabling them
to pay monthly travel card bills as they are received, rather than waiting
for a lump sum reimbursement at

the end of their deployment.

payments, or 39 percent of all payments, totaling $44 million in June
2002. Officials at the sites we audited told us that they emphasized that
cardholders use the split disbursement payment process. For example,

Hill Air Force Base comptroller personnel told us that they have increased
use of the split disbursement payment process from 23 percent during the
fourth quarter of fiscal year 2001 to 35 percent during the third quarter
of fiscal year 2002. In addition, as of September 17, 2002, Travis AFB
implemented a new policy that made the split disbursement process the
default, or automatic, payment method for all active duty military
employees who use the government travel card with the provision that if an
employee chooses not to use the split disbursement payment method,
approval from the unit commander or first sergeant is required.

Further Improvements While the Air Force has made improvements in its
control environment that

in Controls Are Needed have resulted in lower delinquency rates than the
Army*s and the Navy*s,

additional improvements could further reduce Air Force delinquency rates.
In addition, similar to our Army and Navy findings, control environment
weaknesses contributed to significant potential fraud and abuse of the Air
Force travel card. Many of the problem cases that we reviewed were due to
ineffective controls over the issuance of travel cards and the transfer or

cancellation of accounts when individuals moved to other duty locations,
separated, or retired. We also found that improvements are needed in the
assignment and training of APCs.

Inadequate Controls over The Air Force*s ability to prevent potentially
fraudulent and abusive

Travel Card Issuance transactions that can eventually lead to additional
delinquencies and

charge- offs is significantly weakened if individuals with histories of
financial irresponsibility are permitted to receive travel cards. Although
the DOD policy provides that all DOD personnel are to use the travel card
to pay for official business travel, the policy also provides that
exemptions may be granted under a number of circumstances, including
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. The Air Force*s practice is to
facilitate the issuance of travel cards* with few credit restrictions* to
all applicants regardless of

whether they have histories of credit problems. We found no evidence that
the Air Force exempted any individuals or groups from required

acceptance and use of travel cards, even those with histories of severe
credit problems. DOD*s Financial Management Regulation provides that
credit checks be

performed on all travel card applicants, unless an applicant declines the
conduct of a credit check. 22 In July 1999, Bank of America began
conducting credit checks on DOD travel card applicants and used the
resulting information as a basis for determining the type of account*
restricted or standard* it would recommend for new DOD travel applicants.

DOD policy also permits APCs to raise the credit and ATM limits on
restricted cards based on travel requirements. 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 mid- level enlisted Air Force
cardholders would not even qualify for the restricted limit cards. A
credit history showing accounts with collection agency action or charge-
offs poses an even higher credit risk. Any of these problems can be a
reason for denying credit in the private sector. However, in DOD,
individuals with no credit history, or little credit history, are
generally issued restricted cards with lower credit limits.

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 in this report, many of the

Air Force travel cardholders that we audited who wrote numerous NSF
checks, had severe prior financial problems, including accounts charged
off, histories of delinquencies and charge- offs relating to other credit
cards, and accounts in collection, or numerous bankruptcies.

22 DOD Financial Management Regulation, Volume 9, Chapter 3. The
regulation further provides that individuals who do not consent to a
credit check may only receive a restricted card.

In response to similar findings in our audit of the Army travel card
program and an amendment proposed by Senators Byrd and Grassley, the
Congress included a provision in the Department of Defense Appropriations
Act for fiscal year 2003 requiring the Secretary of Defense to evaluate
whether an individual is creditworthy before authorizing the issuance of
any

government charge card. 23 If effectively implemented, this requirement
should improve delinquency rates and reduce potential fraud and abuse.
Inadequate Controls over

We found numerous examples in which the APCs failed to deactivate or
Travel Card Transfer or

close accounts when cardholders retired, were dismissed, or separated
Cancellation from the service, or the APCs failed to take the proper
action to transfer accounts when employees were reassigned to other Air
Force locations. The Air Force lacks sufficient guidance and management
focus in this area. DOD*s Financial Management Regulation requires APCs to
terminate

travel cards when cardholders die, retire, or are dismissed or separated
from DOD. Bank of America has issued procedural guidance for transferring
and terminating cardholder accounts. However, we found instances in which
failure to follow these procedures* specifically with respect to travel
card transfer and termination* resulted in travel card abuses and charge-
offs. The cardholders benefited by using the travel

cards to purchase a variety of goods and services for their personal use.
Some did not pay their monthly bills, thereby essentially obtaining
personal items for no cost. The following examples illustrate the effect
of not taking appropriate actions to transfer, deactivate, or close travel
card accounts.

 A Langley AFB APC failed to close an enlisted member*s account after the
individual left the service. The member left the service in January 2001,
but continued to use his card until March 2001. Because the card was not
canceled immediately upon the member*s separation, the

account remained open with a $5, 000 credit limit allowing the member to
charge unauthorized ATM withdrawals and purchases. The member was not
disciplined because he had already left the service. The APC stated that
she was not aware of the misuse of the travel card until the account was
charged off in April 2002 with an unpaid balance of $3,729.

23 Section 8149 (b), Public Law 107- 248, 116 Stat., 1519, 1572 does not
define the term creditworthy. However, the conferees on the DOD
appropriations act expressed their view that the statutory prohibition
would permit *an individual with no credit history to be issued a
restricted- use charge* card.*

 At Hill AFB, a senior airman (E- 4) transferred to Yokota Air Base,
Japan, in July 2001. The APC was unaware that the individual had
transferred until his travel card account appeared as delinquent on the
Bank of America reports. The APC deactivated the card in September 2001
and made repeated, unsuccessful attempts to contact the individual and the
APC at Yokota Air Base. In January 2002, Bank of America placed the

account totaling $1,918 in salary offset. Although the individual had
continued to appear on Hill AFB delinquency reports, Hill AFB officials
could not take any disciplinary action because the individual was no
longer assigned to them. The account was eventually transferred from Hill
to Yokota Air Base in March 2002. According to EAGLS data, the

individual issued two nonsufficient fund (NSF) checks to Bank of America
in March and April 2002 in payment of his account. Bank of America closed
the account in June 2002.  Brooks AFB travel card officials failed to
cancel the travel card account

when a civilian employee (GS- 13) separated from the service in January
2000 and began working for a private contractor. The civilian continued to
use his travel card after separation, charging over $17,000 in
unauthorized purchases. The charges included approximately $1,000 in cash
advances and several charges for an on- line dating service. The
cardholder was not disciplined for the abuse because he had separated from
the service. Information from EAGLS shows that the account was closed on
September 13, 2002, and as of October 25, 2002, the account had an unpaid
balance of approximately $1,600, which had not yet been charged off.

Insufficient Commitment to We found a lack of emphasis on APC training and
inadequate monitoring of

Human Capital Practices APC training at two of our three case study
locations* Nellis AFB and

Travis AFB. As in our Army and Navy travel card audits, we found that Air
Force APCs had excessive responsibilities. For example, APC duties were
being assigned as collateral duties and certain APCs were responsible for
as many as 1,200 accounts. We also found excessive turnover associated
with military APCs at Nellis AFB and Travis AFB.

GAO*s internal control standards state that management*s commitment to
competence and good human capital practices are critical factors in
establishing and maintaining a strong internal control environment.
Specifically, our standards state that management should identify
appropriate knowledge and skills required for various jobs and should
provide needed training. The standards also state that establishing

appropriate human capital practices, including hiring, training,
evaluating, counseling, and disciplining personnel, is another critical
control environment factor.

Lack of Emphasis and The emphasis on APC training varied across the three
case study sites.

Inadequate Monitoring of APC Nellis AFB did not have a control mechanism
in place to help ensure that

Training all APCs received appropriate training and Travis AFB did not
train APCs in a timely manner. Specifically, Travis AFB APCs told us that
they did not

receive timely training on how to access and use Bank of America EAGLS
data to monitor travel card activity when they were assigned APC duties.
However, we determined that Hill AFB had a mechanism in place to

monitor APC training, and it provided that training in a timely manner.
DOD policy provides that travel card training materials are to be
distributed throughout the department and that APCs are to be informed of
policy and procedural changes relating to the travel card program.
However, neither DOD nor Air Force- wide procedures detail requirements
for the extent, timing, and documentation of travel program training for
APCs. APCs are not required to receive training on the duties of the
position or on how to use available Web- based tools and reports from Bank
of America before they assume their APC duties. The lack of emphasis on
training could negatively impact APCs* ability to monitor delinquencies
and

promptly detect and prevent potentially fraudulent and abusive activities.
Excessive APC Turnover and

As in our Army and Navy work, we determined that most Air Force APC
Responsibilities

duties were usually given to military personnel. As a result, APC
positions usually have high turnover rates which, in many cases, have
resulted in less effective performance of APC duties, such as monitoring
cardholder travel

card activity. For example, at Nellis AFB, the average length of
assignment for APCs was approximately 12 months, and at Travis AFB
assignments for military APCs were generally from 12 to 15 months. In
addition, a Pacific Air Force official reported that during a recent 3-
month period, one base experienced turnover in 18 of its 30 APC positions.
In contrast, at Hill AFB, where most of the APCs were civilians, the
average term for civilian APCs was approximately 20 months. Further, we
found that Air Force APC duties at the locations we audited

were *other duties as assigned.* The primary duties for certain APCs that
we interviewed included data systems management and aircraft maintenance.
As prescribed by the DOD Financial Management Regulation, APCs *are
responsible for the day- to- day operations of the DOD Travel Card
Program.* Volume 9, Chapter 3 of the DOD Financial

Management Regulation provides that APCs are responsible for a variety of
key duties, including establishing and canceling cardholder accounts,
tracking cardholder transfers and terminations, monitoring and taking
appropriate actions with respect to account delinquencies, interacting
with the bank, and fielding questions about the program from both
cardholders and supervisors. APCs are also required to notify commanders
and supervisors of all travel card misuse so they can take appropriate
actions. Several APCs that we interviewed told us they did not receive
training on the full range of their APC duties until at least six months
after they were

assigned APC responsibilities. The APCs also told us they were not trained
in using EAGLS until six months or more after they were assigned APC
responsibilities. In addition to the part- time nature of APC duties, the
number of travel cardholders assigned to APCs can result in excessive span
of control, which impacts an APC*s ability to effectively perform
monitoring and oversight. If the span of control is excessive, APCs may
not be able to provide the necessary oversight to prevent the misuse of
the travel cards. Table 4 shows the average span of control and incidences
of APCs with a span of control greater than 100 cardholders.

Table 4: APC Span of Control at Selected Air Force Locations in Fiscal
Year 2002 Average ratio of open

Percent and number of APCs with cardholder accounts to

a span of control greater than Air Force Location APC

100 open cardholder accounts

Hill AFB 209 to 1 62% (23) Nellis AFB 132 to 1 35% (16) Travis AFB 264 to
1 84% (21) Source: GAO analysis of Air Force data.

As shown in table 4, average APC span of control ratios varied at our case
study locations. We also found that a high percentage of APCs had a span
of control that exceeded Bank of America guidelines of 100 cardholders per

APC. While we did not evaluate the guidance provided by Bank of America,
we believe that one APC cannot effectively carry out all necessary
management and oversight responsibilities if he or she, even working
fulltime, has responsibility for hundreds of cardholders.

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 the system to perform their assigned duties and preclude
unauthorized persons from gaining access to sensitive information. Access
to EAGLS is intended to be limited to authorized users to meet their
information needs and organizational responsibilities. Authorized EAGLS
users include both customers (APCs requiring access to travel data for
cardholders under their purview and individual travelers requiring access
to their own travel transaction histories) and Bank of America employees
who 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 their APC
duties or after they may have been transferred or terminated. In a 2000
survey of 4,952 individuals with APC- level access to EAGLS, DOD found
that approximately 10 percent could not be located and may have been
transferred or terminated or no longer had APC responsibilities. Because
of concern that many of these accounts should be deactivated, Bank of
America has begun a review to determine if DOD employees with APC- level
access no longer have APC responsibilities or have left the service.
Statistical Tests of Key

Of the four key control activities associated with the fiscal year 2001
travel Control Activities

payment process that we tested, we found breakdowns associated with a lack
of documentation to support the accuracy of travel reimbursements at all
three locations and significant breakdowns in controls at two locations

related to requirement for employees to submit vouchers within 5 days of
completing travel. On a positive note, we found that travel vouchers were
almost always paid within 30 days of submission. As a result, we ruled out
late payment of travel vouchers as a contributing factor to travel card
delinquencies at the three Air Force locations we audited. Our test
results also showed that most travel charges were supported by approved
travel orders, indicating minimal personal use* 2 percent or less* of the
travel card. This is considerably lower than the Army sites we audited,
where we estimated that personal charges were as high as 45 percent at one
location.

It is also significantly lower than the Navy sites we audited, where we
estimated that personal charges were as high as 26 percent at one
location. However, as discussed later in this report, our overall Air
Force data mining found several instances of personal use of the
government travel card.

Table 5 below shows the results of our statistical sampling tests.
Appendix II includes the specific criteria we used to conclude on the
effectiveness of these controls.

Table 5: Results of Testing of Key Internal Controls Percentage of failure
Travel orders are

Travel voucher Travel vouchers are

Travel vouchers are Air Force base, major approved prior

reimbursements submitted within 5 days

paid within 30 days command

to travel are accurate

of travel completion of submission

Nellis AFB, Air Combat Command 1 16 5 0 Travis AFB, Air Mobility Command 2
39 17 0

Hill AFB, Air Force Materiel Command 1 13 a 25 1 Source: GAO analysis of
Air Force travel process documents. Note. The numbers in the table
represent estimated percentages of failures in the population based on our
sampling tests. The confidence intervals for our sampling estimates and
the basis for our

assessment of the effectiveness of the control activities tested are
presented in app. II. a Hill AFB used two systems to process travel
vouchers during fiscal year 2001. Only travel vouchers

processed through the Integrated Automated Travel System were tested for
this attribute. Controls over Travel We found a lack of required receipts
for hotel and rental car costs in the Voucher Review and

voucher packages associated with a number of transactions in our sample,
Accuracy

indicating that these expenses should not have been reimbursed to the
employees. For the three units we audited, Air Force Financial Services

Offices were responsible for processing vouchers to ensure that only
authorized, properly supported travel charges were reimbursed and that the
expenses claimed were accurately calculated. In our samples, we found that
most errors were in the following categories.

 Missing receipts * At all three case study locations, we found the
majority of errors related to instances in which voucher packages did not
include all required receipts to support claims, based on DOD regulations.
For example, a Nellis AFB cardholder was paid for over $700 in lodging
costs on a voucher for which required receipts were not attached to the
copy of the travel voucher we reviewed. The Nellis AFB Comptroller told us
that he believed the receipts were most likely lost between the processing
of the voucher at Nellis AFB and the filing of the voucher at the Defense
Finance and Accounting Service (DFAS) in Denver. DFAS Denver officials
stated that all of the receipts in the voucher package were copied for our
review. We were unable to determine whether the missing receipts may have
resulted from poor record retention by DFAS Denver or erroneous payments
of expenses without required receipts. In either case, the process for
obtaining and retaining required receipts was inadequate.

 Errors in amounts paid * We found instances at all three case study
locations in which Financial Services Office personnel used incorrect per
diem rates 24 for lodging and meals and incidental expenses to calculate
the reimbursement amount, resulting in overpayments to the

traveler. Controls over Timely

Two of the case study sites we audited* Travis AFB and Hill AFB* had
Voucher Submission

ineffective controls for ensuring that vouchers were submitted in a timely
manner. DOD policy requires the traveler to submit a travel voucher within
5 days of return from travel. 25 The failure rates we identified involved
late submission of vouchers ranging from 8 to 87 days. Late submission of
a travel voucher increases the likelihood that travel card bills could
become due before the employee receives a reimbursement for travel
expenses. 24 Per diem is a daily allowance paid to travelers in lieu of
actual subsistence expenses. GSA

publishes per diem rates for various geographic areas. 25 DOD*s Financial
Management Regulation provides that for long- term travel, cardholders are
expected to file interim vouchers every 30 days.

Other Control Weaknesses Some of the transactions in our statistical
sample could not be evaluated Identified

for key control attributes due to data management problems, which
represent additional control weaknesses. These weaknesses included data
entry errors, such as incorrect social security numbers, and
organizational coding problems related to *orphan* accounts* accounts that
fell into limbo because transferring units did not deactivate travel card
accounts

when cardholders transferred to new Air Force units and the cardholders
did not check in with the gaining unit APCs to ensure that their travel
card accounts were coded to their new unit organization codes. When the
account of a transferring cardholder falls into this limbo status, the
losing unit continues to receive reports on the account status, but has no
control over the cardholder, and the gaining unit*s reports contain no
information on the cardholder*s account status. Based on our Nellis AFB
statistical

testing, we estimated that approximately 2 percent of the fiscal year 2001
transactions were affected by data entry problems and another 4 percent
were orphan accounts. We estimated that approximately 1 percent of the
Hill AFB transactions and

5 percent of the Travis AFB transactions were associated with orphaned
accounts. Our testing did not identify any data entry problems at either
Hill AFB or Travis AFB.

Electronic Data Processing Our limited review of selected travel system
controls at the three case

Control Weaknesses in IATS study locations found problems in key systems
controls, including access

controls, segregation of duties, and transaction histories. Travel
vouchers that we examined at the three test locations were processed
through the Integrated Automated Travel System (IATS), DOD*s primary
travel voucher processing system. Air Force Audit Agency*s February 2002
report on IATS controls identified similar problems at 10 other Air Force
locations. 26

Because the IATS performs all processing functions from initiating travel
account records through disbursing travel pay, it is critical that system
controls are in place to protect against fraudulent payments. Access
controls for computer systems must be designed to provide protection
against unauthorized access to computer resources. One form of access

controls is the use of password cracker programs to test the effectiveness
26 Air Force Audit Agency, Controls Over the Integrated Automated Travel
System, F2002- 0002- B05400 (Washington, D. C.: Feb. 15, 2002).

of passwords currently in use. These programs were not being used at the
three sites, therefore making passwords vulnerable. Another control,
required by Air Force Manual 33- 223, Identification and Authentication,
is

that individual passwords are to be revised every 90 days. However, we
found that this requirement was not implemented at one of our three case
study locations, and supervisors at Nellis AFB did not follow up to
determine if password change instructions were followed.

We also found a lack of appropriate segregation of duties resulting in
access to incompatible duties in IATS at all three of our test locations.
Users should have access only to data and system functions required to
accomplish their stated responsibilities and they should not have the
ability

to perform duties incompatible with their assigned responsibilities. We
found that IATS users at all three case study locations had conflicting
levels of access and, as a result, were able to not only create travel
vouchers, but also to update and audit the same records. For example, our
review of access privileges at Hill AFB found that assigned privileges for
four users afforded them the ability to perform duties such as creating,
updating, and auditing travel vouchers.

After we called this problem to the attention of the IATS manager, he
immediately revised user access levels to ensure that auditors could not
also create and update travel voucher information. According to the Air
Force Audit Agency report issued in February 2002, this problem is
attributable in some measure to an inherent weakness in the software
design. Although IATS contains various levels of privileges that can be
assigned to individual users, the software design does not effectively
limit access to preclude the assignment of incompatible access privileges.

In addition, we found that travel voucher data in IATS did not include
transaction histories or audit trails. This problem also was identified by
the Air Force Audit Agency as a systemic problem. Because IATS software
design does not provide the capability to track changes, it is impossible
to obtain transaction histories to determine whether changes were made, or
who may have made changes, to a particular voucher. This makes the system
vulnerable to individuals who could use inappropriate IATS access to
create a fictitious travel voucher, process a payment, and subsequently
delete the travel record. According to the Air Force Audit Agency report,
this problem is being addressed in the design of WINIATS. WINIATS, a
Windows- based software application-- is targeted to replace IATS in June
2003.

Potentially Fraudulent Our work identified numerous instances of
potentially fraudulent and

and Abusive Travel abusive activity associated with the Air Force*s travel
card program during fiscal year 2001 and the first 6 months of fiscal year
2002, similar to the Card Activity

types of cases we found in our Army and Navy work. For purposes of this
report, we characterized as potentially fraudulent those cases where
cardholders might have committed bank fraud by writing three or more NSF
checks or by writing checks on closed accounts to pay their Bank of
America bills.

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. 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. Failure to implement controls to reasonably prevent
such transactions can

increase the Air Force*s vulnerability to additional delinquencies and
charge- offs.

Potentially Fraudulent During the 18- month period covering fiscal year
2001 and the first half of Transactions

fiscal year 2002, over 6,300 individuals wrote nonsufficient fund (NSF)
checks, or *bounced checks,* to Bank of America as payment for their
travel card bills, 27 including over 400 individuals who wrote three or
more NSF checks* potentially fraudulent acts. 28 Potentially fraudulent
NSF

cases identified in our work include one individual who had charged over
$13,000 to the travel card account and wrote seven NSF checks to Bank of
America. The Air Force court- martialed the individual and imposed a 90-
day confinement. Table 6 includes details on 10 individuals who committed

27 Of the over 400 cardholders who wrote three or more NSF checks, over
100 had accounts that were eventually charged off or put in salary offset.
28 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. Further, it is a violation of the Uniform
Code of Military Justice article 123a when a soldier makes, draws, or
utter (verbally authorizes) a check, draft, or order without sufficient
funds and does so with intent to defraud.

potentially fraudulent acts by writing three or more NSF checks to pay
their travel card accounts.

Table 6: Examples of Cases in Which Cardholders Wrote Three or More NSF
Checks to Bank of America and Accounts Were Charged Off and/ or Placed in
Salary Offset from October 2000 through March 2002

Total number/ Total charge- off or Card amount of NSF salary offset

Documented holder Grade Unit

checks amount Credit history problems disciplinary action

1 E- 6 Barksdale AFB 3 / $3, 214, plus 1 Charge- off

Judgment, automobile Other than honorable forged check for

$6,666 repossession, past due discharge for travel

$260 accounts, collection actions, and card abuse. one charge- off prior
to card issuance; several chargeoffs after card issuance.

2 E- 3 Tinker AFB 7 / $23,137 Charge- off No credit problems prior card
Court- martial, 90 $13, 908;

issuance; delinquencies, day confinement for salary offset

collection actions, and charge travel card abuse. offs after card
issuance. 3 E- 6 Wright-

3 / $6, 235 Charge- off No credit problems prior to card

Court martial, 12 Patterson AFB $7,679 issuance; judgment, bankruptcy,

months in jail, and and one charge- off after card reduction in rank to
issuance. E- 1 for travel card abuse.

4 a E- 3 March AFB 4 NSF checks Charge- off

Bankruptcies and one charge Discharge for travel and 3 checks on $17, 436
off prior to card issuance;

card abuse is closed accounts

automobile repossession, pending. totaling $26,356

charge- offs and collection actions after card issuance.

5 N/ A Virginia state 4 / $6, 048 Charge- off

No credit problems prior to card None. Individual employee

$2,127; account issuance; judgment, charge- offs, was not an Air Force
assigned to Air

paid off in June collection actions, and employee. National Guard

2002 delinquencies after card

issuance. 6 E- 4 North Carolina

4 / $3, 022 Charge- off Collection actions prior to card

None. Discharged in Air National $3,037 issuance; collection actions and
July 2002 for being Guard

charge- offs after card issuance. absent without leave. 7 E- 8 McChord AFB
4 / $4, 058 Charge- off

Delinquencies and bankruptcy None. Individual $4,066

prior to card issuance; retired in July 2001. bankruptcy, real estate
foreclosure and a charge- off after card issuance.

(Continued From Previous Page)

Total number/ Total charge- off or Card amount of NSF salary offset

Documented holder Grade Unit

checks amount Credit history problems disciplinary action

8 E- 4 Ft. Walton Beach 1 NSF check and Charge- off

No credit problems prior to card None. Individual left 7 checks on

$2,111 issuance; automobile the service in

closed accounts repossession, several charge January 2001. totaling $7,489

offs, and collection actions after card issuance.

9 E- 5 McChord AFB 7 / $4, 750 Charge- off A charge- off and collection
None. $3,781;

action prior to card issuance; salary offset charge- offs and collection
actions after card issuance.

10 GS- 7 Hill AFB 3 / $5, 867 Charge- off Charge- offs and collection

None. $5,952 actions prior to card issuance;

redeemed repossession after card issuance.

Source: GAO analysis of Air Force, Bank of America, and credit history
data. a Cardholder obtained two accounts from Bank of America using
different social security numbers. The first account was opened in January
2000 and was closed in February 2001 with an unpaid

balance of $4,771, which was subsequently charged off. The cardholder
wrote two checks on a closed account to pay travel card bills associated
with this account.

Of the ten cardholders included in table 6, six had significant credit
problems prior to card issuance, such as charged- off credit card accounts
and automobile loans, bankruptcies, and referrals to collection agencies
for unpaid bills. The following provides detailed information on some of
these cases.

 Cardholder #1 was a reservist technical sergeant (E- 6) who served one
weekend each month. Bank of America records showed that the travel card
account was opened on December 22, 1999, and that the individual
subsequently wrote three NSF checks totaling $3, 214 in payment of his
travel card bills. In addition, the individual forged a check in the
amount of $260. The individual*s account was closed on January 9, 2002,
and an unpaid balance of $6,666 was charged off. The individual*s credit
report

showed that he had credit problems prior to issuance of the government
travel card, including repossession of an automobile and a charged- off
account. Bank representatives had numerous conversations with the
individual about his account. We found that the individual*s travel card
account was included on monthly delinquency reports. Bank of America
ultimately charged off the travel card account. The individual was
discharged from the Air Force under *Other Than Honorable

Conditions* for failure to pay his military travel card bills on time and
using his travel card for unauthorized purposes.

 Cardholder #2 was an airman (E- 3) at Tinker AFB, Oklahoma. Bank of
America records showed that the individual*s account was opened on August
25, 2000, and that the individual subsequently wrote seven NSF checks
totaling $23, 137 in payment of her travel card bills. The individual
submitted NSF checks, which made the account appear to have available
credit* a practice known as *boosting** thus enabling the individual to
make cash withdrawals and additional purchases. Bank of America records
also showed that bank representatives had numerous conversations with the
individual about her travel card debt. The individual*s account was placed
in the salary- offset program on March 19, 2001, with monthly payments of
$169. The travel card account was closed on July 18, 2002, and an unpaid
balance of $13,908 was charged off. The individual*s credit report showed
that the individual did not have credit problems prior to the issuance of
the travel card.

Bank of America notified the squadron about the NSF checks issued in
payment of the individual*s travel card account. A subsequent Air Force
investigation identified numerous abuses of the travel card, including
multiple uses of the card in 1 day for personal ATM withdrawals, and 187
other instances of misuse totaling approximately $13,700, including
personal purchases at vendors such as Victoria*s Secret. These findings
resulted in the individual being court- martialed, fined $5,000, and
initially sentenced to confinement on the base for

about 135 days; however, the base commander reduced the sentence to less
than 90 days due to the cardholder*s pregnancy.  Cardholder #3 was a
technical sergeant (E- 6) stationed at WrightPatterson AFB, Ohio, and was
the APC for his unit. Bank of America records showed that the individual*s
account was opened on October 10, 1998, and that the cardholder
subsequently wrote three NSF checks totaling $6,235. The individual*s
travel card account was closed on May 3, 2002, and an unpaid balance of
$7,679 was charged off. The bank*s customer contact log indicates that
bank representatives had numerous conversations with the individual about
the delinquent account. The individual*s credit report showed significant
credit problems prior to the individual receiving the travel card.

Bank of America notified the squadron that the individual had submitted
several NSF checks to Bank of America. According to an Air Force official,
the problems reported by the bank were especially disturbing because the
individual was a trusted combat veteran with many years of service, who
also functioned as the squadron*s APC. An Air Force investigation of the
individual*s travel card abuses revealed that the individual (1) made
approximately $6,000 in personal, nonauthorized charges, (2) submitted a
$4,500 NSF check to the bank to boost the amount of available credit on
his account to permit additional cash advances, and (3) unrelated to his
travel card abuses,

the individual also stole checks in the amount of $7,500 from the U. S.
mail. The individual was court- martialed for travel card abuse and theft
of U. S. mail and sentenced to 1 year in jail, reduced in pay grade to E-
1, and discharged from the military for *financial difficulties.*

 Cardholder #4 was an airman (E- 3) reservist assigned to March AFB,
California, who was also a full- time DOD employee (GS- 9) in a position
involving similar work. Our analysis of Bank of America records showed
that the individual obtained two travel card accounts during two different
periods. The individual issued NSF checks and other checks to Bank of
America on closed accounts in payment of both travel card accounts. The
first account, which was opened in January 2000, was closed in February
2001 with an unpaid balance of $4,771 that was subsequently charged off.
Air Force officials told us that the individual obtained the second
account in October 2001 by having a different superior officer, who was
unaware of the previous travel card account, sign the application for the
new card. The individual fraudulently used a

relative*s social security number to apply for the second travel card
account. In payment of his second travel card account, the individual
wrote seven checks to Bank of America, consisting of four NSF checks
totaling $7,131, on an open bank account and three checks totaling $19,225
on a closed bank account. The cardholder used NSF checks to make large
payments, which enabled him to boost his available balance and permit cash
withdrawals from the account. An Air Force official stated he was unaware
of the problem because the NSF checks masked

the delinquency problem. The individual*s second travel card account was
closed on June 3, 2002, and an unpaid balance of $12,665 was charged off.
Bank of America*s customer contact log indicates that its representatives
had numerous conversations with the individual about this account.

The cardholder resigned his civilian DOD position and was charged with (1)
identity theft related to the use of his relative*s social security
number, (2) being absent without leave, (3) failure to participate in
monthly training, and (4) financial irresponsibility related to personal
use of the government card when not on military orders. The individual was
in the process of being discharged from his military E- 3 reservist
position in October 2002. The individual*s credit report showed he had
several credit problems, including bankruptcies and a charge- off prior to
his receiving a government travel card.

 Cardholder #5 was a Virginia state employee assigned to the Air National
Guard in Richmond, Virginia. Bank of America records showed that the
individual*s account was opened on March 18, 1999. The individual wrote
four NSF checks totaling $2,818 and stopped payment on two checks totaling
$3, 230 to Bank of America. The individual*s travel card account was
closed on November 26, 2001, and an unpaid balance of $2,127 was charged
off. The cardholder paid off the account on June 17, 2002. Bank of America
records indicate that bank representatives had numerous conversations with
the cardholder

about this account. The individual*s credit report did not show any
significant credit problems prior to issuance of the card.

The current APC, who assumed that role in July 2001, determined the
individual was delinquent on his government travel card account when he
reviewed Bank of America delinquency reports. The APC referred the matter
to the individual*s unit commander who subsequently counseled the
individual on *multiple* occasions regarding the card*s use and
delinquency. The APC told us that because the individual was a

state employee and not a member of the Air National Guard, the individual
was not eligible for the Air Force travel card and should not have been
granted a card.

Analysis of Abusive Travel We also found numerous examples of Air Force
personnel misusing and

Card Use abusing their government travel cards by making transactions that
were clearly not for the purpose of government travel, similar to those we

reported in our Army and Navy reports. As discussed further in appendix
II, we used data mining procedures to identify transactions that we
believed to be potentially fraudulent or abusive based upon the nature,
amount, merchant, and other identifying characteristics of the
transaction. As a result of these procedures, we found instances in which
cardholders

abused their travel cards by purchasing a wide variety of personal goods
or

services that were unrelated to official government travel. As shown in
table 7, we were able to determine that during an 18- month period, Air
Force cardholders charged approximately $31, 000 to purchase admission to
entertainment events, such as NFL football games and a Janet Jackson
concert. We also identified travel card transactions totaling
approximately $14,000 for gambling; $31, 000 for cruise packages; and
$32,000 coded as

purchases at gentlemen*s clubs, which provide adult entertainment. The
examples shown in table 7 include both instances where the cardholders
paid their bills and where they did not.

Tabl e 7: Examples of Abusive Air Force Travel Card Activity (October 1,
2000, to March 31, 2002)

Number of Approximate Category Examples of vendors transactions dollar
amount

Cruises Carnival, Celebrity, Norwegian, and Princess 70 $ 31, 000

Gambling GCA*- Global Cash Access, and www. PROCCY 79 14, 000 Sports,
concerts,

Dallas Cowboys, Backstreet Boys, and other events Janet Jackson, and other

Ticketmaster purchases 223 31, 000 Gentlemen's clubs Spearmint Rhino, Can
Can,

Cheetah's Lounge, and Dej`a Vu Showgirls 187 32, 000 Legalized brothels 40
Bar Ranch and Madam

Butterfly 3 1,000 Source: GAO analysis of Bank of America data.

Our investigative work showed that gentlemen*s clubs were sometimes used
to convert the travel card to cash by supplying cardholders with actual
cash or *club cash* for a 10 percent fee. To illustrate, an Air Force
employee that charged $440 to their government travel card at one of these
clubs, would receive $400 in cash. Such charges are processed by the
establishment*s merchant bank, and authorized by Bank of America, in part
because the merchant category code (MCC), 29 which identifies the nature

29 MCCs are established by the banking industry for commercial and
consumer reporting purposes. Currently, about 800 category codes are used
to identify the nature of the merchants* businesses or trades, such as
airlines, hotels, ATMs, jewelry stores, casinos, gentlemen*s clubs, and
theatres.

of the transactions and is to be used by Bank of America to block improper
purchases, are circumvented when the establishments reported the charges
as restaurant, dining, or bar charges. Subsequently, the club would
receive payment for a $440 restaurant charge.

Examples of Travel Card Abuse We found cases where individuals used their
travel cards for both official and personal reasons, but failed to pay
their accounts, thereby resulting in accounts that were charged off and/
or included in salary offset and fixed payment plans. Table 8 provides
examples of those cases. Table 8: Examples of Abusive Travel Card Activity
Where Accounts Were Charged Off and/ or Placed in Salary Offset from

October 2000 through March 2002 Total charge- Transactions contributing
Cardholder off or salary

to charge- off or salary Credit history

Documented Grade Unit

offset amount offset problems disciplinary action

1 E- 5 Idaho Air Charge- off

Employee*s spouse used his No prior credit

None. National Guard $7, 258 travel card for Internet

problems. Due to gambling. inability to pay wife*s excessive gambling
debt, the cardholder filed for bankruptcy.

2 E- 6 Travis AFB Charge- off Failure to pay travel card bill

Credit card Counseled, letters of $1, 008;

after receiving reimbursement delinquencies prior to

reprimand, Article 15s, Salary offset

for government travel card issuance; charge court- martialed and expenses.
offs, collection actions, sentenced to 5 years in and automobile jail, and
dishonorable repossession after card

discharge for theft of issuance. government property.

3 E- 4 New York Air Salary offset

Personal use including long Bankruptcy filed and Four letters of National
Guard $6, 086 distance calls, rental car, and

automobile counseling and intent to contact lenses.

repossession prior to discharge related to card issuance; several

failure to pay travel card delinquencies after

bills. card issuance. 4 GS- 15 Patrick AFB Salary offset

Failure to pay travel card bill Bankruptcy filed 1

None. Balance was $3, 174 after receiving reimbursement

month after travel card paid off on August 14, for government travel
issuance and a charge 2002, due to GAO expenses.

off in 2002. scrutiny of account. 5 E- 5 Langley AFB Charge- off

Personal use including ATMs, Judgment prior to card

None. $3, 729 restaurants, and veterinary issuance; bankruptcy,

services after separation from multiple charged- off the service.

accounts, and multiple collection actions since card issuance.

(Continued From Previous Page)

Total charge- Transactions contributing Card off or salary

to charge- off or salary Credit history

Documented holder Grade Unit

offset amount offset problems disciplinary action

6 E- 5 Nellis AFB transferred Salary offset

Used government travel card Bankruptcy, chargeoffs, Article 15 and
reduction to

$2, 224 to pay for gambling, adult and collection

in grade to E- 4 for Cannon AFB in

entertainment at gentlemen*s actions prior to card

travel card abuse. November clubs, and miscellaneous

issuance; 2001 personal services.

repossession, chargeoffs, and delinquency since card issuance.

7 O- 1 Nellis AFB Salary offset Spouse made ATM

Automobile Letter of $7, 223 withdrawals and numerous repossession prior
to

admonishment. personal charges at grocery

card issuance and stores, gas stations; 6 NSF

credit card checks written to pay travel

delinquencies and card bill.

charge- offs since card issuance. 8 E- 4 Nellis AFB Salary offset

ATM withdrawals, wrote 7 Collection and chargeoff None. Court- martial
$446 NSF checks to pay travel card

actions prior to card and discharge for other bill.

issuance; collection than travel card issues. actions, charge- offs, and
judgment after card issuance.

9 WG- 10 a Hill AFB Charge- off Failure to pay travel card bill

Credit card Written documentation $3, 066 after receiving reimbursement

delinquencies and an of counseling. for government travel automobile
expenses.

repossession prior to travel card issuance. Filed Chapter 7

bankruptcy in June 2002. 10 WG- 10 a Hill AFB Charge- off

Failure to pay travel card bill Collections,

None. $1, 029 after receiving reimbursement

delinquencies, for government travel repossession, and expenses.

charge- offs prior to travel card issuance. Bank of America report

indicates that cardholder has filed for bankruptcy.

Source: GAO analysis of Air Force, Bank of America, and credit history
data. a Wage Grade (WG) positions are paid at hourly rates and generally
pertain to government positions, such as maintenance, printing, and
landscaping.

The following examples include details of cases summarized in table 8. 
Cardholder #1 is a staff sergeant (E- 5) in the Idaho Air National Guard

who is employed full- time as a juvenile counselor at a county

correctional facility. The cardholder told our investigators that from
December 22, 2000, to February 19, 2001, his wife used his government
travel card without his knowledge or consent. Bank of America records
showed that transactions for the above period totaled over $13,000, of
which over $10, 000 was for on- line gambling charges and another $3, 000
was for ATM withdrawals. There were also several credits to the

cardholder*s account totaling over $5,000 from his wife*s gambling
winnings. The cardholder*s wife admitted to a gambling addiction and to
using their personal bank debit card and her husband*s government travel
card to fund her addiction. Upon discovering his wife*s abusive use of his
government travel card,

the cardholder immediately briefed his commanding officer, who informed
the APC, and the account was closed. The cardholder also contacted Bank of
America to work out a payment plan for the debt but no agreement could be
reached. As a result of his inability to pay the debt incurred by his
wife, the cardholder filed for Chapter 7 bankruptcy. On September 3, 2001,
Bank of America charged off an unpaid balance of $7,258 on the
cardholder*s travel card account. To date, no criminal charges have been
initiated against the cardholder*s

now ex- wife. In researching this case, we noted that although DOD has
requested that Bank of America block certain merchant category codes to
help prevent improper travel card transactions, such as transactions for
online gambling at www. PROCCY, merchants are able to circumvent such
restrictions by assigning permissible merchant codes to otherwise improper
transactions. For example, in this case, to mask gambling activity, the
on- line gambling establishments with whom the cardholder*s wife dealt
used the merchant category codes for *Miscellaneous and Specialty Retail
Stores* and *Professional Services* Not Elsewhere Classified* instead of
the merchant category code for *Betting* Including Lottery, Gaming Chips,
Track Wagers.* However, these establishments credited the wife*s winnings
to the cardholder*s account using the merchant category code for *Betting*

Including Lottery, Gaming Chips, Track Wagers.* Active monitoring by the
APC of ongoing travel card activity would have helped detect the problem
transactions sooner.

 Cardholder #2 was a highly skilled technical sergeant (E- 6) at Travis
AFB, California, who held a secret clearance and worked on C- 5 aircraft,
large cargo aircraft designed for airlifting weapons and supplies. Our

discussions with base officials and our review of the cardholder*s
personnel file and credit report revealed that the cardholder had several
credit card delinquencies prior to issuance of the travel card. In March
1998, prior to being assigned to Travis AFB, the cardholder had received

an Article 15 30 for wrongfully using his American Express government
travel card for personal gain and blaming the misuse of the travel card on
another family member.

In March 2001, when the individual transferred to Travis AFB, his new APC
noted that the individual*s travel card account had a past due balance of
$2,257. The APC reported this information to the cardholder*s unit
commander. At that time, the account was suspended and Bank of America
closed and canceled the cardholder*s account a week later. However, Travis
AFB officials told us that they asked Bank of America to keep the
individual*s travel card account open so that he could travel where
necessary to make repairs to downed C- 5 aircraft. The officials told us
that the cardholder was one of a few experts who

could supervise repairs on the C- 5 aircraft. According to the officials,
when problems arose with the aircraft, repairs had to be made immediately
to get the plane back in the air. On April 16, 2001, the unit commander
counseled the cardholder and

gave him a letter of reprimand for nonpayment of his travel card bill. On
June 25, 2001, the cardholder received another Article 15 for failure to
pay his *Military Star Account* with the base Army and Air Force Exchange
Service (AAFES) store. Both Article 15s and the letter of reprimand
contained statements indicating that this behavior would not be tolerated.
It is apparent that this statement on the documents did not deter the
individual from being delinquent, nor did the officials abide by these
statements. During the fall of 2001, Air Force investigators were notified
that

personal protective gear, including body armor and biochemical and
biological protective masks, was missing from C- 5s arriving in
Afghanistan. The cardholder came under suspicion as one of a few

30 Article 15 of the Uniform Code of Military Justice provides for non-
judicial punishment imposed by a commander and accepted by the member.

individuals with access to C- 5 aircraft. During the ensuing investigation
involving the individual, his security badge was revoked and he had to be
escorted to and from his worksite. Shortly thereafter, Air Force
investigators videotaped the individual selling military protective gear
in a town near the base, and the individual was arrested and charged with
theft and sale of government property. Investigators determined

that the individual was addicted to gambling and had used his government
travel card reimbursements and the proceeds from the sale of stolen
government property to finance his gambling habit. In January 2002, the
individual was court- martialed, and in March 2002, he

was convicted of theft and sale of $50,000 in government property and was
dishonorably discharged. He was sentenced to a 5- year jail term. Air
Force investigative and legal officials told us that the individual*s
failure to pay his travel card debt was considered in the sentencing

decision. If Travis AFB officials had acted sooner to cancel the technical
sergeant*s travel card account, revoke his security clearance, and
discharge him from the service, they may have prevented the theft of
critical protective gear needed by troops deployed in Afghanistan.

Travel Card Abuse Where Further, we found examples where individuals used
their government

Cardholders Paid Their Bank of travel cards for personal use on purchases
of items, such as computers, America Bills

entertainment, college tuition, and jewelry, but kept their accounts
current by paying their travel card bills in a timely manner. We
considered these purchases to be abusive travel card activity because the
travel card may only be used for official government travel expenses.
Personal use of the travel card may increase the risk of charge- offs,
which are costly to the government and the taxpayer. In addition,
instances of personal use are indicative of internal control breakdowns,
such as the failure of the APCs to monitor travel card activities. Table 9
provides details on 10 cases where the cardholders made personal purchases
but paid their accounts.

Table 9: Examples of Abusive Activity Where the Cardholders Paid Their
Bills from October 2000 through March 2002 Cardholder Documented

Unit Grade Vendor Amount Nature of transaction disciplinary action

1 Nellis AFB E- 5 Global Casino, $2,081 Gambling Letter of reprimand for
ATM cash misuse of government

travel card. 2 Office of the GS- 9 Strayer University 1,980 College
tuition None. Member had left Secretary of

the Air Force over 2 the Air Force, years prior to the Space &

charge. Technology

3 Nellis AFB transferred E- 5 Casino Cash and

7,826 Gambling None. to

ATM Eglin AFB in July 2002 4 Vermont Air

E- 4 Wells Fargo Home 350 Payment to mortgage None. National Guard
Mortgage company 5 Pope AFB E- 6 Best Buy 1,401 Computer purchase None.

6 Nellis AFB O- 3 Caesar*s Palace 1,566 Internet gambling Court- martial
for travel card abuse is pending.

7 New York Air E- 7 Ticketmaster 185 Tickets for NSYNC concert None.
National Guard 8 Arkansas Air E- 5 Gateway. com 2,689 Computer purchase
None.

National Guard 9 Edwards AFB GS- 13 Disneyland tickets 260 Personal
entertainment None. 10 Air Force

E- 5 Helzberg Diamonds 370 Jewelry purchase None. Strategic Command

Source: GAO analysis of Air Force and Bank of America data.

The instances illustrated in this report clearly represent abusive use of
the government travel card. Air Force personnel are informed that these
types of transactions are not permitted. All Air Force cardholders are
required to sign a statement of understanding that the card is to be used
only for authorized official government travel expenses.

Abusive Activity Not Air Force policy provides commanders with a wide
variety of disciplinary

Effectively Linked to options for addressing misconduct by service
members. The means of

Disciplinary Action and discipline include counseling, oral and written
reprimands, creating an Security Clearances

unfavorable information file, issuing Article 15s, and court- martial. The
policy leaves the means of discipline and the actual punishment to the
discretion of the individual commander based upon the facts of each case.
However, for the cases involving 58 cardholders whose accounts involved
NSF checks, charge- offs, or salary offsets, we found documented evidence

of disciplinary actions in only 19 cases. Our analysis of cases where
travel card accounts had been charged off, were in salary offset, or
involved NSF checks showed that when the Air Force took disciplinary
actions, those actions ranged from counseling to court- martial and
discharge from the service. In certain cases where documentation of
disciplinary actions was not available, Air Force officials told us that
verbal counseling had been provided, but was not documented. In other
cases where documentation was not available, Air Force officials claimed
that disciplinary actions had been taken, but records had not been
retained because the individuals had

transferred or left the service. At Hill AFB, most of the cases we
reviewed involved civilians. Air Force Instruction 36- 704, Discipline and
Adverse Actions, provides guidance on disciplinary action for civilians
who fail to honor valid debts or legal obligations. However, the
guidelines limit disciplinary action to reprimands, even after the third
offense.

In addition, we found that 32 of the 58 most severe abusers of the travel
card still had secret or top secret clearances in August 2002. According
to Air Force Instruction 31- 501, Personnel Security Program Management,

military units are responsible for maintaining unfavorable information
files on individuals, and are supposed to notify the central security
facility of instances of financial irresponsibility or other behavioral
problems that may affect an individual*s security clearance. However, we
determined that the Air Force does not have consistent procedures in place
to link travel card account delinquencies or charge- off status to an
individual*s security clearance. 31 Some of the Air Force personnel
holding security clearances who have had difficulty paying their travel
card bills may present security risks to the Air Force. We have referred
the names of these individuals to

the Air Force Central Adjudication Facility for appropriate evaluation. 31
Air Force Instruction 31- 501 incorporates the security standards set
forth in DOD publication, 5200.2- R, Personnel Security Program, which
covers *excessive indebtedness, recurring financial difficulties, or
unexplained affluence.*

Linking disciplinary actions and security clearances to misuse of travel
cards was recently addressed by the fiscal year 2003 Defense
Appropriations Act. In addition to requiring the Secretary of Defense to

establish guidance and procedures for disciplinary actions, section 8149(
c) of the act states that such actions may include (1) review of the
security clearance of the cardholders in cases of misuse of the government
travel card, and (2) modification or revocation of the security clearance
in light of such review.

Recent Actions Since March 2002, DOD and the Air Force have taken
additional actions to reduce delinquencies in the travel card program. For
example, the DOD

Comptroller established a Charge Card Task Force to address management
issues related to DOD*s purchase and travel card programs. The task force
issued its final report on June 27, 2002, which called for additional
actions to improve the controls over the travel card program. However, to
date, many of the actions that DOD has taken primarily address the
symptoms rather than the underlying causes of the problems with the
program. Specifically, actions to date have focused on dealing with
accounts that are

seriously delinquent, which are *back end* or detective controls rather
than preventive controls.

On September 27, 2002, the Air Force Assistant Secretary for Financial
Management (Comptroller) issued a memorandum emphasizing travel card
management tools and policy updates to assist local commanders in the
detection of travel card misuse. Specifically, the memorandum (1) directed
that travel cards that have had no activity within the last 12 months be
canceled, (2) emphasized that program coordinators should use new EAGLS
exception reports to help identify suspicious card activity that may
indicate abuse or potential delinquency problems before they appear on
delinquency reports, and (3) noted that the Air Force is conducting a

thorough review of MCCs to ensure that cards cannot be used at
establishments that are not travel related. In addition, Air Force
officials told us they also are considering contracting for data mining
services to support their oversight of the travel card program.

The Congress has recently addressed several of the key issues we
identified in our Army and Navy work. Section 8149( b) of the Department
of Defense Appropriations Act, 2003, requires creditworthiness evaluations
of all potential cardholders and guidelines and procedures for
disciplining individuals for fraudulent and abusive use of government
travel cards. Further, section 1008( a) and (b) of the Bob Stump National
Defense

Authorization Act for Fiscal Year 2003 provides authority for the
Secretary of Defense to require (1) use of the split disbursement process,
where any part of a DOD employee*s or service member*s travel
reimbursement is paid directly to the travel card- issuing bank, and (2)
deductions of prescribed amounts from salary and retirement pay of DOD
employees or service members who have delinquent travel card balances and
payment of those amounts to the travel card- issuing bank.

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.

Since implementation of the travel card as part of its travel program, the
Air Force changed its management strategies to oversee the use of
government travel cards. What once was a weak internal control

environment in the travel program has been strengthened, resulting in a
decrease in delinquency rates and charge- offs of bad debts. Despite these
efforts, the Air Force continues to experience potentially fraudulent and
abusive travel card activity.

Air Force and DOD actions addressed many areas in the program needing
improvements. However, DOD and the Air Force will need to implement
further improvements to more effectively prevent potentially fraudulent
and abusive activity and further reduce severe credit problems associated
with the travel card. A focus on additional *front- end* or preventive

controls will be paramount. In this regard, section 8149( c) of the fiscal
year 2003 DOD Appropriations Act requires creditworthiness evaluations of
all potential cardholders and guidelines and procedures for disciplining
individuals for fraudulent and abusive use of government charge cards.
Recommendations for

To strengthen the overall control environment and improve internal control
Executive Action for the Air Force*s travel card program, we recommend
that the Secretary of the Air Force 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 Air Force
establish specific policies and procedures governing the issuance of
individual travel cards to

military and civilian employees, including the following.  In accordance
with recently enacted legislation, provide individuals who have no prior
credit histories *restricted* travel cards with low credit

and ATM limits.  Develop procedures to periodically evaluate the
frequency of

cardholders* travel card use and close accounts of infrequent travelers in
order to minimize exposure to fraud and abuse. In conjunction with the
periodic reviews, cancel accounts for current infrequent travelers as
noted in the Charge Card Task Force report.

 Evaluate the feasibility of activating and deactivating travel cards,
regardless of whether they are standard or restricted cards, so that they
are available for use only during the period authorized by the
cardholders* travel orders. At a minimum, this policy should focus on
controlling travel card use by *high- risk* enlisted military personnel in
the E- 1 to E- 6 grades.

 Develop comprehensive, consistent Air Force- wide initial training and
periodic refresher training for travel cardholders that focuses 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 and Review We recommend that the Secretary of the Air Force
establish the following Actions

specific policies and procedures to strengthen controls to address
improper use of the travel card.

 Establish guidance regarding the knowledge, skills, and abilities
required to carry out APC responsibilities effectively.

 Establish guidance on APC span of control responsibilities so that such
responsibilities are properly aligned with time available to ensure
effective performance. Determine whether certain APC positions should be
staffed on a full- time basis rather than as collateral duties.

 Establish Air Force- wide procedures to provide assurance that APCs
receive training on their APC responsibilities, including requirements for
monitoring cardholders* travel card use. The training should include how
to use EAGLS transaction reports and other available data to monitor
cardholder use of the travel card* for example, reviewing

account transactional histories to ascertain whether transactions are
incurred during periods of authorized travel and appear to be appropriate
travel expenses and are from approved MCCs.  Require agency program
coordinators to review EAGLS reports to

identify cardholders who have written NSF checks for payment on their
account balances and refer this data to the employee*s immediate
supervisor.

 Review, in conjunction with Bank of America, APC- level access to EAGLS
to limit such access to only those individuals with current APC duties. 
Establish Air Force procedures detailing how APCs should carry out

their responsibility to monitor travel card use for all cardholders
assigned to them. Include in the procedures the development of a data
mining program that would enable APCs to easily identify potentially
inappropriate transactions for further review.

 Enforce controls for canceling accounts after employees transfer to
other units to avoid *orphan* accounts that are not subject to effective
management oversight.

 Require cognizant APCs to retain records documenting any cardholder*s
fraudulent or abusive use of the travel card and require that this
information be provided to the gaining APC when the cardholder is
transferred.

 Review records of individuals whose accounts had been charged off or
placed in salary offset to determine whether they have been referred to
Air Force Central Adjudication Facility for a security review.

 Strengthen procedures regarding employees leaving the service to assure
that all travel card accounts are deactivated or closed and that repayment
of any outstanding debts is arranged. Perform a review to determine that
these procedures are implemented effectively and that accounts of departed
cardholders are deactivated or closed in a timely

manner.  Develop procedures to identify active cards of departed
cardholders,

including comparing cardholder and payroll data. Agency Comments and

In oral comments on a draft of this report, DOD and the Air Force Our
Evaluation

concurred on all 16 of our recommendations and stated that it had taken
actions or had actions underway to address many of them. For example, with
respect to actions completed, DOD stated that the Air Force recently
implemented procedures to (1) evaluate the frequency of cardholder travel
card use and close travel card accounts that were not used in the past
year and (2) work with Bank of America to perform semi- annual reviews of
travel card use. With respect to actions underway, (1) the Air Force has
started a project to evaluate the feasibility of deactivating travel cards
so that they are available for use only during periods of authorized
travel and (2) DOD is evaluating travel card training and developing
revised policy requirements for APC span of control and travel card
management responsibilities.

As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute this report until 30 days from its
date. At that time, we will send copies to interested congressional
committees; the Secretary of Defense; the Under Secretary of Defense
(Comptroller); the Secretary of the Air Force; the Assistant Secretary of
the Air Force for Financial Management (Comptroller); the Director of the
Defense Finance and Accounting Service; 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- 9505 or kutzg@ gao. gov, John
J. Ryan at (202) 512- 9587 or ryanj@ gao. gov, or Gayle L. Fischer at
(202) 512- 9577 or fischerg@ gao. gov, if you or your staffs have any
questions

concerning this report. Major contributors to this report are acknowledged
in appendix V. Gregory D. Kutz Director Financial Management and Assurance

Robert J. Cramer Managing Director Office of Special Investigations

Appendi Appendi xes x I

Background In 1983, the General Services Administration (GSA) awarded a
governmentwide master contract with a private company to provide
government- sponsored, contractor- issued travel cards to federal
employees to be used to pay for costs incurred on official business
travel. The intent of the travel card program was to provide increased

convenience to the traveler and lower the government*s cost of travel by
reducing the need for cash advances to the traveler and the administrative
workload associated with processing and reconciling travel advances. The
travel card program includes both individually billed accounts* accounts
held and paid by individual cardholders* and centrally billed accounts
that are used to purchase transportation or are used 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 same fiscal year. Under the current GSA master contract, the
Department of Defense entered into a tailored task order with Bank of
America 32 to provide travel card services to DOD and the military
services, including the Air Force. Table 10 provides the number of
individually billed travel cards outstanding

and related dollar amount of travel card charges by DOD and its components
in relation to the total federal government.

32 The Department of Defense contracted with NationsBank of Delaware, N.
A., which subsequently merged into the Bank of America, N. A., under a
Tailored Task Order under the GSA Master Contract Award for the travel
card program. The period of performance under the task order was November
30, 1998, through November 29, 2000, with three 1- year options. The task
order also allowed for five additional 1- year options under the GSA
master contract renewal provisions.

Table 10: Comparison of Number of Individually Billed Travel Cardholders
and Related Charges for DOD versus Total Federal Government for Fiscal
Year 2001

Number of individually Fiscal year 2001 billed travel card individually
billed travel

accounts as of card charges Entity

September 30, 2001 (dollars in millions)

Air Force 501,306 $831 Navy (includes Marine Corps) 394,952 510 Army
432,460 619 Other DOD 86,922 174

Total DOD 1,415,640 $2, 134 Total federal government 2,132,031 $3, 634

DOD percentage of total federal government 66% 59%

Source: Bank of America data.

As shown in table 10, 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 10 also shows that the Air Force
provided 501, 306

individually billed cards to its civilian and military employees as of
September 2001. These cardholders charged an estimated $831 million to
their travel cards during fiscal year 2001.

Travel Card Program The Travel and Transportation Reform Act of 1998
(Public Law 105- 264) Guidelines

expanded the use of government travel cards by mandating the use of the
cards for all official travel unless specifically exempted. The act is
intended to reduce the overall cost of travel to the federal government

through reduced administrative costs and by taking advantage of rebates
from the travel card contractor. The act requires that agencies reimburse
cardholders for proper travel claims within 30 days of submission of

approved travel vouchers by the cardholders. 33 Further, the act allows,
but does not require, agencies to offset a cardholder*s pay for amounts
the cardholder owes to the travel card contractor as a result of travel
card delinquencies not disputed by the cardholder. The act calls for GSA
to issue regulations incorporating the requirements of the act.

GSA incorporated the act*s requirements into the Federal Travel
Regulation. The Federal Travel Regulation governs travel and
transportation and relocation allowances for all federal government
employees, including overall policies and procedures governing the use of
government travel cards. Agencies are required to follow the requirements
of GSA*s Federal Travel Regulation, but can augment these regulations with
their own implementing regulations.

DOD issued its Financial Management Regulation (FMR), Volume 9, Chapter 3,
*Travel Policies and Procedures,* to supplement GSA*s travel regulations.
DOD*s Joint Travel Regulations, Volume 1, *Uniformed Service Members,* and
Volume 2, *Civilian Personnel,* refer to the FMR as the controlling
regulation for DOD*s travel cards.

Air Force Travel As shown in figure 7, the Air Force*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 33
The act also requires agencies to pay cardholders a late payment fee if
they do not reimburse cardholders within the 30- day period allowed.
Specifically, Federal Travel Regulations prescribed by the Administrator
of General Services require agencies to either (1) calculate late payment
fees using the prevailing Prompt Payment Interest Rate beginning

the 31 st day after submission of a proper travel claim and ending on the
date on which payment is made or (2) reimburse the traveler a flat fee of
not less than the prompt pay amount, based on an agencywide average of
travel claim payments. In addition to the fee

required in the items above, the agency must also pay the traveler an
amount equivalent to any late payment charge that the card contractor
would have been able to charge the traveler had the traveler not paid the
bill. 41 CFR Section 301- 52.20.

cards, travel voucher processing and payment, and managing travel card
usage and delinquencies.

Figure 7: Overview Flowchart of the Air Force Travel Process

Traveler requests travel card APC processes travel card application Bank
issues travel card

approved by supervisor and controls credit limits

Official government travel authorized (travel order)

Traveler charges goods Merchant (e. g., rental car co.)

Payment

provides goods/ services and and services on travel card

charges travel card

Billing Payment

Billing Payment

information

Traveler prepares voucher Bank processes card

Merchant bank accepts and provides to supervisor

charges, pays merchant transaction deposit slips and

for review and submission to bank, and bills traveler

transfers payment voucher processing unit

Installation voucher processing Bank credit card data in EAGLS

unit processes voucher and submits to DFAS

DFAS pays a voucher APC monitors card usage and

delinquencies b by accessing EAGLS

Traveler leaves service APC terminates or suspends card

or moves for traveler leaving Air Force or moving Source: GAO analysis.

a The Defense Finance and Accounting Service allows a traveler to direct a
portion, or all, of the voucher reimbursement to Bank of America. b See
figure 9 for specific actions to be taken by the agency program
coordinator.

Travel Card Issuance and When an Air Force civilian or military employee
or the employee*s Termination

supervisor 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 8, the application requires the applicant to provide pertinent
information, including full name and social security number, and indicate
whether he or she is an active, reserve, or a civilian employee of the Air
Force. The applicant is also required to initial a statement on the
application acknowledging that he or she has read and understands the

terms of the travel card agreement and agrees to be bound by these terms,
including a provision acknowledging that the card will be used only for
official travel. The APC is required to complete the portion of the
member*s application concerning who will be responsible for managing the
use and delinquencies related to the card. Bank of America is required to
issue a travel card to all applicants for whom it receives completed
applications signed by the applicants, the applicants* supervisors, and
the

APCs.

Figure 8: 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 Restri cted, 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. Retur n copy to: Bank of A merica, Attn: GCSU, P. O. Box 52304,
Phoenix, A Z, 85072- 9419, Facsim ile: 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/ OCR 24000 Revised: 05/ 29/ 01
Source: Department of Defense.

Bank of America issues travel cards with either a standard or restricted
credit limit. If an employee has little or no credit history or poor
credit based on a credit check performed by Bank of America, Bank of
America

may suggest to the service that the applicant receive a restricted credit
limit of $2,000 instead of the standard credit limit of $5,000. However,
as shown in figure 8, the application allows the employee to withhold

permission for Bank of America to obtain credit reports. If this option is
selected, Bank of America automatically issues a restricted credit limit
card to the applicant.

Before cardholders leave the Air Force, they are required to contact their
APCs and notify them of their planned departure. Based on this
notification from the cardholders, the APCs are to deactivate or terminate
the cardholders* accounts.

Travel Authorization When a cardholder is required to travel for official
government purposes, he or she is issued a travel order authorizing
travel. The travel order is required to specify the timing and purpose of
the travel authorized. For example, the travel order is to authorize the
mode of transportation, the duration and points of the travel, and the
amounts of per diem and any cash advances. Further, the Air Force 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

For authorized travel, travelers must use their cards to pay for allowable
Official Travel Expenses

expenses such as hotels, rental cars, and airfare. The travel card can
also be used for meals and incidental expenses or cash can be obtained
from an automatic teller machine. When the travel card is submitted to a
merchant, the merchant will process the charge through its banking
institution, which in turn charges Bank of America. At the end of each
banking cycle (once each month), Bank of America prepares a billing
statement that is mailed to the cardholder for the amounts charged to the
card. The statement also reflects all payments and credits made to the
cardholder*s account. Bank of America requires that the cardholder make
payment on the account in full within 30 days of the statement closing
date. If the cardholder does not pay his or her 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 Within 5 duty days of return from travel, the
cardholder is required to and 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, DOD has 30 days in
which to make reimbursement without incurring late payment fees.
Cardholders are required to submit their travel vouchers to their
supervisors or other designated approving officials who must review the
vouchers and approve them for payment. If the review finds an omission or

error in a voucher or its required supporting documentation, the approving
official must inform the traveler of the error or omission. After the
supervisor approves a cardholder*s travel voucher package for

payment, the voucher- processing unit at the location to which the
cardholder is assigned processes it. The voucher- processing unit enters
travel information from the approved voucher into DOD*s Integrated
Automated Travel System (IATS). IATS calculates the amount of per diem

authorized in the travel order and voucher and the amount of mileage, if
any, claimed by the cardholder. In addition, any other expenses claimed
and approved are entered into IATS. If problems with the voucher are found
during the initial entry of the information into IATS or during audits
after the initial entry, the voucher can be rejected and returned to the
cardholder for correction. Once the vouchers are processed and possibly
audited, they are sent to DFAS for payment to the cardholder or to Bank of
America and the cardholder, if the cardholder elected to use the split
disbursement payment process whereby part of the reimbursement is sent
directly to Bank of America. If the payment of the approved proper voucher
takes longer than 30 days, DOD 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.

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 Both the Air Force and Bank of America have a role in
managing travel Cardholder Accounts

card delinquencies under GSA*s master contract. While APCs are responsible
for monitoring cardholders* accounts and for working with cardholders*
supervisors to address any travel card payment delinquencies, Bank of
America is required to use EAGLS to notify the designated APCs if

any of their cardholders* accounts are in danger of suspension or
cancellation. When Bank of America has not received a required payment on
any travel cardholder*s account within 60 days of the billing statement
closing date, it is considered delinquent. As summarized in figure 9,
there are specific actions required by both the Air Force and Bank of
America based on the number of days a cardholder*s account is past due.

Figure 9: Required DOD and Bank of America Delinquency Process Management
Actions

DOD actions Bank of America actions Statement

Sends statement to cardholder.

date 30 days

45 days

Sends a delinquency reminder to cardholder.

55 days

Sends a presuspension letter to the cardholder. 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 precancellation 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 precharge- off letter to the cardholders for accounts not in
salary offset or other payment agreements.

210 days

Charges off account for which no payments were being made.

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

The following is a more detailed explanation of the required actions by
the Air Force 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 a travel card account, the
card cannot be used until the account is paid.

 60 days past due* The APC is to issue a 60- day delinquency notification
memorandum to the cardholder and to the cardholder*s immediate supervisor,
informing them that the cardholder*s account has been suspended due to
nonpayment. The next day, a suspension letter is to be sent by Bank of
America to the cardholder providing notice that the card has been
suspended until payment is received.

 75 days past due* Bank of America is to assess the account a late fee.
The late fee charged by Bank of America was $20 through August 9, 2001.
Effective August 10, 2001, Bank of America increased the late fee to $29
under the terms of the contract modification between Bank of

America and DOD. Bank of America is allowed to assess an additional late
fee every 30 days until the account is made current or charged off.

 90 days past due* The APC is to issue a 90- day delinquency notification
memorandum to the cardholder, the cardholder*s immediate supervisor, and
the company commander (or unit director). The company commander is to
initiate an investigation into the delinquency and take appropriate
action, at the company commander*s discretion. At the same time, Bank of
America is to send a *due process letter* to the cardholder providing
notice that the account will be canceled if payment is not received within
30 days unless he or she enters into a payment plan, disputes charge( s)
in question, or declares bankruptcy.

 120 days past due* The APC is to issue a 120- day delinquency
notification memorandum to the cardholder*s commanding officer. At 126
days past due, the account is to be canceled by Bank of America. Beginning
in October 2001, once accounts were 120 days past due, Bank of America
began sending files to DFAS listing these accounts for salary offset.

 150 days past due* The point at which DFAS generally initiates action
for salary offset.  180 days past due* Bank of America is to send a
*precharge- 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 and is unable to submit vouchers and pay his or her
account in a timely manner, 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 *mission- critical* status. By activating this status,
the Bank of America is precluded from identifying the cardholder*s account
as

delinquent until 45 days after such time as the APC determines the
cardholder is to be removed from mission- critical status. According to
Bank of America, approximately 800 to 1,000 cardholders throughout DOD
were in this status at any given time throughout fiscal year 2001.

Appendi x II

Objectives, Scope, and Methodology Pursuant to a joint request by the
Chairman and Ranking Minority Member of the Subcommittee on Government
Efficiency, Financial Management and Intergovernmental Relations, House
Committee on Government Reform, and the Ranking Minority Member of the
Senate Committee on Finance, we audited the controls over the issuance,
use, and monitoring of individually billed travel card accounts and
associated travel processing

and management for the Department of the Air Force. Our assessment covered

 the reported magnitude and impact of delinquent and charged off Air
Force 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 Air Force travel card transactions during
fiscal year 2001 and the first 6 months of fiscal year 2002 to identify
potentially fraudulent and abusive activity related to the travel card;

 the Air Force overall management control environment and the design of
selected Air Force travel program management controls, including controls
over (1) travel card issuance, (2) agency program coordinators (APC)
capacity to carry out assigned duties, (3) limiting card activation to
meet travel needs, (4) transferred and *orphan* accounts, (5) procedures
for terminating accounts when cardholders leave military service, and (6)
access 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 three Air
Force units* travel card activity including (1) travel order approval, (2)
accuracy of travel voucher payments, (3) the timely submission of travel
vouchers by travelers to the approving officials, and (4) the timely
processing and reimbursement of travel vouchers by the Air Force 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), 34
the General Services Administration*s (GSA) Federal Travel Regulation, 35
and the Department of Defense (DOD) Financial Management Regulation,
Volume 9, *Travel Policies and Procedures.* We also used as criteria our
Standards for Internal Control in Federal Government 36 and our Guide to
Evaluating and Testing Controls Over Sensitive Payments. 37 To assess the
management control environment, we applied the

fundamental concepts and standards in our internal control standards to
the practices followed by management in the six areas reviewed.

To assess the magnitude and impact of delinquent and charged- off
accounts, we compared the Air Force*s delinquency and charge- off rates to
those of other DOD services and federal civilian agencies. We also

analyzed the trends in the delinquency and charge- off data from the third
quarter of fiscal year 2000 through the first half of fiscal year 2002.

In addition, we used data mining to select Air Force units for audit and
identify individually billed travel card transactions for further
analysis. Our data mining procedures covered the universe of individually
billed Air Force travel card activity during fiscal year 2001 and the
first six months of fiscal year 2002 and identified transactions that we
believed were

34 Travel and Transportation Reform Act of 1998 (Public Law 105- 264, Oct.
19, 1998) includes requirements that federal employees use federal travel
charge cards for all payments of expenses of official government travel,
requires the government to reimburse employees who have submitted proper
vouchers within 30 days of submission of the vouchers, and allows for the
offset of pay for employees with undisputed travel card charge
delinquencies in an amount up to 15 percent of the amount of disposable
pay of the employee for a pay period.

35 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.

36 U. S. General Accounting Office, Standards for Internal Control in
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.

37 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.

potentially fraudulent or abusive. However, our work was not designed to
identify, and we did not determine, the extent of any potentially
fraudulent or abusive activity related to the travel card. In performing
our data mining, we obtained and analyzed information on travel card
account status and credit history, security clearance, and disciplinary
action. To assess the overall control environment for the travel card
program at the

Department of the Air Force, we obtained an understanding of the travel
process, including travel card management and oversight, by interviewing
officials from the Office of the Undersecretary of Defense, Comptroller;
Department of the Air Force; Defense Finance and Accounting Service

(DFAS); Bank of America; and GSA. We reviewed applicable policies,
procedures, and program guidance they provided. We visited three Air Force
units to *walk through* the travel process, including the management of
travel card use and delinquency. Further, we contacted one of the three
largest U. S. credit bureaus to obtain credit history data and information
on how credit- scoring models are developed and used by the credit
industry for credit reporting.

At each of the Air Force locations we audited we also used our review of
policies and procedures and the results of our *walk- throughs* of travel
processes and other observations to assess the effectiveness of controls
over segregation of duties among persons responsible for issuing travel

orders, preparing travel vouchers, processing and approving travel
vouchers, and certifying travel voucher payments. We performed a limited
review of access controls for travel voucher

processing at our three case study locations. We did not assess electronic
signature controls over the electronic data processing of Air Force travel
card transactions. We also reviewed computer system access controls for
the Electronic Account Government Ledger System (EAGLS)* the system used
by Bank of America to maintain DOD travel card data. To determine whether
access controls for 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 Air
Force travel card transactions processed through the travel system*
including the travel order, travel voucher, and payment processes* we
obtained and used the Bank of America database of fiscal year 2001 Air
Force travel card transactions to review random samples of transactions at
three Air Force locations. Because our objective was to test controls over
travel card expenses, we excluded credits and miscellaneous debits (such

as fees) from the population of transactions used to select random samples
of travel card transactions to review at each of three Air Force units we
audited. Each sampled transaction was subsequently weighted in the
analysis to account statistically for all charged transactions at each of
the three units, including those that were not selected. We did not verify
the accuracy of the data in the Air Force travel card database.

We selected three Air Force case study locations for testing controls over
travel card activity by first selecting three large commands based on the
number of travel card accounts, outstanding balances, and delinquencies.

The three commands we selected accounted for about 38 percent of the total
number of Air Force travel card accounts, 41 percent of the outstanding
balance of travel card charges, and about 33 percent of the travel card
delinquencies. We selected one installation from each of these commands
for detailed testing based on the volume of travel card activity and
delinquencies. Table 11 presents the sites selected and the number of

fiscal year 2001 transactions at each location. 38

Tabl e 11: Population of Fiscal Year 2001 Travel Transactions at Selected
Air Force Bases

Number of travel Dollar value of travel Air Force base/ command card
transactions card transactions

Nellis AFB Air Combat Command 69, 104 $ 7,804, 254

Travis AFB Air Mobility Command 105,997 13,465, 225

Hill AFB Air Force Materiel Command 119,533 18,400, 779

Source: GAO analysis of Bank of America Air Force travel card database.
Note. Transactions represent charges for sales and cash advances and
exclude credits and fees.

We performed tests on statistical samples of travel card transactions at
each of the three case study sites to assess whether the system of
internal

38 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.

controls over the transactions was effective, as well as to provide an
estimate of the percentage of transactions by unit that were not for
official government travel. For each transaction in our statistical
sample, we assessed whether (1) there was an approved travel order prior
to the trip, (2) the travel voucher payment was accurate, (3) the travel
voucher was submitted within 5 days of the completion of travel, and (4)
the travel voucher was paid within 30 days of submission of an approved
travel voucher. We considered transactions not related to authorized
travel to be abuse and incurred for personal purposes. Although we
projected the

results of our samples of these control attributes, as well as the
estimate for personal use* or abuse* related to travel card activity to
the population of transactions at the respective case study locations, the
results cannot be projected to the population of Air Force transactions or
the installations as a whole.

Tables 12 through 15 show (1) the results of our tests of key control
attributes, (2) the point estimates of the failure rates for the
attributes, (3) the two- sided 95 percent confidence intervals for the
failure rates for

each attribute, (4) our assessments of the effectiveness of the controls,
and (5) the relevant lower and upper bounds of a one- sided confidence
interval for the failure rate. All percentages in these tables are rounded
to the nearest percentage point. We use one- sided confidence bounds to
classify the effectiveness of a control activity. If the 1- sided lower
bound does not exceed 5 percent, then the control activity is effective.
If the 1- sided lower bound exceeds 10 percent, then the control is
ineffective. Otherwise, we say that the control is partially effective.
Partially effective controls may include those for which there is not
enough evidence to assert either effectiveness or ineffectiveness. For
example, if we were 95 percent confident that the 1- sided lower bound of
a failure rate for a particular control is 3 percent, we would categorize
that control activity as *effective* because 3 percent is less than the 5
percent standard. Similarly, if we were 95 percent confident that the 1-
sided upper bound of a failure rate for a particular control is 72
percent, we would categorize that control as *ineffective* because 72
percent is greater than the 10 percent standard.

Table 12 shows the results of our test of the key control related to the
authorization of travel* approved travel orders were prepared prior to
dates of travel.

Tabl e 12: Fiscal Year 2001 Transactions That Failed Control Tests for
Approved Travel Orders

Assessment of Estimated failure

effectiveness of Number rate (95% 2- sided

controls (and relevant Air Force base/ of failed confidence bounds of 95%
1- sided command

transactions interval) a

confidence intervals)

Nellis AFB 1 of 96 1 %

Effective Air Combat Command (0 % to 6 %) upper bound = 5%

Travis AFB 2 of 96 2%

Partially effective Air Mobility Command (0 % to 7 %) lower bound = 0%, or

upper bound = 6% Hill AFB

1 of 96 1 % Effective Air Force Materiel

(0 % to 6 %) upper bound = 5% Command

Source: GAO analysis. a The percentages represent point estimates for the
population based on our sampling tests.

Table 13 shows the results of our test for effectiveness of controls in
place over the accuracy of travel voucher payments. Our test work included
determining whether (1) the travel voucher information was consistent with
dates and locations of travel authorized on the related travel order, (2)
per diem was paid in the proper amount, and (3) transactions for

lodging, air fare, and other expenses over $75 were supported by required
receipts.

Tabl e 13: Fiscal Year 2001 Transactions That Failed Control Tests for
Accurate Travel Voucher Review and Reimbursement

Estimated Assessment of failure rate

effectiveness of Number (95% 2- sided controls (and relevant Air Force
base/ of failed

confidence bounds of 95% 1- sided command

transactions interval) a

confidence intervals)

Nellis AFB 15 of 96 16 %

Partially effective Air Combat Command (9 % to 24 %) lower bound = 10%

Travis AFB 37 of 96 39 %

Ineffective Air Mobility Command (29 % to 49 %) lower bound = 30%

Hill AFB 8 of 61 b 13%

Partially effective Air Force Materiel

(6 % to 24 %) lower bound = 7%, or Command

upper bound = 22% Source: GAO analysis. a The percentages represent point
estimates for the population based on our sampling tests.

b Hill AFB used two systems to process travel vouchers. We included only
the 61 travel vouchers processed through the Integrated Automated Travel
System in our tests for this attribute. The remaining 35 vouchers were
processed through the other system, PerDiemAzing, which DOD is pilot
testing as part of its effort to reengineer the current travel process.

Table 14 shows the results of our tests of 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.

Tabl e 14: Fiscal Year 2001 Transactions That Failed Control Tests for
Timely Submission of Travel Vouchers by Employees (5- day Rule) Estimated

Assessment of failure rate

effectiveness of Number (95% 2- sided controls (and relevant Air Force
base/ of failed confidence bounds of 95% 1- sided command

transactions interval) a

confidence intervals)

Nellis AFB 5 of 96 5%

Partially effective Air Combat Command (2% to 12%) lower bound = 2%, or

upper bound = 11% Travis AFB

16 of 96 17 % Ineffective Air Mobility Command (10% to 26 %) lower bound =
11%

Hill AFB 24 of 96 25 %

Ineffective Air Force Materiel

(17 % to 35%) lower bound = 18% Command

Source: GAO analysis. a The percentages represent point estimates for the
population based on our sampling tests.

Table 15 shows the results of our tests of key controls related to timely
processing of claims for reimbursement of expenses related to government
travel* timely travel voucher approval and payment processing. To
determine if cardholders were reimbursed within 30 days, we used the

DFAS payment dates. We did not independently validate the accuracy of
these reported payment dates.

Tabl e 15: Fiscal Year 2001 Transactions That Failed Control Tests for
Timely Approval and Payment Processing of Travel Vouchers (30- day Rule)
Estimated

Assessment of failure rate

effectiveness of controls Number of

(95% 2- sided (and relevant bounds of Air Force base/

failed confidence 95% 1- sided command

transactions interval) a

confidence intervals)

Nellis AFB 0 of 96 0%

Effective Air Combat Command (0% to 4%) upper bound = 3%

Travis AFB 0 of 96 0 %

Effective Air Mobility Command (0% to 4%) upper bound = 3%

Hill AFB 1 of 96 0 %

Effective Air Force Materiel

(0 % to 6%) upper bound = 5% Command

Source: GAO analysis. a The percentages represent point estimates for the
population based on our sampling tests.

We briefed DOD managers, including DFAS officials in DOD*s Office of the
Under Secretary of Defense (Comptroller) and Air Force officials in the
office of the Assistant Secretary of the Air Force (Financial Management
and Comptroller); and unit commanders; comptrollers; and installation
agency program coordinators on the details of our audit, including our
findings and their implications. On November 26, 2002, we requested
comments on a draft of this report. We received oral comments on December
17, 2002, and have summarized those comments in the *Agency

Comments and Our Evaluation* section of this report. We conducted our
audit work from January 2002 through mid- November 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.

Appendi x III

Air Force Major Command Delinquency Rates Table 16 shows the travel card
delinquency rates for Air Force*s major commands (and other Air Force
organizational units at a comparable level) that had outstanding balances
over $1 million during the 2- year period ending March 31, 2002. Commands
with a March 31, 2002, balance outstanding under $1 million have been
combined into *all other commands.* The Air Force*s commands and other
units are listed in descending order based on their respective delinquency
rates as of March 31, 2002.

Tabl e 16: Air Force Major Command Delinquency Rates a (by Quarter) for
the Two Years Ending March 31, 2002 June Sept. Dec. Mar. June Sept.

Dec. Mar. Major Command 2000 2000 2000 2001 2001 2001 2001 2002

Air Force Special Operations Command 6.4% 7.5% 10.8% 5.5% 6.6% 6.0% 10.0%
10. 3% Pacific Air Forces 7.2% 8.6% 11.8% 9.4% 6.8% 9.4% 12.2% 9.7% US Air
Forces in Europe 7.2% 9.2% 14.1% 7.5% 6.7% 6.5% 10.9% 7.6% Air Force
Reserve Command 7.9% 10. 5% 14.0% 8.2% 6.6% 9.1% 8.1% 7.3% Air National
Guard 8.8% 11. 7% 16.7% 9.4% 6.6% 8.3% 8.3% 6.5% Air Intelligence Agency
5.9% 6.6% 8.8% 6.4% 4.7% 5.5% 9.2% 6.4% Air Combat Command 6.6% 8.5% 12.1%
7.6% 5.9% 6.2% 8.1% 6.3% Air Education and Training Command 7.1% 8.1% 9.8%
6.8% 5.5% 5.8% 8.3% 6.1% Air Mobility Command 6.8% 8.2% 8.7% 5.1% 4.5%
5.5% 6.8% 4.9% Air Force Space Command 4.9% 4.8% 7.3% 4.1% 4.1% 4.1% 6.6%
4.5% Head Quarters 11th Wing 3.7% 4.9% 5.7% 3.9% 3.2% 4.4% 4.3% 3.8% Air
Force Materiel Command 4.0% 5.5% 7.5% 4.1% 3.5% 3.9% 5.5% 3.6% All other
commands combined 4.6% 6.2% 8.1% 4.3% 4.0% 4.9% 5.2% 4.1% Air Force- wide
6.4% 8.2% 10.9% 6.5% 5.3% 6.2% 7.7% 6.0%

Source: GAO calculation based on information provided by Bank of America.
a The delinquency rates shown represent the total amount delinquent
(amounts not paid within 60 days

of the travel card monthly statement closing date) as a percentage of
total amounts owed by the command*s travel cardholders at that time.

Table 17 shows outstanding balances and delinquency rates by major command
listed in descending order of outstanding balances as of March 31, 2002.

Tabl e 17: Outstanding Balance and Delinquency Rate as of March 31, 2002,
by Major Air Force Commands

Major Air Force command with outstanding Outstanding Delinquency balance
of $1 million or over balance a rate a

Air National Guard $13,859,727 6.5 Air Force Materiel Command 11,755,489
3.6 Air Force Reserve Command 10,637,088 7.3 Air Combat Command 10,263,862
6.3 Air Mobility Command 8,825,579 4.9 U. S. Air Forces Europe 4,676,442
7.6 Air Education and Training Command 4,632,847 6.1 Pacific Air Forces
4,243,264 9.7 Air Force Space Command 4,096,380 4.5 Headquarters 11 th
Wing 2,490,170 3.8 Air Intelligence Agency 2,422,309 6.4 Air Force Special
Operations 1,678,599 10.3 All Other Commands Combined 5,074,653 4.1
Source: GAO calculation based on information from Bank of America. a
Delinquency rates shown represent the total amount delinquent (amounts not
paid within 60 days of the travel card monthly statement closing date) as
a percentage of total amount outstanding for all

travel card accounts in the command at that point in time.

Air Force Personnel Grade, Rank, and

Appendi x IV

Associated Basic Pay Rates Tables 18 and 19 show the grade, rank (where
relevant), and the associated basic pay rates for 2001 for Air Force*s
military and civilian personnel. The basic 2001 pay rates shown exclude
other considerations such as locality pay and any allowances for housing
or cost of living.

Tabl e 18: Air Force Military Grades, Ranks, and Associated Basic Pay
Rates for Fiscal Year 2001

Military grades Military rank Fiscal year 2001 pay rates Enlisted
personnel

E- 1 to E- 3 Airman $11,496 to $15, 197 E- 4 to E- 6 Senior Airman to
Technical $18,591 to $27, 571

Sergeant E- 7 to E- 9 Master Sergeant to Chief Master $32,497 to $46, 204
Sergeant Officers

O- 1 to O- 3 Second Lieutenant, First $26,470 to $44, 738 Lieutenant, and
Captain O- 4 to O- 6 Major, Lieutenant Colonel, and

$56,122 to $83, 783 Colonel O- 7 to O- 10 General $98, 980 to $133, 700

Source: U. S. Air Force.

Tabl e 19: Air Force Civilian Grades and Associated Basic Pay Rates for
Calendar Year 2001

Civilian grade Calendar year 2001 pay rates 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- 05 $109, 100 to $125, 700 Source: Office of Personnel
Management.

Appendi x V

GAO Contacts and Staff Acknowledgments GAO Contacts Gayle L. Fischer,
(202) 512- 9577 Sheila D. M. Miller, (303) 572- 7378 Acknowledgments Staff
making key contributions to this report include: Mario L. Artesiano,

Paul S. Begnaud, Bertram J. Berlin, Fannie M. Bivins, Francine M.
DelVecchio, Donald H. Fulwider, C. Robin Hodge, Woodward H. Hunt, Jeffrey
A. Jacobson, Jr., Jonathan T. Meyer, Sue Piyapongroj, John R. Ryan, Sidney
H. Schwartz, Robert A. Sharpe, Bennet E. Severson, and Lisa M. Warde.
(192077)

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a

GAO United States General Accounting Office

Air Force management has reduced travel card delinquencies through greater
command attention and the use of travel card audits to identify problems
and needed corrective actions. As of March 2002, the Air Force delinquency
rate on average was about 5 percentage points lower than the rest of DOD
and 1 percentage point higher than the federal civilian agencies. The Air
Force*s overall delinquency and charge- off problems were primarily
associated with lower paid, low- to midlevel enlisted military personnel.

Despite these improvements, a weak control environment contributed to
significant abuse and potential fraud. For example, many of the problem
cases identified were due to ineffective controls over the issuance and
cancellation of travel cards and weaknesses in the assignment and training
of agency program coordinators. During the period of our review, over 400
Air Force cardholders committed potential bank fraud by writing three or
more nonsufficient fund (NSF) checks to Bank of America. Also, as shown in
the table, many cardholders used their cards for inappropriate purchases,
such as cruises and event tickets.

Examples of Abusive Air Force Travel Card Activity Category Examples of
vendors

Number of transactions

Approximate dollar amount

Cruises Carnival, Celebrity, Norwegian, and Princess 70 $ 31,000 Gambling
GCA*- Global Cash Access 79 14,000 Sports, concerts, and other events

Dallas Cowboys, Backstreet Boys, Janet Jackson, and other Ticketmaster
purchases 223 31,000

Gentlemen's clubs Spearmint Rhino, Cheetah's Lounge, and

Dej`a Vu Showgirls 187 32,000

A significant relationship also existed between potential travel card
fraud, abuse, and delinquencies and individuals with substantial credit
history problems. Some cardholders had personal accounts placed in
collection while others had filed bankruptcies prior to receiving
government travel cards. Also, the issuance of the travel cards to
virtually everyone who applied for them compounded these problems.

GAO found documented evidence of disciplinary actions in less than half of
the cases reviewed where cardholders wrote NSF checks, or their accounts
were charged off or placed in salary offset. GAO also found that over half
of the cases reviewed involved individuals who still had secret or top-
secret security clearances. Other control weaknesses related to the Air
Force*s failure to provide the necessary agency program coordinator
training, and infrequent or nonexistent monitoring of travel card
activities.

The recently enacted fiscal year 2003 Defense appropriations and
authorization acts require the Secretary of Defense to establish
guidelines and procedures for disciplinary actions and to deny issuance of
travel cards to individuals who are not creditworthy.

TRAVEL CARDS

Air Force Management Focus Has Reduced Delinquencies, but Improvements in
Controls Are Needed

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 298. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact Gregory Kutz, (202) 512- 9505. Highlights of GAO- 03-
298, a report to

Congressional requesters

December 2002

Poor oversight and management of the Department of Defense (DOD) travel
card program has led to high delinquency rates costing DOD millions in
lost rebates and increased ATM fees. As a result, Congress asked GAO to
report on (1) the magnitude, impact, and cause of delinquencies, (2) the
types of fraudulent and abusive uses of travel cards, and (3) the
effectiveness of internal controls over DOD*s travel card program. GAO
previously reported on travel card management at the Army and Navy. This
report focuses on travel card management at the Air Force.

GAO recommendations to DOD and the Air Force include the following:

 Provide sufficient training to agency program coordinators to promote
proper oversight of the travel card program, including effective
monitoring for inappropriate transactions;  Review the security
clearances

of cardholders with financial problems; and  Strengthen procedures for

canceling cards of employees leaving the service.

DOD and the Air Force concurred on our recommendations and said that they
had actions underway to address many of them.

Page i GAO- 03- 298 Air Force Travel Card Controls

Contents

Contents

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Contents

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Page 1 GAO- 03- 298 Air Force Travel Card Controls United States General
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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 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 III

Appendix III Air Force Major Command Delinquency Rates

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Appendix IV

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Appendix V

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