DOD Travel Cards: Control Weaknesses Led to Millions of Dollars  
Wasted on Unused Airline Tickets (31-MAR-04, GAO-04-398).	 
                                                                 
Ineffective oversight and management of the Department of	 
Defense's (DOD) travel card program, which GAO previously	 
reported on, have led to concerns about airline tickets DOD	 
purchased but did not use and for which it did not claim refunds.
GAO was asked to (1) determine whether, and to what extent,	 
airline tickets purchased through the centrally billed accounts  
were unused and not refunded and (2) determine whether DOD's	 
internal controls provided reasonable assurance that all unused  
tickets were identified and submitted for refunds.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-398 					        
    ACCNO:   A09603						        
  TITLE:     DOD Travel Cards: Control Weaknesses Led to Millions of  
Dollars Wasted on Unused Airline Tickets			 
     DATE:   03/31/2004 
  SUBJECT:   Accounting procedures				 
	     Credit sales					 
	     Defense cost control				 
	     Expense claims					 
	     Federal employees					 
	     Financial management				 
	     Internal controls					 
	     Reimbursements to government			 
	     Travel						 
	     Travel costs					 
	     Fraud						 
	     Internal audits					 

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GAO-04-398

United States General Accounting Office

                     GAO Report to Congressional Requesters

March 2004

DOD TRAVEL CARDS

 Control Weaknesses Led to Millions of Dollars Wasted on Unused Airline Tickets

                                       a

GAO-04-398

Highlights of -GAO-04-398, a report to congressional requesters

Ineffective oversight and management of the Department of Defense's (DOD)
travel card program, which GAO previously reported on, have led to
concerns about airline tickets DOD purchased but did not use and for which
it did not claim refunds. GAO was asked to (1) determine whether, and to
what extent, airline tickets purchased through the centrally billed
accounts were unused and not refunded and (2) determine whether DOD's
internal controls provided reasonable assurance that all unused tickets
were identified and submitted for refunds.

March 2004

DOD TRAVEL CARDS

Control Weaknesses Led to Millions of Dollars Wasted on Unused Airline Tickets

Control breakdowns over the centrally billed accounts resulted in DOD
paying for airline tickets that were not used and not processed for
refund. DOD was not aware of this problem before our audit and did not
maintain data on unused tickets. We determined, based on airline data,
that DOD had purchased-primarily in fiscal years 2001 and 2002-about
58,000 tickets with a residual (unused) value of more than $21 million
that remained unused and not refunded as of October 2003. We also
identified more than 81,000 partially unused airline tickets with a
purchase price of about $62 million that will require additional analysis
to determine the residual value. Based on further analysis of the limited
data, it is possible that DOD purchased at least $100 million in airline
tickets that it did not use and for which it did not claim refunds from
fiscal years 1997 through 2003.

Fully Unused and Partially Unused Airline Tickets

Airline Number of tickets Residual value (dollars in millions)

American 15,877 $4.1

Delta 15,588

Northwest 3,479

GAO makes 20 recommendations to DOD, including the following:

o  	evaluate the feasibility of requiring DOD personnel to purchase
airline tickets with their individually billed travel cards, which would
eliminate DOD's risk of paying for unused tickets;

o  	implement procedures to systematically provide reasonable assurance
that all unused tickets purchased with the centrally billed accounts are
refunded; and

o  	submit claims to the airlines to recover the $21 million in known
unused tickets-DOD might be able to recover more than $100 million for
unused tickets.

DOD concurred with all 20 of our recommendations and stated that it had
taken or will take actions to address these recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-398.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gregory D. Kutz at (202)
512-9505 or [email protected].

                    United                  16,283                    6.0 
                  US Airways                6,719                     2.3 
          Total known unused tickets        57,946                  $21.1 
           Potential unused tickets                         At least $100 

Source: GAO analysis of airline and Bank of America data.

Although GAO asked DOD's five most frequently used airlines for fiscal
year 2001 and 2002 unused ticket data, the airlines did not provide
uniform, complete, or consistent responses. For example, one airline did
not provide partially unused ticket data, another airline's fiscal year
2001 data covered only September 2001, while yet another airline provided
data on electronic tickets dating back to November 1998. Although
additional data on unused tickets may be available from the airlines'
archives, our attempts to obtain additional information were unsuccessful.

DOD's unused ticket problems were caused by a flawed process that relied
extensively on DOD personnel to report unused tickets to the travel
offices. Although it appears that many unused tickets were processed for a
refund, the internal controls DOD had in place did not detect millions of
dollars of unused airline tickets. Specifically, DOD did not
systematically implement compensating procedures to identify instances in
which DOD personnel did not report unused tickets, or reconcile the
centrally billed accounts to travel claims to determine whether airline
tickets were used. Although some units had instituted a process by fiscal
year 2002 to more systematically identify instances of unused tickets, the
process was not implemented DOD-wide, DOD did not verify that units were
consistently implementing the process, and the process could only identify
unused electronic-not paper-tickets.

Contents

  Letter

Results in Brief
Background
Millions of Dollars of Airline Tickets Were Unused and

Not Refunded DOD Did Not Implement Effective Controls over Unused

Tickets Conclusion Recommendations for Executive Action Agency Comments
and Our Evaluation

1 3 5

7

12 20 21 23

Appendixes

Appendix I: Appendix II:

Appendix III: Appendix IV: Objectives, Scope, and Methodology

Known Value of Fully and Partially Unused Tickets and Potential Magnitude
of Control Weaknesses

Types of Data Provided Differed Substantially between Airlines Known
Unused Value of Fully and Partially Unused Tickets Possible Magnitude of
Unused Tickets Purchased with Centrally

Billed Accounts Comments from the Department of Defense GAO Contacts and
Staff Acknowledgments GAO Contacts Acknowledgments

25

28 28 30

33

36

44 44 44

Tables Table 1:

Table 2:

Table 3:

Table 4: Table 5: Table 6: Table 7: Table 8: Known Residual Value of Fully
and Partially Unused Airline Tickets, November 1998 through December 2002
8 Known Residual Value of Fully Unused Airline Tickets, November 1998
through December 2002 9 Known Partially Unused Airline Tickets, November
1998 through December 2002 10 Type of Data Provided by the Airlines 29
Known Value of Unused Tickets by Airline 31 Partially Unused Ticket Number
and Value 32 Fiscal Year 2002 Fully Unused Ticket Ratios 33 Analysis of
Fiscal Year 2002 Partially Unused Ticket Ratios 35

                                    Contents

Figures Figure 1: Value of Tickets Charged to DOD's Centrally Billed
Accounts by Airline, Fiscal Years 2001 and 2002 6 Figure 2: Possible
Control Breakdowns in the Unused Ticket Process 14

Abbreviations

CTO Commercial Travel Office DOD Department of Defense DTS Defense Travel
System GTO Government Travel Office

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.

A

United States General Accounting Office Washington, D.C. 20548

March 31, 2004

The Honorable Norm Coleman Chairman The Honorable Carl Levin Ranking
Minority Member Permanent Subcommittee on Investigations Committee on
Governmental Affairs United States Senate

The Honorable Charles E. Grassley Chairman Committee on Finance United
States Senate

The Honorable Janice Schakowsky House of Representatives

This report is a continuation of our series of reports on the Department
of
Defense's (DOD) management of its travel card programs. In fiscal years
2002 and 2003, we issued a series of testimonies1 and reports2 addressing
problems that the Army, Navy, and Air Force had in managing individually
billed travel card accounts. These testimonies and reports showed high
delinquency rates and significant potential fraud and abuse related to
DOD's travel card programs. Due to these concerns, you asked us to audit
controls over the other major form of payment used by DOD for travel
expenses-centrally billed accounts. In response to your request, we

1U.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 Navy
Vulnerable to Fraud and Abuse, GAO-03-148T (Washington, D.C.: Oct. 8,
2002).

2U.S. General Accounting Office, Travel Cards: Control Weaknesses Leave
Army Vulnerable to Potential Fraud and Abuse, GAO-03-169 (Washington,
D.C.: Oct. 11, 2002); Travel Cards: Control Weaknesses Leave Navy
Vulnerable to Fraud and Abuse, GAO-03-147 (Washington, D.C.: Dec. 23,
2002); and Travel Cards: Air Force Management Focus Has Reduced
Delinquencies, but Improvements in Controls Are Needed, GAO-03-298
(Washington, D.C.: Dec. 20, 2002).

reported3 in October 2003 that internal control weaknesses over DOD's
centrally billed accounts led to millions of dollars of improper premium
class travel and increased costs to taxpayers. These weaknesses provide
further examples of DOD's long-standing financial management problems,
which are pervasive, complex, and deeply rooted in virtually all business
operations throughout the department. Such problems led us in 1995 to put
DOD financial management on our list of high-risk areas, that is, areas
that are highly vulnerable to fraud, waste, and abuse, a designation that
continues today.4 In light of the internal control problems with DOD's
travel card programs, you asked us to expand our work in the area of
centrally billed accounts to determine (1) whether, and to what extent,
airline tickets purchased through the centrally billed accounts were still
unused and not refunded and (2) whether DOD's internal controls provided
reasonable assurance that all unused tickets were identified and submitted
for refunds.

To determine the magnitude of tickets purchased through the centrally
billed accounts during fiscal years 2001 and 2002 that were unused and not
refunded, we compared data on unused tickets provided by airlines (refer
to app. II for information on data provided by airlines) to data provided
by the Bank of America-DOD's credit card bank. The unused ticket data came
from the five U.S. airlines that provided about 82 percent of the value of
all airline tickets DOD purchased during this period. Although we were
able to validate that the tickets the airlines had on record as being
unused were tickets that DOD had purchased with its centrally billed
accounts, we were unable to confirm the completeness of the population of
unused tickets we received from four of the five airlines. Despite the
possibility of understating the extent of the problem, we used the airline
data to determine the possible magnitude of DOD's unused tickets from
fiscal years 1997 through 2003. Further, we reviewed the unused ticket
process to evaluate whether internal controls over the centrally billed
accounts were properly designed to identify unused tickets, submit these
tickets for refunds, and verify that refunds had been received. Appendixes
I and II provide details on our scope and methodology.

3U.S. General Accounting Office, Travel Cards: Internal Control Weaknesses
at DOD Led to Improper Use of First and Business Class Travel, GAO-04-88
(Washington, D.C.: Oct. 24, 2003), and Travel Cards: Internal Control
Weaknesses at DOD Led to Improper Use of First and Business Class Travel,
GAO-04-229T (Washington, D.C.: Nov. 6, 2003).

4U.S. General Accounting Office, High-Risk Series: An Overview,
GAO/HR-95-1 (Washington, D.C.: February 1995), and High-Risk Series: An
Update, GAO-03-119 (Washington, D.C.: January 2003).

We performed our work from March 2003 through January 2004 in accordance
with generally accepted government auditing standards. We requested
comments on a draft of this report from the Secretary of Defense or his
designee. We received written comments, which are reprinted in appendix
III of this report.

Results in Brief	A lack of departmentwide controls over the centrally
billed accounts resulted in DOD paying for millions of dollars of airline
tickets that were not used and not processed for refund. DOD was not aware
of this problem before our review because it did not maintain data on
unused tickets. Our analysis of the limited data provided by DOD's five
most frequently used airlines found that DOD had purchased-primarily in
fiscal years 2001 and 2002-about 58,000 tickets with a residual (unused)
value of $21.1 million that remained unused and not refunded as of October
2003. In addition, three airlines had not determined the residual value of
more than 81,000 partially unused tickets, that is, at least one leg had
not been used, with a total purchase price of more than $62 million. These
amounts likely understate the value of fully and partially unused tickets
because only two of the five airlines were able to provide us complete
data on unused fiscal years 2001 and 2002 tickets as requested, and one
airline did not provide any data for partially unused tickets. Based on
further assessment of the limited data, we determined that it is possible
that since 1997, DOD purchased more than $100 million in airline tickets
with its centrally billed accounts that it did not use and did not process
for refunds. Airline representatives informed us that limitations with the
way their data are maintained prevented them from providing us with
complete and consistent data, and our attempts to obtain additional
information were unsuccessful. Federal agencies are authorized to recover
payments made to airlines for tickets that agencies ordered but did not
use. While generally a 6-year statute of limitations applies to the
government's ability to file an action for money damages based on a
contractual right, the government also has up to 10 years to offset future
payments for amounts it is owed.

Millions of dollars in unused tickets have been wasted because DOD did not
have a systematic process to identify and process unused tickets. DOD's
flawed process relied extensively on DOD personnel to report unused
tickets to the travel offices. DOD did not systematically implement
compensating procedures to identify instances in which DOD personnel did
not report unused tickets, or reconcile the centrally billed accounts to
travel claims to determine whether airline tickets were used. This failure
to reconcile tickets that were centrally acquired to travel claims filed
by

travelers resulted in DOD not being able to determine whether the airline
tickets it purchased were used. Although bank data indicated that DOD
received many credits to centrally billed accounts, the number and value
of tickets the airlines reported as unused and not refunded demonstrated
that the lack of effective internal control procedures led to a waste of
scarce resources. We identified some improvements during fiscal year 2002,
when a number of DOD commercial travel offices attempted to implement
procedures to systematically identify unused electronic tickets within
their computer reservation systems. However, this process had not been
implemented DOD-wide and does not address paper airline tickets. Further,
at locations where this technique was implemented, DOD's government travel
offices did not have systematic procedures to verify that the commercial
travel offices consistently identified all unused electronic tickets, and
that all tickets that had been identified as unused resulted in a credit
to the centrally billed account.

While we identified significant weaknesses in the controls over DOD's
centrally billed accounts, improved controls and management of
individually billed accounts may provide DOD with options to reduce the
financial exposure resulting from unused tickets that are not properly
refunded. Specifically, using a well-controlled individually billed
account program to pay for airline tickets would transfer responsibility
for all charges to the individual cardholder, thus limiting the
government's financial exposure and providing an incentive to DOD
cardholders to properly identify and claim refunds for unused tickets.
However, DOD would still need to improve controls over its centrally
billed account structure as not all DOD travelers would have access to an
individually billed account, such as new employees and infrequent
travelers.

This report contains 20 recommendations for DOD to reduce the risks
associated with using the centrally billed accounts to purchase airline
tickets by considering the feasibility of establishing the individually
billed account travel card as the primary procurement method for
transportation. We also recommend that DOD take a series of immediate
steps to improve controls over the centrally billed account so that in the
future, it can readily identify and request timely refunds on all unused
tickets. Finally, we recommend that DOD attempt to recover all tickets
that are unused and not refunded. To assist DOD in claiming refunds or
converting the unused tickets to future use, in December 2003, we provided
DOD a list of the unused ticket information we received from the airlines.
DOD has told us that it is working to recover the value of those unused
and partially used tickets. In written comments on a draft of this report,
DOD concurred with

all 20 of our recommendations and stated that it had taken actions or will
take actions to address these recommendations.

Background	The DOD centrally billed travel card program is part of a
governmentwide travel card program started in 1983 with the express
purpose of increasing convenience to the traveler and lowering (1) the
government's cost of travel by reducing the need for cash advances to the
traveler and (2) the associated administrative costs. The travel card
program includes both the individually billed accounts-accounts held and
paid by the individual cardholders-and the centrally billed accounts. In
general, individual cardholders use the individually billed accounts to
charge nontransportation-related expenses, while most DOD services and
units used the centrally billed accounts to purchase transportation
services such as airline and train tickets and to facilitate expenses
incurred for group travel.5

According to Bank of America data, the net value of airline tickets
charged during fiscal years 2001 and 2002 to DOD's centrally billed
accounts totaled over $2.4 billion. As shown in figure 1, five U.S.
airlines-American, Delta, Northwest, United, and US Airways-together
accounted for more than 82 percent of the dollar value of airline tickets
purchased by DOD during fiscal years 2001 and 2002. More than 85 other
airlines-both U.S. and foreign carriers-accounted for the remaining 18
percent of the value of total airline tickets DOD purchased in fiscal
years 2001 and 2002. The $2.4 billion is made up of more than $2.6 billion
in gross airline purchases net of credits totaling $233 million, or about
9 percent of gross airline purchases. Credits related to tickets that were
unused, tickets issued erroneously, and charges identified as fraudulent.

5The Air Force is an exception to this general rule. The Air Force uses
both centrally billed and individually billed accounts for purchasing
airline transportation.

Figure 1: Value of Tickets Charged to DOD's Centrally Billed Accounts by
Airline, Fiscal Years 2001 and 2002

                            8% - Northwest Airlines

24% - United Airlines

14% - U.S. Airways 13% - American Airlines

23% - Delta Airlines

18% - Others

                 Source: GAO analysis of Bank of America data.

The airline tickets DOD purchased through the centrally billed accounts
are generally acquired under the terms of the air transportation services
contract that the General Services Administration (GSA) negotiates with
U.S. airlines. Airline tickets purchased under this contract have no
advance purchase requirements, have no minimum or maximum stay
requirements, are fully refundable, and do not incur penalties for changes
or cancellation. The revenue recognition policy for the airlines industry
is to recognize ticket sales as a liability until the transportation is
provided, that is, when the ticket is used. The terms of the air
transportation services contract also provide that contract carriers are
to fully refund all unused portions of any government contract fare ticket
to the activity paying for the ticket, the travel management center
issuing the ticket, or the individual traveler, as appropriate. Because
DOD travel regulations require that federal and military travelers on
official business use a contract carrier for official airline travel
unless a specific exception applies, airline tickets purchased by DOD are
typically fully refundable.

Federal agencies are authorized to recover payments made to airlines for
tickets that agencies acquired but did not use.6 While generally there is
a

631 U.S.C. S: 3726(h).

6-year statute of limitations on the government's ability to file an
action for money damages based on a contractual right,7 the government
also has up to 10 years to offset future payments for amounts it is owed.8
Several airlines sued GSA after it offset payments due to the airlines for
the value of airline tickets that GSA claimed were unused. The court
upheld GSA's authority to administratively offset the payments despite the
airlines' assertion that provisions printed on the tickets themselves
specified a shorter time limit in which the government could request a
refund.9 The court further held that the government's right to refunds
could not be limited by terms unilaterally imposed by the airlines.10

Millions of Dollars of Airline Tickets Were Unused and Not Refunded

As shown in table 1, data provided by five airlines and verified against
Bank of America's data showed that about 58,000 tickets with a value of
$21.1 million were purchased with DOD's centrally billed accounts but were
unused and not refunded. The $21.1 million included more than 48,000
tickets valued at $19.2 million that were fully unused, and $1.9 million
in the residual value of about 10,000 American Airlines partially used
tickets,11 that is, at least one leg had not been used. Based on our
assessment of the limited data provided by the airlines, it is possible
that since fiscal year 1997, DOD purchased more than $100 million in
airline tickets that were not used and not processed for refunds and for
which DOD may be entitled to refunds or offsets against other payments to
those airlines.

728 U.S.C. S: 2415(a).

831 U.S.C. S: 3716(e).

9American Airlines, Inc. v. Austin, 75 F.3d 1535 (Fed. Cir. 1996). This
case was an appeal of a prior case, American Airlines, Inc. v. Austin, 826
F. Supp. 553 (D.D.C. 1993), in which, among other things, the court ruled
that the government was not entitled to refunds for unused tickets that
the government could not specifically identify.

10American Airlines, Inc. v. Austin, 1541.

11Only American Airlines provided us the residual value of partially
unused tickets.

Table 1: Known Residual Value of Fully and Partially Unused Airline
Tickets, November 1998 through December 2002

                              Dollars in millions

                Airline      Number of tickets      Residual value of tickets 
               American                15,877a                          $4.1a 
                  Delta                 15,588 
              Northwest                  3,479                           2.3b 
                 United                 16,283 
             US Airways                  6,719 
                  Total                 57,946                          $21.1 

Source: GAO analysis of Bank of America and airline data.

aIn total, American Airlines reported 24,013 tickets with residual value
of more than $6.2 million that were fully or partially unused. We excluded
8,136 American Airlines unused tickets totaling more than $2.1 million
from our analysis because either (1) less than 6 months had passed between
the time the tickets were purchased and when American Airlines provided
the file or (2) Bank of America data did not confirm whether the tickets
were fully or partially unused.

bResidual value of $2.3 million represents the amount DOD paid Bank of
America for those tickets. This amount differs slightly from Northwest
Airlines' reported fare of $2.1 million. Our analysis indicates that
Northwest Airlines excluded taxes and fees from its reported amount of
$2.1 million.

Amount of Fully Unused Table 2 provides further details on the $19.2
million identified as being fully

Tickets Is Significant	unused. Fully unused tickets made up most of the
known unused tickets value of $21.1 million, which also included the
residual value of partially unused tickets. As shown in table 2, DOD spent
$19.2 million on more than 48,000 airline tickets that were fully unused
and not refunded.

Table 2: Known Residual Value of Fully Unused Airline Tickets, November
1998 through December 2002

                              Dollars in millions

                         Number of fully unused       Residual value of fully 
               Airline                    tickets             unuseda tickets 
              American                      6,151                        $2.2 
                 Delta                     15,588 
             Northwest                      3,479 
                United                     16,283 
            US Airways                      6,719 
                 Total                     48,220                       $19.2 

Source: GAO analysis of airline data.

aValues represent tickets purchased primarily in fiscal years 2001 and
2002. Of the $19.2 million, $2.4 million represents tickets that were not
purchased during those 2 fiscal years.

Since DOD was not aware of these unused tickets, and consequently did not
know their number or dollar value, we requested these data from DOD's five
most frequently used airlines-American, Delta, Northwest, United, and US
Airways. Although we asked each airline for consistent data on tickets
purchased in fiscal years 2001 and 2002 that were unused and not refunded,
we did not receive uniform, complete, or consistent responses. For
example, although American Airlines and US Airways provided us with data
on fully unused tickets for fiscal year 2002-tickets that were issued to
DOD travelers but never traded in at a counter-they provided only partial
data for fiscal year 2001. Delta Airlines provided us information on the
status of all tickets DOD purchased with its centrally billed accounts
during fiscal years 2001 and 2002, and guidance on how to identify those
tickets that were fully and partially unused. For more detailed
information on the breakdown of fully unused tickets by year, and further
discussion of the types of data we received from the airlines, see
appendix II.

Residual Value of Partially In addition to the $19.2 million in fully
unused tickets, DOD failed to claim Unused Tickets Is refunds on millions
of dollars in airline tickets purchased with centrally Potentially
Significant billed accounts that were partially unused. As in the case of
fully unused

tickets, DOD was not aware of, and therefore did not maintain data on,
partially unused tickets. Consequently, we had to request these data from
the airlines.

Partially unused tickets are those tickets that, although used, still have
residual value as only portions of those tickets were traded in for
travel. A DOD ticket may be partially unused for several reasons. For
instance, a ticket can be partially unused when a DOD traveler used the
ticket for the outbound flight but decided to drive home with another DOD
traveler. A ticket can also be partially unused if, for example, a DOD
traveler who was originally scheduled to travel from Seattle to Miami and
then to San Juan, Puerto Rico, was ordered to return home from Miami
because of weather problems. In this case, the portion of the airline
ticket from Miami to Puerto Rico was unused. While the portions that have
been used represent services rendered by the airlines, the portions that
are partially used have a residual value that can be claimed as a refund.
Table 3 summarizes the number and purchase price of partially unused
tickets, as well as the residual value of partially unused tickets where
available.

Table 3: Known Partially Unused Airline Tickets, November 1998 through December
                                      2002

                              Dollars in millions

Number of tickets identified Purchase price of tickets identified as
Residual value of tickets identified Airline as partially unuseda
partially unuseda as partially unused

                          US Airways Data not provided

Partially unused tickets requiring additional analysis to determine
residual value

          Delta             51,294           $39.3               Not provided 
        Northwest           7,420            7.6b                Not provided 
         United             22,823           15.2                Not provided 
        Subtotal            81,537           $62.1               Not provided 

Known residual value of partially unused tickets not requiring additional
                                    analysis

                            American 9,726 $5.8 $1.9

                            Total 91,263 $67.9 $1.9

Source: GAO analysis of airline data.

aValues represent tickets purchased primarily in fiscal years 2001 and
2002. Of the more than 90,000 tickets totaling $67.9 million, about 8,500
tickets with total purchase price of $5.2 million were not purchased
during those 2 fiscal years.

bPurchase price of $7.6 million represents Bank of America data on ticket
price. This amount differs from Northwest Airlines' reported fare of $7.2
million. Our analysis indicates that Northwest Airlines excluded taxes and
fees from its reported amount of $7.2 million.

Over the entire period for which four airlines provided data on partially
unused tickets-American, Delta, Northwest, and United-we identified

that more than 91,000 tickets costing about $68 million were only
partially used. Although Delta, Northwest, and United provided data that
identified over 81,000 partially unused tickets with a purchase price of
more than $62 million, these three airlines informed us that their ticket
data are not maintained in a format that would allow them to easily
quantify the residual value of these partially unused tickets. To do so
would require a complex process involving the repricing of each of the
segments that made up the total purchase price-a process the airlines told
us would be laborintensive and costly. American Airlines was able to
provide the residual value of its partially unused tickets-$1.9 million.
Further, US Airways did not provide us with any data on these types of
tickets. As indicated by the airlines, substantial work remained to be
done to derive an estimate of the residual value of partially unused
tickets. For more detailed information on the breakdown of partially
unused tickets by year, see appendix II.

Data Indicate That DOD May Have Millions More in Tickets That Are Unused
and Not Refunded

In addition to the millions of dollars in known amounts of unused tickets
or segments thereof that were not refunded, we used the limited airline
data to assess that the possible magnitude of outstanding unused tickets
purchased from 1997 through 2003 was at least $100 million. As stated
previously, federal agencies are authorized to recover payments made to
airlines for tickets that agencies ordered but did not use. Generally a
6-year statute of limitations applies to the government's ability to file
an action for money damages based on a contractual right, but the
government also has up to 10 years to offset future payments for amounts
it is owed. However, airline representatives told us that they were
concerned about the feasibility and costs of retrieving DOD's unused
ticket data from their archives.

As you requested, we used the data provided by the airlines to determine
the possible magnitude of the tickets DOD purchased but did not use or
claim as a refund since 1997. Using the data that the airlines provided
for fiscal year 2002, we calculated the total value of fully unused
tickets as a percentage of total tickets purchased using a centrally
billed account. We also used the more limited data the airlines provided
on partially unused tickets for fiscal year 2002 to gauge the residual
value of partially used tickets as a percentage of the total purchase
value of these tickets. We applied these combined results, which on a per
airline basis ranged from 1.44 percent to 3.26 percent, to the total
purchase value of tickets purchased with centrally billed accounts since
1997 (about $8 billion) and found-using the lowest estimate of 1.44
percent-that it is possible DOD purchased at least $100 million in airline
tickets that were unused and not

refunded during this period. (See app. II for further information on our
calculations.)

As discussed previously, DOD was not aware of, and consequently did not
maintain data on, unused tickets and would therefore have to rely on the
airlines to provide the relevant data needed to claim refunds. The
inconsistent and incomplete responses we received from the airlines point
to the difficulties in determining the total value of unused tickets.
While the airlines readily provided us with at least 1 year of the data we
requested, some airline representatives informed us that data on tickets
purchased prior to the last 18 months have been moved to electronic
archives, and retrieving data from these archives is costly and
time-consuming. The process involves restoring from archives millions of
records of tickets the airlines have issued before they can identify
tickets purchased with the DOD centrally billed accounts that are fully
and partially unused. Further, additional work would be necessary to
determine the value of the unused portions of partially unused airline
tickets. Finally, the airlines stated that some ticket data were not
maintained electronically and that generating information related to these
tickets would involve manually sifting through the airlines' ticket
coupons. However, unused tickets from these 5 airlines and the more than
85 other airlines that DOD uses represent a potentially substantial
government claim.

DOD Did Not Implement Effective Controls over Unused Tickets

Millions of dollars of unused tickets have not been refunded because DOD
did not have a systematic process to identify and process unused tickets.
Effective internal controls are the first line of defense in safeguarding
assets and preventing and detecting fraud, and are an integral part of an
entity's accountability for government resources. However, we found that
DOD's flawed process relied extensively on DOD personnel to report unused
tickets to the travel offices. DOD had not systematically implemented
procedures to identify instances in which travelers failed to notify the
commercial travel offices (CTO) and their commands of unused tickets, or
to ensure that refunds were processed once the CTOs received
notifications. Although some units had instituted a process by fiscal year
2002 to more systematically identify instances of unused tickets, the
process was not implemented DOD-wide and could only be used to identify
unused electronic-not paper-tickets. Further, in locations where this
process had been implemented, DOD did not have systematic procedures to
verify that the CTOs identified all unused electronic tickets and
processed these for refunds. Because our preliminary assessment determined
that current operations used to identify and process unused

tickets were flawed, we did not statistically test current processes and
controls.

Inadequate Controls over Unused Ticket Reporting and Processing

During fiscal years 2001 and 2002, DOD relied on travelers to report
unused tickets to the CTOs. DOD travel regulations state that the traveler
must notify the CTO when a ticket is not used, and DOD's Financial
Management Regulations further stipulates that it is the traveler's
responsibility to return unused transportation tickets to the CTO for a
refund. At some CTOs, each trip itinerary generated at the time an airline
ticket was issued also contained a reminder to the traveler to return all
unused tickets to the CTO. Unused ticket notification initiates a process
whereby requests for refunds can be submitted to the airlines. As
mentioned above, contract tickets purchased by the government are fully
refundable. Timely processing of refunds ensures that scarce resources are
returned to the government.

However, DOD did not implement control procedures to systematically
determine the extent to which DOD travelers adhered to the unused ticket
requirements, and to identify instances in which they did not. According
to bank data, DOD received credits amounting to about 9 percent of the
airline tickets purchased through the CTOs during fiscal years 2001 and
2002. Although these data indicate that some DOD travelers followed the
unused ticket requirements, DOD did not maintain data in such a manner as
to allow the department to identify the extent of noncompliance.

Figure 2 illustrates where control breakdowns can occur if travelers do
not adhere to DOD requirements and report unused tickets to the CTOs. As
shown in figure 2, once a ticket is charged to the centrally billed
account and given to the traveler, DOD has no systematic controls to
determine that the ticket was used-or remains unused-unless the traveler
notifies the CTO that the ticket was not used. If the traveler does not
notify the CTO of an unused ticket, the ticket would not be refunded
unless the CTO monitored the status of airline tickets issued
electronically and applied for refunds on all unused tickets. Figure 2
also shows that the failure to notify the CTO of an unused paper ticket
would result in the ticket being unused and not refunded. In addition, if
the CTO identifies or is notified of an unused ticket but fails to process
a refund, the ticket will also be unused and not refunded.

Figure 2: Possible Control Breakdowns in the Unused Ticket Process

Source: GAO analysis of the process of issuing tickets charged to DOD's
centrally billed accounts.

DOD services and agencies have sometimes identified unused tickets as an
indirect result of the procedures they have put in place to monitor the
status of their obligations. For example, budget officials at the
Department of the Navy's location in Keyport, Washington, informed us that
their financial system is programmed to identify all travel orders for
which corresponding travel vouchers had not been filed 5 days after travel
was to have been completed. Upon identification of the missing travel
vouchers, the system automatically produces a list of travelers who have
not filed their travel claims. Once identified, the finance office sends
an e-mail reminder to the traveler to file his or her travel voucher.
According to these officials, the traveler responds by filing a voucher or
notifying the finance office that the travel was canceled and, therefore,
the ticket was not used. Rather than relying on the traveler to notify the
CTO of the unused ticket, the finance office gives the notification so
that a refund can be processed. Similarly, finance officials at Hickam Air
Base regularly monitor the

accounting system for open travel orders (unliquidated obligations) and
notify the appropriate resource officers to work on these unliquidated
obligations. These resource officers would in turn remind the travelers to
file the requisite travel vouchers or notify the CTOs of unused tickets.

However, the monitoring of open travel orders is only partially effective
in identifying unused tickets, as it still relies, to a large extent, on
the traveler providing notification to the CTO of canceled travel.
Further, in a report issued in January 2003,12 we noted that hundreds of
millions of dollars in unliquidated obligations were not accounted for
because Navy fund managers failed to follow DOD regulations that require
the periodic review of unliquidated obligations exceeding $50,000. These
Navy managers cited time constraints as one of the obstacles to reviewing
these unliquidated obligations. In contrast to the unliquidated
obligations exceeding $50,000 referred to in that report, travel
obligations are often valued in the thousands and sometimes only in the
hundreds of dollars. Consequently, it is likely that many of these smaller
obligations would be of an even lower priority and therefore not reviewed.

Similarly, we found that the monitoring of open travel orders at the Air
Force is not effective in identifying unused tickets. The Air Force
records all travel expenses-regardless of whether they were incurred with
the centrally billed accounts or by the travelers directly-as one lump sum
obligation. Once a voucher is filed, or a centrally billed charge is paid,
whichever is sooner, the obligation would be liquidated, and the travel
order removed from the list of unliquidated travel orders. Thus, the
liquidation of an obligation is dependent on either the filing of a
voucher or the payment of a centrally billed account, not whether the
ticket is used or unused. Consequently, like the Navy, it would be
difficult for the Air Force to consistently identify unused tickets
through the monitoring of open travel orders.

We also found that DOD did not have control procedures to provide
assurance that tickets identified as unused were processed for refunds. At
9 of the 10 locations we visited, neither the CTO nor the government
travel office (GTO) maintained centralized records of unused tickets
submitted by the travelers. Without a centralized record of unused
tickets, an unused ticket that had been lost or never processed for refund
would not be

12U.S. General Accounting Office, Defense Budget: Improved Reviews Needed
to Ensure Better Management of Obligated Funds, GAO-03-275 (Washington,
D.C.: Jan. 30, 2003).

detected. Therefore, neither the CTO nor the GTO could certify that all
tickets turned in by the travelers were processed for refunds. We did
note, however, that 6 of the 10 locations had implemented procedures to
verify that unused tickets processed for refunds resulted in credits to
the government.

DOD Had Not Designed Procedures to Reconcile Centrally Billed Account Tickets to
                                 Travel Claims

Our internal control standards identify reconciliation as a control
activity that helps enforce management's directives and ensures that
actions are taken to address risks. Reconciliation should be performed
routinely so that problems are detected and corrected promptly and
differences are not allowed to age, thereby becoming increasingly
difficult to research. However, we found that DOD did not implement
reconciliation procedures that link airline tickets purchased with the
centrally billed account to travel claims submitted by travelers.
Specifically, when DOD purchased an airline ticket with a centrally billed
account, DOD did not implement procedures to identify whether the traveler
has or has not submitted a travel voucher. A lack of a travel voucher
could indicate that the ticket was unused. Without reconciling these two
types of records, DOD could not obtain reasonable assurance that centrally
billed account charges represent airline tickets that were eventually
used.

DOD regulations require that travelers file travel claims, in the form of
a travel voucher, within 5 days of the end of travel. The filing of a
travel claim provides positive confirmation that the travel took place. A
travel claim also represents the traveler's assertion that the
transportation mode indicated on the travel order-be it air or land-was
used in the performance of official duty. Only in exceptional
circumstances would the filing of a travel voucher fail to provide the
confirmation that an airline ticket provided to the traveler through the
centrally billed account was not used. For example, mechanical problems at
one airline could result in the traveler buying another ticket on a
different airline with an individually billed travel card or a personal
credit card. In these instances, the ticket acquired through the centrally
billed account would not be used, and this could have been detected
through a reconciliation process.

In addition, the positive confirmation provided by the filing of a travel
voucher indicates that a DOD-wide reconciliation between travel vouchers
and centrally billed account charges would lead to the identification of
instances in which travel claims have not been filed for travel involving
the issuance of a centrally billed airline ticket. Such identification
would allow DOD to follow up with the travelers to determine whether
travel was taken,

and therefore whether the ticket was used. A failure to reconcile tickets
that were centrally acquired to travel claims filed by travelers resulted
in DOD not being able to determine whether the airline tickets it
purchased were used.

Some DOD Units Have Implemented Procedures to Identify Unused Electronic
Tickets

In the period under audit, some DOD units have made improvements to its
unused ticket process to compensate for the lack of internal controls over
the centrally billed account program. By fiscal year 2002, some DOD units
had established procedures intended to systematically identify unused
electronic tickets, thus allowing DOD to obtain refunds on tickets it
otherwise might have missed. At these locations, the computer systems used
to reserve and purchase flights13 allow the CTOs to search the databases
of each airline that participates in electronic ticketing. Each CTO can
customize the searches to generate a list of unused electronic tickets
directly from these computer reservation systems, or manually review data
on the status of each electronic ticket to identify tickets that are
unused.

These procedures enable the CTOs to systematically identify unused
etickets without having to receive notification from the travelers. CTOs
can process requests for refunds directly in the computer reservation
systems after unused tickets are identified. This on-line capacity allows
DOD to obtain timely refunds and increases the organization's ability to
safeguard resources. An increasingly larger portion of all tickets issued
are issued electronically-data from one large U.S. airline indicated that
69 percent of tickets issued during fiscal year 2002 and as much as 84
percent of tickets issued during fiscal year 2003 were electronic tickets.
Consequently, these procedures increase DOD's ability to capture refunds
on a large portion of unused tickets. This ability to independently
identify unused electronic tickets, if implemented across the services
consistently and properly supervised, would allow DOD to partially
compensate for the lack of controls in ensuring that travelers notify the
appropriate office of canceled travel.

13Systems from three domestic companies dominate the U.S. travel agent
market: Sabre, Galileo, and Worldspan. Each computer system allows a
travel agency to access participating airlines' schedules, fares, and seat
availability; to make airline reservations; and to issue airline tickets.
Although each computer reservation system was developed at a different
airline, carriers have had to participate in each system so that all
travel agents have access to an airline's flight information. These
systems are required to be unbiased in providing flight listings so that
some airlines are not favored over others.

However, our work found that not all locations implemented this capability
during fiscal year 2002. This is partly because DOD did not incorporate a
requirement for this capability into all the contracts it issued to the
CTOs during fiscal year 2002. For example, the CTO at Hickam Air Base did
not monitor unused tickets electronically because its contract did not
require it to do so. In contrast, some locations that did not have this
requirement in their contracts nevertheless implemented this capability
through an agreement between the CTO and the GTO. High-level DOD officials
to whom we reported the status of unused tickets informed us that they
will require this capability to be a part of the new contracts issued
under the Defense Travel System (DTS). The DTS is intended to be the
DOD-wide travel system and replace the more than 30 travel systems
currently operating within the department. However, according to a 2002
DOD Office of Inspector General report,14 "the DTS was being substantially
developed without the requisite requirements, cost, performance, and
schedule documents and analyses needed as the foundation for assessing the
effectiveness of the system and its return on investment." The report
further noted that DOD estimated that deployment would not be completed
until fiscal year 2006.

In general, we found that the GTOs at locations where the CTOs had put
this process in place have not implemented control procedures to verify
that the CTOs consistently identify and file for refunds on unused
e-tickets. For instance, the CTOs at several locations we visited did not
provide their respective GTOs with inventories of tickets they have
identified as unused. Therefore, the transportation officers were unable
to determine that all unused tickets were turned in for refunds. As noted
above, we found that several transportation officers had procedures in
place to confirm that the organization receives a credit for tickets that
have been submitted for refunds. However, this process was not implemented
at all locations we visited. Consequently, not all DOD units could provide
assurance that all requests for refunds resulted in a credit to the
government.

Even if the CTOs can identify all e-tickets, they cannot independently
identify nonelectronic tickets. Nonelectronic tickets are typically used
for international travel because many non-U.S. carriers do not issue
electronic tickets. International travel can sometimes make up as much as
25 percent

14U.S. Department of Defense, Office of the Inspector General, Allegations
to the Defense Hotline on the Management of the Defense Travel System,
Report No. D-2002-124 (Arlington, Va.: July 1, 2002).

of the total dollar value of a unit's travel. Given the inability to
identify unused paper tickets, and weaknesses in the control procedures
over the CTOs, the reconciliation procedures we discussed previously will
still need to be established to match purchases made with centrally billed
accounts to travel vouchers that have been filed. Unless DOD establishes a
procedure to verify whether all airline tickets are used, it will not have
reasonable assurance that airline tickets purchased through the centrally
billed account are used or refunded.

Improvements in Management of the Individually Billed Accounts Provide DOD
Options to Minimize Unused Ticket Risks

In a series of testimonies15 and reports16 issued in fiscal years 2002 and
2003, we addressed problems that the Army, Navy, and Air Force had in
managing the individually billed account travel cards. These testimonies
and reports showed high delinquency rates and significant potential fraud
and abuse related to DOD's individually billed travel card program.
However, recent improvements to the individually billed program point to
the possibility of using this program as the principal means of acquiring
tickets, thereby reducing the government's risk of losses from unused
tickets arising from the use of centrally billed accounts.

In response to our testimonies and reports on the individually billed
accounts, the Congress took actions in the fiscal year 2003 appropriations
and authorization acts17 requiring (1) the establishment of guidelines and
procedures for disciplinary actions to be taken against cardholders for
improper, fraudulent, or abusive use of government travel cards; (2) the
denial of government travel cards to individuals who are not creditworthy;
(3) split disbursements18 for travel cardholders; and (4) offset of
delinquent

15GAO-02-863T and GAO-03-148T.

16GAO-03-169, GAO-03-147, and GAO-03-298.

17Department of Defense Appropriations Act, 2003, Pub. L. No. 107-248, 116
Stat. 1519 (2002), and the Bob Stump National Defense Authorization Act
for Fiscal Year 2003, Pub. L. No. 107-314, 116 Stat. 2458 (2002).

18Split disbursement is a process in which DOD pays the
travel-card-issuing bank directly for charges incurred on the travel card
and claimed on the travel voucher. Additional money owed to the traveler
is deposited directly into the traveler's bank account. Split
disbursements are required of all military and civilian personnel. See
also the National Defense Authorization Act for Fiscal Year 2004, Pub. L.
No. 108-136, S: 1009, 117 Stat. 1392, 1587 (2003), 10 U.S.C. S: 2784a.

travel card debt against the pay or retirement benefits of DOD civilian
and military employees and retirees.

In response, DOD has implemented many of the legislatively mandated
improvements-most notably the implementation of split disbursements and
salary offsets and the reduction in the numbers of individuals with access
to the travel cards. According to Bank of America, the delinquency rates
we noted in our prior reports at the Army, Navy, and Air Force have
decreased. For example, the delinquency rate at the Navy had decreased
from an average monthly delinquency rate of about 11 percent during fiscal
year 2002 to an average monthly delinquency rate of less than 7 percent in
fiscal year 2003. Similarly, during that same period the Army's average
monthly delinquency rate decreased from about 14 percent to an average
monthly delinquency rate of about 9 percent.

The benefits of using a well-controlled individually billed account
program as the principal mechanism for acquiring airline tickets are
twofold. First, in the individually billed account program, the cardholder
is directly responsible for all charges incurred on his or her travel
card. In contrast, improper charges to centrally billed accounts that are
not detected and disputed or authorized charges, such as airline tickets
that are not used, result in direct financial losses to the government in
the amount of the face value of the tickets. Second, with the use of
individually billed accounts to purchase tickets, DOD travelers have
greater incentive to turn in unused tickets because they are responsible
for paying the ticket charges. The use of individually billed cards to
acquire airline tickets would therefore help to limit the government's
financial exposure.

However, the use of the individually billed accounts to acquire airline
tickets would only minimize, not eliminate, the necessity of implementing
internal controls over the centrally billed account program. DOD would
still need to maintain a centrally billed account structure to purchase
airline tickets for travelers who have been denied individually billed
accounts, infrequent travelers whose individually billed credit cards have
been canceled, and new employees who have not yet acquired individually
billed accounts.

Conclusion	The millions of dollars wasted on unused airline tickets
provides another example of why DOD financial management is one of our
"high-risk" areas, with DOD highly vulnerable to fraud, waste, and abuse.
In implementing the centrally billed component of the travel card program,
DOD relied on a

weak process that depended on travelers reporting all unused tickets to
CTOs. Although many DOD travelers informed the CTOs of unused tickets as
required, the lack of specific internal control procedures to identify
instances in which the travelers did not do so resulted in DOD paying for
thousands of airline tickets that were not used and not processed for
refunds. During fiscal year 2003, some DOD units began implementing
procedures to more systematically identify unused airline tickets, and in
fiscal year 2004, DOD started working to recover from the airlines the
value of unused tickets we identified. DOD must build on these
improvements and establish controls over unused tickets to improve its
ability to control costs and ensure basic accountability over scarce
resources. In addition, DOD should take immediate actions to recover the
outstanding value of tickets that were fully or partially unused and not
refunded.

Recommendations for Executive Action

To improve the management DOD's travel resources, we are making the
following 20 recommendations to DOD officials.

To decrease the risks associated with the use of the centrally billed
accounts, we recommend that the Secretary of Defense evaluate the
feasibility of the following two actions:

o 	establishing the individually billed account travel card as the primary
payment mechanism for transportation expenses, and

o 	limiting the use of the centrally billed account travel card to
procuring transportation expenses for those employees without access to
individually billed accounts, such as new employees who have not yet
obtained individually billed account travel cards and employees who do not
qualify for the use of individually billed account travel cards, and for
other situations in which the use of an individually billed travel card is
not practical.

To enable DOD to systematically identify future unused airline tickets
purchased through the centrally billed accounts, and improve internal
controls over the processing of unused airline tickets for refunds, we
recommend that the Secretaries of the Army, Air Force, and Navy and the
heads of DOD agencies direct the appropriate personnel within services and
agencies to take the following nine actions:

o 	evaluate the feasibility of implementing procedures to reconcile
airline tickets acquired using the centrally billed accounts to travel
vouchers in the current travel system;

o  modify existing CTO contracts to include a requirement that the CTOs

o 	establish a capability to systematically identify unused e-tickets in
their computer reservation systems,

o 	identify all unused tickets based on specified criteria before the
unused ticket data are removed from the computer reservation systems,

o 	maintain daily schedules that identify unused tickets and how long they
have been unused,

o  routinely provide the GTOs with unused ticket reports,

o  routinely process refunds for tickets identified as unused, and

o 	submit to the GTOs all requests for refunds that have been processed;

o 	require the GTOs to routinely compare unused tickets processed by the
CTOs to the credits on the Bank of America invoice; and

o 	require either the GTOs or the units responsible for monitoring the
CTOs' activities to determine whether the CTOs are consistently
implementing the procedures to identify unused tickets and process these
tickets for refunds.

To enable DOD to more effectively monitor unused tickets under the DTS, we
recommend that the Secretary of Defense direct the appropriate personnel
to take the following four actions:

o  use the DTS to remind travelers to claim refunds on all unused tickets,

o 	include in future contracts issued for the DTS, a requirement that the
CTOs establish the capability to

o  systematically identify unused tickets and

o  process these tickets for refunds, and

o 	establish, in the DTS, a capability to routinely match travel vouchers
to tickets issued through the centrally billed accounts.

To recover outstanding claims on unused tickets, we recommend that the
Under Secretary of Defense (Comptroller) initiate the following five
actions:

o 	immediately submit claims to the airlines to recover the $21 million in
fully and partially unused tickets identified by the airlines and included
in this report;

o 	calculate, with the assistance of the airlines, the residual value of
the partially unused tickets identified by the airlines and included in
this report; and

o 	work with the five airlines identified in this report and other
airlines from which DOD purchased tickets with centrally billed accounts
to

o 	identify the feasibility of determining the recoverability of other
fully and partially unused tickets purchased with DOD centrally billed
accounts,

o  determine the value of the unused portions of those tickets, and

o  initiate actions to obtain refunds.

Agency Comments and Our Evaluation

In written comments on a draft of this report, which are reprinted in
appendix III, DOD concurred with all 20 of our recommendations and stated
that it had taken actions or will take actions to address these
recommendations. For example, with respect to actions already taken, DOD
stated that it has implemented, in the DTS, a capability to routinely
match travel vouchers to tickets issued through the centrally billed
accounts. This capability is currently being tested at certain pilot
sites. With respect to actions under way, DOD had submitted claims to the
airlines on February 26, 2004, to recover the $21 million in fully and
partially unused paper and electronic tickets identified by the airlines,
and stated that it will work with the airlines from which it purchased
tickets through the centrally billed accounts to identify the feasibility
of determining the recoverability of other fully and partially unused
tickets.

As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute it until 30 days from its date. At
that
time, we will send copies to interested congressional committees; the
Secretary of Defense; the Under Secretary of Defense, Comptroller; the
Secretary of the Army; the Secretary of the Navy; the Secretary of the Air
Force; and the Director of the Defense Finance and Accounting Service. 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 [email protected], John J.
Ryan at (202) 512-9587 or [email protected], or John V. Kelly at (202)
512-6926 or [email protected] if you or your staffs have any questions
concerning this report. Major contributors to this report are acknowledged
in appendix IV.

Gregory D. Kutz Director Financial Management and Assurance

Robert J. Cramer Managing Director Office of Special Investigations

Appendix I

                       Objectives, Scope, and Methodology

Pursuant to a joint request by the Chairman and Ranking Minority Member of
the Permanent Subcommittee on Investigations, Senate Committee on
Governmental Affairs; the Chairman of the Senate Committee on Finance; and
Representative Schakowsky, we audited the controls over unused airline
tickets purchased through the Department of Defense's (DOD) centrally
billed accounts. Our assessment covered the following:

o 	the extent of tickets charged to the centrally billed accounts that are
unused and not refunded and

o 	whether DOD's internal controls provided reasonable assurance that all
unused tickets were identified and submitted for refunds.

To assess the magnitude of tickets charged to the centrally billed
accounts that are unused and not refunded, we obtained from Bank of
America databases for fiscal years 2001 and 2002 travel transactions
charged to DOD's centrally billed travel card accounts. The databases
contained transaction-specific information, including ticket fare, ticket
number, name of passenger, date and destination of travel, and number of
segments in each ticket. We reconciled these data files to control totals
provided by Bank of America and to data reported by the General Services
Administration as DOD's centrally billed account activities. We also
requested that the five airlines that DOD used most frequently provide us
with data relating to tickets DOD purchased during fiscal years 2001 and
2002 that were unused and not refunded. These five airlines-American,
Delta, Northwest, United, and US Airways-together accounted for more than
82 percent of the value of total airline tickets DOD purchased. To obtain
assurance that the tickets the airlines reported as unused represented
only airline tickets charged to DOD centrally billed accounts we compared
data provided by the airlines to transaction data provided by Bank of
America. Because DOD does not track whether tickets purchased with
centrally billed accounts were used, we were unable to confirm that the
population of unused tickets that the airlines provided was complete, that
is, it included all DOD tickets that are unused and not refunded.

While the five airlines provided data on unused tickets that allowed us to
identify which tickets were unused and not refunded, they did not provide
uniform or consistent data, and their data did not always cover the same
periods. Specifically, all five airlines provided data that enabled us to
determine the total purchase price of fully unused tickets, and four of
the five airlines provided data that enabled us to determine the total
purchase price of partially unused tickets. Only one airline provided us
the unused

Appendix I
Objectives, Scope, and Methodology

value (residual value) of partially unused tickets. Further, while all
five airlines provided us information on fiscal year 2002 fully unused
tickets, the data they provided on fully unused tickets covered from 1 to
over 4 years. In addition, only four airlines provided partially unused
ticket data, and the data they provided similarly covered from 1 to over 4
years. For further details on the type of data received, and our
calculations of the value of fully unused and partially unused tickets,
see appendix II. We also reviewed relevant statutes and court decisions
related to the period of time federal agencies are allowed to claim
refunds and apply administrative offsets to goods and services they
purchased but did not receive.

To assess controls over unused tickets, we obtained an understanding of
the travel process by reviewing DOD's travel regulations and interviewing
officials from the Departments of the Army, Navy, and Air Force. We
visited two Army units, three Navy units, three Air Force units, and two
Marine Corps units to confirm our understanding of the travel process. We
also interviewed DOD officials at the government travel offices and
representatives of the commercial travel offices to obtain an
understanding of the process used to identify unused tickets and claim
refunds on those tickets. To assess the internal controls over unused
tickets, we applied the fundamental concepts and standards set forth in
our Standards for Internal Control in the Federal Government1 to the
practices followed by these units to manage unused tickets. Because we
determined that controls over unused tickets were ineffective, we did not
assess or design statistical sampling tests to test these controls.

We briefed DOD managers, including DOD officials in the Office of the
Under Secretary of Defense (Comptroller), the Defense Finance and
Accounting Service, and the Office of the Inspector General; Army
officials in the Office of Deputy Chief of Staff for Logistics; Navy
officials in the Office of the Assistant Secretary of the Navy for
Financial Management and Comptroller; Air Force officials in the Office of
the Deputy Chief of Staff for Installation and Logistics; and Marine Corps
officials in the Office of Deputy Chief of Staff for Installations and
Logistics concerning the results of our work. On December 19, 2003, we
provided DOD officials with a partial list of fully and partially unused
tickets we received as of that date. On February 10, 2004, we requested
comments on a draft of this report from the Secretary of Defense or his
designee. We conducted our audit

1U.S. General Accounting Office, Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

Appendix I
Objectives, Scope, and Methodology

work from March 2003 through January 2004, in accordance with U.S.
generally accepted government auditing standards.

Appendix II

Known Value of Fully and Partially Unused Tickets and Potential Magnitude
of Control Weaknesses

To determine whether design flaws in controls over purchasing tickets
using DOD centrally billed accounts resulted in a significant loss of
federal tax dollars, we contacted DOD's five most frequently used airlines
and requested that they identify tickets DOD purchased with a centrally
billed account that had not been used or refunded as of the date of our
request. While those airlines did not provide consistent data concerning
unused tickets, they did provide information sufficient to allow us to
determine the unused value of some of their fully unused tickets and the
original purchase price of some of the partially unused tickets. In
addition, one airline provided information on the unused value of at least
some of its partially unused tickets. Using the ratios of the known value
of unused tickets to total tickets purchased, we were able to assess the
potential magnitude of tickets purchased with DOD centrally billed
accounts that were not used or refunded since 1997-the first year for
which centrally billed account information is available from the General
Services Administration.

Types of Data Provided Differed Substantially between Airlines

We asked DOD's five most frequently used airlines-American, Delta,
Northwest, United, and US Airways-to provide information on tickets
purchased by DOD with centrally billed accounts during fiscal years 2001
and 2002 that had not been used or refunded. As shown in table 4, while
all the airlines generally provided complete data on fiscal year 2002
fully unused tickets, the airlines did not provide uniform, complete, or
consistent responses to our request for fiscal year 2002 partially unused
tickets, or for fully or partially unused ticket data for fiscal year
2001. In addition, some airlines provided some information on fully and
partially unused tickets that were purchased in fiscal years 2003, 2000,
and 1999.

                                  Appendix II
                   Known Value of Fully and Partially Unused
                   Tickets and Potential Magnitude of Control
                                   Weaknesses

                 Table 4: Type of Data Provided by the Airlines

Airline Type of data Period covered

American  o  Value of fully unused tickets  o  Tickets purchased in the
13-month period from

o  Purchase price of partially unused tickets September 2001 through
September 2002a

o  Unused value of partially unused tickets

Delta  o  Status of all tickets issued to DOD  o  Tickets purchased during
                           fiscal years 2001 and 2002

Northwest  o  Value of fully unused tickets  o  Tickets purchased in
fiscal years 2001 and 2002b

o  Purchase price of partially unused tickets

United    o  Value of fully unused          o  Electronic tickets: tickets 
                     tickets                          purchased from November 
          o  Purchase price of partially      1998 through December 2002      
                  unused tickets         
                                          o  Paper tickets: tickets purchased 
                                                        primarilyc from April 
                                              2002 through December 2002      

US Airways  o  Value of fully unused tickets  o  Tickets purchased in the
15-month period from July 2001 through September 2002

Source: GAO analysis of airline data.

aAmerican Airlines also provided data on tickets purchased from October
through December 2002 that were still unused. We excluded 8,136 American
Airlines unused tickets totaling $2.1 million from our analysis because
either (1) less than 6 months had passed between the time the tickets were
purchased and when American Airlines provided the file or (2) Bank of
America data did not confirm whether the tickets were fully or partially
unused.

bNorthwest Airline's file included 88 tickets that were issued in fiscal
2000 that were included in fiscal year 2001 Bank of America statements.

cUnited Airlines provided information on 9,702 paper tickets; 413 of those
paper tickets were purchased prior to April 2002.

While American, Delta, Northwest, and United provided some data on
partially unused tickets, US Airways did not provide any. Further, as
noted in table 4, while American, Delta, Northwest, and United provided
data on the total purchase price of tickets that were partially unused,
American Airlines was the only airline that also provided data on the
unused value of its partially unused tickets. Table 4 also shows that
there were inconsistencies among the airlines when it came to providing
data on unused tickets purchased before, during, and after fiscal year
2002. The airlines cited difficulties with accessing their historical
files as the reason for not being able to fully respond to our request.
The airlines pointed out that to provide additional information, they
would have had to access information that had been stored in archived
computer files, and in some instances, the computer files had been
eliminated and the only documentation that remained were paper records of
the flights.

                                  Appendix II
                   Known Value of Fully and Partially Unused
                   Tickets and Potential Magnitude of Control
                                   Weaknesses

Known Unused Value of Fully and Partially Unused Tickets

As shown in table 5, airline data showed that DOD used centrally billed
accounts to purchase about 58,000 tickets with a value of $21.1 million
that were unused and not refunded. The $21.1 million included more than
48,000 tickets valued at $19.2 million that were fully unused and about
10,000 partially unused tickets (i.e., at least one leg had never been
used) that had an unused value of about $1.9 million. Due to differences
in the data provided by the airlines, we used three primary methods to
identify the number and value of tickets that are fully unused. Three
airlines- Northwest, United, and US Airways-provided us with data files
that identified a ticket as being fully unused and its purchase price. For
these airlines, we calculated the unused value of fully unused tickets by
totaling the purchase price of each of the fully unused tickets. American
Airlines provided us a file containing fully unused and partially unused
tickets. To separate partially from fully unused, we used Bank of America
data. Delta Airlines provided us with data on the status of each airline
ticket DOD purchased using the centrally billed accounts during fiscal
years 2001 and 2002 and guidance on how to determine whether a ticket is
fully used, partially unused, or fully unused. To identify fully unused
Delta tickets from Delta databases, we first identified tickets reported
by Delta that matched Bank of America data of how many ticket legs were
purchased, then we used the guidance Delta provided to identify its fully
unused tickets. Once we identified these tickets, we derived the unused
value of fully unused Delta Airlines tickets by totaling the purchase
price of each of the fully unused tickets, similar to the methodology we
used for the other four airlines.

                                  Appendix II
                   Known Value of Fully and Partially Unused
                   Tickets and Potential Magnitude of Control
                                   Weaknesses

               Table 5: Known Value of Unused Tickets by Airline

                              Dollars in millions

Number of tickets identified as fully unused Unused value of fully unused
tickets Fiscal year

                                  Fiscal year

Airline

 2002 2001 2002 2001 TotalTotal Known value of fully unused tickets Known value
                          of partially unused tickets

                Americana               5,806   345   6,151  $2.1 $ 0.1  $2.2 
                  Delta                 8,441  7,147  15,588 3.3   3.1  
                Northwest               1,640  1,839  3,479  1.1   1.2  
                 Unitedb                5,682  4,044  9,726  2.3   1.3  
               US Airwaysc              4,933  1,786  6,719  1.8   0.5  
     Total fiscal years 2001 and 2002                 41,663            $16.8 
            Other time periodd            --     --   6,557   --   --   
Total value of fully unused tickets    --     --   48,220  --   --   $19.2 

                         Americana 9,159 567 9,726 $1.9

               Known value of fully and partially unused tickets

Total value of fully and partially
unused tickets 57,946 $21.1

Source: GAO analysis of airline data.

aPartial fiscal year 2001 data include September 2001 only.

bUnited Airlines did not provide data on the number and value of paper
tickets purchased prior to April 2002 that were unused and not refunded.

cPartial fiscal year 2001 data include data from July 2001 through
September 2001.

dTickets purchased in fiscal year 2003 and prior to fiscal year 2001.

Partially Unused Tickets 	We could not determine the total unused value of
partially unused tickets for the five airlines we reviewed. Only American
Airlines calculated the unused value of the partially unused tickets it
identified. Three airlines- Delta, Northwest, and United-provide the
original purchase price of the partially unused airlines tickets, and US
Airways did not provide any information on partially unused tickets. To
determine the number and total purchase price of partially used tickets
purchased with DOD centrally billed accounts for which DOD did not claim a
refund, we followed the same methodology used to derive the number and
purchase price of fully unused tickets. For example, to derive the total
purchase price of partially unused American, Northwest, and United
tickets, we added the purchase

                                  Appendix II
                   Known Value of Fully and Partially Unused
                   Tickets and Potential Magnitude of Control
                                   Weaknesses

price of each of the partially unused tickets.1 For Delta Airlines, we
applied the guidance Delta representatives provided to identify partially
unused tickets, then added the purchase price of each of these tickets to
derive the total. As shown in table 6, our analysis of partially unused
tickets indicated that DOD travelers did not use all of the segments on
more than 91,000 tickets DOD purchased with centrally billed accounts.

               Table 6: Partially Unused Ticket Number and Value

Dollars in millions

Number of tickets identified as partially unused

Purchase price of tickets identified as partially unused

                            Fiscal year Fiscal year

Airline

                         2002 2001 2002 2001 TotalTotal

               Americana               9,159     567 9,726  $5.5  $0.3   $5.8 
                 Delta                29,483 21,811  51,294 22.9  16.4  
              Northwestb               3,283  4,137  7,420    3.2  4.4  
                Unitedc               10,319  3,962  14,281   8.2  1.8  
              US Airways                   d       d   d        d     d     d 
Total fiscal years 2001 and 2002                  82,721 $39.8 $22.9 $62.7 
          Other time periode              --      -- 8,542     --  --   
        Total, partially unused       52,244 30,477  91,263 $39.8 $22.9 $67.9 

Source: GAO analysis of airline data.

aPartial fiscal year 2001 data include September 2001 only.

bPurchase price of $7.6 million represents Bank of America data on ticket
price. This amount differs from Northwest Airlines' reported fare of $7.2
million. Our analysis indicates that Northwest Airlines excluded taxes and
fees from its reported amount of $7.2 million.

cUnited Airlines was not able to provide complete data on the number and
value of paper tickets that were purchased prior to April 2002 but were
not used or refunded. Consequently, the number and value of partially
unused United tickets are understated by the number and value of paper
tickets purchased prior to April 2002 that were partially unused, not
refunded, and not provided.

dData not provided.

eTickets purchased in fiscal year 2003 and prior to fiscal year 2001.

1As previously discussed, US Airways did not provide us data on partially
unused tickets.

                                  Appendix II
                   Known Value of Fully and Partially Unused
                   Tickets and Potential Magnitude of Control
                                   Weaknesses

Possible Magnitude of Unused Tickets Purchased with Centrally Billed
Accounts

During the period from fiscal year 1997 through 2003, DOD spent about $8
billion on airline tickets purchased using centrally billed accounts. To
assess the potential magnitude of fully and partially unused airline
tickets purchased using centrally billed accounts since 1997-the first
year that centrally billed account information is available from the
General Services Administration-we used known information related to
fiscal year 2002 fully and partially unused tickets and applied that
information to the tickets purchased from fiscal years 1997 through 2001
and in fiscal year 2003. We used fiscal year 2002 data because it was the
only year for which the airlines provided us fairly complete data. This
assessment indicates that the unused value of fully and partially unused
tickets purchased from fiscal year 1997 to fiscal year 2003 with DOD
centrally billed accounts could be at least $115 million.

The magnitude of fully unused tickets could be at least $53 million. As
shown in table 7, the percentage of fully unused tickets (unused ticket
value as a percentage of total ticket sales) in fiscal year 2002 for DOD's
five most frequently used airlines ranged from 0.66 percent for United
Airlines to 1.11 percent for American Airlines and US Airways.

              Table 7: Fiscal Year 2002 Fully Unused Ticket Ratios

Dollars in millions

                                                        Value of fully unused 
                                                                 tickets as a 
              Value of fully Value of tickets         percentage of the value 
                  unused     purchased through                  of all ticket 
    Airline          tickets DOD's centrally billed                purchasesa 
                                           accounts 
    American            $2.1                 $189.1 
     Delta               3.4                  334.0 
Northwest             1.1                  104.8 
     United              2.3                  344.8 
US Airways            1.8                  159.5                      1.11 
     Total             $10.7               $1,132.2                        -- 

Source: GAO analysis of data provided by Bank of America and the airlines.

aDifferences due to rounding of the value of fully unused tickets and the
total value of tickets purchased through DOD's centrally billed accounts.

The substantially lower ratio for United Airlines is attributed to the
fact that fully unused ticket data from United Airlines did not include
complete data on paper tickets purchased during the first 6 months of
fiscal year 2002. If data on fully unused paper tickets were available,
the ratio of fully

Appendix II
Known Value of Fully and Partially Unused
Tickets and Potential Magnitude of Control
Weaknesses

unused tickets for United Airlines would be higher. To be conservative, we
applied the lowest percentage of the value of fully unused tickets (United
Airlines ratio of 0.66 percent) to the value of all airline tickets that
DOD purchased from fiscal years 1997 through 2003 ($8 billion). If the
ratio of the value of fully unused tickets to the total value of tickets
purchased with a centrally billed account in fiscal year 2002 was
consistent since 1997, the magnitude of value of fully unused tickets
could be at least $53 million.

The potential magnitude of the unused value of partially unused tickets
could increase the unused ticket value by at least $62 million. To arrive
at this assessment, we used the data provided by the airlines on partially
unused tickets for fiscal year 2002 to calculate the estimated unused
value of partially unused tickets for each of the four airlines that
provided partially unused ticket data. The first step was to estimate the
unused value of partially unused tickets for each of the four airlines. We
accomplished this by multiplying the total value of partially unused
tickets by the fiscal year 2002 American Airlines ratio of the unused
value of partially unused tickets to the total purchase price of those
tickets.2 We then divided the estimated unused value of the partially
unused tickets for the four airlines by the total fiscal year 2002 ticket
sales for those airlines. As shown in table 8, if the American Airlines'
experience can be extrapolated to the other airlines, the unused value of
partially unused tickets ranges from .78 percent to 2.25 percent of total
purchases.

2As reported previously, the airlines informed us that to calculate the
residual value of partially unused tickets, each segment would have to be
repriced. However, for the purpose of assessing the range of possible
residual value, we used American Airlines data because American Airlines
was the only airline that provided us with that type of data.

                                  Appendix II
                   Known Value of Fully and Partially Unused
                   Tickets and Potential Magnitude of Control
                                   Weaknesses

      Table 8: Analysis of Fiscal Year 2002 Partially Unused Ticket Ratios

Dollars in millions

                       American                                     Estimated 
                       Airlines                                  unused value 
                       unused value     Estimated                        as a 
              Purchase ratioa        unused value of Total         percentage 
                                                     fiscal year     of total 
    Airline      price (percentages)   fiscal year   2002          purchasesb 
                                      2002 tickets   purchases   
US Airways        c             c               c           c 
    American     $ 5.5         32.73            $1.8      $189.1 
     Delta        22.9         32.73             7.5       334.0 
Northwest       3.2         32.73             1.0       104.8 
    Unitedd        8.2         32.73             2.5       344.8 
     Total       $39.8            --           $12.8      $972.7           -- 

Source: GAO analysis of Bank of American and airline data.

aThis is the ratio of the unused value of American Airlines partially
unused tickets to the total purchase price of American Airlines partially
unused tickets in fiscal year 2002.

bDifferences due to rounding.

cNot provided.

dThe United Airlines ratio of purchase price of partially unused tickets
as a percentage of total purchases is understated because, as mentioned
previously, the information United Airlines provided us did not include
complete data on paper tickets that were purchased prior to April 2002 but
were not used or refunded. Consequently, the purchase price for United
Airlines is understated by the value of paper tickets that were purchased
prior to April 2002 but were partially unused, not refunded, and not
provided. In contrast, the total purchases column includes all data.

Again, to be conservative, we applied the lowest ratio of unused value of
partially unused tickets (United Airlines ratio of 0.78 percent) to the $8
billion of all airline tickets that DOD purchased from fiscal years 1997
through 2003. If the ratio of the unused value of partially unused tickets
to the total value of tickets purchased with centrally billed accounts in
fiscal year 2002 was consistent since 1997, the magnitude of unused value
of partially unused tickets could be at least $62 million.

To determine the possible total magnitude of the value of airline tickets
DOD purchased with centrally billed accounts that were unused and not
refunded, we added the minimum value of potential fully unused tickets to
minimum value of potential partially unused tickets. As a result, we
determined that it was possible that DOD had purchased at least $115
million in tickets that were unused and not refunded.

                                  Appendix III

                    Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix III
Comments from the Department of Defense

Appendix IV

                     GAO Contacts and Staff Acknowledgments

GAO Contacts	John V. Kelly, (202) 512-6926 Quan Thai, (206) 287-4889

Acknowledgments	Staff making key contributions to this report were Beverly
Burke, Francine DelVecchio, Aaron Holling, Jeffrey Jacobson, Julie Matta,
John Ryan, and Sidney H. Schwartz.

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