Vendor Payments: Inadequate Management Oversight Hampers the
Navy's Ability to Effectively Manage Its Telecommunication
Program (14-JUN-04, GAO-04-671).
Problems with management oversight and control of DOD's purchase
card program led to concerns that similar issues exist for DOD's
vendor payments. As a result, this report focuses on the Navy's
telecommunication program and whether (1) the Navy has the basic
cost and inventory information needed to oversee and manage these
purchases and (2) selected Navy sites have adequate control to
provide reasonable assurance that goods and services are
purchased cost effectively and payments are made only for valid
charges.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-671
ACCNO: A10462
TITLE: Vendor Payments: Inadequate Management Oversight Hampers
the Navy's Ability to Effectively Manage Its Telecommunication
Program
DATE: 06/14/2004
SUBJECT: Cellular telephone
Cost effectiveness analysis
Data collection
Equipment inventories
Fraud
Internal controls
Inventory control
Military communication
Military cost control
Military inventories
Naval procurement
Procurement practices
Program abuses
Questionable payments
Telecommunication
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-04-671
United States General Accounting Office
GAO Report to Congressional Requesters
June 2004
VENDOR PAYMENTS
Inadequate Management Oversight Hampers the Navy's Ability to Effectively Manage
Its Telecommunication Program
a
GAO-04-671
June 2004
VENDOR PAYMENTS
Inadequate Management Oversight Hampers the Navy's Ability to Effectively Manage
Its Telecommunication Program
The Navy did not know how much it spent on telecommunications and did not
have detailed cost and inventory data needed to evaluate spending patterns
and to leverage its buying power. Obtaining knowledge of current
requirements and usage, as well as developing forecasts of future
telecommunication needs, would assist Navy's acquisition planning to
ensure future needs were met in a more cost-effective manner.
At the four case study sites we audited, management oversight of
telecommunication purchases did not provide reasonable assurance that
requirements were met in the most cost-effective manner. For local and
long-distance services, these sites did not follow policies to biennially
review and revalidate these requirements. As a result, they paid for
services no longer required. Also, the Navy lacks policies to provide
assurance that cell phone requirements are met in the most cost-effective
manner. Cell phone usage at three sites was not monitored to determine
whether plan minutes met users' needs. Consequently, these sites overpaid
for cell phone services. Also, none of the sites had adequate controls
over review of invoices to provide assurance of payments for only valid
charges. These sites failed to detect erroneous charges and potentially
improper use of these services.
In addition, the Navy lacks specific policies and processes addressing the
administration and management of calling cards. Consequently, some sites
did not know they owned and were being billed for calling cards. Other
sites allowed calling cards to be shared and were unable to determine the
legitimacy of the calls, and thus paid for potentially fraudulent or
abusive long-distance charges. On one card alone, in a 3-month period, the
Navy paid over $17,000. However, because no one was regularly monitoring
the activity on this card, the unit was unaware of potentially fraudulent
charges. Not until the vendor's fraud unit raised questions about more
than $11,000 in charges incurred during the first 6 days of July 2003 was
the card suspended.
Examples of Wasteful Telecommunication Payments
Highlights of GAO-04-671, a report to the Honorable Janice D. Schakowsky,
House of Representatives
Problems with management oversight and control of DOD's purchase card
program led to concerns that similar issues exist for DOD's vendor
payments. As a result, this report focuses on the Navy's telecommunication
program and whether (1) the Navy has the basic cost and inventory
information needed to oversee and manage these purchases and (2) selected
Navy sites have adequate control to provide reasonable assurance that
goods and services are purchased cost effectively and payments are made
only for valid charges.
To provide assurance that existing telecommunication policies are
enforced, GAO recommends that the Navy (1) develop and maintain a complete
inventory of services, (2) support DOD's efforts to track the cost of
acquiring telecommunication services, and (3) establish comprehensive
policies governing the purchase and use of cell phones and calling cards.
GAO also recommends that the Navy develop a strategic management framework
for improving the acquisition of telecommunication services. For the
selected units audited, GAO made several recommendations aimed at
improving controls over telecommunication transactions.
In written comments on a draft of this report, DOD agreed with 9 and
partially agreed with the remaining 2 GAO recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-671.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Gregory Kutz, Source: GAO.
(202) 512-9095 or [email protected].
Contents
Letter 1
Results In Brief 2
Background 5
The Navy Lacked Strategic Knowledge of
Expenditures to More
Efficiently Purchase Telecommunication 9
Services
Navy Sites Lacked Controls Needed to Ensure
Appropriate
Oversight and Payment of Telecommunication 11
Services
Conclusion 24
Recommendations for Executive Action 25
Agency Comments and Our Evaluation 26
Appendixes
Appendix I: Objectives, Scope, and Methodology 29
Appendix II: Comments from the Department of Defense 35
Appendix III: GAO Contact and Staff Acknowledgments 39
GAO Contact 39
Acknowledgments 39
Tables Table 1:
Table 2:
Table 3:
Table 4:
Table 5: Table 6: Status of Review of Long-Haul Lines at Selected Navy
Sites
14 Summary of Under-and Overutilization of Cellular Plans 17 Examples of
Users Underutilizing Plan Package Minutes 18 Potentially Improper
Long-Distance Calls Approved by NCTAMS Norfolk 20 Compromised Calling
Cards at Selected Sites 22 Major Commands and Units Selected for Review 31
Figure Figure 1: Potential Fraudulent Use of a Comprised Card 24
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
June 14, 2004
The Honorable Janice D. Schakowsky House of Representatives
Dear Ms. Schakowsky:
As you are aware, we have conducted a series of audits and investigations
of the Department of Defense's (DOD) purchase card program and found
substantial breakdowns in internal controls that resulted in fraud, waste,
and abuse. Concerned that similar problems may plague DOD's vendor pay
processes through which approximately $112 billion was spent and obligated
in fiscal year 2003, you asked us to evaluate the effectiveness of DOD's
management oversight and controls in this area. As agreed with your staff,
the scope of our audit included our assessment of the Navy's oversight and
controls over vendor purchases and payments for telecommunication
service-including local and long-distance services, calling cards, and
cellular phone service.
This report provides you with our assessment of whether (1) the Navy has
the basic cost and inventory information needed to manage and oversee its
purchases from telecommunication vendors and (2) selected Navy sites have
effective internal control to provide reasonable assurance that
telecommunication goods and services are purchased cost effectively and
payments are made only for valid telecommunication charges. Because the
Navy was unable to provide us with a complete population of
telecommunication expenditures from which we could sample, test, and
discuss in this report as being control weaknesses, as agreed with your
staff, we used a case-study approach to assess the adequacy of internal
controls over vendor purchases and payments at four Navy locations,
instead of on a Navy-wide basis. We were unable to perform statistical
testing at these case study locations because the local databases were
often incomplete, or they had insufficient, inconsistent, or inaccurate
data. As a result, we evaluated the design of controls in place and relied
on nonrepresentative selections to evaluate the effectiveness of case
study locations' internal controls over telecommunication programs.
We were able to evaluate the availability of cost and inventory
information Navy-wide, working at the Defense Information Systems Agency
(DISA)
and Naval Network and Space Operations Command (NNSOC),1 and evaluated the
adequacy of the Navy's expenditure reporting systems. In general, our
assessment of purchasing and receipt and acceptance controls was limited
to four Navy units from the following commands: (1) SPAWAR Systems Center,
Charleston, South Carolina (SPAWAR Charleston); (2) Naval Air Warfare
Center Aircraft Division, Patuxent, Maryland (NAVAIR Patuxent); (3) Naval
Surface Warfare Center, Crane, Indiana (NAVSEA Crane); and (4)
Commander-in-Chief Atlantic Fleet, Norfolk, Virginia (CINCLANTFLT
Norfolk). We also performed limited work at HQ DISA and its major
contracting organization-the Defense Information Technology Contracting
Organization (DITCO Scott), and DISA CONUS (organizational element
functionally responsible for the review and revalidation (R&R) process),
both located at Scott Air Force Base, Illinois, pertaining to the review
and revalidation of telephone services, and at the Naval Computer and
Telecommunication Area Master Station Atlantic (NCTAM, Norfolk) related to
purchasing controls. In addition, we used data-mining techniques to
identify possible control weaknesses associated with the purchase and use
of long-distance calling cards. This data-mining effort prompted us to
audit selected calling card transactions at seven locations-discussed in
detail in our objectives, scope, and methodology contained in appendix I.
We conducted our work from May 2003 through February 2004 in accordance
with generally accepted government auditing standards. We requested
comments on a draft of this report from the Secretary of the Navy or his
designee. We received written comments, which are reprinted in appendix
II. In addition, DOD provided some technical comments, which we
incorporated in the report as appropriate.
Results In Brief The Navy lacked the basic cost and inventory information
needed to manage and oversee its purchases from telecommunication vendors.
Complete and accurate cost and inventory information provides a foundation
for evaluating spending patterns on a Navy-wide, Commandwide, or unit-wide
basis. This information in turn would allow the Navy to leverage its
buying power if it chose to employ a more strategic approach to acquiring
telecommunication services based on improved knowledge of spending, rather
than continuing to use a generally decentralized and fragmented approach
to acquiring services to meet more localized needs.
1NNSOC is the major command over the regional Naval Computer and
Telecommunications Area Master Stations (NCTAM). Prior to July 2001, NNSOC
was referred to as the Naval Computer and Telecommunications Command
(NCTC).
However, we found that the Navy did not know exactly how much it was
spending on telecommunication services nor did it know much about its
telecommunication service vendors. Without this knowledge, the Navy cannot
take steps to leverage its buying power and achieve significant savings,
even though it is a large customer for telecommunication services. In
addition, from an internal control perspective for assuring appropriate
payments to telecommunication service vendors, the Navy lacked a complete
and accurate inventory of its local and long-distance networks, and some
of the Navy locations we audited did not maintain an accurate inventory of
the number of calling cards and cell phones currently in use or have
accurate records as to whom the cards and phones were issued. Without an
accurate inventory of the telecommunication networks and services
currently in operation, the Navy cannot effectively ensure that it pays
only for services it receives and hold individuals accountable for
unauthorized telecommunication usage.
At the four Navy case study units we audited, management oversight or
controls over the purchase of telecommunication goods and services did not
provide reasonable assurance that telecommunication requirements were
being met in the most cost-effective manner possible. For local and
long-distance services, these units did not follow established policies to
biennially review and revalidate their telecommunication requirements-in
part because they lacked a complete and accurate inventory of their local
and long-distance networks. As a result, the Navy was paying for
telecommunication service it no longer required. For example, when we
asked the four Navy units and DITCO Scott to review and revalidate 55
long-distance lines that had not been reviewed in over 2 years, they found
that 12 of the 55 lines (22 percent) were no longer needed. According to
Navy and DITCO Scott officials, all 12 lines have since been disconnected,
but they were unable to quantify the total waste associated with paying
for these unneeded lines. For 3 of the lines, DITCO Scott officials
estimated that $36,000 had been paid since fiscal year 2000 or 2001, the
years the payments should have stopped.
Further, the Navy had no policies to ensure that cell phone requirements
are met in the most cost-effective manner possible. Consequently, three of
the four sites we audited were paying too much for these services. In one
case, the unit did not take advantage of lower, prenegotiated rates
provided through the General Services Administration (GSA) and instead
paid full retail, which was 12 percent more than the GSA rate. Further,
because cell phone usage was not monitored to ensure that the plan minutes
included in the cell phone contract cost effectively met the users' needs,
we found that
many users were consistently overutilizing or underutilizing their cell
phone plans and paying much more than necessary for these plans. For
example, after our discussions with them, SPAWAR Charleston officials
reassessed usage requirements for 71 of their 1,900 cell phone plans and
determined they could save over $59,000 annually through better
management. They also told us that they intend to reassess the remaining
plans as soon as time permits.
None of the four sites we audited had effectively implemented established
policies governing the receipt and acceptance of telecommunication goods
and services to ensure that payments were made only for valid
telecommunication charges. DOD regulations2 require that payments on
invoices be supported by documentation that reflects the receipt of
services and goods and that those goods and services conformed to the
contractual requirements. For telecommunication payments, this involves
reviewing telecommunication invoices and reconciling invoice charges with
an accurate inventory of telecommunication lines, circuits, networks, and
services currently in operation and verifying that the billing rates used
to calculate the charges are valid. Based on our audit of selected vendor
invoices at the Navy sites we audited, we found that two of the four sites
had performed little or no review, while the other two sites had controls
in place but were not effectively performing the reviews of invoices prior
to certification of payment. As a result, the reviewing officials at these
sites did not detect erroneous or duplicate telecommunication charges. For
example, one Navy site did not detect charges for discontinued local
service on five different occasions. Because this site had not
consistently implemented controls to detect invalid charges, it overpaid
by $5,600.
Additionally, the Navy did not have specific policies addressing the
administration and management of calling cards; as a result, the Navy has
paid for potentially fraudulent or abusive long-distance charges. Further,
some of the Navy sites we audited did not know they owned and were being
billed for long-distance calling card services. In other cases, the Navy
knew it owned the calling cards but card users in these units frequently
shared the same calling card and personal identification number (PIN)-
resulting in multiple calls being made throughout the world on the same
card at approximately the same time and preventing the Navy from
determining the legitimacy of the phone calls. According to MCI officials,
2DOD 7000.14-R, Financial Management Regulation, Volume 10, Chapter 1,
March 2002, and Chapters 7, 9, February 1996.
each calling card with its respective PIN should be issued to and used
only by one individual in order to assist in monitoring calling card
usage. Additionally, calling cards should be tracked to determine who is
accountable for each card's use and invoices should be reviewed to detect
and prevent unauthorized calling card use. The sharing of calling cards
hinders the Navy's ability to investigate calling card misuse. For
example, one account owner said that he routinely provided the same card
number and PIN to some of his officers, as needed, but did not know how
many officers he had given the numbers to or how many currently had
possession of the numbers. For this card alone, the Navy paid over $17,000
in longdistance charges for the 3-month period from April to June 2003.
According to Navy officials, the card has been cancelled, but despite our
repeated inquiries, as of the date of this report the Navy had yet to
provide us with the identity of the individuals who were using this card
or assurance as to whether the calls were for a legitimate purpose.
This report contains 8 recommendations to the Secretary of the Navy and 3
recommendations to the Chief of Naval Operations (CNO) concerning actions
needed to (1) enforce existing policies related to maintaining accurate
inventory data and performing review and revalidation procedures; (2)
develop and enforce comprehensive policies and guidance governing the
purchase, issuance, and use of cell phone and calling card services; and
(3) develop a strategic management framework for improving the acquisition
of telecommunication services by strengthening the Navy's analysis of
telecommunication service requirements and spending. In written comments
on a draft of this report, DOD concurred with 9 of the 11 recommendations.
DOD partially concurred with the 2 remaining recommendations. Due to the
lack of clarity of the Navy's planned actions on the 2 recommendations, we
were unable to assess the extent to which its actions will comply with the
intent of our recommendations. The department also provided some technical
comments, which we incorporated in the report as appropriate.
Background The military services and DOD have long procured and operated
multiple types of telecommunication services to meet their individual
mission needs. DOD guidance3 defines telecommunications as circuits or
equipment used to transmit or receive information via voice, data, video,
3Department of Defense Instruction 4640.14, Base and Long-Haul
Telecommunications Equipment and Services, December 6, 1991.
integrated telecommunication transmission, wire, or radio.
Telecommunication equipment and services collectively include such items
as telephones, switching systems and circuit termination equipment.
Overall, telecommunications can be thought of broadly in two categories-
base and long-haul telecommunications. Also, DOD has been using and paying
for some special category types of services-cell phones and calling
cards-that can usually be used to access either the base or long-haul
infrastructure or both.
DOD defines base telecommunications as facilities, equipment, and services
used to support the distribution, transmission, or reception of
information via voice, data, video, integrated telecommunications, wire,
or radio within the confines of an area, such as an installation. This may
include local interconnecting lines to the first commercial central office
providing service to the local community and to other DOD component
facilities in the local area. Calls originating and ending within the
local calling area are considered local service calls and activities pay a
flat monthly fee for such service. The fee that is paid to vendors is
based upon the number of circuits billed and not the number of calls made.
DISA does not have direct responsibility for acquiring and managing base
telecommunication equipment and services, although it does have some
oversight responsibilities.
Long-haul telecommunications are the facilities, equipment, and services
(in addition to those described for base telecommunications) that are used
for the transmission or receipt of information that crosses the boundary
of a facility's local calling community. DOD service components are
required to contract for their long-haul services through DITCO, DISA's
contracting organization. DITCO charges the components the actual costs
for the services it provides them, plus a surcharge (which is currently 2
percent) to cover DITCO's cost of administering the program.
Cell phones allow DOD personnel, including Navy personnel, to make
official calls when other alternatives are unavailable or are
uneconomical. They can be used to access a local as well as a
long-distance network, but it is generally more economical to use other
service for local service, when possible. Navy activities generally either
contract directly for cellular phone service or procure the phones under
an already established GSA negotiated contract. Vendors normally offer
various service plan packages to their customers with a range of rates,
depending on the types of service and options provided. Items that can
cause rates to vary are geographical location, the user's calling area,
and the number of telephones requested.
Cellular phones differ from conventional telephone systems in the way
charges for calls accrue. For cellular phones, activities are usually
charged a fixed fee for a specific plan package, which includes a limited
number of available minutes. After using all of the available minutes in a
month, activities then pay a per-minute charge for any excess minutes, not
included in the contracted amount. When callers exceed the number of
minutes allowed in the plan package, they generally pay a very high
premium per minute for the minutes in excess of the plan. Generally,
charges for cellular phone services include (1) charges for airtime for
all completed outgoing and incoming calls and (2) charges (known as
roaming charges) for calls made when the caller is outside his or her home
service area. In addition, cellular phones may incur long-distance charges
for calls made where the number called is outside the local area in which
the caller is physically located or if this service is not included in the
service contract.
Calling cards are used to access telecommunication services at a location
where DOD-owned services are unavailable or where it is desired that the
calls be charged to an account other than the one from which the calls are
being made. Navy calling cards are issued to individual Navy employees for
their official use in conducting government business. The card provides
the user with access to the Federal Telecommunications System (FTS)4 and
offers a variety of available services. Navy activities generally procure
the calling cards through DITCO in bulk and they are stored by the
activities until issued. DITCO obtains the calling cards through a
prenegotiated GSA contract. The cards incur no charges until issued and
activated. The Navy activities are responsible for issuing the cards to
individuals and the individuals activate the cards. Once issued, the
activities are responsible for reviewing and certifying the calling card
charges, just as they are for all other types of telecommunication service
charges.
DOD and its components have long acquired telecommunication systems to
meet their individual mission needs, resulting in a fragmented and
redundant telecommunication environment. To eliminate costly duplication
and improve the effectiveness and efficiency of its communication
services, in 1991 DOD began to plan and implement the Defense Information
Systems Network (DISN) as the common-user, long
4FTS is a long-distance telecommunication service available for use by
U.S. government agencies. GSA currently provides services through
contracts designated by the title `FTS2001'.
haul telecommunication network for all DOD components.5 Under the DISN
program, DOD's service components and Defense agencies are still
responsible for acquiring local base telecommunication services for their
local bases and installations; however, DISA is to be the sole provider of
long-haul telecommunication services for all DOD components.
To improve the interoperability of DOD's long-haul telecommunication
networks and service as well as to reduce costs, the Assistant Secretary
of Defense for Command, Control, Communications, and Intelligence
(ASD/C3I)6 established policies and procedures that (1) directed DOD
components to develop comprehensive inventories of their own long-haul
telecommunication networks and directed DISA to develop a Defense-wide
inventory of long-haul networks; (2) directed DISA to report annually on
telecommunication services, acquisitions, trends, and associated costs;
(3) mandated components to use common-user networks such as DISN or FTS
2000 for long-haul communications; (4) directed DISA to establish a waiver
process to let components procure independent networks when their
telecommunication needs could not be met by common-user networks; and (5)
directed DOD components to periodically review and revalidate their
long-haul telecommunication requirements. In a previous review of the DISN
program,7 and during our work on this audit, we found that DOD had not
effectively implemented any of these directives. In response, DOD agreed
to address our concerns and to implement these policies and procedures.
However, as discussed in this report, the Navy has not yet established an
accurate and complete telecommunication inventory or created a database of
information on acquisition, trends, and associated costs, which are
necessary to plan for future growth and cost effectively purchase new
telecommunication equipment and services.
5A common-user long-haul network is one that provides long-distance
communication service to a large, general population of users, rather than
being dedicated to a small and specialized community.
6This organization has been renamed and is now called the Assistant
Secretary of Defense (Networks and Information Integration), (ASD
(NII))/Chief Information Officer.
7U.S. General Accounting Office, Defense Networks: Management Information
Shortfalls Hinder Defense Efforts to Meet DISN Goals, GAO/AIMD-98-202
(Washington, D.C.: July 1998).
The Navy Lacked Strategic Knowledge of Expenditures to More Efficiently
Purchase Telecommunication Services
The Navy did not know exactly how much it was spending on
telecommunication services nor did it know much about its
telecommunication service vendors. The Navy's lack of detailed cost data
prevented us from analyzing its telecommunication expenditures on an
aggregate level. For this reason, we were unable to comprehensively sample
and test the adequacy of the Navy's controls or perform effective data
mining of its telecommunication expenditures. More importantly, this lack
of adequate information also prevented the Navy from obtaining the
knowledge needed to take steps to leverage its buying power, even though
it is a large customer for telecommunication services. Moreover, obtaining
knowledge of current requirements and usage, as well as developing
forecasts of users' future telecommunication needs, would assist Navy
acquisition planning to ensure those future needs can be met in a more
cost-effective manner.
Our past work has identified specific practices that can be employed by
DOD agencies to manage services acquisitions-including telecommunication
services-from a more strategic perspective, thereby enabling DOD
organizations to leverage buying power and achieve significant savings.8
These include establishing a central agent or manager for acquiring
services, gaining visibility over spending, and revising business
processes to enable the organization to leverage its buying power. Our
past work showed that leading organizations that applied a strategic
approach to their purchases of services found it necessary to develop new
"spend analysis" information systems that could provide them with reliable
data in a timely fashion. Spend analysis is a tool that answers basic
questions about how much is being spent for what goods and services and
helps to identify both buyers and suppliers, as well as opportunities to
leverage buying, save money, and improve performance.
Having the type of information discussed above would enable the Navy to
perform spend analysis on the purchase and use of its telecommunication
assets, which would provide the Navy with a complete picture of what is
being spent on telecommunications-the cornerstone to identifying what
8U.S. General Accounting Office, Best Practices: Taking a Strategic
Approach Could Improve DOD's Acquisition of Services, GAO-02-230
(Washington, D.C.: January 2002); Best Practices: Improved Knowledge of
DOD Service Contracts Could Reveal Significant Savings, GAO-03-661
(Washington, D.C.: June 2003); and Contract Management: High-Level
Attention Needed to Transform DOD Services Acquisition, GAO-03-935
(Washington, D.C.: September 2003).
can be done to improve the purchasing process and to leverage the Navy's
buying power. The task of gaining accurate visibility over spending will
be difficult for the Navy given the lack of information systems available
to provide spending data and the magnitude, breadth, and complexity of
spending involved with multiple types and sources of telecommunication
services. However, leading companies we studied that developed formal,
centralized spend analysis programs found that they could overcome similar
difficulties of piecing together incomplete and inaccurate data from
various information systems through the use of key processes involving
automating, extracting, supplementing, organizing, and analyzing data.9
Currently, the Navy lacks the needed information to perform effective
cost/spend analysis.
Recognizing that the best practices experiences of leading companies could
help improve the cost effectiveness of DOD's acquisition of services,
Congress included10 provisions in the National Defense Authorization Act
for Fiscal Year 200211 that require, among other things, that DOD
establish an automated system to collect and analyze data to support
management decisions in contracting for services. The provisions were
intended to put DOD in a position to gain visibility over services
contract spending and more effectively leverage its buying power, thus (1)
improving the performance of its service contractors, (2) organizing its
supplier base, and (3) achieving significant savings and ensuring that its
dollars are used more effectively.12 Although DOD is in the early stages
of responding to these legislative requirements, DOD has a departmentwide
spend analysis pilot underway and has called on agencies to embrace a
strategic approach for acquiring services.13 Based on our assessment of
the Navy's payment and expenditure reporting systems, the Navy's current
process for acquiring telecommunication services is not strategic and its
ability to use spend analysis to support a strategic approach is hampered
by the lack of
9GAO-03-661.
10S. Rep. No. 107-62, at 325-27 (2001); H.R. Conf. Rep. No. 107-333, at
687-88 (2001).
11National Defense Authorization Act for Fiscal Year 2002, Pub. L. No.
107-107, S:S: 801, 802, 115 Stat. 1174-78 (December 28, 2001) (codified at
10 U.S.C. S:S: 2330, 2330a, and 2331, and 2330 Note). Congress expressed a
preference for a single system to collect data on purchase of both
services and information technology in excess of the simplified
acquisition threshold. 10 U.S.C. S: 2330a(c).
12GAO-03-935.
13GAO-03-661, GAO-03-935.
centrally available and detailed telecommunications expenditure data.
Because the Navy does not budget or account for telecommunication
requirements separately from other nontelecommunication requirements, the
Navy's automated systems are not designed to track the cost associated
with purchasing telecommunication services in total or by network or by
type of service provided. Consequently, the Navy is unable to perform the
kind of meaningful spend analysis envisioned by the act.
The Navy has yet to take steps to perform the kind of meaningful spend
analysis employed by leading companies to better manage its purchasing of
telecommunication services. Much earlier, in 1991, DOD directed DISA to
establish a central inventory of all long-haul telecommunication equipment
and services and directed the heads of DOD components to establish and
maintain an inventory of all base telecommunication equipment and
services. However, we found in several instances that DISA's long-haul
database was incomplete and contained numerous errors and that the Navy
had yet to establish a base communications database as directed.
Specifically, we found that (1) the DISA database did not track long-haul
equipment and services that were purchased outside of DISA channels, (2)
networks and services were still reflected in the DISA database long after
they had been discontinued, and (3) point of contact or ownership
information often had not been updated in years. In addition, some of the
Navy locations we audited did not maintain an accurate inventory of the
number of calling cards and cell phones currently in use or maintain
adequate records of to whom the cards and phones were issued. As discussed
later, our case-study work at four Navy locations demonstrated that this
lack of reliable inventory data combined with other breakdowns in basic
controls creates a fertile environment for fraud, waste, and abuse.
Navy Sites Lacked Controls Needed to Ensure Appropriate Oversight and
Payment of Telecommunication Services
Although DOD established a policy in 1991 requiring that DOD components
biennially review and revalidate their local and long-distance
telecommunication requirements, none of the four Navy locations we visited
or DITCO Scott had established effective review and revalidation programs
to ensure that they were not paying for capacity or services they no
longer needed or they were not paying too much for the needed services
used. In addition, the Navy did not have policies to ensure the
cost-effective purchase and use of cell phone services. Consequently, we
found that the four Navy sites we audited had established their own
policies for the procurement and management of cellular services and
equipment. These policies varied greatly, due to the differences in size,
capability, and requirements of the cellular program at each site, which
resulted in some of
these sites paying more for these equipment and services than was
necessary. Further, although DOD financial management regulations require
proper receipt and acceptance of goods and services and the reconciliation
of bills prior to payment, we found that the Navy activities we visited
were improperly approving payments for telecommunication services without
appropriate review. Failure to properly reconcile the bills has allowed
payment to be made for inappropriate and irregular local and long-distance
charges and has allowed the activities to improperly make overpayments and
duplicate payment to telecommunication vendors. Finally, we found that the
Navy does not have policies addressing the administration and management
of calling cards. This has resulted in either inconsistent policies or a
total lack of policies from one command to the next. Because of this lack
of control, we identified several instances where the Navy had paid bills
for calling card services that appeared to us to be potentially fraudulent
or abusive, a situation that will likely be repeated unless changes are
made.
Navy Sites Were Not Performing Effective Review and Revalidation of Local
and Long-Distance Requirements
The review and revalidation process is important because it enables an
activity to determine, based on empirical data, whether it is meeting its
local and long-distance telecommunication needs in the most cost-effective
means possible. According to DOD instructions14 this involves (1)
assessing telecommunication traffic or usage to determine whether
telecommunication services are still needed, (2) conducting market surveys
to determine if current telecommunication contracts provide the most
cost-effective solution for satisfying usage requirements, and (3)
updating the appropriate inventory database to indicate that the
requirement for the local and long-distance lines has been revalidated. It
is particularly important that Navy personnel routinely review and
revalidate their needs for the local and long-distance services they
currently have and are paying for, and that they promptly cancel any
unnecessary lines to avoid paying monthly usage fees for unneeded
services. Activities are assessed fees for a line based either on the
usage, a flat rate regardless of usage, or a combination of both.
Therefore, if lines are not promptly canceled and if they have a monthly
charge, the Navy will continue to receive and pay for these services
indefinitely until they are canceled.
14Department of Defense Instruction 4640.14, Base and Long-Haul
Telecommunications Equipment and Services, December 6, 1991, and
Department of Defense Directive 4640.13, Management of Base and Long-Haul
Telecommunications Equipment and Services, December 5, 1991.
None of the Navy sites we visited or DITCO Scott had effectively
implemented existing policies to perform all three of the review and
revalidation procedures mentioned earlier. At NAVSEA Crane, officials had
recently assessed their telecommunication traffic to determine whether the
services for which they were currently contracted were still needed.
However, they had not conducted a market survey and, therefore, had no
assurance that they were meeting their telecommunication needs in the most
economical way possible. Two other sites, NAVAIR Patuxent and SPAWAR
Charleston, had assessed their telecommunication traffic and performed a
market survey but had failed to update the database to reflect that they
had taken the required actions. As mentioned previously, these failures
undermine DISA's ability to monitor and effectively manage the DISN
program and to maintain the quality of the database. For example,
according to DISA's long-haul database, as of February 17, 2004,
approximately 3,100 of the Navy's 26,000 long-haul lines had either not
been revalidated in over 2 years or had not been properly updated. Some of
these records indicated that the lines had been past due for revalidation
for decades-in one case since March 1969. According to agency officials,
as a result of our review, both NAVAIR Patuxent and SPAWAR Charleston have
implemented corrective actions to ensure that the appropriate inventory
database is updated whenever they revalidate their local and long-distance
lines.
As shown in table 1, at two of the four sites, we identified 37
long-distance lines that had not been reviewed and revalidated in over 2
years. When we asked the appropriate Navy personnel to review these 37
long-distance lines to determine if they were still needed, they found
that 8 of the 37 lines for which they had been paying a total monthly
usage fee of $4,969 were no longer needed. We relied on the accuracy of
their responses and did not perform an independent review to determine
their validity.
Table 1: Status of Review of Long-Haul Lines at Selected Navy Sites
Number of lines the Monthly
Number of lines Navy determined charges for
reviewed within should be unneeded
Unit 2-year period disconnected lines
SPAWAR 60 of 84 0 N/A
Charleston
NAVAIR Patuxent 136 of 136 N/A N/A
NAVSEA Crane 20 of 20 N/A N/A
CINCLANFLT 12 of 25 8 $4,969
Norfolk
Total 228 of 265 (37 8
lines $4,969
had not been
reviewed
in over 2 years)
Source: GAO's calculation using DISA's long-haul database.
Subsequent to our inquiry, Navy officials told us that the 8 lines shown
in table 1 have now been disconnected. For these 8 lines, they were unable
to quantify the total unnecessary cost that had been incurred to operate
them because they were unable to determine exactly how long the lines had
been operating without a valid need. To further demonstrate the risk of
not promptly reviewing and revalidating existing lines, DITCO Scott
officials were able to tell us that 4 of their 18 past-due lines for
revalidation should have been discontinued in fiscal year 2000 or 2001.
Instead, they continued to incur and pay monthly charges of $917 for 3 of
these lines for about 3 years-incurring about $36,000 in unnecessary
charges-until we raised the issue in fiscal year 2003 and the lines were
discontinued. For the fourth line, DITCO was unable to quantify the cost
for unnecessary usage.
Similarly, two of the four Navy sites we audited had not reviewed or
revalidated their base communication networks as required; however, the
immediate financial impact of not doing so is not as evident. Base
telecommunication networks are the equipment or services used to support
the transmission of data within the confines of an installation. According
to a Navy official, because a unit is not charged specifically for
individual base communication lines, there are no unit cost savings
associated with the deletion of a few unused individual lines. However,
over time, the number of unused lines may become significant enough to
warrant resizing a unit's base communication network. For this reason, it
is important that the Navy also implement an effective review and
revalidation program for its base as well as its long-distance
telecommunications. When we asked Navy officials at the two sites why they
were not routinely reviewing and revalidating their telecommunication
needs, we found that they were not aware of the requirement or did not see
it as a top priority. The remaining two locations, NAVSEA Crane and NAVAIR
Patuxent, had reviewed and revalidated their base communication network as
required.
The Navy Lacked Policies for the Cost-Effective Purchase and Usage of Cell
Phone Services
The Navy's use of cell phones has increased dramatically in recent years,
allowing Navy personnel to make official calls when other alternatives are
unavailable or uneconomical. In 1997, on the basis of a recommendation of
the Naval Audit Service, NCTC, in conjunction with the Chief of Navy
Operations, agreed to develop and issue specific guidelines and procedures
relating to acquisition, accountability, and use of cellular phones.
However, at the time we did our work for this assignment, neither DOD nor
the Navy had taken the required actions to establish comprehensive
policies or guidance governing the purchase and use of cell phone
services, including guidance on (1) using prenegotiated or centrally
negotiated rates or (2) requiring periodic assessment of cell phone usage
to determine if plan packages provide the most cost-effective means to
satisfy its usage requirements. Consequently, three of the four sites we
audited were either paying retail prices for their cell phones when lower
prenegotiated rates were available or were paying too much for cell phone
services because they were not monitoring the use and thus had no basis
for aligning the contracts with expected use.
In the absence of DOD- and Navy-wide policies and procedures for the
purchase of cell phones, individual Navy units have had to develop their
own approaches for the procurement and management of cellular services and
equipment. While three of the four sites we visited made a concerted
effort to either (1) purchase cell phones at the GSA-negotiated rate-
currently 12 percent discount off retail-or (2) establish their own
negotiated contract with local cellular service providers, the remaining
location, NAVSEA Crane, did neither. Instead, at NAVSEA Crane, individuals
responsible for the procurement as well as cell phone users themselves
bought their cell phones directly from retail sources using their purchase
cards. As a result, NAVSEA Crane in some instances was paying a higher
rate for cell phones-12 percent higher-than that established by GSA and in
some cases paying taxes that should not be paid by government entities.
In contrast, CINCLANFLT Norfolk negotiated a contract with one vendor
using a shared minute plan, which allows multiple individuals to be on the
same plan using an allocated number of minutes. The advantage of this plan
is that if one individual goes over his or her allocated number of minutes
and another individual uses fewer than his or her allotted number of
minutes, charges for additional usage are not incurred. As a result of
this plan, excess minutes were eliminated and CINCLANFLT Norfolk's monthly
access charges were reduced from $45.65 to $33.19. To take it one step
further, the NAVAIR Command was able to achieve a large saving for all
seven of its subcommands because it leveraged its buying power as a
command to negotiate a better deal with a single service provider. Under
this contract, NAVAIR Patuxent, a participating subcommand, received a 23
percent discount off retail-almost twice the amount of the GSAnegotiated
discount rate-and free standard cell phones. NAVAIR Command was able to
negotiate such a favorable contract because it had the information it
needed on its cell phone users, allowing it to negotiate with different
local vendors and select the vendor with the best rate. This information
included such factors as the number of cell phone users, the total number
of plan minutes used, and the amount spent annually for cell phone
equipment and services. As a result of the negotiated contract, NAVAIR
Patuxent estimated that it saved approximately $110,000 in fiscal year
2003 and projects that it will save over $200,000 in fiscal year 2004 for
its cell phone services and equipment requirements. The differences in the
three procurement methods illustrated show that even on a small level,
information consolidation and centralization is the foundation for
implementing cost-effective methods for procuring cell phones and related
services. Realizing this, NAVSEA Crane is currently developing a
centralized procurement contract with a local vendor.
In addition, three of the four Navy locations we audited paid too much for
cell phone services because they were not monitoring individual plan
usage. As shown in table 2, we identified selected cases at three of the
four sites we audited where cell phone users were either (1) consistently
exceeding their monthly allotment of minutes, thus incurring excessive
charges for extra minutes (overutilization); or (2) consistently using
only a small portion of their allotted minutes, thus incurring high
charges per minute actually used because they contracted for substantially
more minutes than needed (underutilization). At the fourth location, as
previously mentioned, CINCLANFLT Norfolk negotiated a contract with one
vendor using the shared minute plan, which allows multiple individuals to
be on the same plan using an allocated amount of minutes-eliminating their
charges for over-and underutilization of cellular plans.
Table 2: Summary of Under-and Overutilization of Cellular Plans
Number of plans Number of Plans
Number of overutilized in underutilized in Percentage of
fiscal fiscal over- or
Units plans year 2002 year 2002 underutilized
tested plans
SPAWAR 54 12 4 30%
Charleston
NAVAIR 14 3 3 43%
Patuxent
NAVSEA Crane 28 0 5 18%
CINCLANFLT N/A N/A N/A N/A
Norfolk
Total 96 15 12 28%
Source: GAO's calculation using unit-provided data.
Note: Overutilized: Individuals who exceeded their plans 5 months or more
in a year. Underutilized: Individuals who consistently used less than 30
percent of their plan for the year.
Overutilization of cellular plans can result in considerable additional
costs to the government. We found that management personnel at these sites
were not routinely comparing cell phone plans and usage to identify
possible savings. For example, we found at one unit listed in table 2 that
for some cellular plans, excess minute charges ranged from 20 to 35 cents
per minute. This is more than twice the cost of the plans' allowable per
minute charges, which ranged from 7 to 15 cents per minute. For the 15
overutilized plans, these two sites incurred over $34,000 in excess minute
charges in fiscal year 2002. Officials at NAVAIR Patuxent, concerned over
our finding regarding the overutilization of cellular plans at their site,
implemented a quarterly review process where they monitor cell phone usage
with respect to allotted minutes and modify individual cell phone plans to
achieve maximum cost effectiveness. According to these officials, for the
first quarter of fiscal year 2004, NAVAIR Patuxent saw a reduction of 39
percent in its excess minute costs. Similarly, SPAWAR Charleston is in the
process of negotiating a contract with a vendor for shared pool minutes to
reduce its excess minute costs.
While the monetary impact of underutilizing cell phone minutes is not as
significant as consistently exceeding plan minutes, at one site in
particular-NAVSEA Crane-using data-mining techniques15 on vendor invoices,
we found instances where cell phone users were paying $95 per month for
service plans in which they were using less than an average of 2
15Data mining involved the manual or electronic sorting of vendor invoice
data to identify and select for further follow-up and analysis
transactions with unusual or questionable characteristics.
percent of their allotted monthly minutes for fiscal year 2002. As shown
in table 3, the average cost per minute on these underutilized cell phone
plans was extremely high.
Table 3: Examples of Users Underutilizing Plan Package Minutes
Number of months Average monthly Average cost
per
plans were Plan monthly minute usage for minute (rounded
fiscal to the
underutilized Cost of allowed year 2002 nearest dollar)
plan minutes
$95.00 650 1.23 minutes $76.00
$95.00 650 22.17 minutes $4.00
$95.00 650 9.1 minutes $10.00
Source: GAO calculation using units' vendor invoices for fiscal year 2002.
When we saw similar issues at SPAWAR Charleston, officials reviewed the
usage requirements for 71 of their 1,900 cell phone users and determined
that these users had either significant over-or underutilization. They
further determined that they could save over $59,000 annually on these 71
plans alone if they changed the individual users to plans that more
accurately matched their actual usage. According to these officials, they
intended to review the remaining plans to achieve additional savings.
Vendor Payments Approved Without Appropriate Review
None of the four sites we audited had consistently implemented procedures
that complied with DOD policies regarding reconciliation of
telecommunication invoices. DOD regulations16 require that payments on
invoices be supported by documentation that reflects the receipt of
services and goods and that those goods and services conform to the
contractual requirements. These documents must be reconciled prior to
payment unless special circumstances warrant otherwise. For
telecommunication, this reconciliation process involves reviewing
telecommunication invoices and reconciling invoice charges with an
accurate inventory of telecommunication lines, circuits, networks, and
services currently in operation and verifying that the billing rates used
to calculate the charges are valid. However, we found that two of the Navy
sites we audited had few or no controls in place, while the other two
sites
16DOD 7000.14-R, Financial Management Regulation, Volume 10, Chapter 1,
March 2002, and Chapters 7-9, February 1996.
were not consistently implementing their established controls to review
vendor invoices prior to certification of payment. Consequently, approving
officials at these sites failed to detect inappropriate and irregular
telecommunication charges, which allowed overpayments and duplicate
payments to be made to vendors.
Two of the four sites we audited had few or no controls in place to review
and reconcile vendor invoices prior to certification of payment. At NAVSEA
Crane, we reviewed the payment information for fiscal year 2002 and the
first 6 months of fiscal year 2003 and found that officials reviewed the
total amount billed per invoice and did not review specific charges to
determine whether the charges were valid. Consequently, NAVSEA Crane paid
almost $1,700 in vendor-assessed late fees. According to agency officials,
only DFAS can approve late fees for past due Navy payments, and therefore
NAVSEA Crane failed to ensure that any review of late fees was completed
prior to payment. The other site, CINCLANFLT Norfolk, which procured its
local and long-distance services via NCTAMS, had its invoices certified
for payment by NCTAMS for more than 1 year without proper review. This
occurred because CINCLANFLT Norfolk had not received billing information
from NCTAMS that would allow it to review and reconcile its detailed
charges with the services currently in operation.
According to NCTAMS officials, billing information, such as service
charges and long-distance call details, is e-mailed to the respective
units' contact point using the same e-mail address used by the vendor.
However, NCTAMS officials did not confirm that the units were receiving
the billing information or if the e-mail address was correct. Instead,
these officials stated that they assumed the billing information was
correct unless they were contacted by the activity within 15 days.
However, relying on negative assurance prevents these sites from properly
reviewing and reconciling invoices in accordance with DOD policies. For
example, at NCTAMS, we found 52 long-distance calls on a July 2003 invoice
that were 24 hours or over in length. These calls included 4-day, 10-day,
and 12-day phone calls, which all originated from different phone numbers
at different times. The length of these calls alone should have prompted
further investigation but, because the invoice was never properly
reviewed, the billing errors went unnoticed until we called the issue to
the attention of NCTAMS officials. As shown in table 4, we further
investigated 10 of the 52 calls to determine what caused the apparent
billing errors. In 7 of the 10 cases, NCTAMS officials who approved the
invoices could neither provide us with an explanation for the length of
the calls nor could they provide us with valid points of contact for the
activities responsible for the calls.
Table 4: Potentially Improper Long-Distance Calls Approved by NCTAMS
Norfolk
Destination of Total Total
consecutive
Date call minutes hours Cost of Explanation provided
(2003) call by installation
The lengthy duration
304 $414 of the call was due
July 15 Richmond, Va. 18,282 to a circuit
malfunction. The
installation asked
the vendor for a
refund after our
inquiry.
The lengthy duration
103 $140 of the call was due
July 09 Richmond, Va. 6,201 to a circuit
malfunction. The
installation asked
the vendor for a
refund after our
inquiry.
Navy official
106 $214 indicated that the
July 24 Elizabeth City, 6,338 call was valid and
was made to provide
N.C. support for testing
research
and development
programs.
July 15 Norfolk, Va. 14,648 244 $440 No explanation
provided.
6 separate 71 $580 No explanations
July 25 Herndon, Va. 4,269 provided.
minute calls
Sources: GAO calculation using NCTAM-provided data.
The other two sites, SPAWAR Charleston and NAVAIR Patuxent, had procedures
in place to review and reconcile telecommunication invoices prior to
payment, but these procedures were not consistently implemented. As a
result, we found these reviewing officials had not detected irregular
charges, which resulted in overpayments and duplicate payments being made
to vendors. For example, at SPAWAR Charleston, officials paid $5,600 over
a 5-month period for services that had been discontinued. Further, we
found that both SPAWAR Charleston and NAVAIR Patuxent had made duplicate
payments on invoices because they did not follow the procedures in place
to pay only the current charges on an invoice. Instead, on two occasions,
these units paid the total balance due. As a result, officials at both of
these two sites paid a total of $17,855 (SPAWAR, Charleston-$17,382 and
NAVAIR Patuxent--$473) in duplicate payments for prior months' charges,
which had been previously paid. If SPAWAR Charleston and NAVAIR Patuxent
had consistently followed their procedures for reviewing and reconciling
telecommunication invoices, the overpayments would not have occurred.
These examples illustrate the types of potential billing errors that
telecommunication managers should be able to avoid with more detailed
reviews of invoices. According to some Navy officials, reviewing and
reconciling detailed telecommunication charges each month is timeconsuming
and impractical given the number of telecommunication local and
long-distance transactions occurring monthly. In addition, they stated
that the rate structures used to calculate the invoice charges were often
so
complex that they were unable to determine how the final charges were
calculated or whether they were, in fact, correct.
Controls over Issuance and Use of Calling Cards Were Inadequate
As part of their long-haul service contract provided through DISA, DOD
components may also order and receive long-distance calling card services.
Long-distance calling card charges are then billed, along with other
longhaul services, on the components' monthly invoices. According to an
MCI official, each calling card with its respective PIN should be issued
to and used only by one individual in order to assist in monitoring
calling card usage. Additionally, calling cards should be tracked to
determine who is accountable for each card's usage, and invoices should be
reviewed to detect and prevent unauthorized calling card use. However,
some of the Navy sites we audited were unaware they owned calling cards.
Furthermore, neither DOD nor the Navy had specific policies addressing the
administration and management of calling cards. This lack of policies,
combined with the ineffective controls over payments to telecommunication
vendors, discussed previously, creates a fertile environment for fraud,
waste, and abuse.
To identify possible calling card misuse, we analyzed 3 months of the
Navy's calling card activity and used data-mining techniques to select
seven calling card accounts from seven Navy activities that had either
overlapping calls (two or more calls occurring at the same time with
different originating numbers) or calls originating from different
geographic locations at approximately the same time-using the same calling
card number. Such cases would indicate calling cards that were being
shared and/or compromised. As shown in table 5, five of the seven cards
had been compromised.
Table 5: Compromised Calling Cards at Selected Sites
Unit's response Calling
as a result of card
Description of suspicious the identified vendor
calling suspicious (MCI)
Unit card activity at selected Control activity actions
sites breakdown
NACTAMS On June 15, 2003, calls Not aware of Based on our None
made from calling card inquiry, unit
Norfolk Arkansas, Puerto Rico, Did not review canceled 35 cards
and Ecuador invoices including
within 2 hours of each selected card in
other December
2003
NCTSSD On May 19, 2003, Not aware of Based on our MCI's fraud
calls made from calling card inquiry, unit
Hawaii and Japan Did not receive canceled 5 cards
within 3 hours or review including detection unit
of
each other invoices selected card in suspended use of
February 2004
the card on July
26,
2003, due to
simultaneous
usage
MCB Camp On May 25, 2003, Not aware of Based on our MCI's fraud
calls made from calling card inquiry, unit
Florida and Did not canceled 13
Pendleton Virginia within receive or cards including detection unit
hours review
from each other invoices selected card suspended use of
in September
2003 the card on July
7,
2003, due to
simultaneous
usage
On May 17, 2003, Not aware of Due to the As a result
USS Mitscher calls occurred at calling card vendor's alert, of MCI's
unit
the same time Did not canceled fraud
from New York and receive or calling card in detection
review July unit
Virginia invoices 2003 alert for
suspected
fraud use,
unit
cancelled the
card
on July 7,
2003
NAVAIR On April 1, 2003, Unit identified Unit conducted an None
calls occurred at control investigation
Lakehurst the same time from breakdown through and determined that
New York and review the card
Puerto Rico of its vendor number had been
invoices and stolen and
determined that therefore canceled
the card the card
had been stolen
Source: DISA/DITCO Columbus calling card transactional database from April
through June 2003.
When we contacted the Navy officials and account owners responsible for
managing and reviewing telecommunication invoices, we found that for four
of the five calling cards shown in table 5, they were unaware that their
unit owned or used calling cards. Further, according to these officials,
they had not receive detailed information on calling card charges from
either the vendor or from NACTAMS and therefore did not know that they
were paying for these charges. Consequently, these officials could not
determine if the calling cards had been compromised because they did not
know who had possession of the cards and many did not have documentation
supporting the use of these cards for the time period in question. Also,
NCTSSD and MCB Camp Pendleton were unaware that in July 2003 the vendor's
fraud detection unit had suspended the calling cards we reviewed.
As a result of our review, NCTAMS Norfolk, NCTSSD, and MCB Camp Pendleton
identified and cancelled a total of 52 calling cards, including the 3 we
selected, which they were unaware that they owned. However, neither MCI
nor DISA was able to tell us how many dollars of charges had been made on
these 52 calling cards since the cards had been activated. The remaining
two units either canceled their card due to an MCI fraud alert as
mentioned above or an internal investigation.
Although the account owners for the two remaining calling card accounts we
audited were aware that their unit owned and used calling cards, they did
not have policies restricting the sharing of the cards. In many cases,
card users within the same units shared the same calling cards and PIN.
For example, at NAVAIR Patuxent, officials told us that they believed the
selected card's transactions were due to shared use and as a result of our
review have changed their local calling card policies to prevent the
sharing of calling cards in the future and to hold individuals accountable
if unauthorized usage is found. At BCO Philadelphia, agency officials told
us that the cards were shared because the unit's cell phones were down.
However, after the cell phones were reactivated, the sharing of calling
cards was discontinued. As a result of the sharing of calling cards,
officials at both of these locations could not subsequently determine
whether these two calling cards were used for legitimate business reasons
and whether all the charges were accurate. Further, because these cards
were shared and thus the numbers compromised, these officials could not
identify the responsible party for the questionable calls.
Overall, these seven units lacked effective management oversight and
adequate internal controls, which left them vulnerable to potential
fraudulent and abusive calling card transactions. For example, an official
at the USS Mitscher said that he routinely provided the same card number
and PIN to several of his officers, as needed, but he did not know how
many officers he had given the numbers to or how many currently had
possession of the numbers. For this one card alone, between April and June
of 2003, the Navy paid over $17,000 in long-distance charges. However,
because no one was monitoring the activity on this card regularly, the
unit was unaware of the excessive charges. Instead, it was not until the
vendor's fraud unit raised questions about more than $11,000 in charges
during the first 6 days of July 2003 that the card was suspended. As shown
in figure 1, on July 6, 2003, the card had 189 calls that originated from
12 different cities in five different states and Canada to 12 different
countries for a total of over $5,000. In this 24-hour period, the card
incurred over 55 hours of calling card charges.
increases the likelihood that the problems we identified at these units
may exist elsewhere within the Navy.
Recommendations for Executive Action
To improve the Navy's management oversight of its telecommunication
program, we recommend that the Secretary of the Navy take eight corrective
actions and the CNO take three corrective actions.
We recommend that the Secretary of the Navy direct the CNO to ensure that
existing policies are enforced. Specifically, the CNO should ensure that
the Navy:
o develops and maintains a comprehensive inventory of the Navy's base
telecommunication equipment and services;
o supports DISA efforts to track acquisitions of telecommunication
services throughout DOD, actual costs of those services, and trends in
usage (that is, the volume and types of traffic that networks carry).
We further recommend that the Secretary of the Navy direct the CNO to
establish comprehensive policies and guidance governing the purchase and
use of:
o cell phone services, which should include (1) the use of prenegotiated
or centrally negotiated rates and (2) periodic assessment of cell phone
usage to determine if plan packages provide the most cost-effective means
to satisfy the Navy's usage requirements; and
o calling card services, which should include policies about
accountability, the proper review of invoices, and the prohibition of
sharing of calling cards.
To strengthen the Navy's ability to acquire telecommunication services
effectively and efficiently, we recommend that the Secretary of the Navy
direct the CNO to develop, in coordination with the Navy commands, a
strategic management framework for improving the acquisition of
telecommunication services. This framework should include provisions for
o inventorying current and potential users of telecommunication services
to determine existing and future requirements;
o identifying and exploiting opportunities to consolidate requirements
among Navy commands; and
o adopting, when appropriate, commonly used commercial practices, such as
conducting spend analyses and competing and negotiating pricing discounts
based on overall Navy volume, to strengthen the Navy's bargaining position
in acquiring telecommunication services.
To ensure the successful implementation of this strategic management
framework and to better leverage Navy buying power, we recommend that the
Secretary of the Navy direct the CNO to strengthen analysis of
telecommunication service requirements, spending, and the capabilities of
telecommunication service providers by enhancing core internal technical
expertise and information systems.
At the selected units that we audited, we recommend that the CNO direct
the commanders to provide assurance that existing policies are enforced
and fully evaluate the internal controls over the
o review and revalidation of telecommunication requirements,
o reconciliation of telecommunication invoices with a current inventory
of telecommunication equipment and services, and
o distribution and use of calling cards and cancellation of cards that
are not properly controlled.
Agency Comments and Our Evaluation
DOD provided written comments on a draft of this report, which are
reprinted in appendix II.
DOD concurred with 9 of our 11 recommendations and partially concurred
with the remaining 2 recommendations. These latter recommendations were
that the Navy (1) support DISA efforts to track acquisitions of
telecommunication services, the actual cost of those services, and trends
in usage of telecommunication services throughout DOD; and (2) strengthen
the analysis of telecommunication services requirements, spending, and the
capabilities of telecommunication service providers by enhancing core
internal technical expertise and information systems. Although the Navy
said it plans to take actions on these 2 recommendations, it was unclear
whether these planned actions will satisfy our recommendations. The
department also provided technical comments, which we have incorporated in
the report as appropriate.
Concerning Navy support of DISA efforts to track acquisition of
telecommunication services throughout DOD, the actual costs of those
services, and trends in usage, DOD responded that the Secretary of the
Navy will direct cognizant senior Department of the Navy officials to
support DISA tracking efforts to the maximum extent practicable. Such
measures are an important aspect of the management of telecommunication
programs and appear to be responsive to our recommendation. However, since
we are uncertain of the meaning of "maximum extent practicable", we cannot
evaluate the extent to which DOD plans to implement this recommendation.
We continue to strongly encourage the Navy to track all acquisitions of
telecommunication equipment and services in order to enable it, in
conjunction with DISA, to successfully develop an enterprisewide
governance process for telecommunication, meet DOD expectations for major
management reform, and obtain the maximum savings in its procurement
services.
Regarding the Navy enhancing core internal technical expertise and
information systems, DOD stated that requirements would be analyzed and
considered as part of DOD's efforts to develop a management framework for
improving the efficiency of the Navy's acquisition and use of
telecommunication services. Although it appears the DOD's response may
address the intent of this recommendation, the extent of its efforts is
unclear. We continue to believe that the Navy could benefit from a
strengthened analysis of its telecommunication service requirements,
spending, and the capabilities of its service providers, which could be
aided by enhancing its core technical expertise and information systems.
As agreed with your office, unless you announce the contents of this
report earlier, we will not distribute it until 30 days from its issuance
date. At that time, we will send copies of this report to other interested
congressional committees, the Secretary of the Navy, the Chief of Naval
Operations, and the Assistant Secretary for Financial Management
(Comptroller) for the Navy. Copies will be made available to others upon
request.
Please contact me at (202) 512-9505 or [email protected] if you or your staffs
have any questions about this report. Other GAO contacts and key
contributors to this report are listed in appendix III.
Sincerely yours,
Gregory D. Kutz
Director
Financial Management and Assurance
Appendix I
Objectives, Scope, and Methodology
We reviewed selected aspects of DOD's and the Navy's management of their
telecommunication programs. We modified the scope of our work, in process,
because in some cases the information needed to perform comprehensive
analyses was lacking and in other cases the data were so fragmented that
they could not be analyzed in the aggregate. Thus, in many cases, we had
to rely on case studies and nonrepresentative selections of transactions
to illustrate the internal control problems we identified.
This assignment originated because of congressional concerns that DOD's
vendor pay process, which accounted for approximately $112 billion in
fiscal year 2003, might suffer from many of the same types of pervasive
problems that we uncovered during our previous work on DOD's purchase card
program. Specifically, we were asked to evaluate the effectiveness of
DOD's management oversight and controls of payments to its vendors.
Initially, we intended to assess DOD's oversight and controls over vendor
purchases and payments for telecommunication goods and services- including
local and long-distance services, calling cards, and cellular phone
services. However, because it was not feasible to provide a comprehensive
assessment of the adequacy of all 17 of DOD's vendor payment systems or
the multitude of varying controls and processes over the telecommunication
purchases and processes that we encountered, we subsequently focused our
effort primarily on the Navy. Then, because the Navy was unable to provide
us with a complete population of telecommunication expenditures from which
to perform statistical sampling and testing of transactions, we used a
case-study approach to assess the adequacy of management oversight and
internal controls. This lack of information with which to do statistical
sampling and testing applied at all levels, including the unit level. Even
at the case study locations selected, we were unable to perform
statistical testing because the local databases were often incomplete, or
they had insufficient, inconsistent, or inaccurate data. Because of this,
we evaluated the design of controls in place and relied on
nonrepresentative selections to evaluate the effectiveness of the case
study locations' internal controls of their telecommunication programs.
Consequently, we were unable to gauge the extent of the problem from a
DOD, Navy, or even unit perspective.
Our objectives were to determine (1) whether the Navy has the basic cost
and inventory information needed to oversee and manage its purchases from
telecommunication vendors and (2) whether selected Navy sites have
adequate controls to provide reasonable assurance that telecommunication
goods and services are purchased cost effectively and payments are made
only for valid telecommunication charges. We reviewed current DOD and
Appendix I
Objectives, Scope, and Methodology
Navy guidance contained in applicable regulations, directives,
instructions, or other guidance concerning the procurement, management,
and use of common-user networks. We also reviewed our own prior reports as
well as prior DOD Inspector General and other DOD military audit services'
reports. We met and had numerous discussions with officials from DISA-
DOD's major telecommunication manager-and at DITCO Scott, the primary
contracting organization in DISA.
To determine whether the Navy's controls of expenditures are adequate to
provide reasonable assurance that telecommunication goods and services are
purchased cost effectively and that payments are made only for valid
transactions, we audited the effectiveness of the Navy's internal controls
over its fiscal year 2002 telecommunication transactions at selected
sites. Because the Navy lacked a consolidated source for telecommunication
data, we were unable to obtain complete and accurate information for
telecommunication disbursements Navy-wide. Instead, we identified the
approximate amount spent by the Navy on telecommunications for fiscal year
2002 by manually identifying known telecommunication vendors and matching
this list against the information contained in the Standard Accounting and
Reporting System (STARS), the Financial Accounting Budget System (FABS),
and the purchase card accounting database.
Using these three databases, we were able to determine that the Navy paid
at least $271 million to telecommunication vendors in 2002. Because the
STARS database contained the highest dollar amount of telecommunication
payments, we summarized the STARS payments by the Authorized Accounting
Activity (AAA) code to identify the organizations having responsibility
for providing the funding for the payments. However, these accounting
organizations were not necessarily the users of the goods and services for
which they made payments. Using the information developed from this
methodology, we identified the four major commands having the largest
telecommunication payments in 2002. They were the Space and Naval Warfare
Systems Command (SPAWAR), the Naval Network and Space Operations Command
(NNSOC),1 the Naval Air Systems Command (NAVAIR), and the Naval Sea
Systems Command
1To get to the user level at NNSOC, we visited Naval Computer and
Telecommunications Area Master Station Atlantic-Virginia (NCTAMSLANT). We
obtained a list of member activities within the command, which NCTAMSLANT
has responsibility for making payments for telecommunication services and
equipment. From this list we chose to do further work at the
Commander-in-Chief US Atlantic Fleet (CINCLANTFLT), primarily based on the
variety of telecommunication services being paid for.
Appendix I
Objectives, Scope, and Methodology
(NAVSEA). We then selected one activity (or subactivity, if necessary)
within each command at which to do further detailed work. Using our
methodology, the four major commands selected accounted for about $114
million of the Navy's total $271 million in telecommunication payments, or
42 percent of fiscal year 2002 Navy telecommunication payments. (These
amounts may include tactical and nontactical telecommunication.) The four
activities selected accounted for $63 million of the $114 million (55
percent) of the total for the four commands.
Table 6: Major Commands and Units Selected for Review
Dollars in millions
Total fiscal year
Total fiscal year 2002 2002
Major telecommunication telecommunication
command disbursements Selected unit disbursements
SPAWAR $24 SPAWAR Charleston $13
NAVAIR 20 NAVAIR Patuxent
NAVSEA 21 NSWC Crane
NNSOC 49 NCTAMSLANT 32a
(including
CINCLANTFLT Norfolk)
Total $114 $63
Source: GAO calculations of the Navy's fiscal year 2002 vendor pay
systems.
a NCTAMSLANT fiscal year 2002 disbursement included $243,000 for
CINCLANFLT Norfolk.
At the four navy activities, we used a case study approach. At the sites,
we obtained and reviewed information from directives, policies, and
procedures governing their telecommunication programs. We evaluated the
documentation provided and had numerous meetings and follow-up discussions
with personnel responsible for various aspects of the telecommunication
programs at the sites we visited as well as at remote locations, if
applicable.
To assess the overall control environment governing telecommunications to
determine if it provides reasonable assurance that telecommunication goods
and services are purchased and paid for cost effectively, the primary
criteria we used were applicable laws and regulations; our Standards for
Internal Control in Federal Government (GAO/AIMD-00-21.3.1, November
1999); and our Internal Control Standards: Internal Control Management and
Evaluation Tool (GAO-01-1008G, August 2001). To assess the
Appendix I
Objectives, Scope, and Methodology
management control environment, we evaluated DOD and Navy management
practices using the fundamental concepts and standards contained in GAO's
Internal Control Standards. To test the implementation of key control
activities during fiscal year 2002 at the four installations we audited,
we performed the following detailed testing.
o Base Communications-At each site visited, we obtained a database or
list of base (local service) circuits. For each base circuit, we requested
information such as the installation date, the validation date, the
service end date, and the discontinue date (if applicable), the physical
location of the circuit (building), the responsible point of contact and
organization, the vendor, and billing information for fiscal year 2002 and
the first 6 months of fiscal year 2003. From each local database, we
selected nonrepresentative selections of base circuits to test for
compliance with DOD, Navy, and local policies. For each selected
transaction, we compared the total number of circuits and total
disbursements for selected months in order to perform a reconciliation of
the invoice totals. For months in which the totals did not agree, we
analyzed detailed information in the reconciliation and invoices to test
for (1) inaccuracy of data, (2) payment for items not currently owned or
being used, (3) differences in invoice amounts versus reconciliation and
database amounts, and (4) payments for excess lines. We also analyzed
invoices after circuits had been discontinued to determine whether the
vendor was still charging for disconnected circuits, and we analyzed
selected invoices to determine if the vendor had assessed late fees and
whether those late fees had been certified for payment by the selected
case study sites.
o Long-Haul Communications-Using the DISA2 database, we obtained a list
of circuits with past due validation dates as of July 9, 2003, for the
activities and major commands. We compared the long-haul inventory
information in DISA's database to the installation's long-haul inventory
information in order to determine (1) if long-haul circuits were being
reviewed and revalidated every 2 years, as required by regulation; (2) the
accuracy of DITCO's long-haul inventory information; and (3) whether the
installations had procured long-haul services or equipment without going
through DITCO. We spoke with numerous agency officials
2DISA, through an organization located at Scott Air Force Base, Illinois,
maintains DOD's long-haul database.
Appendix I
Objectives, Scope, and Methodology
on site and in follow-up discussions in order to try to resolve any
discrepancies.
o Cell Phones-Further, at three of the four case study sites,3 we
determined if cell phones were monitored to detect significant over-or
underuse of plan minutes and for compliance with DOD, Navy, and local
policies. To determine if cell phones were being monitored for over-or
underuse of plan minutes, we first obtained a list of cell phone users.
Next, we obtained detailed monthly billing for each user selected for
fiscal year 2002 and May 2003 and through data mining compared the monthly
minutes used to cell plan minutes to identify if the cellular plan was
being under-or over utilized. To test for compliance, we selected a
nonrepresentative selection of cell phone transactions (request for
service, authorization, receipt and acceptance, and payment) and compared
the transactions against DOD, Navy, and local policies.
o Calling Cards-We analyzed the DISA/DITCO Columbus calling card
transactional database, which contained DOD's calling card transactions
from April through June 2003. However, due to the scope of our audit, we
focused our review only on the Navy's calling card transactions. Through
data mining, we identified Navy calling card numbers that (1) had
overlapping calls or calls from different geographical areas within an
hour. From this population, we selected seven calling card accounts and
spoke with officials from the following seven activities and the
telecommunication vendor, MCI, to determine why there were overlapping
calls or calls placed from different geographical areas. The seven
activities were (1) NCTAMS Norfolk, (2) Base Communications Office (BCO)
Philadelphia, (3) Naval Computer and Telecommunication Station San Diego
(NCTSSD), (4) Marine Corps Base (MCB) Camp Pendleton, (5) USS Mitscher,
(6) Naval Air Lakehurst, and (7) NAWCAD Patuxent. At these locations, we
spoke with Navy officials and their telecommunications vendor, MCI, to
determine why there were overlapping calls or calls placed from different
geographical areas at almost the same time.
We requested comments on a draft of this report from the Secretary of the
Navy or his designee. DOD provided written comments, which are
3We were unable to perform any testing at CINCLANTFLT to determine if
individuals were under-or overutilizing their plans because CINCLANTFLT
uses the shared minute cellular plans.
Appendix I
Objectives, Scope, and Methodology
presented and evaluated in the "Agency Comments and Our Evaluation"
section and are reprinted in appendix II. We conducted our work from May
2003 through February 2004 in accordance with generally accepted
government auditing standards.
Appendix II
Comments from the Department of Defense
Appendix II
Comments from the Department of Defense
Appendix II
Comments from the Department of Defense
Appendix II
Comments from the Department of Defense
Appendix III
GAO Contact and Staff Acknowledgments
GAO Contact Diane Handley, (404) 679-1986 Rathi Bose, (404) 679-1996
Acknowledgments In addition to those named above, Art Brouk, Michael
Chambless, Francine DelVecchio, Johnny Clark, Carmen Harris, John Ledford,
and John Ryan made key contributions to this report.
GAO's Mission The General Accounting Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO's Web site (www.gao.gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document files.
To have GAO e-mail this list to you every afternoon, go to www.gao.gov and
select "Subscribe to e-mail alerts" under the "Order GAO Products"
heading.
Order by Mail or Phone The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:
U.S. General Accounting Office 441 G Street NW, Room LM Washington, D.C.
20548
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061
To Report Fraud, Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htmWaste, and Abuse in E-mail:
[email protected] Federal Programs Automated answering system: (800)
424-5454 or (202) 512-7470
Public Affairs Jeff Nelligan, Managing Director, [email protected] (202)
512-4800 U.S. General Accounting Office, 441 G Street NW, Room 7149
Washington, D.C. 20548
Presorted Standard
Postage & Fees Paid
GAO
Permit No. GI00
United States
General Accounting Office
Washington, D.C. 20548-0001
Official Business
Penalty for Private Use $300
Address Service Requested
*** End of document. ***