Travel Cards: Internal Control Weaknesses at DOD Led to Improper 
Use of First and Business Class Travel (24-OCT-03, GAO-04-88).	 
                                                                 
Ineffective oversight and management of the Department of	 
Defense's (DOD) travel card program, which GAO has previously	 
reported on, have led to concerns about DOD's use of first and	 
business class airfares. GAO was asked to (1) identify the	 
magnitude of premium class travel, (2) determine if DOD's key	 
internal control activities operated effectively and provide	 
examples of control breakdowns, and (3) assess DOD's monitoring  
and key elements of the control environment.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-88						        
    ACCNO:   A08769						        
  TITLE:     Travel Cards: Internal Control Weaknesses at DOD Led to  
Improper Use of First and Business Class Travel 		 
     DATE:   10/24/2003 
  SUBJECT:   Air travel allowances				 
	     Financial management				 
	     Fraud						 
	     Internal controls					 
	     Policy evaluation					 
	     Travel costs					 
	     DOD Travel Card Program				 

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GAO-04-88

United States General Accounting Office

GAO

                       Report to Congressional Requesters

October 2003

TRAVEL CARDS

  Internal Control Weaknesses at DOD Led to Improper Use of First and Business
                                  Class Travel

                                       a

GAO-04-88

Highlights of GAO-04-88, a report to congressional requesters

Ineffective oversight and management of the Department of Defense's (DOD)
travel card program, which GAO has previously reported on, have led to
concerns about DOD's use of first and business class airfares. GAO was
asked to (1) identify the magnitude of premium class travel, (2) determine
if DOD's key internal control activities operated effectively and provide
examples of control breakdowns, and (3) assess DOD's monitoring and key
elements of the control environment.

To reduce improper premium class

October 2003

TRAVEL CARDS

Internal Control Weaknesses at DOD Led to Improper Use of First and Business
Class Travel

Breakdowns in internal controls and a weak control environment resulted in
improper first and business class travel and increased costs to taxpayers.
Based on extensive analysis of records obtained from Bank of America, GAO
found that DOD spent almost $124 million on about 68,000 premium class
related tickets-primarily business class-during fiscal years 2001 and
2002. Each premium class ticket costs the government up to thousands of
dollars more than a comparable coach class ticket. GAO's work also
indicated that civilian supervisors, managers, and executives and senior
military officers accounted for almost 50 percent of the premium class
transactions, and for 27 of the 28 most frequent premium class travelers.
GAO considers travel by high-ranking officials to be a sensitive payment
area because of its susceptibility to abuse.

Breakdowns in key internal controls resulted in a significant level of
improper premium class travel. GAO estimated that 72 percent of DOD's
fiscal year 2001 and 2002 premium class travel was not properly
authorized, and 73 percent was not properly justified.

Examples of Improper Premium Class Travel

travel and related DOD costs, GAO makes several recommendations for
improving controls over authorization and justification, policies and
procedures, and monitoring and oversight of first and business class
travel.

DOD officials concurred with all of GAO's recommendations and said that
some actions have already been initiated.

                        Cost of     Estimated 
        Rank/grade    premium   cost of coach 
       of traveler  class trips   class trips Reason travel was improper  
          GS-15         $35,000        $7,000 Traveler approved own first 
                                              class travel based on       
                                              medical condition that was  
                                              later determined to not     
                                              meet stringent first class  
                                                       criteria.          
       Presidential      68,000        17,000    First and business class 
                                               travel was authorized by a 
        appointee                             subordinate using a blanket 
                                                        order.            
                                                         The travel order 
        GS-14 and        21,000         2,500      authorizing relocation 
                                                            costs for the 
          family                              traveler and his family did 
                                                 not authorize premium    
                                                     class travel.        
                                                   First class ticket not 
          GS-15           3,300           200 authorized by the Secretary 
                                                                       of 
                                                Defense or designee as    
                                                       required.          

GS-15 4,500 600	Eighteen months after the trip, the traveler's supervisor
(not a medical authority) provided a note regarding a medical need as the
justification for business class.

Source: GAO analysis of premium class travel transactions and supporting
documentation.

Further, DOD did not have accurate and complete data on the extent of

premium class travel and performed little or no monitoring of this travel.
In

regard to the control environment, GAO found that DOD (1) issued policies

that were inconsistent with General Service Administration governmentwide

travel regulations, (2) did not require military services to issue and
update

premium class policies to implement DOD's travel regulations consistently,

and (3) did not issue guidance on how to document the authorization and

justification of premium class travel. As a result of GAO's audit, DOD has

begun updating its travel regulations to more clearly state when premium

www.gao.gov/cgi-bin/getrpt?GAO-04-88. class travel can be authorized and
to emphasize that it must only be used

To view the full product, including the scope when exceptional
circumstances warrant the additional cost.

and methodology, click on the link above. For more information, contact
Gregory Kutz at (202) 512-9505 or [email protected].

Contents

  Letter

Results in Brief
Background
Extent of Premium Class Travel Is Significant
Key Internal Controls Were Ineffective
Lack of Monitoring and Control Environment Weaknesses

Contributed to Improper Use of Premium Class Travel Conclusions
Recommendations for Executive Action Agency Comments and Our Evaluation

                                                                   1 3 6 8 10

22 33 34 36

  Appendixes

Appendix I: Objectives, Scope, and Methodology 38

Appendix II: Process to Obtain Premium Class Travel 43

Appendix III:	GAO Contacts and Staff Acknowledgments 45 GAO Contacts 45
Acknowledgments 45

Tables Table 1:

Table 2:

Table 3: Table 4:

Table 5:

Table 6:

DOD Premium Class Travel for Fiscal Years 2001 and
2002
Estimate of Fiscal Year 2001 and 2002 DOD Premium Class
Travel Transactions That Failed Control Tests
Examples of Improper Use of Premium Class Travel
Examples of Travelers Who Frequently Used Premium
Travel
Fiscal Years 2001 and 2002 DOD Premium Class Travel
Population Subjected to Sampling
Fiscal Years 2001 and 2002 Premium Class Travel Charged
to the Centrally Billed Accounts Adjusted for Coding
Errors

                                       9

                                     11 14

                                       18

                                       40

                                       41

Figures Figure 1: Sample Premium Class Authorization Form 30 Figure 2:
Sample Medical Condition Form 32 Figure 3: Standard Process to Obtain
Premium Class Travel When Multiple Classes of Service Are Available 44

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
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separately.

A

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

October 24, 2003

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

The Honorable Norm Coleman
Chairman
Permanent Subcommittee on Investigations
Committee on Governmental Affairs
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 various credit 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 program. 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. Our audits in these areas
provide 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-areas that are

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).

highly vulnerable to fraud, waste, and abuse-in the federal government, a
designation that continues today.3

The centrally billed accounts are used by most DOD services and units to
purchase transportation services such as airline and train tickets,
facilitate group travel, and pay for other travel-related expenses,4 while
the individually billed accounts are used by individual travelers for
lodging, rental cars, and other travel expenses. For fiscal years 2001 and
2002, DOD travelers incurred $7.1 billion in expenses on the centrally
billed and individually billed travel card accounts, with about $2.8
billion related to the use of centrally billed accounts. This report
addresses the first part of your request related to controls over premium
class travel charged to centrally billed accounts. Federal travel
regulations define premium class travel as any class of accommodation
above coach class, that is, first or business class. We plan to report to
you separately on the results of our overall audit of the controls over
the centrally billed account travel program.

Because DOD disburses funds directly to Bank of America under a
governmentwide travel card contract for charges made to the centrally
billed accounts, the use of these accounts for improper5 transportation,
in particular the more expensive premium class travel, results in direct
increased cost to the government. Governmentwide General Services
Administration (GSA) regulations and internal DOD regulations state that
travelers must use coach class accommodations for official business air
travel-both domestic and international-except when a traveler is
specifically authorized to use premium class. The regulations also state
that travelers on official government travel must exercise the same

3U.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).

4The Air Force is an exception to this general rule. The Air Force equally
uses both centrally billed and individual billed accounts for purchasing
airline transportation.

5We define improper premium class travel transactions as those in which
travelers did not have specific authorization to use premium class
accommodations or those transactions that were properly authorized but did
not provide specific justification for premium class travel that was
consistent with DOD regulation or policy. We also considered transactions
improper if premium class travel was authorized under DOD policy or
procedures that were inconsistent with the Federal Travel Regulation or
the guidance provided in our Standards for Internal Control in the Federal
Government (GAO/AIMD-00-21.3.1) and our Guide for Evaluating and Testing
Controls Over Sensitive Payments (GAO/AFMD-8.1.2).

standard of care in incurring expenses that a prudent person would
exercise if traveling on personal business. Premium class flights are not
something travelers are entitled to simply because certain conditions
exist. Rather, GSA and DOD require that, when possible, travelers plan
their travel in advance to avoid the necessity for premium class travel.

As you requested, the objective of our audit was to assess the adequacy of
internal controls over the authorization and issuance of fiscal years 2001
and 2002 premium class tickets charged to DOD's centrally billed travel
accounts. Specifically, we (1) identified the extent to which DOD uses the
centrally billed travel accounts to purchase premium class travel, (2)
determined if DOD's key internal control activities operated effectively
and provided reasonable assurance that premium class travel was purchased
appropriately and identified examples of control breakdowns, and (3)
assessed DOD's oversight and monitoring of the use of premium travel and
key elements of the control environment.

To meet our objectives, we (1) extracted premium class transactions from
Bank of America databases of charges made to DOD's centrally billed
accounts for fiscal years 2001 and 2002, (2) reviewed federal laws and
regulations and DOD policies and procedures on premium class travel, and
(3) interviewed DOD officials on processes and procedures in place to
authorize and justify premium class travel. We tested a statistical sample
of premium class travel transactions and conducted other audit work to
evaluate the design and implementation of key internal control procedures
and activities. We used data mining to identify additional instances of
improper premium class travel based on the frequency and dollar amount of
premium class travel. Appendix I provides details on our scope and
methodology.

We conducted our audit work from November 2002 through August 2003 in
accordance with U.S. generally accepted government auditing standards, and
we performed our investigative work in accordance with standards
prescribed by the President's Council on Integrity and Efficiency. We
received oral comments on a draft of this report from DOD, Army, Navy,
Marine Corps, and Air Force officials on September 10, 2003. We addressed
the comments in the "Agency Comments and Our Evaluation" section, and
incorporated those comments in the final report where appropriate.

Results in Brief	Breakdowns in specific internal controls, ineffective
oversight, and a poor control environment over the use of DOD's premium
class travel resulted in

improper first and business class travel and increased costs to taxpayers.
Based on our analysis of charges made to DOD's centrally billed accounts,
we found that for fiscal years 2001 and 2002, DOD spent almost $124
million on over 68,000 airline tickets that included at least one leg of
premium class service, primarily business class. The price difference
between a premium class ticket and a coach class ticket ranged from a few
dollars to thousands of dollars. Based on our statistical sample, we
estimated that senior civilian and military employees-including
senior-level executives and presidential appointees with Senate
confirmation- accounted for almost 50 percent of premium class travel.

Breakdowns in key internal control activities resulted in a significant
level of improper premium class travel. Specific control breakdowns
included lack of (1) proper authorization of premium class
travel-documentation directing the traveler to fly on official government
business had to specifically mention that the individual could travel in
premium class and the authorizing travel documents had to be signed by an
official who was not the traveler or a subordinate6-and (2) proper
justification of premium class travel-documentation had to reflect that
the circumstances under which premium class travel was used were
consistent with criteria set out in governmentwide and DOD regulations or
policies. Our statistical sample results showed that an estimated 72
percent of DOD fiscal year 2001 and 2002 premium class travel was not
properly authorized, and 73 percent was not properly justified. One
example of improper travel we identified was for a DOD civilian employee
and three family members who flew a combination of first and business
class when they relocated from London to Honolulu. The travel order for
the employee and his family did not authorize them to fly premium class,
yet premium class tickets totaling almost $21,000 were issued, compared to
an estimated cost of $2,500 for coach class tickets. Consequently, the
government incurred more than $18,000 in additional cost.

Our data mining work also determined that although frequent premium class
travelers were generally authorized to travel premium class, the
authorization was not properly justified. Of the 28 most frequent first
and business class DOD travelers, only 3 did not receive proper
authorization for this class of travel. These 3 travelers lacked proper
authorization

6Although DOD policies do not address subordinates approving their
supervisors' premium class travel, we consider this to be a control
weakness, as it increases the opportunity for high-ranking employees to
bypass internal controls over travel.

because they either approved their own premium class travel or had their
subordinates do so. However, the 28 most frequent travelers still had a
high rate of improper use of first and business class travel because their
justification-often for mission requirements or medical condition-was not
supported by the documentation provided or did not adhere to the
governmentwide and DOD travel regulations. In other cases, the
justification provided by frequent travelers was questionable because the
documentation was not adequate to determine whether the transaction met
DOD's criteria.

Lack of management oversight and a weak overall control environment also
contributed to improper premium class travel. Specifically, DOD did not
collect data on the extent of business class travel-the bulk of DOD's
premium class travel-and therefore performed little or no monitoring of
this type of travel. In addition, DOD's first class travel data, which DOD
is required to report to GSA annually, were incomplete. As a result, DOD
was not aware of the improper use of premium class travel and did not have
data available to identify trends and determine whether alternate, less
expensive means of transportation were available. Further, weaknesses in
the control environment, primarily related to policies and procedures,
exacerbated weak internal control procedures and contributed to
ineffective oversight of premium class travel. Specifically, we found that
DOD (1) issued polices that were inconsistent with GSA's governmentwide
travel regulations, (2) did not require the military services to issue and
update premium class policies that consistently implemented DOD's travel
regulations, and (3) did not issue guidance on how to document the
authorization and justification of premium class travel. As a result of
our audit, DOD has begun updating its travel regulations to more clearly
articulate the circumstances under which premium class travel is
authorized. In addition, the updated regulations, in the context of
lengthy travel, emphasize that premium class travel must not be common
practice and that such services should only be used in exceptional
circumstances.

This report contains recommendations to DOD aimed at reducing improper
premium class travel and related DOD travel costs. Our recommendations
address the need to improve internal controls to provide reasonable
assurance that authorization and justification for premium class travel
are appropriate, monitor the extent of premium class travel, modify
policies and procedures to make them consistent with GSA regulations, and
issue policies prohibiting subordinates or the travelers themselves from
authorizing the travelers' premium class travel. In oral comments on a
draft of this report, DOD officials concurred with our recommendations to

resolve the control weaknesses. Because two of their proposed actions
represented alternative approaches to mitigate identified weaknesses, we
modified those recommendations to recognize that the intent of those
recommendations could be addressed in different ways.

Background	DOD uses a combination of governmentwide and DOD guidance as
the policy and procedural foundation for incurring premium class travel.
The Federal Travel Regulation (FTR), issued by GSA, implements statutory
and Office of Management and Budget (OMB) requirements and policies for
travel by federal civilian employees and others authorized to travel at
government expense, including guidelines governing the use of premium
class travel. The purpose of the FTR is to ensure that official travel is
conducted responsibly and at a minimal administrative expense. Pursuant to
various statutes, DOD issued the Joint Federal Travel Regulations (JFTR),
which applies to uniformed service members, and the Joint Travel
Regulations (JTR), which applies to DOD civilian personnel. The DOD travel
regulation for military personnel mirrors the GSA regulation, and DOD
travel regulations for civilian personnel are subject to GSA's travel
regulation. In addition, each military service has issued implementing
guidelines that, to varying degrees, provide additional guidance on when
premium class travel is authorized.

GSA and DOD regulations authorize the use of premium class travel under
specific circumstances. The JTR and the JFTR limit the authority to
authorize first class travel to the Secretary of Defense, his or her
deputy, or other officials as designated by the Secretary of Defense.
However, while both the JTR and JFTR provide that the authority to
authorize first class travel may be delegated and re-delegated, the
regulations specify that the authority must be delegated to "as high an
administrative level as practicable to ensure adequate consideration and
review of the circumstances necessitating the first class accommodations."
Further guidance is found in a DOD directive on transportation and traffic
management, which specifically states that the secretaries within their
military services and secretariats are the authorizing authorities for
first class travel. The service secretaries may re-delegate authorizing
authority for first class travel to under secretaries, service chiefs or
their vice and/or deputy chiefs of staff, and four-star major commanders
or their three-star vice and/or deputy commanders, but authorizing
authority may not be delegated to anyone other than these officials. DOD
regulations also require that authorization for premium class
accommodations be made in advance of the actual travel unless extenuating
circumstances or

emergency situations make advance7 authorization impossible. Specifically,
the JTR and JFTR state that first class accommodation is authorized only
when at least one of the following conditions exists:

o 	coach class airline accommodations or premium class other than first
class airline accommodations are not reasonably available;

o 	the traveler is so handicapped or otherwise physically impaired that
other accommodations cannot be used, and such condition is substantiated
by competent medical authority; or

o  exceptional security circumstances require such travel.

The JTR and JFTR allow the transportation officer,8 in conjunction with
the official who issued the travel order, to approve premium class travel
other than first class. In accordance with the FTR, DOD restricts premium
class travel to the following eight circumstances:

o 	regularly scheduled flights between origin and destination provide only
premium class accommodations, and this is certified on the travel voucher;

o 	coach class is not available in time to accomplish the purpose of the
official travel, which is so urgent it cannot be postponed;

o 	premium class travel is necessary to accommodate the traveler's
disability or other physical impairment, and the condition is
substantiated in writing by competent medical authority;

o 	premium class travel is needed for security purposes or because
exceptional circumstances make its use essential to the successful
performance of the mission;

7First class accommodations may be used without authorization only when
regularly scheduled flights between the authorized origin and destination
(including connecting points) provide only first class accommodations.

8The JFTR delegates to the services the authority to determine who may
approve premium other than first class travel. The service regulations
call for the same authorizing official as the JTR.

o 	coach class accommodations on authorized/approved foreign carriers do
not provide adequate sanitation or meet health standards;

o 	premium class accommodations would result in overall savings to the
government because of subsistence costs, overtime, or lost productive time
that would be incurred while awaiting coach class accommodations;

o  transportation is paid in full by a nonfederal source; or

o 	travel is to or from a destination outside the continental United
States, and the scheduled flight time (including stopovers) is in excess
of 14 hours. However, a rest stop is prohibited when travel is authorized
by premium class accommodations.

Both GSA and DOD regulations allow a traveler to upgrade to premium class
other than first class travel at personal expense, through redemption of
frequent traveler benefits. GSA also identified agency mission as one of
the criteria for premium class travel. Appendix II includes more detailed
information concerning the process by which DOD military and civilian
personnel would properly obtain premium class airline tickets.

Extent of Premium Class Travel Is Significant

For fiscal years 2001 and 2002, DOD spent nearly $124 million on over
68,000 airline tickets containing at least one leg of premium class
travel.9 Since DOD did not maintain centralized data on premium class
travel, we extracted this information from Bank of America's fiscal years
2001 and 2002 databases of DOD centrally billed account travel, which
included over 5.3 million transactions for airline tickets valued at over
$2.4 billion. Although we were able to report this aggregate information,
we were unable to obtain any breakdowns of the data, such as the amount of
premium class travel by military service or the amount of premium class
travel used for domestic versus overseas flights. As discussed later in
this report, because DOD does not obtain or maintain management
information on premium class travel, it cannot monitor its proper use,
identify trends, or determine alternate, less expensive means of
transportation.

9In addition to the over 68,000 premium class travel transactions
purchased by DOD, DOD travelers upgraded over 3,100 coach tickets to
business or first class tickets at no cost to the government.

As shown in table 1, the total dollar amount DOD spent on travel that
included at least one leg of premium class airfare was about $57 million
in fiscal year 2001 and about $67 million in fiscal year 2002. First class
travel accounted for 2.4 percent of the total dollars spent for premium
class travel for the 2 fiscal years, while business class accounted for
the remaining 97.6 percent.

Table 1: DOD Premium Class Travel for Fiscal Years 2001 and 2002 Number of
                   transactions Dollar amounts (in thousands)

                             2001    2002  Total    2001     2002       Total 
        First class           688     552  1,240   $1,302   $1,596     $2,898 
       Business class      32,771 34,079  66,850   55,852   65,095   $120,947 
    Total premium travel   33,459 34,631  68,090  $57,154  $66,691   $123,845 

Source: GAO analysis of Bank of America data.

Note: Transactions include at least one leg of premium class travel.

DOD's premium class air travel accounts for a very small percentage of DOD
travel overall.10 It represents 1 percent of total DOD airline
transactions and 5 percent of total DOD dollars spent on airline travel
charged to the centrally billed accounts. However, to put the amount that
DOD spends on premium class travel in perspective, we noted that the $124
million DOD spent on premium class related travel during these 2 fiscal
years exceeded the total travel and transportation expenses-including
airfare, lodging, and meals-spent by 12 major agencies covered by the
Chief Financial Officers Act of 1990, including the Social Security
Administration; the Departments of Energy, Education, Housing and Urban
Development, and Labor; and the National Aeronautics and Space
Administration. The difference between a premium class ticket and a
comparable coach class ticket can range from negligible-particularly if
the traveler traveled within Europe-to thousands of dollars. In one
instance, a traveler's first class flight between Washington and Los
Angeles was 14 times, or about $3,000 more than, the price of a coach
class flight.

10DOD reported almost $10.8 billion in travel-related expenses for fiscal
years 2001 and 2002 combined.

We also found that higher-ranking civilian personnel and military
officials accounted for a large part of premium class travel. Based on our
statistical sample, we estimated that DOD civilian employees under the
General Schedule (GS) grade GS-13 to GS-15 (supervisors and managers),
Senior Executive Service (SES) (career senior executives), presidential
appointees with Senate confirmation, and DOD senior military officers O-4
and above accounted for almost 50 percent of premium class travel. The
remaining 50 percent in our statistical sample comprised mostly other
officers, senior enlisted personnel, and technical or professional staff.
We consider travel by high-ranking officials, in particular senior-level
executives, to be a sensitive payment area because of its susceptibility
to abuse or noncompliance with laws and regulations.11

Key Internal Controls Were Ineffective

Significant breakdowns in key internal control activities resulted in a
significant level of improper premium class travel and increased DOD
travel cost. Specifically, we estimated, based on our statistical sample,
that 72 percent of the DOD centrally billed travel transactions containing
premium class travel for fiscal years 2001 and 2002 were not properly
authorized, and 73 percent were not properly justified. (See app. I for
further details of our statistical sampling test results.) Using our
statistical sample and data mining results, we found numerous examples of
premium class travel without authorization or adequate justification,
illustrating the improper use of premium class travel and the resulting
increase in travel costs. Further, we used data mining techniques to
identify the most frequent users of premium class travel. Our analysis of
these cases showed that almost all were senior-level employees whose
travel, although properly authorized, generally was not adequately
justified.

11GAO/AFMD-8.1.2.

Results of Statistical Sampling Work

We selected two key transaction-level controls for statistical sampling
testing. As shown in table 2, we estimated that 72 percent of premium
class travel was unauthorized. Because the FTR and DOD regulations provide
that premium class travel must be specifically authorized, transactions
that failed this test also failed the justification test. In addition, we
found two transactions in our statistical sample were properly authorized
but failed the justification test as they were not supported by the
documentation provided or did not adhere to the FTR and DOD travel
regulations.

Table 2: Estimate of Fiscal Year 2001 and 2002 DOD Premium Class Travel
Transactions That Failed Control Tests

                                                         Estimated percentage
                                                          failure rate in key
                                              Control test internal controlsa

Not properly authorized by a designated official at equal or higher
rank/grade to the traveler

Not properly justified

Source: GAO analysis of DOD premium class travel transactions and
supporting documentation.

Note: Our testing excluded all business class transactions costing less
than $750. We determined that many of these lower dollar transactions were
covered by a blanket authorization for certain intra-European flights.
Although, as discussed in this section, we did not believe the blanket
authorization was valid, we eliminated these transactions from our sample
to avoid possible skewing of the results.

aThe numbers represent point estimates for the population based on our
sampling tests. Information about the confidence intervals for our sample
estimates is presented in app. I.

Proper Authorization Did Not Requiring premium class travel to be properly
authorized is the first step in

Exist 	preventing improper premium class travel. The FTR requires premium
class travel to be specifically authorized. DOD specifies that premium
class travel must be authorized in advance of travel, unless extenuating
or emergency circumstances make authorization impossible, in which case
the traveler is required to request written approval from the appropriate
authority as soon as possible after the travel. In addition to the FTR and
DOD regulations, we also applied the criteria set forth in our internal
control standards12 and sensitive payments guidelines13 in evaluating the
proper authorization of premium class travel. For example, while DOD

12GAO/AIMD-00-21.3.1. 13GAO/AFMD-8.1.2.

travel regulations and policies do not address subordinates authorizing
their supervisors' premium class travel, our internal control standards
consider such policy to be flawed; therefore, a premium class transaction
that was approved by a subordinate would fail the control test. Using
these guidelines, we found that transactions failed the authorization test
in the following three categories: (1) the premium class airline ticket
was purchased, but the authorization of premium class travel was not noted
on either the travel order or on additional documentation supporting the
travel order, (2) the travel order authorizing premium class travel was
not signed, and (3) premium class travel was authorized by a subordinate.

Premium class travel not specifically authorized. Based on our statistical
sample, we estimated that the travel order and other supporting
documentation for 64 percent of the premium class transactions did not
specifically authorize the traveler to fly premium class, and thus the
commercial travel office should not have issued the premium class ticket.
Further, we estimated that 5 percent of the transactions lacking specific
authorization were intra-European flights covered under a blanket
authorization issued in February 2002 by the U.S. Army Transportation
Management Center, Europe, located in Germany. The blanket authorization
permitted the commercial travel office to automatically purchase business
class tickets on 65 flights between Frankfurt, Munich, or Stuttgart and
other selected European cities. The blanket authorization stated that
business class was authorized for these routes because it was the lowest
unrestricted fare. Consequently, DOD considered these transactions to have
been authorized. However, we disagree that a blanket authorization can be
used for premium class travel because it is not consistent with GSA and
DOD requirements that all premium class travel be specifically authorized
and, wherever possible, minimized. Further, the importance of having
individual authorization for premium class travel is illustrated by our
independent evaluation of the 65 flights, which showed that business class
tickets were not necessarily equal to or lower than the cost of
unrestricted coach, as claimed in the blanket authorization. For example,
according to the travel agency that served GAO, the business fare between
Munich, Germany, and Tbilisi, Georgia (located near Turkey), was $3,232
and the unrestricted economy fare was $992, a difference of $2,240.

Travel order not signed. We also estimated that 6 percent of premium class
transactions were related to instances where the travel order authorizing
business class was not signed at all or the travel order authorizing first
class was not signed by the service secretary or his designee, as required
by DOD regulations. Ensuring that travel orders are

signed by an appropriate official is a key control to preventing improper
premium class travel. If the travel order is not signed, or not signed by
the individual designated to do so, DOD has no assurance that the
substantially higher cost of the premium class tickets was properly
reviewed and represented an efficient use of government resources.

Premium travel authorized by a subordinate. We estimated that 2 percent of
the premium class transactions involved situations where a subordinate
approved a superior's travel. Although these limited instances do not
necessarily indicate the existence of a significant systemic problem,
allowing subordinates to approve their supervisors' premium class travel
is synonymous to self-approval and reduces scrutiny of premium class
requests. Our internal control standards state that "Transactions and
other significant events should be authorized and executed only by persons
acting within the scope of their authority. This is the principal means of
assuring that only valid transactions to exchange, transfer, use, or
commit resources and other events are initiated or entered into."

Valid Justification for Premium Another internal control weakness
identified in the statistical sample was

Travel Often Did Not Exist	that the justification used for premium class
travel was not always provided, not accurate, and/or not complete enough
to warrant the additional cost to the government. As previously stated,
premium class travel is not an entitlement. In fact, recent changes to the
DOD regulations state that premium class travel, in the context of lengthy
flights, should only be used when exceptional circumstances warrant and
that alternatives should be explored to minimize unnecessary premium class
travel. In reviewing whether premium class travel was justified, we looked
at whether there was documented authorization and, if there was, whether
the authorization for premium class travel was supported by evidence of a
valid reason. As shown in table 2, an estimated 72 percent of premium
class transactions were not authorized and therefore could not have been
justified. An additional 2 transactions in the statistical sample were
authorized but not justified in accordance with DOD's criteria. In one
instance for example, although the flight time exceeded 14 hours, the
traveler had a layover in route, which should have precluded the traveler
from being authorized premium class travel.

Examples of Improper Use Table 3 contains specific examples of
unauthorized travel from both our

of Premium Class Travel	statistical samples and data mining work. The
table also contains examples of premium class travel that was unjustified.
Without authorization or adequate justification, these cases illustrate
the improper use of premium

class travel and the resulting increase in travel costs. Following the
table is more detailed information on some of these cases.

           Table 3: Examples of Improper Use of Premium Class Travel

                                                 Cost of Estimated 
                                                 premium   cost of 
                                        Class of  ticket coach     
                     Grade/                              fare      
Traveler   Source    ranka   Itinerary   ticket     paid   ticketb   Reason for   
                                                                     exception    
                                                                     Travel order 
            Data     GS-14               First                            did not 
                              One-way     and                       authorize use 
                               from              $20,943   $2,500c       of first 
                            London to                               or business   
           mining           Honolulu    business                   class travel.  
                                                                    Transaction   
                                  for a                                failed     
                              family of                            authorization  
                               four for                                 and       
                                                                   justification. 
                            relocation                             
                            purposes                               
                                                                     Travel order 
         Statistical GS-15               First                238c        did not 
                            Los Angeles                                 authorize 
                                to                 3,253              first class 
                                                                      travel.     
           sample           Washington,                             Transaction   
                               D.C.                                    failed     
                                                                   authorization  
                             and back                                   and       
                                                                   justification. 
                                                                   Travel order   
         Statistical GS-13   Austin to  Business                   did not        
                              London                               authorize      
                                                   4,066     1,606 business       
                            and from                               class travel.  
           sample           London to                               Transaction   
                                                                       failed     
                                                                   authorization  
                             San Diego                                  and       
                                                                   justification. 
                                                                   Travel order   
         Statistical GS-13              Business                   did not        
                            San Diego                              authorize      
                            to Busan,              3,695     2,161 business       
                            Korea, and                             class travel.  
           sample              back                                 Transaction   
                                                                       failed     
                                                                   authorization  
                                                                        and       
                                                                   justification. 
                                                                   Travel order   
         Statistical  O-5               Business               672 did not        
                            London to                              authorize      
                            Lisbon,                1,338           business       
                                                                   class travel.  
           sample              Spain                                Transaction   
                                                                       failed     
                                                                   authorization  
                                                                        and       
                                                                   justification. 
                                                                   Travel order   
         Statistical GS-13  Washington, Business   4,319    1,450c authorizing    
                            D.C. to                                business class 
                                                                   travel was not 
           sample           Taipei, and                                   signed. 
                               back                                   Transaction 
                                                                           failed 
                                                                   authorization  
                                                                        and       
                                                                   justification. 
                                San                                Travel order   
         Statistical GS-13   Francisco  Business              610c authorizing    
                                to                 3,168           business class 
                                                                   travel was not 
           sample           Tokyo, and                                    signed. 
                               back                                   Transaction 
                                                                           failed 
                                                                   authorization  
                                                                        and       
                                                                   justification. 
                                                                   Blanket travel 
            Data      CW-4  Washington, Business                       order      
                            D.C. to                9,530     2,501  authorizing   
                                                                   premium class  
           mining            Tashkent,                               travel was   
                                                                       used.      
                                                                    Transaction   
                            Uzbekistan,                                failed     
                                and                                authorization  
                                                                        and       
                               back                                justification. 

9 Statistical GS-13 Tucson to   Business 8,308 4,966 Business class travel 
                       Bahrain                          authorized based      
       sample          and Bahrain                        on flight lasting   
                       to Los                            more than 14 hours;  
                         Angeles                        however, traveler had 
                                                          rest stop en route. 
                                                         Transaction passed   
                                                          authorization but   
                                                        failed justification. 

(Continued From Previous Page)

                                             Cost of Estimated  
                                             premium    cost of 
                   Grade/           Class of  ticket coach fare 
Traveler Source ranka             ticket             ticketb    Reason for 
                          Itinerary             paid                exception 

     Data GS-15 Washington, D.C. Business 4,525 570c Business class travel    
                to                                   authorized but no        
mining        Amsterdam, and                        justification provided 
                                                           on the order. Over 
                      back                           18 months after the trip 
                                                          occurred, the       
                                                                   traveler's 
                                                             supervisor-not a 
                                                                   physician- 
                                                     wrote a note stating     
                                                     that he authorized       
                                                     premium class based on a 
                                                             medical          
                                                     need. Transaction passed 
                                                                authorization 
                                                     but failed justification 
                                                              test.           

                         Washington,                         Business class   
Statistical Political D.C. to      Business 3,485 1,530c travel authorized 
                                                                   on         
                         London, then                       basis that travel 
        sample appointee    Paris                                  is mission 
                                                               essential, but 
                                                              no additional   
                          to Moscow                            information    
                                                                provided.     
                                                            Travel was to a   
                                                            conference in     
                                                            Moscow.           
                                                               Transaction    
                                                                 passed       
                                                            authorization but 
                                                                 failed       
                                                             justification.   

Source: GAO analysis of premium class travel transactions and supporting
documentation.

aGS designates General Schedule pay schedule. O designates a military
oficer. CW designates a military chief warrant officer.

bSource of estimated coach fares is GSA city pair or expedia.com.

cFares do not include all applicable taxes and airport fees.

o 	Traveler #1 is a GS-14 at the Department of the Navy; he along with
three family members flew a combination of first and business class when
they were relocated from London to Honolulu. The cost to the government
for those four first and business class tickets was almost $21,000,
compared to an estimated total cost of about $2,500 for four coach class
tickets. An audit of the travel orders for this trip indicated that the
DOD civilian employee and his family were not authorized to fly first or
business class. Consequently, the traveler failed both the authorization
and the justification test. Despite the lack of specific authorization,
the traveler was issued premium class tickets for this trip, resulting in
additional cost to the government of more than $18,000. Upon being
contacted, the traveler agreed that his travel order did not specifically
state that premium class was authorized, and stated that he inquired about
business class tickets from the commercial travel office because his
flight lasted more than 14 hours. Based on the issuance of premium class
tickets for other permanent change-in-station moves exceeding 14 hours in
total travel time, the commercial travel office issued the premium class
tickets to the traveler.

o 	Traveler #4 is a GS-13 at the Department of the Navy. In March 2002,
the traveler flew business class round-trip from San Francisco to Osaka,

Japan, where he had an overnight layover before proceeding to Busan,
Korea. The travel order DOD provided us did not authorize business class
travel. Further, because the traveler had an overnight layover in route to
Korea, the 14-hour rule would not apply. The cost of the ticket was
$3,695, compared to an estimated cost of $2,161 for a comparable
unrestricted ticket in coach. Without authorization or valid
justification, the additional $1,534 spent on the business class ticket
was improper.

o 	Traveler #7 is a GS-13 in the Navy. In March 2002, the traveler flew
business class from San Francisco to Tokyo on a ticket costing $3,168.
Although the flight to Tokyo lasted more than 14 hours, the use of premium
class travel was not properly authorized because the travel order was not
signed by the appropriate official. In comparison, the estimated cost of
an unrestricted government fare in coach was $610.

o 	Traveler #9 was a GS-13 in the Department of the Army who flew most of
his trip from Tucson to Bahrain and then from Bahrain to Los Angeles in
business class, at a cost of $8,308. The estimated cost of an unrestricted
coach class ticket for the same route was $4,966. The justification for
the additional cost of the business class ticket was that the flight
lasted more than 14 hours. However, the traveler stopped overnight in
London at the government's expense on both the outbound and return
portions of the trip. The FTR and JTR specifically prohibit premium class
flights when the traveler has a rest stop en route at the government's
expense.

o 	Traveler #10 was a GS-15 in the Department of the Navy who flew premium
class from Washington, D.C., to Amsterdam and back on the basis of a
medical condition. The duration of the flight each way was about 8 hours
and cost $4,525. The estimated cost of an unrestricted government fare
coach class ticket for the same route was $570. The supporting
documentation provided to us included a note, written by the traveler's
supervisor, that was prepared more than 18 months after the travel,
stating that the traveler had a medical condition requiring the premium
class ticket. However, the note was not signed by a doctor nor did it
reference a medical professional who recommended the need for premium
class seating. The traveler informed us that his supervisor wrote the
medical note after our inquiry into his case. In addition, none of the
other 9 flights taken by the traveler cited a medical condition, and the
traveler flew coach class on a number of flights that lasted longer than
his flight from Washington, D.C., to Amsterdam. According to the

traveler, he never had been properly authorized to fly business class on
the basis of a medical condition.

o 	Traveler #11 was a political appointee and a member of the Commission
on the Future of the United States Aerospace Industry (Commission), an
organization that was almost entirely funded by DOD and for which DOD paid
the cost of all airline tickets for Commission members and staff. The
traveler flew business class from Washington, D.C., to London, and then
traveled by rail from London to Brussels and onto Paris. In Paris, the
traveler took a business class flight to Moscow to attend a 2-day
conference. According to the travel order, business class travel was
authorized because it was mission essential. However, the travel order did
not indicate why the cost of business class travel for a trip to a
conference was mission essential. Further, mission essential is not a DOD
criterion for authorizing business class travel. Our data mining efforts
found that DOD paid the travel of a total of 13 individuals-6
commissioners and 7 commission staff-to attend the Moscow conference after
stopping off in London, Brussels, and Paris. The 6 commissioners flew
business class for all of the flights, while the commission staff flew
coach to London and on the return flights, and flew business class while
in Europe. None of the commissioners were government employees; however,
all of the staff were employed by DOD and other agencies. The average cost
of the airline tickets for all 6 commissioners was about $7,500 while the
average cost of the airline tickets for the staff was about $3,100. The
official told us he authorized premium class travel for the commissioners
because they were high-salaried individuals from the private sector who
were donating 10 days of their time to the government with no
compensation. However, neither the FTR nor the DOD travel regulations
authorize premium class travel based on a person's salary or whether he or
she is donating time to the government.

Frequent Premium Class Travelers

Our work also included data mining to identify the individuals who
traveled premium class most frequently. We analyzed the 68,090 premium
class transactions during fiscal years 2001 and 2002 and identified 28 of
the most frequent premium class travelers. As indicated by the examples in
table 4, the frequent travelers were almost all senior DOD personnel.
Specifically, we found that all but 1 of the 28 most frequent travelers
were at least GS-13 civilians or O-4 military officials. Although these
frequent travelers were generally authorized to fly premium class by
someone at the same or a higher level, we determined that many of the
transactions were improper

because their justification was not supported by the documentation
provided or did not adhere to the FTR and DOD travel regulations. Other
cases involving frequent travelers were questionable because the
justification documentation was not adequate to determine whether the
transaction met DOD's criteria.

       Table 4: Examples of Travelers Who Frequently Used Premium Travel

                     Number/                                 
                     cost of                                 
                               Justification   GAO's concern 
            Grade/   premium   for             with premium  
                                                             Response by      
Traveler  rank  class trips premium travel  class travel  traveler or      
                                                             traveler's staff 
                                                                     Traveler 
            GM-14               Doctor's note                     admitted to 
                                               Traveler took     inconsistent 
                   14/$88,000                  45 flights-14      application 
                                               premium and      of medical    
                               claims medical  31 coach         necessity.    
                                               class trips       Traveler     
                                                                considered    
                                               during fiscal  extra room in   
                                  necessity    years 2001     business class  
                                               and 2002.        to be more    
                                                Many coach   comfortable for  
                                                class trips   long flights.   
                                                   were      
                                                similar in   
                                                duration to  
                                                  premium    
                                               class trips.  

                                          A blanket        The general's aide 
O-8 16/$68,000     Blanket     1.  authorization was      said that in the 
                                                                    future he 
                                     used to justify          will pay closer 
                   authorization     premium class           attention to the 
                                                                 requirements 
                                                         for premium class    
                  used to justify          travel.       travel before        
                                                         obtaining            
                                                            premium class     
                  premium class   2. Premium travel was      travel. The      
                                                            general's aide    
                                     authorized by a     also said that in    
                                     subordinate.        the future he will   
                                                         also get             
                                     Not all premium     an independent       
                                  3. class flights       authorization for    
                                                         premium              
                                      met premium class  class travel when    
                                          criteria.      the criteria for     
                                                         premium              
                                                           class travel are   
                                                                 met.         

                                           Blanket        The traveler's aide 
PASa 17/$68,000   First and    1.  authorization was    said that she will 
                                                                      get the 
                                       used to justify   Deputy Secretary's   
                   business class         first and      approval for first   
                                                         class                
                       travel          business class         travel and only 
                     justified             travel.               schedule the 
                                                           traveler for first 
                   through a                                or business class 
                   blanket        2. Premium travel was      when alternative 
                                                                      seating 
                   order based on    authorized by a      is not available.   
                                     subordinate.        
                   medical        3.  Traveler flew in   
                   condition             coach class     
                                      on some flights.   

(Continued From Previous Page)

                     Number/                             
                     cost of                             
                                                 GAO's   
                               Justification for concern 
                                                 with    
            Grade/   premium                     premium 
Traveler  rank                                 class  Response by traveler 
                   class trips premium travel    travel   or traveler's staff 

PASa 15/$70,000	Claimed mission essential, so that the traveler would be
ready for meetings upon arrival at destination

1. DOD travel regulations do not list mission essential as a basis to
justify premium class travel.

2.	 Traveler submitted justification and obtained specific authorization
for many trips; however, the justification was not always accurate and did
not consider alternatives to the more expensive premium class travel.

3. Most flights were less than 14 hours.

4. Some premium class flights were not authorized.

Traveler's assistant said that the traveler flies premium class to
minimize his time away from the office. However, the assistant could not
demonstrate a cost savings caused by lost productivity. Traveler's
assistant also said that even though the flights did not exceed 14 hours,
the traveler should be able to fly premium class because of the importance
of the traveler's work. The traveler's assistant did not explain the
reasons some premium class flights were not authorized.

GS-15 11/$35,000  Medical   Travel orders were not Traveler told us he was 
                                          signed, but not aware that first    
                    necessity the official                class had to be     
                              authorizing the travel   approved by the Under  
                                 was the traveler      Secretary of the Navy. 
                                  himself. First        Traveler is no longer 
                                 class travel was not  authorized to travel   
                                        authorized by     premium class.      
                               the Under Secretary of 
                                            the Navy, 
                              as required by Navy     
                              regulations.            

SESb 10/$48,000	Claimed mission essential, so that the traveler would be
ready for meetings upon arrival at destination

1. DOD travel regulations do not list mission essential as a basis to
justify premium class travel.

2. Some premium class flights were less than 14 hours.

3. 	Business class was taken on return flights.

4. Specific justification was not always accurate.

The traveler said that he did not make his flight arrangements. The
traveler's assistant had no explanation for why some premium class trips
were not always authorized, or why the specific justification was not
accurate. The traveler's assistant said that the traveler did not want to
leave the day before to avoid the additional cost of a business class
flight.

SES 13/$56,000  Medical  Medical note and Under  The traveler has retired. 
                                         Secretary         The individual who 
                  necessity of the Navy            assisted in assembling the 
                            authorization were     documentation              
                            dated in 1993 and        said there was nothing   
                            travel was in               more current to       
                            2000 and 2001. Current  justify the first class   
                            travel                    travel than the 1993    
                            order signed by a      doctor's note and the 1993 
                            subordinate.                      Under Secretary 
                                                         of the Navy's        
                                                         authorization.       

Source: GAO analysis of premium class travel transactions and supporting
documentation.

aPresidential appointment with Senate confirmation. bSenior Executive
Service appointment.

Our work indicated that the most frequent travelers were, in most
instances, authorized to obtain premium class travel by people at the same

or higher levels. Only 3 of the 28 most frequent travelers failed the
authorization test because they or their subordinates authorized their
travel orders. More often, justification provided by frequent travelers
failed the justification test or the justification was not adequate to
permit us to determine whether the transaction complied with the FTR and
DOD travel regulations. The following provides further details on some of
the cases in table 4.

o 	Frequent traveler #1 was a GM-14 at the Navy who took 45 round-trip
flights during our 2-year audit period. The traveler flew business class
on 14 international trips costing about $88,000 but also took 31 domestic
trips, in coach class, costing about $12,000. Attached to the travel order
for each trip was a doctor's certification noting that, for health
reasons, the traveler needed to fly in premium class. However, we found
that the medical certification did not indicate whether premium class
travel was needed on all flights or flights of certain duration, but that
many of the traveler's domestic trips, which he took in coach class, were
almost as long as some of the international flights he took in business
class. For example, the traveler regularly flew in coach class from
Washington, D.C., to cities in California and, in one instance, to
Honolulu. The flight times for individual legs of these trips ranged from
about 5 to 7 hours. The traveler's business class flights included flights
from Washington, D.C., to Frankfurt or Amsterdam. Those flights lasted
about 7 hours. When we discussed the trips with this traveler, he stated
that although some of the domestic flights that he took were similar in
duration to the international flights, his flights to Europe were
generally evening flights and the extra room provided in business class
enabled him to be less confined and to be ready for meetings the next day.
The traveler's discussion with us and the nature of his coach and premium
travel raises questions regarding his medical need to fly business class.

o 	Frequent traveler # 3 is an assistant secretary of defense in
Washington, D.C., who used a blanket order to authorize and justify
business and first class travel based on an unspecified medical condition.
We identified a total of 17 first and business class tickets for this
traveler totaling nearly $68,000. Neither the travel orders nor the travel
vouchers included a physician's certification identifying the medical
justification to fly first or business class. In addition, the traveler
occasionally flew in coach class. About a month after we requested
additional documentation for these airline tickets, DOD provided us with a
letter from a physician dated September 11, 2001, requesting that the
traveler be authorized to fly first class so that the traveler could
stretch his legs. The records DOD

provided concerning the 17 flights indicated that the travel office did
not attempt to satisfy the traveler's need for space by reserving a
bulkhead seat or purchasing two coach seats, in accordance with DOD
requirements. We estimate that the total cost of these flights, if flown
in coach class, would have been about $17,000. The individual who made the
premium class reservations told us that she had not been trained on the
limitations associated with premium class travel. She also told us that in
the future she would get the Deputy Secretary's approval for first class
travel and that she would attempt to limit premium class travel to
instances in which less expensive alternatives were not available.

o 	Frequent traveler #5 was a GS-15 in the Navy who took 11 first class
flights totaling over $35,000 from San Diego to east coast cities
including Washington, D.C., during fiscal years 2001 and 2002. The
traveler justified the 11 flights based on a certification from a medical
authority based on his size and medical condition. However, because his
first class travel was not authorized by the Under Secretary of the Navy,
as required by Navy regulations, we contacted the traveler to obtain
further information on his condition. We estimate that the total cost of
these flights if all flown in coach class would have been about $7,000.
According to the traveler, his condition was not so severe that he would
meet the stringent first class criteria of being "so handicapped or
otherwise physically impaired that other accommodations cannot be used."
Consequently, the traveler told us he was no longer authorized to use
first class.

o 	Traveler #6 in table 4 was a deputy assistant secretary at DOD who flew
premium class on 10 flights from September 2000 through September 2001 at
a cost of approximately $48,000. A review of the travel orders and
additional documentation supporting this travel showed that the individual
consistently documented the reasons he needed to fly premium class.
However, sometimes the justification provided did not appear applicable to
the trip in question. For example, during a 12-day period in late August
2001, the traveler flew business class from Washington, D.C., to six
European cities and South Africa at a cost of over $8,800. He then flew
business class from South Africa to Atlanta, and first class from Atlanta
to Washington, D.C. The documentation supporting the trip was an order,
signed by the military assistant to the under secretary, that authorized
the traveler to fly first class from Washington, D.C., to Tampa,
Florida-destinations that are different from the itinerary in question.
Both the traveler and his former secretary told us they did not recall
making these flight arrangements.

In none of the cases in our statistical sample and data mining for which
authorization for premium class was given based on medical needs did DOD
submit the medical certification for an informed and independent review.
Our analysis found that 12 of the 28 frequent premium class travelers
justified their more expensive flights with a medical condition. Further,
as discussed in the examples, we identified several anomalies in the
application of medical condition justification, as evidenced by travelers
who used both coach and premium class accommodations during flights of
similar duration and during the same period. This may indicate that
additional steps should be taken to verify the validity of the medical
certification. During testing, an Army official at the Traffic Management
Office informed us that his office forwards all medical certifications to
the Surgeon General for an opinion before recommending to the Secretary of
the Army that approval be granted for first class travel. The official
stated that he did not believe that he was competent to conclude on the
medical certification.

Lack of Monitoring and Control Environment Weaknesses Contributed to
Improper Use of Premium Class Travel

DOD and the services performed no monitoring and oversight activities to
obtain assurance that premium class travel was authorized in accordance
with regulations. Further, during fiscal years 2001 and 2002, control
environment weaknesses exacerbated already weak key internal controls

described in the previous section. Consequently, DOD did not have an
effective internal control environment, particularly in regard to policies
and procedures, to provide assurance that premium class travel costs are
incurred only when necessary. Specifically, we found that DOD and the
military services did not (1) obtain or maintain centralized management
data on the extent to which military and civilian personnel used premium
class accommodations for their travel, (2) issue adequate policies related
to the approval of premium travel, and (3) require consistent
documentation to justify premium class travel. Until we initiated this
audit, DOD's management had not provided an appropriate "tone at the top"
to encourage the appropriate use of premium class travel. During the
course of our work, DOD updated the JTR and JFTR in April 2003 to
articulate more clearly and to make more stringent the circumstances under
which premium class travel can be authorized. In addition, the updated JTR
and JFTR emphasize, in the context of lengthy flights, that premium class
travel must not be common practice and must only be used when exceptional
circumstances warrant. The JTR and JFTR also provide examples of when
premium class travel should not be authorized.

Monitoring and Oversight Needs Improvement

Ineffective oversight of the use of premium class travel was a key
contributor to weaknesses in the overall control environment. In general,
effective oversight activities would include management review and
evaluation of the process for issuing premium class travel and independent
evaluations of the effectiveness of internal control activities. Program
monitoring provides DOD management an opportunity to obtain reasonable
assurance that premium class travel is only obtained with proper
authorization and justification. This is particularly important because of
both the sensitivity and high cost of premium class travel. However, DOD
and the services performed no monitoring and oversight activity to obtain
assurance that premium class travel was authorized in accordance with
rules and regulations. In addition, as mentioned previously, DOD and the
services did not perform reviews to identify the extent of premium class
travel. Consequently, it is not surprising that DOD and the services were
not aware of the extent of improper premium class transactions.

Our internal control standards state that separate evaluations of control
should depend on the assessment of risks and the effectiveness of ongoing
monitoring procedures. Our Sensitive Payments Guide lists executive travel
as a high-risk area susceptible to abuse or noncompliance with laws and
regulations. However, we found no evidence of any audits or

evaluations of premium class travel. Further, DOD's failure to adequately
monitor premium class travel has resulted in an environment in which there
is limited possibility that improper premium class travel will be
identified.

The lack of oversight is further demonstrated by the fact that travelers,
supervisors/managers, and employees at the commercial travel offices (CTO)
responsible for issuing airline tickets to the travelers are not
adequately informed of governmentwide and DOD travel regulations
concerning premium class travel. DOD officials told us that they do not
verify whether CTO employees receive training in DOD travel regulations
relating to the more expensive premium class travel, and DOD does not
track training provided to CTO staff on premium class travel. Thus it was
not surprising that officials authorizing the travel and the travelers
were not aware of the stringent regulations associated with premium class
travel. For example, several DOD travelers and officials told us that they
thought DOD travel regulations entitled travelers to business class travel
when their flights exceeded 14 hours. These individuals were not aware
that the FTR provides that, in order to qualify for business class travel,
travelers have to proceed directly to work upon arriving at the duty
location. In addition, several DOD travelers and officials from the
government and CTOs indicated to us that the numerous CTOs with which DOD
contracted did not consistently apply the premium class criteria. A
representative from one CTO informed us that his office issued premium
class travel if premium class was mentioned on the travel order, even if
justification for obtaining premium class travel was flawed, for example,
the flight was not at least 14 hours.

DOD Did Not Maintain Centralized Management Data on Premium Class Travel

The Military Traffic Management Command (MTMC), which is responsible for
tracking DOD's first class travel, understated the cost and frequency of
first class travel reported to GSA. In addition, MTMC did not track, and
therefore did not know, the number of business class trips DOD travelers
took during fiscal years 2001 and 2002 or the cost of these premium class
trips. As a result, DOD did not have the data needed for monitoring and
oversight activities or for identifying trends and determining alternate,
less expensive means of transportation.

The FTR14 requires DOD, along with all other executive and legislative
branch agencies, to provide GSA annual reports listing all instances in
which the organizations approved the use of first class transportation
accommodations. According to the first class travel reports that MTMC
submitted to GSA for fiscal years 2001 and 2002, DOD civilian and military
personnel took less than 1,000 first class flight segments15 totaling less
than $600,000. These data are supposed to represent all first class
transportation expenses, whether charged on the centrally billed accounts
or the individually billed accounts. According to the individual
responsible for compiling this report, the roughly 1,000 first class
segments were identified in what is essentially a data call process in
which MTMC personnel aggregated information provided by the CTOs on the
number and cost of first class tickets they issued.16

However, our analysis of Bank of America airline transaction data
indicates that both the number and cost of the first class tickets
reported by DOD are significantly understated. Based on our analysis, DOD
did not report more than half of fiscal years 2001 and 2002 first class
segments. As shown in table 1, we found that DOD used the centrally billed
accounts to purchase 1,240 airline tickets that contained at least one
first class portion. These 1,240 tickets, which did not include first
class tickets purchased using the individually billed accounts, contained
over 2,000 separate segments with first class accommodations, compared to
the less than 1,000 flight segments DOD reported to GSA. These first class
tickets costs of about $2.9 million were almost 5 times the amount DOD
reported to GSA.

The differences between the first class travel that we identified and the
amount DOD reported can in part be attributed to omissions in DOD's
methodology for identifying first class tickets. The airlines use a
variety of letter codes to identify first class fares, and we found that
in extracting first class data DOD omitted several of the first class
codes used by some airlines. Further, a comparison of MTMC's report and
our analysis of the Bank of America transaction file showed that a number
of cities were omitted from its analysis of first class travel. For
example, while DOD data

14This requirement was prescribed at the direction of OMB. See OMB
Bulletin 93-11.

15A flight segment is any portion of a ticket with a separate flight
number.

16The contracts between DOD services and the CTOs responsible for issuing
tickets to travelers specify that CTOs provide reports to MTMC on the
number and cost of first class tickets.

indicated that no first class flight was taken into Washington, D.C.,
during fiscal year 2001, we found 88 first class flights into Washington,
D.C., during fiscal year 2001, including first class round-trips from
Washington, D.C., to Honolulu, San Francisco, Denver, St. Louis, and Los
Angeles.

We also found that DOD did not obtain or maintain centralized data on
premium class travel other than first class, that is, business class.
Consequently, DOD did not know, and was unable to provide us with data
related to, the extent of its premium class travel. As mentioned
previously, we were able to obtain such data through extensive analysis
and extractions of DOD travel card transactions from databases provided by
Bank of America.

Control Environment Is Flawed by Inconsistencies in Premium Class Travel
Guidance

DOD travelers must follow a complicated array of premium class travel
guidance. The applicability of specific regulations depends on whether the
traveler is civilian or military. For DOD civilians, GSA's FTR governs
travel and transportation allowances. DOD's JTR and individual DOD and
military service directives, orders, and instructions supplement the FTR.
For military personnel, DOD's JFTR governs travel and transportation
allowances. Individual DOD and military service directives, orders, and
instructions supplement the JFTR. The executive branch policy on the use
of first class travel applicable to the FTR, JTR, and JFTR is found in OMB
Bulletin 93-11. When a subordinate organization issues an implementing
regulation or guidance, the subordinate organization may make the
regulations more stringent, but generally may not relax the rules
established by higher-level guidance.

Inconsistencies have accumulated within the various premium class travel
regulations because DOD did not revise DOD directives, or require the
military services to revise their travel policies or implementing
guidance, when it modified the JTR or JFTR. For example, DOD first issued
the JTR in 1965 and since then had modified it 450 times through April
2003, including 30 modifications since October 2000. While the JFTR has
had fewer modifications-196 through April 2003-the JFTR has also been
modified 30 times since October 2000. Despite these changes, DOD and the
services frequently have not modified their directives and guidance to
reflect these changes. For example, DOD Directive 4500.9 was last revised
in 1993, while DOD Directive 4500.56 was last updated in 1997. Further,
the Navy Passenger Transportation Manual was last updated in 1998; Marine
Corps Order P4600.7C, Marine Corps Transportation Manual, was last changed
in 1992; and while Air Force Instruction 24-101, Passenger

Movement, was last updated in 2002, it contains some provisions that are
contrary to our Guide for Evaluating and Testing Controls Over Sensitive
Payments and our Standards for Internal Control in the Federal Government.

The proliferation of different internal DOD regulations and a failure by
DOD to clearly explain the relationship of its different regulations have
created confusion for travelers and officials, as evidenced by instances,
discussed previously, in which premium class travel had been
inappropriately approved. Inconsistencies also exist because DOD and its
components have elected to authorize the use of premium class travel in
different circumstances or have described the authorization to use premium
class travel using different language. For example, see the following:

o 	DOD Directive 4500.9,17 Transportation and Traffic Management (last
updated in 1993), contains a section establishing the authority to use
premium class flights that differs in several aspects from GSA's FTR and
DOD's JTR and JFTR as well as other directives issued by DOD.
Specifically, DOD Directive 4500.9 grants blanket authority for
high-ranking officials to use premium class travel when traveling overseas
on official government business. This policy contradicts and is less
stringent than the FTR, which does not cite rank as a condition for
obtaining premium class travel. The JTR and JFTR (both modified in 2003)
also do not cite rank as a criterion for allowing business class travel
for international flights. Further, DOD's General Counsel staff told us
this provision was superseded by DOD Directive 4500.56.

o 	GSA's FTR authorizes agencies to approve the use of first class or
business class accommodations when required by an agency's mission, but
neither the JTR nor the JFTR adopts this authorization. In contrast, DOD
Directive 4500.9 states that the use of business class on domestic
travel18 may be authorized when necessitated by mission requirements.19

17DOD Directive 4500.9, Transportation and Traffic Management, para.
3.4.3, December 29, 1993.

18As noted above, a subsequent DOD directive states that all DOD travel
outside the continental United States is subject to the JTR and the JFTR.

19DOD Directive 4500.9, Transportation and Traffic Management, para.
3.4.3.1.3, December 29, 1993.

o 	GSA's FTR states that premium other than first class travel may be
authorized when the origin and/or destination of travel is outside the
continental United States and the scheduled flight time is in excess of 14
hours. However, the FTR prohibits premium class travel if the traveler is
authorized a rest stop en route or a rest period upon arrival at the duty
site. In contrast, DOD's JTR and JFTR that were in effect at the time of
our audit did not indicate whether a rest period upon arrival at the duty
station prohibited the authorization of premium class travel. Both DOD
directives on travel (4500.9 and 4500.56) do not directly address whether
premium class travel is allowed if the flight exceeds 14 hours. Further,
the services' implementing guidance is inconsistent in its application of
the 14-hour rule. For example, the Army policy20 adopts the FTR "rest
period upon arrival" limitations, but did not define what is considered a
"rest period." The Navy policy21 prohibits a "rest period en route." The
Air Force policy22 states that Air Force travelers might be authorized
business class accommodations if they are required to perform a full day
(8 hours) of work immediately upon arrival. Finally, the Marine Corps23
implementing guidance does not address this matter.

o 	GSA and DOD travel regulations authorize premium class accommodations
when they are paid for by a nonfederal source. However, the Navy travel
policy24 prohibits the use of first class accommodations even when those
accommodations are paid for by a nonfederal source, such as when a
professional association pays for the travel of a Navy employee.

DOD Does Not Have a DOD and the services have not defined a standard
format for documenting Standard Format for authorization and justification
for premium class travel. Because premium Documenting Premium travel is to
be taken only on an exception basis after all other alternatives

have been exhausted, the documentation for authorization and
justificationClass Travel should be held to the highest standards to
provide reasonable assurance

20Secretary of the Army Travel Policy, para. 3.B.8, last updated on March
26, 2003.
21OPNAVINST 4650.15, ch. 2, enc. 1, para. 5.c (8), issued on July 7, 1998.
22Air Force Instruction 24-101, para. 2.7, issued March 25, 2002.
23Marine Corps policy guidance, issued as Marine Corps Order 4600.25C on
March 15, 1978.
24OPNAVINST 4650.15, ch. 2, enc. 1, para. 5.c.(7), July 7, 1998.

that in every case the substantially higher premium travel cost is
warranted. In DOD's case, because authorization and justification for
premium travel is not consistently documented, it does not have a
documentation trail indicating that the appropriate official approved the
travel order and there was adequate justification for the additional cost
associated with a premium class ticket.

The JTR and JFTR state that approval for premium class travel should be
obtained in advance of travel, except in extenuating/emergency
circumstances that make authorization impossible, and specify the
circumstances under which premium travel is to be permitted. However, the
JTR and JTFR do not provide clear and consistent procedures for
documenting the approval of premium class travel and the type of
supporting documentation to be maintained. In contrast, other federal
agencies have issued clear and consistent guidelines related to the
documentation of premium class travel. For example, the Department of
Agriculture (USDA) approves the use of premium class accommodations on a
case-by-case basis and specifies that premium travel be approved by the
under secretary except when frequent travel benefits are used. The
justification must include the specific circumstances relating to the
criteria, such as a medical justification from a competent medical
authority, which must include a description of the employee's disability,
medical condition, or special need; approximate duration of the medical
condition or special need; and a recommendation of a suitable means of
transportation based on medical condition or special need. In addition,
USDA requires that the traveler prepare a report documenting first class
travel that details the traveler's name, address, rank, dates of travel
with originating and destination cities, the reason for obtaining first
class travel and the costs of both the coach fare and the first class
fare. As shown in figure 1, other agencies, such as the National
Institutes of Health (NIH), have standard forms that travelers must
complete when requesting approval for any travel other than coach class
accommodations. Information required includes the traveler's identifying
information, the reason for requesting premium class travel, and a
comparison of the cost of premium and coach class travel. Such a form
would help eliminate the failure to obtain specific authorization for
premium class travel that we identified in our statistical testing.

               Figure 1: Sample Premium Class Authorization Form

                                  Source: NIH.

Further, we found that other agencies used a separate form to document a
medical condition and to justify premium class travel. As shown in figure
2, the disabilities or other special needs form used by NIH requires
detail on the nature of the disability or special need and the signature
of both the employee and a competent medical authority. NIH's policies
state that the medical statement should specifically address why it is
necessary to use upgraded accommodations. The form also limits the
authority to a period of 6 or 12 months from the initial date of approval
depending on the nature of the disability or special need. In the instance
of a permanent disability, NIH policy is that authorized use of premium
class accommodations is valid for up to 3 years. Resubmission is necessary
to ensure that there continues to be a need for the approval and to keep
the authorization records current.

                    Figure 2: Sample Medical Condition Form

                                  Source: NIH.

DOD Issued New Regulations to Better Define When Premium Class Travel Is
Authorized

During the course of our work, in April 2003, DOD updated the JTR25 and
JFTR26 to articulate more clearly and make more stringent the
circumstances under which premium class travel may be authorized. In
addition, the updated JTR and JFTR emphasize, in the context of lengthy
flights, that premium class travel must not be common practice and must
only be used when exceptional circumstances warrant. They also provide
examples of when premium class travel should not be authorized.

The revised JTR and JFTR better define the circumstances in which premium
class other than first class travel, that is, business class, is
authorized for DOD travelers on flights to and/or from points outside the
continental United States when the scheduled flight time exceeds 14 hours.
Most notably, the revised regulations prohibit the use of business class
travel when travelers are authorized a "rest period" or an overnight stay
upon arrival at their duty stations. The modified regulations now
explicitly state that business class accommodations are not authorized on
the return leg of travel. This is a further restriction on premium class
travel; before April 2003, DOD did not expressly prohibit travelers from
using premium class travel on their return trips to the United States.

Finally, in its revised regulations, DOD provides specific guidance on how
the proposed use of business class accommodations should be considered by
officials and travelers. DOD states that, in the context of authorizing
business class accommodations for flights scheduled to exceed 14 hours,
"business class accommodations must not be common practice" and that such
service should be used only in exceptional circumstances. Further, DOD
directs order-issuing officials to "consider each request for business
class service individually." We agree with DOD that decisions regarding
the use of premium class travel should be made on a case-by-case basis and
based on a preference for coach class.

Conclusions	The ineffective management and oversight of premium class
travel provides another example of why DOD financial management is one of
our "high-risk" areas, with the DOD highly vulnerable to fraud, waste, and
abuse. DOD does not have the management controls in place to identify

25JTR Change 450, April 1, 2003. 26JFTR Change 196, April 1, 2003.

issues such as improper use of premium class travel. As a result, millions
of dollars of unnecessary costs are incurred annually. Because premium
class travel is substantially more costly than coach travel, it should
only be used when absolutely necessary, and the standards for approval and
justification must be high. During our audit, DOD began taking steps to
improve its policies and procedures for premium class travel. DOD must
build on these improvements and establish strong controls over this
sensitive area to provide reasonable assurance that its travel dollars are
spent in an economical and efficient manner.

Recommendations for 	We are making the following recommendations to
improve internal control over the authorization and justification of
premium class travel and to

Executive Action 	strengthen the control environment as part of an overall
effort to reduce improper premium class travel and related DOD costs.

Key Internal Control Activities

Because of the substantial cost and sensitive nature of premium class
travel, we recommend that the Secretary of Defense direct the appropriate
under secretary of defense, assistant secretary of defense, or military
service officials to direct the implementation of specific internal
control activities over the use of premium travel. While a wide range of
activities can contribute to a system that provides reasonable assurance
that premium class travel is authorized and justified, at a minimum, the
internal control activities should include the following:

o 	Reiterate to DOD's personnel the policy that premium class travel be
authorized and justified only on a case-by-case basis.

o 	Require the travel offices to issue premium class tickets only if
properly authorized and justified and documented accordingly.

o  Prohibit the use of blanket authorization for premium class travel.

Overall Program We recommend that the Secretary of Defense direct the
appropriate under Management and secretary of defense, assistant secretary
of defense, or military service Environment officials to establish
policies and procedures to incorporate the regulations

specified in GSA's FTR as well as guidance specified in our Standards for
Internal Control and our Guide for Evaluating and Testing Controls Over
Sensitive Payments, including the following:

o 	Develop procedures to identify the extent of premium class travel,
including all business class travel, and monitor for trends and potential
misuse.

o 	Develop procedures to identify all first class fare codes so that DOD
can prepare complete and accurate first class travel reports.

o 	Develop a management plan requiring that audits of DOD's issuance of
premium class travel are conducted regularly and the results of these
audits reported to senior management. Audits of premium class travel
should include reviews of whether commercial travel offices adhere to all
governmentwide and DOD regulations for issuing premium class travel.

o 	Periodically provide notices to travelers and supervisors/managers that
specifically identify

o  the limitations on premium class travel,

o 	the limited situations in which premium class travel may be authorized,
and

o  how the additional cost of premium class travel can be avoided.

o 	Provide training to travelers and supervisors/managers that identifies
DOD's premium class policies and procedures.

o 	Train or make training materials available to the commercial travel
offices so that they may train their employees on premium class policies
and procedures.

o 	Require that premium class travel be approved by individuals who are at
least of the same rank/grade as the travelers.

o 	Specifically prohibit the travelers themselves or their subordinates
from approving requests for premium class travel.

o 	Use a standardized format or modify the format of the existing travel
order to document the request and authorization of premium class travel.
The standardized form or modified travel order should contain sufficient
information to provide a clear audit trail that documents why

the additional cost of premium class travel was a necessary expense that
could not have been avoided.

o 	Develop a policy that articulates what constitutes adequate support to
substantiate medical, disability, or special needs. Such a policy should
address the length of time a medical certification is valid.

o 	Determine the feasibility of requiring that the medical certification
for premium class travel be reviewed by an independent medical
professional to verify that the medical condition justifies the additional
cost of premium class travel.

o 	Revise DOD's directives on travel, when necessary, to ensure that they
are at least consistent with, or more stringent than, GSA's travel
regulations. For example, issue the update to DOD Directive 4500.9 that
removes the provision authorizing certain presidential appointees and
three-star and four-star generals/admirals to fly premium class on flights
when flying to or from overseas destinations.

o 	Revise the military service directives, orders, and policies to make
them consistent with the JTR and JFTR.

Agency Comments and Our Evaluation

On September 10, 2003, DOD, Air Force, Army, Marine Corps, and Navy
officials representing the offices of the under secretaries of defense for
Acquisitions Technology and Logistics, Personnel and Readiness, and
Comptroller provided oral comments on a draft of this report. The
officials said they agreed with the findings presented in the draft report
and generally concurred with our recommendations for resolving the control
weaknesses. The officials explained that because responsibility for travel
program management is spread across three under secretaries, they were not
yet sure who would be responsible for monitoring implementation of the
recommendations.

Those DOD officials pointed out that two of our recommendations could be
addressed in different ways than contemplated in the draft report. First,
they said the justification for premium class travel could be documented
by modifying or augmenting the existing DOD travel order rather than using
a separate form. We have modified the text of these recommendations to be
less prescriptive as to the corrective actions and instead focus on the
intent of the recommendations for having clear, well-supported
justifications and written audit trails of the authorization to spend
additional funds on

premium class travel. Second, in regard to training commercial travel
office personnel on premium class travel limitations, they expressed a
preference for DOD providing training materials to the commercial travel
offices so that they, rather than DOD, could train their personnel, and
facilitating just-in time or other training for commercial travel office
personnel.

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
III.

Gregory D. Kutz
Director
Financial Management and Assurance

Robert J. Cramer
Managing Director
Office of Special Investigations

Appendix I

                       Objectives, Scope, and Methodology

We audited the controls over the authorization and issuance of premium
class travel charged to the Department of Defense's (DOD) centrally billed
travel accounts during fiscal years 2001 and 2002. Our assessment covered
the following:

o 	The extent to which DOD uses the centrally billed travel accounts to
purchase premium class travel.

o 	Testing a statistical sample of premium class transactions to assess
the implementation of key management controls and processes for
authorizing and issuing premium class travel, including approval by an
authorized official and justification in accordance with regulations. We
also identified other selected transactions throughout the premium class
travel transactions to determine if indications existed of improper
transactions.

o 	DOD's oversight and monitoring of the use of premium travel and key
elements of the control environment, including the (1) consistency of
premium class travel procedures among the services and (2) adequacy of
documentation to justify the additional cost of premium class travel.

Magnitude of Premium Class Travel

To assess the magnitude of use of premium class travel, we obtained from
Bank of America a database of fiscal year 2001 and 2002 travel
transactions charged to DOD's centrally billed travel card accounts. We
queried the database to isolate those transactions specifically related to
airline travel. The airline industry uses certain fare and service codes
to indicate the class of service purchased and provided. The database
contained transaction-specific information, including the fare and service
codes used to price the tickets DOD purchased. We identified the fare
basis codes that corresponded to the issuance of first, business and coach
class travel. Using these codes, we selected all airline transactions that
contained at least one leg in which DOD paid for premium class travel
accommodations. We also used these data to identify the number of
transactions in which DOD purchased an entirely coach class ticket, but
the transactions contained at least one segment of the ticket that was
upgraded to a premium class accommodation.

                                   Appendix I
                       Objectives, Scope, and Methodology

Evaluate Effectiveness of Controls through Statistical Sampling and Data
Mining

We tested a statistical sample of premium class transactions to assess the
implementation of key management controls and processes for approving and
issuing premium class travel, and used data mining for additional examples
of transactions that illustrate improper or questionable premium class
travel. The population from which we selected our transactions for testing
was the set of positive debit transactions for both first and business
class travel that were charged to DOD's centrally billed travel accounts
during fiscal years 2001 and 2002. Because our objective was to test
controls over travel card expenses, we excluded credits and miscellaneous
debits (such as fees) that would not have been for ticket purchases from
the population of transactions.

We further limited the business class transactions to those costing more
than $750 because many intra-European flight business class tickets cost
less than $750 and the corresponding coach class tickets were not
appreciably less. By eliminating from our sample business class
transactions less than $750, we avoided the possibility of selecting a
large number of transactions in which the difference in cost was not
significant enough to raise concerns of the effectiveness of the internal
controls. The total number of transactions excluded was 15,887, costing
approximately $8 million. While we excluded business class transactions
costing less than $750, we (1) did not exclude all intra-European flights
and (2) potentially excluded nonauthorized business class flights.
Limitations of the database prevented a more precise methodology of
excluding lower cost business class tickets.

To test the implementation of key control activities over the issuance of
premium class travel transactions, we selected a stratified random
probability sample from the subset of centrally billed account
transactions containing at least one premium class leg and in which the
business class ticket cost more than $750. Specifically, we selected 15
first class transactions from a population of 1,240 transactions, totaling
about $3 million, and 122 business class transactions from a population of
about 51,000 transactions, totaling about $113 million. For each
transaction sampled, we requested that DOD provide us the travel order,
travel voucher, travel itinerary, and other related supporting
documentation. We used that information to test whether documentation
existed that demonstrated that DOD had adhered to key internal controls
over authorizing and justifying the premium class ticket. Based on the
information DOD provided, we assessed whether a valid official approved
the premium class travel and whether the premium class travel was
justified in accordance with DOD regulations. The results of the samples
of

                                   Appendix I
                       Objectives, Scope, and Methodology

these control attributes can be projected to the population of
transactions at DOD only, not to individual services or locations.

Based on the sampled transactions, we also estimated the percentage of
premium class travel taken by civilian supervisors, managers, and
executives, or senior military officers. With this statistically valid
probability sample, each transaction in the population had a nonzero
probability of being included, and that probability could be computed for
any transaction. Each sample element was subsequently weighted in the
analysis to account statistically for all the transactions in the
population, including those that were not selected. Because we followed a
probability procedure based on random selections, our sample is only one
of a large number of samples that we might have drawn. Since each sample
could have provided different estimates, we express our confidence in the
precision of our particular sample's estimates as 95 percent confidence
intervals (e.g., plus or minus 7 percentage points). These are intervals
that would contain the actual population value for 95 percent of the
samples we could have drawn. As a result, we are 95 percent confident that
each of the confidence intervals in this report will include the true
values in the study population. All percentage estimates from the sample
of premium class air travel have sampling errors (confidence interval
widths) of plus or minus 9 percentage points or less. Table 5 and table 6
summarize the population of DOD airline travel transactions containing at
least one premium class leg charged to DOD's centrally billed accounts in
fiscal years 2001 and 2002 and the subpopulation subjected to testing.

Table 5: Fiscal Years 2001 and 2002 DOD Premium Class Travel Population
Subjected to Sampling (Dollars in Thousands)

Total population of Excluded transactions Subjected to sampling premium
class (business class costing less (first class and business class
transactions than $750) costing more than $750) Transactions tested

      Class Transactions Dollars Transactions Dollars Transactions Dollars
                              Transactions Dollars

                    First 1,409 $2,969 --1,409 $2,969 15 $34

          Business 66,681 120,876 15,887 $8,149 50,794 112,727 122 289

          Total 68,090 $123,845 15,887 $8,149 52,203 $115,696 137 $323

                 Source: GAO analysis of Bank of America data.

                                   Appendix I
                       Objectives, Scope, and Methodology

Table 6: Fiscal Years 2001 and 2002 Premium Class Travel Charged to the
Centrally Billed Accounts Adjusted for Coding Errors (Dollars in
Thousands)

Subjected to sampling (first class and business class Subsequently
determined Population adjusted for coding costing more than $750) premium
less than first class errors

      Class Transactions Dollars Transactions Dollars Transactions Dollars

                  First 1,409 $2,969 (169) ($71) 1,240 $2,898

                 Business 50,794 112,727 169 71 50,963 112,798

                   Total 52,203 $115,696 0 0 52,203 $115,696

Source: GAO analysis of Bank of America data.

In addition to our audit of a DOD-wide statistical sample of transactions,
we also selected other transactions identified by our data mining efforts
for audit. Our data mining identified individuals who frequently flew
using first or business class accommodations, frequent trips to one
location, and trips involving family travel. For data mining transactions,
we also requested that DOD provide us the travel order, travel voucher,
travel itinerary, and any other supporting documentation that could
provide evidence that the premium class travel was properly authorized and
justified in accordance with DOD policies. If the additional documentation
provided indicated that the transactions were proper and valid, we did not
pursue further documentation of those transactions. If the additional
documentation was not provided or if it indicated further issues related
to the transactions, we obtained and reviewed additional documentation or
information about these transactions.

Control Environment	To assess the overall control environment for premium
class travel, we obtained an understanding of the travel process,
including authorization of premium class travel, by interviewing officials
from the Department of the Army, Department of the Navy, Department of the
Air Force, and Defense Finance and Accounting Service. We reviewed
applicable policies and procedures and program guidance that they
provided. We visited two Army units, three Navy units, three Air Force
units, and two Marine Corps units to gain an understanding of the travel
process, including the management of premium class travel. We used as our
primary criteria applicable laws and regulations, including GSA's Federal
Travel Regulation and DOD's Joint Travel Regulations and Joint Federal
Travel Regulations. We also used as criteria our Standards for Internal
Control in the Federal

Appendix I
Objectives, Scope, and Methodology

Government1 and our Guide to Evaluating and Testing Controls Over
Sensitive Payments.2 To assess the management control environment, we
applied the fundamental concepts and standards in our internal control
standards to the practices followed by management in the areas reviewed.

We did not audit the Defense Finance and Accounting Service's centrally
billed travel card payment process. We also did not audit electronic data
processing controls used in processing centrally billed account
transactions. The sites reviewed received paper monthly bills containing
the charges for their purchases and used manual processes for much of the
period we audited, which reduced the importance of electronic data
processing 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 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. On August
8, 2003, we provided DOD officials with a draft of this report. We
obtained oral comments from DOD, Air Force, Army, Marine Corps, and Navy
officials representing the offices of the under secretaries of defense for
Acquisitions Technology and Logistics, Personnel and Readiness, and
Comptroller on September 10, 2003. We summarized those comments in the
"Agency Comments and our Evaluation" section. We conducted our audit work
from November 2002 through August 2003, in accordance with U.S. generally
accepted government auditing standards, and we performed our investigative
work in accordance with standards prescribed by the President's Council on
Integrity and Efficiency.

1GAO/AIMD-00-21.3.1. 2GAO/AFMD-8.1.2.

Appendix II

                     Process to Obtain Premium Class Travel

The process for obtaining premium class travel begins when a DOD civilian
employee or member of the military or the employee's supervisor determines
that he or she needs to travel and the traveler is notified to initiate a
travel request. If the traveler determines that he or she needs premium
class travel, the traveler submits the travel request, along with
justification for premium travel, to his or her supervisor for approval.
Once the supervisor reviews the travel request, along with the required
supporting documentation, such as a doctor's note supporting a specific
physical condition and the necessity for premium travel, it is forwarded
to the official who signs the order. For first class travel, the secretary
within the military service or a designee reviews the request and
justification for first class travel for consistency with DOD regulations.
In the case of premium class other than first class transportation, the
local transportation officer or other appropriate authority reviews the
request and justification.

The order-signing official reviews the travel request and documentation
and determines if there is adequate support for the premium travel. If the
travel is properly supported and justified, then the premium class travel
is approved and the official signs the travel request to generate a travel
order. If adequate support does not exist for the class of travel
requested, then the request for premium travel is denied.

The travel order is issued, signed by the official, and delivered to the
government travel office (GTO),1 or the commercial travel office (CTO)2
acting on behalf of the government. Either the GTO or CTO verifies the
existence of documentation and checks for an authorizing signature. The
CTO then issues the premium class ticket and charges the centrally billed
account. The CTO is not supposed to use the centrally billed account to
purchase a premium class ticket until the traveler or the official
provides the CTO with a signed travel order authorizing the premium class
travel. Figure 3 provides a graphic description of the process to obtain
premium class travel.

1The GTO is staffed by government employees who are required to monitor
the activities of the commercial travel office.

2The CTO is staffed by employees of a company that has been contracted to
serve as a travel agency for DOD or the military service.

Appendix II
Process to Obtain Premium Class Travel

Figure 3: Standard Process to Obtain Premium Class Travel When Multiple Classes
                            of Service Are Available

                       Source: GAO analysis of DOD data.

Appendix III

                     GAO Contacts and Staff Acknowledgments

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

Acknowledgments	Staff making key contributions to this report were Kris
Braaten, Beverly Burke, Francine DelVecchio, Lisa Hansen, Kenneth M. Hill,
Aaron Holling, Jeffrey Jacobson, Julie Matta, Karlin Richardson, John
Ryan, Sidney H. Schwartz, and Scott Wrightson.

(192078) Page 45

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