    State's Centrally Billed Foreign Affairs Travel: Internal Control
    Breakdowns and Ineffective Oversight Lost Taxpayers Tens of
    Millions of Dollars (10-MAR-06, GAO-06-298).

    The relative size of the Department of State's (State) travel
    program and continuing concerns about fraud, waste, and abuse in
    government travel card programs led to this request to audit
    State's centrally billed travel accounts. GAO was asked to
    evaluate the effectiveness of internal controls over (1) the
    authorization and justification of premium-class tickets charged
    to the centrally billed account and (2) monitoring of unused
    tickets, reconciling monthly statements, and maximizing
    performance rebates.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-298
        ACCNO:   A48738
      TITLE:     State's Centrally Billed Foreign Affairs Travel: Internal
    Control Breakdowns and Ineffective Oversight Lost Taxpayers Tens
    of Millions of Dollars
         DATE:   03/10/2006
      SUBJECT:   Financial management
    	     Fraud
    	     Internal controls
    	     International travel
    	     Monitoring
    	     Program abuses
    	     Program evaluation
    	     Program management
    	     Risk management
    	     Travel
    	     Travel allowances
    	     Travel costs

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    GAO-06-298

         * Report to the Committee on Homeland Security and Governmental Affairs,
           U.S. Senate
              * March 2006
         * STATE'S CENTRALLY BILLED FOREIGN AFFAIRS TRAVEL
              * Internal Control Breakdowns and Ineffective Oversight Lost
                Taxpayers Tens of Millions of Dollars
         * Contents
              * Results in Brief
              * Background
              * Ineffective Controls over Authorization and Justification of
                Premium-Class Travel Led to Wasted Taxpayer Dollars
                   * Extent of Premium-Class Travel Is Significant
                   * Key Internal Controls over Premium Travel Were Ineffective
                        * Proper Authorization Did Not Exist
                        * Documentation of Valid Justification for Premium-Class
                          Travel Often Did Not Exist
                   * Management Decisions to Offer Premium Travel as a Benefit
                   * Executive Premium-Class Travelers
                        * Other Premium-Class Travelers
                        * Premium-Class Travel by Diplomatic Couriers
              * Lack of Oversight and Controls Led to Other Breakdowns
                   * Ineffective Controls and Monitoring Led to Numerous Unused
                     Tickets
                        * State Did Not Monitor Employee Adherence to Travel
                          Regulations
                        * State Did Not Have a Process for Travel Management
                          Centers to Identify All Unused Tickets
                   * State Did Not Dispute Unauthorized Transactions and Lost
                     Performance Rebates
              * Conclusion
              * Recommendations for Executive Action
              * Agency Comments and Our Evaluation
         * Objectives, Scope, and Methodology
              * Evaluating the Effectiveness of Controls over Premium-Class
                Travel
                   * Magnitude of Premium- Class Travel
                   * Statistical Sampling and Data Mining
                   * High-Level Officials
                   * Diplomatic Couriers
                   * Evaluating the Effectiveness of Controls over Other
                     Centrally Billed Account Activities
                   * Magnitude of Unused Tickets
                   * Extent of Unauthorized Transactions Not Disputed
                   * Magnitude of Rebates Lost
              * Data Reliability Assessment
         * Comments from the Department of State
         * GAO Contacts and Staff Acknowledgments

    Report to the Committee on Homeland Security and Governmental Affairs,
    U.S. Senate

    March 2006

    STATE'S CENTRALLY BILLED FOREIGN AFFAIRS TRAVEL

    Internal Control Breakdowns and Ineffective Oversight Lost Taxpayers Tens
    of Millions of Dollars

    Contents

    Tables

    Figures

    March 10, 2006Letter

    The Honorable Susan M. Collins Chairman The Honorable Joseph I. Lieberman
    Ranking Member Committee on Homeland Security and   Governmental Affairs
    United States Senate

    This report responds to your request that we audit controls over the
    travel paid for with the Department of State's (State) over 260 centrally
    billed travel accounts, which includes travel related to a number of
    foreign affairs agencies (e.g., State and other federal agencies located
    at United States' diplomatic missions abroad). State's centrally billed
    travel process is used predominantly by State employees; however, other
    government travelers who also use State's centrally billed accounts
    reimburse State for their travel expenses. While State uses purchase
    orders and Government Travel Requests (GTR) to pay for some airline
    tickets at overseas posts, as requested, our analysis excluded all travel
    transactions that were not procured through State's over 260 centrally
    billed travel accounts.1

    State leads our government in conducting American diplomacy; its mission
    is based on the Secretary of State's role as the President's principal
    foreign policy adviser. State's mission is to create a more secure,
    democratic, and prosperous world for the benefit of the American people
    and the international community. This mission is carried out through six
    regional bureaus, each of which is responsible for a specific geographic
    region of the world. State operates more than 260 embassies, consulates,
    and other posts worldwide and has over 57,000 employees -- including
    Foreign Service, civil service, and Foreign Service nationals.
    Additionally, State's posts support other U.S. government agencies, such
    as the Departments of Commerce, Defense (DOD), and Homeland Security,
    which also use State's centrally billed accounts when overseas. In
    general, other agencies overseas authorize their own travel and State
    processes the payments based on their authorizations. In carrying out this
    mission, State manages the second largest centrally billed travel card
    program in the federal government, after DOD. About 70 percent of State's
    and other foreign affairs agencies' travel is international or at least
    one flight segment in a trip had an origin or destination outside the
    continental United States. Comparatively, State and other foreign affairs
    agencies spent more on premium-class travel than did DOD, both in terms of
    total dollars spent and as a percentage of total airline travel.2 In light
    of the relative size of State's program, and the concerns about fraud,
    waste, and abuse in government travel card programs, you requested that we
    audit premium-class travel and other centrally billed travel account
    activities. Federal travel regulations define premium-class travel as any
    class of accommodation above coach class, that is, first or business
    class.

    The centrally billed travel accounts are used by State bureaus, overseas
    posts, and other foreign affairs agencies to purchase transportation
    services such as airline and train tickets, while the individually billed
    accounts are used by individual travelers for lodging, rental cars, and
    other travel expenses. For fiscal years 2003 and 2004, State incurred over
    $400 million in expenses on its centrally billed and individually billed
    travel accounts, with over $360 million charged to its centrally billed
    accounts.

    Because State disburses funds directly to Citibank under a governmentwide
    travel card contract for charges made to the centrally billed accounts,
    the use of these accounts for improper3 transportation, especially the use
    of the more expensive premium-class travel, results in direct increased
    cost to the government. Governmentwide, General Services Administration's
    (GSA) Federal Travel Regulation, and sections of the U.S. Department of
    State's Foreign Affairs Handbook (FAH) and the U.S. Department of State's
    Foreign Affairs Manual (FAM), require that travelers use coach-class
    accommodations for official domestic and international air travel, except
    when a traveler is specifically authorized to use premium class. The
    travel regulations also state that travelers on official government travel
    must exercise the same standard of care in incurring expenses that a
    prudent person would exercise when traveling on personal business.

    As you requested, the objective of our audit was to determine the
    effectiveness of State's internal controls over its centrally billed
    travel card program and determine whether fraudulent, improper, and
    abusive travel expenses exist. Specifically, we evaluated the
    effectiveness of internal controls over (1) the authorization and
    justification process for premium-class tickets charged to State's
    centrally billed travel accounts and (2) State's monitoring of unused
    tickets, reconciling monthly statements, and maximizing performance
    rebates.

    To meet our objectives, we (1) reviewed applicable laws, regulations, and
    practices governing travel, including the use of centrally billed travel
    accounts; (2) interviewed State officials on its travel policy and
    procedures, including the use of centrally billed travel and under what
    circumstances premium-class travel is authorized; (3) extracted
    premium-class and other transactions from Citibank databases of charges
    made to State's centrally billed accounts for fiscal years 2003 and 2004;
    (4) tested a statistical sample of premium-class transactions, 5) used
    data mining to identify additional instances of improper premium-class
    travel based on the frequency and dollar amount of premium-class travel,
    including premium-class travel by senior executives; (6) compared data on
    unused tickets provided by airlines to data provided by Citibank; and (7)
    conducted other audit work, including visits to two overseas locations to
    evaluate the design and implementation of key control procedures and
    activities. We performed our audit work from September 2004 through
    November 2005 in accordance with U.S. generally accepted government
    auditing standards. We performed our investigative work in accordance with
    standards prescribed by the President's Council on Integrity and
    Efficiency. A detailed discussion of our scope and methodology is
    presented in appendix I.

    Results in Brief

    Breakdowns in key internal controls, a weak control environment, and
    ineffective oversight of State's centrally billed travel accounts resulted
    in taxpayers paying tens of millions of dollars annually for unauthorized
    and

    improper premium-class travel and unused airline tickets.4 Additionally,
    State failed to properly reconcile or dispute over $420,000 in
    unauthorized charges, which in addition to raising concerns about
    potential fraud, resulted in State failing to earn over $2 million in
    rebates intended to reduce the cost of government travel. These problems
    occurred because State (1) did not have management controls in place to
    effectively oversee and monitor its centrally billed accounts and the
    extent of premium-class travel and (2) treats premium-class travel
    accommodations as a benefit for working for the department.

    We determined that breakdowns in key controls led to an estimated 67
    percent5 of premium-class travel by State and other foreign affairs
    personnel during most of fiscal years 2003 and 2004 not being properly
    authorized or justified. Because a premium-class ticket frequently costs
    two to three times the amount of a coach ticket, taxpayers paid tens of
    millions of dollars for premium-class tickets that were not properly
    authorized or justified. For example,  our statistical sample included a
    family of four that flew from Washington, D.C., to Moscow for
    post-assignment travel. The business-class tickets cost $6,712 ($1,678
    each) and the flight lasted about 12 hours, which does not meet the
    requirements of the premium-class flight duration. The cost of coach-class
    tickets-the form of travel required by travel regulations-would have been
    $1,784 ($446 each), or $4,928 less than the amount actually spent.
    Further, State did not have complete and accurate data on the extent of
    premium-class travel and performed little or no monitoring of this travel.

    State also made management decisions on premium-class travel that
    contributed to increased costs to taxpayers without performing a
    cost-benefit analysis. For example, we found that some of State's top
    executives, including some under secretaries and assistant secretaries,
    often used premium-class travel regardless of the length of the flight. We
    found that State spent over $1 million dollars on premium-class flights
    for 17 senior executives during most of fiscal years 2003 and 2004. Our
    analysis indicated that most of these flights were domestic or to
    destinations in Western Europe or South America and did not last more than
    the 14 hours required by federal and state regulations to justify use of
    premium-class travel. Further, many of the executives used blanket travel
    orders signed by subordinates to justify purchasing premium-class travel.
    A blanket authorization is effective for all travel during a certain time
    period. For some executives, annual blanket premium-class authorizations
    were completed at the beginning of the fiscal year and covered any travel
    during that fiscal year. A blanket authorization is not an appropriate
    vehicle for authorizing premium-class travel because federal and state
    travel regulations require that all premium-class travel be authorized on
    a trip-by-trip basis. Also, we continue to consider authorization of
    premium-class travel by employees subordinate to the traveler to be a weak
    internal control due to both the additional cost and the potential for
    abuse associated with premium-class travel. As we have reported in the
    past, travel authorized by subordinates is in effect self authorization,
    which constitutes a lack of controls over executive premium-class travel.

    Senior State officials also told us that the department offered
    premium-class travel as a benefit to its other employees for flights
    lasting over 14 hours, including permanent change of station travel.
    According to these officials, this decision was made to improve morale and
    was arrived at without performing a cost and benefit analysis. Although
    federal and State regulations allow premium-class travel if the flight is
    over 14 hours without a rest stop, agencies-such as DOD-attempt to avoid
    the significant additional cost associated with these flights by
    encouraging employees to take a rest stop en route to their final
    destination, generally saving thousands of dollars per trip. As a result
    of State's policy, we found numerous examples in our statistical sample in
    which State and other foreign affairs agencies authorized premium-class
    travel but did not take into consideration less expensive forms of travel
    as an alternative.

    In addition, we found examples where State's diplomatic courier service
    used premium-class travel under a blanket authorization without specific
    justification. Because we did not have authority to open and inspect
    diplomatic pouches, we were unable to validate the classification
    designations on the packages. Thus, we did not evaluate whether couriers
    were necessary or appropriate or if there were any security issues
    associated with courier service procedures. However, we believe the
    department could potentially save considerable taxpayer dollars if it
    better

    managed courier use of premium travel. By regulation,6 State is required
    to ensure the secure movement of classified U.S. government documents and
    material across international borders.7 State's regulations call for
    diplomatic couriers to personally accompany classified diplomatic pouches.
    State's practice is to have couriers use premium-class accommodations to
    personally escort cargo carried in diplomatic pouches. Some courier
    transactions appeared in our statistical sample of premium travel and data
    mining of fiscal years 2003 and 2004 transactions and we found instances
    among these of premium-class travel that were not properly authorized,
    justified, or both. While the courier service used agency mission
    requirements to justify premium-class travel by the couriers, we found
    courier transactions where premium-class accommodations were used even
    when the courier was not escorting diplomatic pouches and when no other
    justification for premium-class accommodations were specified. When
    couriers are not escorting diplomatic pouches, they must follow the same
    travel regulations as all other State and other foreign affairs employees.
    We also found that State's Courier Service has begun to institute
    cost-saving measures for couriers that, if expanded, could save
    substantial taxpayer dollars. These measures include the expanded use of
    cargo carriers (e.g., FedEx), which do not require the couriers to
    purchase passenger tickets when they accompany packages in the cargo area
    and therefore reduce freight costs.

    Ineffective oversight and breakdowns in controls also led to problems with
    State's other centrally billed travel activities. For example, although
    federal agencies are entitled to recover payments made to airlines for
    tickets that they ordered but did not use, State and other foreign affairs
    agencies paid for about $6 million in airline tickets that were not used
    and not processed for refund. State officials were unaware of this problem
    before our audit because State did not monitor employees' adherence to
    travel regulations and did not have a systematic process in place for
    travel management centers to identify and process unused tickets. For
    example, we found that State purchased two identical tickets costing over
    $16,000 for the same business and first-class travel between Addis Ababa,
    Ethiopia, and Albuquerque, New Mexico, and one set of tickets valued at
    over $8,000 was wasted and never used. State also failed to reconcile or
    dispute over $420,000 of unauthorized and potentially fraudulent charges
    before paying its travel card account. Instead of disputing these charges
    with Citibank, State simply deducted the amounts from its credit card
    bill. However, because these amounts were not properly disputed, State
    underpaid its monthly bills and was thus frequently delinquent under
    contract terms. The unanticipated consequence of these delinquencies was a
    substantial reduction in the amount of rebates that State would have been
    eligible to receive. Overall, State earned $700,000 out of a possible $2.8
    million in rebates that could have been earned if it had properly disputed
    unauthorized charges and paid its bills in accordance with the terms of
    the contract.

    This report contains 18 recommendations to the Secretary of State aimed at
    reducing improper premium-class travel and travel costs related to State's
    centrally billed travel accounts. Our recommendations seek to improve the
    internal controls over airline tickets purchased with centrally billed
    accounts so that State has reasonable assurance that premium-class travel
    is authorized, properly justified, and that because of the additional
    cost, minimized to the extent possible. We also recommend that State take
    a series of immediate steps to identify and recover all unused and
    unrefunded tickets. Further, we recommend that State properly dispute
    invalid transactions and pay its centrally billed account on time.
    Finally, we recommend that State take actions to achieve efficiencies in
    the courier service.

    In written comments on a draft of this report, State concurred with all 18
    of our recommendations and stated that it had taken actions or will take
    actions to address them. However, in its comments, State said that our
    report overstated the amount wasted on premium class travel, and that we
    incorrectly implied that State carelessly implemented business class
    regulations without adequately considering the increased cost of premium
    class travel. We disagree. Our statistical sample clearly demonstrated
    that a majority of State's premium class travel was neither authorized nor
    justified. Because premium-class travel is frequently two to three times
    more expensive than coach travel, this improper travel resulted in tens of
    millions of dollars of wasted taxpayer resources. Further, State could not
    provide any evidence that it ever collected or analyzed information about
    the costs associated with its premium-class travel practices. In addition,
    the travel practices exemplified in this report clearly demonstrate that
    the tone set by top State Department executives indicate that it treats
    premium-class as an employee benefit regardless of cost and federal law
    and regulation.

    Background

    State derives its authority to grant leave and travel reimbursements to
    its foreign service employees from the Foreign Service Act of 1980. To
    implement provisions of the act, the department issued the FAM and the
    FAH. Travel by State's civil service employees is generally governed by
    the General Services Administration's (GSA) Federal Travel Regulation
    (FTR), but in some cases is also governed by the FAM. State's general
    policy is for its foreign and civil service employees to travel using
    coach-class accommodations provided by common carriers. However,
    regulations governing foreign service and civil service travel authorize
    the use of premium-class travel under specific circumstances. Both foreign
    service and civil service travel regulations require the agency head or
    his or her designee to authorize first-class travel in advance. These
    regulations also require the authorizing official at a post abroad or the
    executive director of the funding bureau or office domestically to
    authorize premium-class travel other than first class. Further, in
    September 2004, the Assistant Secretary of State for Administration sent a
    memorandum to all State executive directors emphasizing "that it is wrong
    to authorize premium-class travel on a blanket basis" and "that a separate
    justification for premium-class travel is required for each trip." Federal
    and State travel regulations authorize premium-class accommodation when at
    least one of the following conditions exists:

    o no space is available in coach-class accommodations,

    o regularly scheduled flights provide only premium-class accommodations,

    o an employee with a disability or special need requires premium-class
    accommodations,

    o security issues or exceptional circumstances,

    o travel lasts in excess of 14 hours without a rest stop,

    o foreign-carrier coach-class air accommodations are inadequate,

    o overall cost savings, such as when a premium-class ticket is less
    expensive than a coach-class ticket or in consideration of other economic
    factors,

    o transportation costs are paid in full through agency acceptance of
    payment from a nonfederal source, or

    o required because of agency mission (e.g., courier).

    The regulations also allow for the traveler to upgrade to premium-class
    accommodations, at the traveler's expense or by using frequent traveler
    benefits, but the upgrade cannot be charged to the centrally billed
    account.

    State has the second largest centrally billed travel card program in the
    federal government. During fiscal years 2003 and 2004, State used 155
    different centrally billed accounts8--143 international and 12
    domestic--to purchase more than $360 million in transportation services,
    such as airline tickets, train tickets, and bus tickets, for State and
    other foreign affairs agencies. Each bureau has its own travel budget and
    is responsible for obligating its travel expenses. The local
    travel-authorizing official or the executive director of the funding
    office is responsible for determining the necessity of travel, issuing the
    travel order, certifying the availability of funds, and recording an
    obligation against a unit's appropriated funds.

    State's travel management centers (TMC) make airline reservations, issue
    airline tickets charged to the centrally billed account upon receipt of a
    signed travel order, and perform a reconciliation between the tickets it
    issued and tickets charged on the Citibank invoice. To complete this
    reconciliation process, TMCs are responsible for associating each charge
    with a specific travel order. The financial management officer (FMO) at
    overseas posts and resource management's Global Financial Operations in
    Charleston, South Carolina, for domestic activity, are generally
    responsible for reviewing a TMC's monthly reconciliation, making
    appropriate changes, and certifying or authorizing Citibank's invoice for
    payment. Upon receipt of the TMC's reconciliation, billed transaction
    report (BTR), and supporting files, State pays Citibank for the tickets
    purchased on the centrally billed account. State also pays travelers for
    nontransportation costs claimed on their individual travel voucher. Figure
    1 shows the design of the processes used to issue an airline ticket on
    centrally billed accounts and reimburse travelers for travel expenses. It
    also explains the roles of different offices in providing reasonable
    assurance that airline tickets charged to these cards are appropriate and
    meet a valid government need.

    Figure 1: Flowchart of the Centrally Billed Account Travel Card Process

    Ineffective Controls over Authorization and Justification of Premium-Class
    Travel Led to Wasted Taxpayer Dollars

    Premium-class travel accounted for almost half of travel expenditures
    charged to State's over 260 centrally billed accounts during most of
    fiscal years 2003 and 2004, including domestic and overseas operations,
    and this trend continued for fiscal year 2005. On the basis of our
    statistical sample, we estimate that 67 percent of premium-class travel
    during April 2003 through September 2004 for State and other foreign
    affairs personnel was improper--either not properly authorized or properly
    justified because of breakdowns in key internal controls. Examples of
    breakdowns in key controls include travelers flying premium-class travel
    when the travel orders did not authorize premium-class travel;
    subordinates authorizing their supervisors to take premium-class flights;
    and travel orders authorizing premium-class travel using criteria of a
    total flight time of more than 14 hours, even though the actual flight
    time, including layovers, was less than 14 hours. Also, State's diplomatic
    couriers used premium-class travel even when it was not justified. In
    addition, we found that State's top executives, including under
    secretaries and assistant secretaries, often used premium-class travel
    regardless of the length of the flight. Further, senior State officials
    told us that the department offered premium-class travel as a benefit to
    its employees, as part of their human capital initiative, for all flights
    lasting over 14 hours, which is allowed by federal and State regulations
    but is costly to taxpayers. However, State did not perform a cost-benefit
    analysis before offering this benefit. In comparison, agencies-such as
    DOD-attempt to avoid the significant additional cost associated with
    premium-class travel on flights lasting more than 14 hours by encouraging
    employees to take a rest stop en route to their final destination, saving
    hundreds, sometimes thousands, of tax dollars per trip. Prior to 2002,
    State policy prohibited the use of premium-class accommodations for
    permanent change of station travel even when the duration of the travel
    exceeded 14 hours-a prohibition established by many other agencies with
    staff stationed overseas. However in 2002, State eliminated that
    prohibition.

    Extent of Premium-Class Travel Is Significant

    Between April 2003 and September 2004,9 State and other foreign affairs
    agencies purchased over 32,000 airline tickets costing about $140 million
    that contained at least one leg of premium-class travel for State and
    other foreign affairs personnel using State's centrally billed account
    travel cards. In addition, we determined that premium-class travel
    continues to be significant for fiscal year 2005.10 As discussed later in
    this report, because State does not obtain or maintain any information on
    premium-class travel, it cannot monitor its proper use, identify trends,
    or determine alternate, less expensive means of transportation. As shown
    in figure 2, premium-class travel represents about 19 percent of the
    tickets issued, and State's and other foreign affairs agencies' spending
    on premium-class travel represented about 49 percent of the $286 million
    spent on airfare charged to the centrally billed accounts during the
    period April 2003 through September 2004.11 Our analysis excluded all
    travel transactions at overseas posts that were not procured through the
    centrally billed travel accounts because it was outside the scope of our
    request. State told us that at some overseas posts travelers purchase
    airline tickets using Government Travel Requests (GTR) and purchase
    orders. Further, the information State provided for some tickets purchased
    with GTRs did not distinguish between premium- and coach-class tickets.

    Figure 2: Premium-Class Tickets Purchased for State and Other Foreign
    Affairs Personnel Charged to State's Centrally Billed Accounts, April 2003
    through September 2004

    Key Internal Controls over Premium Travel Were Ineffective

    Breakdowns in key internal control activities led to significant numbers
    of transactions lacking proper authorization and justification for
    premium-class travel. On the basis of our sample of premium
    transactions,12 an estimated 67 percent of premium-class travel was not
    properly authorized, justified, or both. Specifically, 39 percent of the
    premium-class airline tickets charged to State's centrally billed account
    from April 2003 through September 2004 were not properly authorized. In
    addition, 28 percent of premium-class transactions that were authorized
    were not justified in accordance with either federal or State regulations.
    (See app. I for further details of our statistical sampling test results.)
    Further, State did not maintain accurate and complete data on the extent
    of premium-class travel and thus had a lack of controls in place to
    oversee and manage this travel. Each fiscal year State is required to
    report to GSA on first-class travel taken by all State and other foreign
    affairs personnel. However, we found 23 roundtrip first-class tickets
    valued at more than $85,000, obtained for State or other foreign affairs
    agencies, that were not reported by State to GSA as required in fiscal
    years 2003 and 2004. Further, we saw no evidence of external or internal
    audits of State's centrally billed travel program.13

    Proper Authorization Did Not Exist

    Requiring premium-class travel to be properly authorized is the first step
    in preventing improper premium-class travel. Federal and State regulations
    require premium-class travel to be specifically authorized. State travel
    regulations specify that premium-class travel must be authorized in
    advance of travel, unless extenuating circumstances or emergencies make
    prior authorization impossible, in which case the traveler is required to
    request written approval from the appropriate authority as soon as
    possible after the travel. Using these regulations, we found that
    transactions failed the authorization test in the following  two
    categories: (1) the documentation did not specifically authorize
    premium-class travel or a blanket travel authorization was used to
    authorize premium-class travel and (2) the travel order authorizing
    premium-class travel was not signed.

    Premium-class travel was not specifically authorized. On the basis of our
    statistical sample, we estimated that the travel orders and other
    supporting documentation for 13 percent of the premium-class transactions
    did not specifically authorize the traveler to fly premium class, and thus
    the travel management center should not have issued the premium-class
    ticket. We estimated that an additional 17 percent of the transactions
    were authorized by a blanket authorization, including all diplomatic
    courier travel. A blanket authorization is not an appropriate vehicle for
    authorizing premium-class travel because federal and State travel
    regulations require that all premium-class travel be authorized on a
    trip-by-trip basis. In September 2004, State issued a memorandum to all
    executive directors reminding them about the use of blanket orders,
    emphasizing that it is wrong to authorize business-class travel on a
    blanket basis and also reminding the executive directors that a
    trip-specific justification must be provided for each business-class
    authorization.

    Travel order was not signed. We estimated that 5 percent of premium-class
    transactions did not have signed travel authorizations. Ensuring that
    travel orders are signed, and signed by an appropriate official, is a key
    control for preventing improper premium-class travel. If the travel order
    is not signed, or not signed by the individual designated to do so, State
    cannot guarantee that the substantially higher cost of the premium-class
    tickets was properly reviewed to ensure it represented an efficient use of
    government resources.

    Documentation of Valid Justification for Premium-Class Travel Often Did
    Not Exist

    Another internal control weakness identified in the statistical sample was
    that the justification used for premium-class travel was not provided, not
    accurate, or not complete enough to warrant the additional cost to the
    government. To determine 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 a
    valid reason. Thirty-nine percent of premium-class transactions were not
    authorized and, therefore, could not have been justified. State asserts
    that even if business-class authorization for some trips was not properly
    documented, the premium travel was nevertheless justified so long as the
    trips were in excess of 14 hours. However, without properly documented
    authorization, we cannot assess the propriety of such travel
    notwithstanding the 14-hour travel rule and therefore must conclude that
    it was unjustified premium-class travel. In addition, 28 percent of
    premium-class transactions were authorized but were not supported by valid
    justification.14 Federal and State travel regulations provide that travel
    in excess of 14 hours, without a rest stop en route or a rest period on
    arrival is justification for premium class. We found premium travel
    included trips with such rest stops for flights lasting under 14 hours.

    Table 1 contains specific examples of both unauthorized and unjustified
    travel from both our statistical sample and data mining work. These
    examples illustrate the improper use of premium-class travel and a
    resulting increase in travel costs. More detailed information about some
    of the cases follows the table.

    Table 1: Examples of Premium-Class Travel Not Authorized or Properly
    Justified

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

    aSource of estimated coach fares is GSA contract fare or expedia.com.

    bFares do not include all applicable taxes and airport fees.

    o Traveler #1 flew from Washington, D.C., to Honolulu, Hawaii. The total
    cost of the trip was $3,228. In comparison, the unrestricted government
    fare from Washington, D.C., to Honolulu was $790. According to State
    regulation, travelers using premium-class travel are not entitled to an
    overnight rest stop en route. Furthermore, the travel was authorized by a
    blanket premium-travel authorization signed by a subordinate of the
    traveler and a separate trip authorization was not included to
    specifically authorize this trip, as required. The travel authorization
    did not provide specific justification for business-class travel and the
    travel was not more than 14 hours. Therefore, the transaction failed
    authorization and justification.

    o Travelers #2 and #3 traveled from Johannesburg to Asmara through
    Frankfurt, at a cost of about $8,353 each, a total of $16,706. Although
    they traveled business class for the entire trip, they were reimbursed for
    a hotel room during the layover in Frankfurt on the return visit, at a
    cost of about $171 each. According to State regulation, travelers using
    premium-class travel are not entitled to a government-funded15 rest stop
    en route. If the travelers had flown coach for this round trip and taken a
    rest stop en route, the airfare would have cost about $2,921 and State
    could have saved about $11,000 for the two tickets. One of these travelers
    approved the travel authorizations for both himself and the other
    traveler.

    o Traveler #4 flew first class from Washington, D.C., to Hawaii on a
    blanket travel order that only authorized travel within Europe. Although
    the travel was less than 14 hours, State provided no justification for
    first class, and State did not report the first-class travel to GSA. We
    found that State issued a first-class airline ticket to Hawaii using a
    blanket travel authorization that authorized premium-class accommodations.
    State issued the ticket to an unauthorized destination-Hawaii-because the
    blanket travel order authorized travel to Europe and State's travel
    officials did not review the blanket authorization to ensure that the
    travel authorization was current, valid, and the trip was to an authorized
    destination. Because State did not follow its own policies for
    authorization and review of travel, the government paid $4,155 for an
    unauthorized trip.

    Management Decisions to Offer Premium Travel as a Benefit

    State's management allowed top State and other foreign affairs executives
    to use premium-class travel by approving blanket travel orders, similar to
    a blank check. State also allowed premium-class travel as a
    benefit-without considering less expensive alternatives-to other employees
    for flights lasting over 14 hours and for permanent change of station
    travel, costing taxpayers tens of millions of dollars. Further, State's
    practice is for diplomatic couriers to use premium-class travel
    accommodations to escort diplomatic pouches.

    Executive Premium-Class Travelers

    State's top executives, including under secretaries and assistant
    secretaries, often used premium-class travel regardless of the length of
    the flight. Our data mining of frequent premium-class travelers showed
    that many of these travelers were senior foreign affairs executives. On
    the basis of this information, we expanded our data mining to include
    trips taken by selected presidential appointees and SES-level foreign
    affairs staff to determine if their travel was authorized and justified
    according to federal and State regulations. In addition to the federal and
    State regulations, we also applied the criteria set forth in our internal
    control standards16 and sensitive payments guidelines17 in evaluating the
    proper authorization of premium-class travel. For example, State travel
    regulations and policies do not restrict subordinates from authorizing
    their supervisors' premium-class travel, a practice which our internal
    control standards consider to be flawed. Therefore, a premium-class
    transaction that was approved by a subordinate would fail the control test
    based on our internal control standards. State and other foreign affairs
    agencies paid over $1 million for 269 premium-class tickets for flights
    taken by 17 foreign affairs executives during April 2003 through September
    2004. We found 65 tickets containing business- and first-class segments
    costing about $300,000 that were under 14 hours. Most of these flights
    were to destinations within the United States, South America, and Western
    Europe. Further, over $860,000 in premium-class trips taken by executives
    were obtained using blanket authorizations. For each premium-class trip,
    State regulation requires specific authorization to fly premium class. In
    most cases, the blanket travel orders authorized premium-class travel for
    an entire year and were signed by subordinates. State officials told us
    that because the blanket authorization allowed premium class, the
    executives obtained premium-class tickets even when the trip was under 14
    hours. The subordinate authorizers told us they could not challenge an
    under secretary or an assistant secretary. Examples of premium-class trips
    associated with improper accommodation and their additional cost to
    taxpayers are included in figure 3 to illustrate the issues associated
    with executive premium-class travel found through our data mining.

    Figure 3: Examples of Premium-Class Travel by State and Other Foreign
    Affairs Executives from Washington, D.C.

    Note: GSA fares exclude applicable taxes and fees.

    Other Premium-Class Travelers

    State also made a management decision to offer premium-class travel to its
    employees as a benefit, resulting in increased costs to taxpayers.
    Although State officials were aware that offering employees rest stops on
    longer flights was often less expensive than premium-class travel, they
    offered the more expensive premium-class travel to employees for all
    flights lasting over 14 hours, which increased costs. For example, one
    individual in our statistical sample flew premium-class roundtrip from
    Washington, D.C., to Tel Aviv at a cost of over $6,000. Although the trip
    lasted over 14 hours, as an alternative to paying the premium-class rates,
    State could have flown this employee coach and paid the cost of an
    overnight rest stop in London, for a total cost of about $2,300 (about
    $1,600 for the GSA contract airfare and $700 in lodging and per diem
    expenses). Overall, this option could have saved taxpayers over $3,700.
    State officials explained that they made these decisions about
    premium-class travel to improve morale and retain highly qualified
    foreign-service personnel. State officials also believed that, among other
    factors, their decisions about premium-class travel for trips in excess of
    14 hours have led to increased morale, as reflected in "The Best Places to
    Work" survey. However, State could not provide any empirical evidence that
    showed a direct correlation that offering premium-class travel increased
    its scores on the survey or increased retention of foreign-service
    personnel, and could not provide evidence that travel was a metric in the
    "Best Places to Work" survey. In contrast, agencies, such as DOD, attempt
    to avoid the significant additional cost associated with premium-class
    travel on flights lasting more than 14 hours by encouraging employees to
    take a rest stop en route to their final destination, saving hundreds,
    sometimes thousands, of tax dollars per trip. Finally, our testing showed
    that all State employees, not just those in the foreign service that are
    governed by State regulations, were authorized to use premium-class,
    without constraint, when the trip was over 14 hours.

    State also decided to offer premium-class travel to foreign service
    employees for permanent change of station moves for all flights that
    exceeded 14 hours, in accordance with federal and State regulations.
    However, State's decision resulted in increased costs to taxpayers.
    Permanent change of station and similar moves accounted for about $17
    million (12 percent) of State's and other foreign affairs agencies'
    premium-class travel for April 2003 through September 2004. Prior to 2002,
    State policy prohibited the use of premium-class accommodations for
    permanent change of station travel, even when the duration of the travel
    exceeded 14 hours-a prohibition established by many other agencies with
    staff stationed overseas, including DOD. However, in 2002, State
    eliminated that prohibition at a significant cost to taxpayers. We found
    numerous examples in our statistical sample in which premium-class travel
    was properly authorized, and as such these transactions were among the 33
    percent of transactions that were considered to be properly authorized and
    justified. However, it is important to note that because of State's
    decision to treat premium-class travel as a benefit, State did not
    consider having the travelers take alternative, less expensive forms of
    travel.

    Premium-Class Travel by Diplomatic Couriers

    We found instances where State's diplomatic couriers18 lacked proper 18
    authorization, justification, or both when flying premium class;
    therefore, we believe State could potentially save considerable taxpayer
    dollars if it more aggressively managed the travel of its couriers. For
    example, when couriers are not on a mission to escort diplomatic pouches
    or they are escorting only cabin-carried diplomatic pouches, they must
    follow the same travel regulations explained earlier as all State and
    other foreign affairs employees.19

    We tested diplomatic courier transactions in our statistical sample of
    premium-class transactions and performed data mining of fiscal year 2003
    and 2004 transactions. In total, we tested over 20 diplomatic courier
    premium-class transactions. We found control breakdowns similar to those
    described above with blanket authorization and justification of courier
    premium-class travel. Blanket travel orders were used to authorize
    premium-class courier travel for all courier transactions that we tested
    but, as stated, blanket orders do not specifically authorize premium
    travel as required by State regulations. Although the Courier Service used
    mission security requirements to justify premium-class travel by its
    couriers, we found examples of premium-class travel when couriers were
    returning empty-handed, commonly referred to as "deadheading." In response
    to these findings, Courier Service officials acknowledged that the use of
    premium class is not justified when couriers return empty-handed unless
    the 14-hour rule applies. Courier Service officials also told us that
    couriers may not know when they will be returning empty-handed until they
    arrive at an airport and are told that the post did not complete the
    expected outgoing pouch. By that time, they may not be able to downgrade
    their return ticket to economy class because a foreign airline is
    unwilling to do so, or time does not permit them to return to the gate to
    change their ticket. However, the Courier Service did not indicate on the
    documentation that it provided to us any attempts to downgrade their
    tickets in a deadheading or any other situation where premium-class travel
    was not justified. Further, the Courier Service Deputy Director told us
    that because there are still some problems in this area, they routinely
    check courier trip reports to identify and address any noncompliance.

    We found that State's Courier Service has begun to institute cost-saving
    measures that, if expanded, could save taxpayer dollars. These measures
    include the expanded use of cargo carriers (e.g., FedEx), which do not
    require the couriers to purchase passenger tickets and charge lower
    freight costs than the commercial airlines. Our analysis of a FedEx study
    performed for the Courier Service showed that substantial air cargo
    savings and benefits could be achieved through direct cargo flights with
    multiple stops along a designated route. Although the Courier Service
    initiated the use of cargo carriers in late 2004, expanding this approach
    to the extent practical could achieve substantial savings. However, to
    achieve the additional savings, the Courier Service would need to overcome
    foreign mission resistance to meeting cargo aircraft outside of business
    hours. According to Courier Service officials, foreign mission personnel
    have been unwilling to meet air cargo shipments that arrive outside normal
    business hours and at cargo airports outside city limits. According to
    State, Mexico City has recently indicated a willingness to support cargo
    flight arrivals at Toluca airport. Courier Service officials also told us
    that while all agencies receiving diplomatic pouches should share
    responsibility for meeting and taking custody of diplomatic pouch
    shipments, the burden has generally fallen on State employees.

    Lack of Oversight and Controls Led to Other Breakdowns

    Ineffective oversight and breakdowns in controls also led to problems with
    State's other centrally billed travel activities. For example, although
    federal agencies are entitled to recover payments made to airlines for
    tickets that they ordered but did not use, State and other foreign affairs
    agencies paid for about $6 million in airline tickets that were not used
    and not processed for refund. We found paper and electronic unused tickets
    for both domestic and international flights. State was unaware of this
    problem before our audit because it did not monitor employees' adherence
    to travel regulations and did not have a systematic process in place for
    TMCs to identify and process unused tickets. State also failed to
    reconcile or dispute over $420,000 of unauthorized and potentially
    fraudulent charges before paying its account. Instead of disputing these
    charges with Citibank, State simply deducted the amounts from its credit
    card bill. This action had the unanticipated consequence of substantially
    reducing the amount of rebates that State would have been eligible to
    receive. Thus, State earned only $700,000 out of a possible $2.8 million
    in rebates that could have been earned if State disputed unauthorized
    charges and paid the bill in accordance with the terms of the contract
    with Citibank.

    Ineffective Controls and Monitoring Led to Numerous Unused Tickets

    We asked for data on unused tickets purchased on State's centrally billed
    accounts from the top six domestic airlines-United, Continental, American,
    Delta, Northwest, and U.S. Airways. All airlines except U.S. Airways
    directly provided us electronic data on unused tickets. Data provided by
    the five airlines and verified against Citibank's data showed that over
    2,700 airline tickets with a face value of about $6 million purchased with
    State's centrally billed accounts were unused and not refunded. The
    airline tickets State purchased, for State and other foreign affairs
    personnel, through the centrally billed accounts are generally acquired
    under the terms of the air transportation services contract that GSA
    negotiates with U.S. airlines. Airline tickets purchased under this
    contract have no advance purchase requirements, have no minimum or maximum
    stay requirements, are fully refundable, and do not incur penalties for
    changes or cancellations. Under this contract, federal agencies are
    entitled to recover payments made to airlines for tickets that agencies
    acquired but did not use.20 While generally there is a 6-year statute of
    limitation on the government's ability to file an action for financial
    damages based on a contractual right,21 the government also has up to 10
    years to offset future payments for amounts it is owed.22

    State Did Not Monitor Employee Adherence to Travel Regulations

    During fiscal years 2003 and 2004, State did not implement controls to
    monitor State's and other foreign affairs employees' adherence to travel
    regulations requiring notification of TMC or the appropriate State
    officials about unused tickets. Federal and State travel regulations
    require a traveler who purchased a ticket using the centrally billed
    account either to return any unused tickets purchased to the travel
    management center that furnished the airline ticket or to turn in unused
    tickets immediately upon arrival at their post to the administrative
    officer or, upon arrival in Washington, D.C., to the executive officer of
    the appropriate managing bureau or office. This notification of an unused
    ticket initiates a process to submit requests to the airlines for refunds.

    Figure 4 illustrates where control breakdowns can occur if travelers do
    not adhere to State requirements. As shown, once a ticket is charged to
    the centrally billed account and given to the traveler, State has no
    systematic controls to determine independently if the ticket was used-or
    remains unused-unless notified by the traveler. If the traveler does not
    report an unused ticket, the ticket would not be refunded unless TMC
    monitored the status of airline tickets issued electronically and applied
    for the refunds. Figure 4 shows that the failure of the traveler to notify
    the appropriate official of an unused paper ticket would result in the
    ticket being unused and not refunded. Although bank data indicate that
    State received some credits for airline tickets purchased, State did not
    maintain data in such a manner as to allow it to identify the extent of
    unused tickets and to determine whether credits were received.

    Figure 4: Flowchart of Control Breakdowns in the Unused Ticket Process

    State Did Not Have a Process for Travel Management Centers to Identify All
    Unused Tickets

    State did not have a systematic process in place to monitor whether TMCs
    were consistently identifying and filing for refunds on unused tickets.
    For instance, State contractually required the domestic TMC to identify
    and process all unused electronic tickets. In exchange, the TMC received a
    fee for each refund received for an unused ticket. However, State did not
    implement procedures to determine whether unused tickets were being
    identified and credits were being received. Instead, State officials took
    the TMC's monthly report indicating only the total dollar amount of
    refunds submitted to the airlines as evidence of contractual compliance.
    Unless State implements control procedures to verify whether TMCs were
    identifying and filing for refunds on the unused tickets consistently,
    State cannot provide reasonable assurance that all requests for refunds
    resulted in a credit to the government.

    Even when a TMC had procedures in place to identify and process unused
    electronic tickets, State was still unable to identify unused paper
    tickets. For example, by fiscal years 2003 and 2004, State's domestic TMC
    and TMCs at both of the overseas locations we visited had the capability
    to identify or search the databases of the airlines that participate in
    electronic ticketing or to receive notification from the airlines of
    unused tickets, and subsequently obtain refunds. However, even though the
    TMCs can identify electronic tickets, they cannot independently identify
    paper tickets, which are typically used for international travel.23 State
    has not implemented a systematic process to verify whether a significant
    portion of airline tickets are unused, such as matching tickets issued by
    TMC with travel vouchers submitted by travelers upon completion of their
    trip. Without such a process State will not have reasonable assurance that
    tickets purchased through the centrally billed accounts are used or
    refunded.

    In addition to the $6 million dollars of unused tickets or trip segments
    we identified using the airline data, we estimated that, based on the
    statistical sample, 3 percent of premium-class airline tickets were unused
    and not refunded. This 3 percent estimate is for premium-class tickets
    only and excludes coach accommodations.

    Table 2 contains specific examples of tickets that the airlines identified
    as unused that we tested as a part of our statistical sample of premium
    class transactions and data mining selections. Since these tickets were
    not used, they resulted in waste and increased costs to taxpayers.

    Table 2: Examples of Waste Related to Unused Tickets

    Source: GAO analysis.

    State Did Not Dispute Unauthorized Transactions and Lost Performance
    Rebates

    State did not dispute over 320 unauthorized transactions, totaling over
    $420,000, associated with its two primary domestic centrally billed
    accounts during fiscal year 2003 and fiscal year 2004. TMCs reconcile
    transactions on the monthly credit card invoice to the tickets issued by
    the TMC and recorded in the airline reservation system. Disputes are
    typically filed for transactions that neither the TMC nor State identified
    as having issued or authorized. Tickets that do not match could occur for
    many reasons, such as an airline charging the ticket to the wrong credit
    card account, an individual fraudulently obtaining an airline ticket, or
    the merchant or credit card vendor failing to provide enough information
    to allow the transaction to match. State did not have processes or
    procedures in place to file disputes for transactions that failed to
    reconcile between the bank invoice and the computer reservation system. We
    provided State a list of 219 travelers' names24 associated with the over
    320 unauthorized transactions to verify that they were State employees or
    otherwise authorized by State or other foreign affairs agencies to travel.
    According to State, 38 of the 219 travelers were individuals for whom
    State had no record of ever working for State as an employee, contractor,
    or being authorized to travel as an invited guest. Thus, these
    transactions could be potentially fraudulent charges. As for the remaining
    181 travelers, State informed us that while the airline tickets purchased
    were for individuals who are either current or former State employees,
    contractors, or invited guests, State has no evidence that the trips had
    been authorized. Thus, these trips also could represent potentially
    fraudulent charges.

    As a result of not disputing unauthorized charges and not paying its bill
    in accordance with the contract, State faced the unanticipated consequence
    of substantially reducing the amount of rebates that it would have been
    eligible to receive. For example, if State had effectively managed the
    domestic accounts and disputed these charges, State could have earned over
    $1 million in rebates. Instead, State earned only about $174,000 in
    performance rebates for its domestic accounts. In contrast, at two
    overseas posts that we visited, State was properly disputing transactions.
    However, as previously noted, State still did not effectively manage its
    centrally billed accounts departmentwide and, consequently, earned only
    $700,000 out of a possible $2.8 million in performance rebates from
    Citibank.

    The contract that State entered into with Citibank to issue centrally
    billed account travel cards enables State to earn performance rebates
    based on how quickly State pays the monthly bill. To earn the performance
    rebate, State must pay the bill within 30 calendar days from the statement
    date. State earns the maximum performance rebate if it pays the centrally
    billed account-less any disputed charges-on the statement date; for unpaid
    bills, the amount of the rebate decreases each day thereafter. If State
    pays the centrally billed account more than 30 days after the statement
    date, State does not earn a performance rebate.

    Throughout the audit period, State generally submitted payment for its
    domestic centrally billed accounts within the 30 day window; however,
    State frequently failed to pay the entire amount of the bill, leaving
    potentially unauthorized charges unpaid, but not properly disputed. During
    fiscal years 2003 and 2004, State did not dispute any of the previously
    mentioned over 320 unauthorized charges applied to its domestic centrally
    billed accounts, and instead simply deducted the amounts due from its
    credit card bill. If State had disputed these charges, Citibank would have
    given State a 60-day grace period to investigate whether the charges were
    appropriate and the disputed amounts would not have to be paid until the
    investigation was completed. An average person cannot simply determine
    which charges on their credit card bill they are going to pay but must
    notify the bank of any unauthorized charges. Since State did not dispute
    the charges, it was still liable for the amounts associated with these
    charges and simply deducting them from the credit card bill did not
    relieve State of its responsibility for these charges. Consequently, State
    was not only paying for potentially fraudulent charges, but it also lost
    the performance rebates it could have earned by promptly paying its
    monthly centrally billed account bill.

    Conclusion

    The State department serves a critical role for the federal government and
    in that role State and other foreign affairs employees are required to
    travel extensively, often internationally. However, travel regulations
    state that employees on official government travel must follow published
    requirements and exercise the same standard of care in incurring expenses
    that a prudent person would exercise when traveling on personal business.
    Our work shows that travelers using State's over 260 centrally billed
    travel accounts often do not meet that standard, which has resulted in
    millions of dollars of unnecessary costs to taxpayers. With the serious
    fiscal challenges facing the federal government, agencies need to do
    everything they can to operate as efficiently as possible. Improved
    management and oversight of the State department's centrally billed travel
    program would save taxpayers tens of millions of dollars annually.

    Recommendations for Executive Action

    We are making the following 18 recommendations to improve internal control
    over the authorization and justification of premium-class travel and to
    strengthen the control environment as part of an overall effort to reduce
    improper premium-class travel and unnecessary or inappropriate State
    costs. Because of the substantial cost and sensitive nature of
    premium-class travel, we recommend that the Secretary of State direct the
    appropriate officials to implement specific internal control activities
    over the use of premium travel and establish policies and procedures to
    incorporate federal and State  regulations as well as guidance specified
    in our Standards for Internal Control and our Guide for Evaluating and
    Testing Controls Over Sensitive Payments. 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 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 fares so that State can
    prepare and submit complete and accurate first-class travel reports to
    GSA.

    o Require State to develop a management plan requiring that audits of
    State's issuance of premium-class travel are conducted regularly, and the
    results of these audits are reported to senior management. Audits of
    premium-class travel should include reviews of whether travel management
    centers adhere to all governmentwide and State regulations for issuing
    premium-class travel.

    o Periodically provide notices to travelers and supervisors/managers that
    specifically identify the limitations on premium-class travel, the limited
    situations in which premium-class travel may be authorized, and how the
    additional cost of premium-class travel can be avoided.

    o Require that premium-class travel be approved by individuals who are at
    least of the same grade as the travelers and specifically prohibit the
    travelers themselves or their subordinates from approving requests for
    premium-class travel.

    o Prohibit the use of blanket authorization for premium-class travel,
    including management decisions offering premium-class travel as a benefit
    to executives and other employees.

    o Encourage State department personnel traveling as a result of a
    permanent change of station to take a rest stop en route to their final
    destination to avoid the significant additional cost associated with
    premium-class flights and thus save the taxpayer thousands of dollars per
    trip.

    o Urge other users of State's centrally billed travel accounts to take
    parallel steps to comply with existing travel requirements.

    To promote the economy and efficiency of Courier Service operations, we
    recommend that the Secretary of State direct the Courier Service to take
    the following actions:

    o Expand the use of cargo carriers, such as FedEx, to the extent
    practicable.

    o Direct foreign missions to assure that organizations using diplomatic
    courier services share responsibility for meeting and accepting air cargo
    shipments of diplomatic pouches.

    o Clarify written policy to clearly state that diplomatic couriers must
    use economy class accommodations when in a "dead-head" capacity unless
    relevant exceptions (e.g., 14-hour rule) exist, and enforce the
    requirement.

    To recover outstanding claims on unused tickets, we recommend that the
    Secretary of State initiate the following actions:

    o Immediately submit claims to the airlines to recover the $6 million in
    fully and partially unused tickets identified by the airlines and
    discussed in this report.

    o Work with the five airlines identified in this report and other airlines
    from which State purchased tickets with centrally billed accounts to
    determine the feasibility of recovering other fully and partially unused
    tickets, the value of the unused portions of those tickets, and initiate
    actions to obtain refunds.

    To enable State to systematically identify future unused airline tickets
    purchased through the centrally billed accounts, and improve internal
    controls over the processing of unused airline tickets for refunds, we
    recommend that the Secretary of State direct the appropriate personnel
    within services and agencies to take the following actions:

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

    o Enforce employees' adherence to existing travel regulations requiring
    notification of unused tickets.

    o Modify existing travel management center contracts to include a
    requirement that the international travel management centers establish a
    capability to systematically identify unused electronic tickets in their
    computer reservation systems and file for refunds on the tickets
    identified as unused.

    o Routinely compare unused tickets processed by the travel management
    centers to the credits on the Citibank invoice.

    To provide assurance of accurate and timely payments of the centrally
    billed accounts and to maximize rebates, we recommend that the Secretary
    of State establish procedures to ensure that all transactions on the
    Citibank invoice are either paid in accordance with the contract or
    properly disputed.

    Agency Comments and Our Evaluation

    In written comments on a draft of this report, State concurred with all 18
    of our recommendations and said that it is firmly committed to aggressive
    stewardship of the taxpayers' resources entrusted to the department.
    However, State also commented that our report overstates the problem,
    fails to identify improper travel conducted for other than official
    government travel, identifies only a few instances of unjustified travel,
    and implies incorrectly that State carelessly implemented business-class
    regulations without regard to the increased cost. We disagree.

    We do not agree with State's position that we overstate the nature and
    extent of its control breakdowns and ineffective oversight. State and
    other foreign affairs travelers charged almost $140 million on
    premium-class travel from April 2003 through September 2004. On the basis
    of our statistical sample, 67 percent of premium-class travel was not
    properly authorized, justified, or both. This failure rate and the
    associated dollars spent on premium class travel shows that taxpayers lost
    tens of millions of dollars on improper travel. For example, State issued
    premium-class tickets to a family of four traveling from Washington to
    Moscow for a permanent change of duty station. Although this trip was well
    under the required 14 hours to justify premium-class travel, State
    purchased the premium class accommodations for almost four times the cost
    of coach seats. In addition to the waste exemplified here and elsewhere in
    our report, taxpayers lost millions more because State failed to recover
    payments made to airlines for tickets issued but never used and failed to
    reconcile and dispute other charges properly. For example, State paid for
    a premium-class ticket for roundtrip travel between New Mexico and
    Ethiopia that was neither used nor refunded. These specific examples and
    our overall analysis clearly show how ineffective oversight-not just
    procedural problems-resulted in substantial waste of taxpayers' dollars.

    As our report clearly explains, we did not specifically question whether
    travel charged to State's centrally billed travel accounts were necessary.
    Therefore, we purposely did not identify improper travel conducted for
    other than official government travel and thus our report makes no
    conclusions on this matter.

    State's position that our findings of improper travel are simply the
    result of "procedural problems" and that "only a few instances" of travel
    were conducted outside of the regulations are inconsistent with the facts.
    In this regard, over half of the transactions we tested-not just a few
    instances-were not simply the result of procedural problems (e.g., not
    properly authorized), they were unjustified because the travel was
    conducted outside of the regulations. Over half of the travelers
    improperly flew premium-class on trips lasting shorter than 14 hours or
    flew business class and also took a rest stop, which is to be used in lieu
    of using premium-class accommodations to economize travel. For example,
    one State traveler flew premium-class between points in Europe on a trip
    lasting well short of 14 hours and also took an unjustified rest stop,
    which further added lodging and subsistence expenses to the total cost of
    travel. Another traveler flying short of 14 hours on a premium-class
    ticket enjoyed 3 nights of rest upon her return. These and other examples
    of unjustified travel underscore problems beyond what State says are
    simply "deficient procedural protocols" and demonstrate how State's
    ineffective oversight of premium-class travel resulted in substantial
    losses to taxpayers.

    Finally, State takes exception with our characterization that it treated
    premium-class travel as an employee benefit. This position, however, is in
    stark contrast to the representations State made throughout our review.
    For example, although State prohibits blanket authorizations for
    premium-class travel, many of State's top executives consistently flew on
    blanket travel orders improperly authorizing premium class from Washington
    to numerous domestic and other destinations that were well below the 14
    hours required to justify such travel. For example, one senior State
    executive completed 45 premium-class trips costing $213,000, many of which
    were under 14 hours, using a blanket travel order. These executive
    travelers set a tone at the top that premium-class travel was in fact a
    benefit to the traveler and not something that should be minimized or used
    sparingly. In addition, during our review, State said that it indeed
    offered premium-class travel as a benefit to its employees and that such
    travel contributed to their improved employee feedback provided to "The
    Best Places to Work" survey. However, State could not provide evidence
    that travel was a metric in that survey. Moreover, regardless of the
    increased cost associated with such moves, State began in 2002 and
    continues today to offer premium-class travel for permanent change of
    station moves as a benefit to its employees and their families. We believe
    these examples, especially the top State executives who gave themselves
    the benefit of flying premium class when federal law and regulations did
    not allow such travel, demonstrate that the tone at the top of the
    department indicates that premium-class travel is in fact a benefit,
    without specific regard to cost. State's comments are reprinted in
    appendix II.

    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 State, the Director and Deputy Director of the Diplomatic
    Courier Service, and the Director of the Office of Management and Budget.
    We will make copies available to others upon request. In addition, the
    report will be available at no charge on the GAO Web site at
    http://www.gao.gov .

    Please contact me at (202) 512-7455 or kutzg@gao.gov  if you or your
    staffs have any questions concerning this report. Contact points for our
    Offices of Congressional Relations and Public Affairs may be found on the
    last page of this report. Key contributors are listed in appendix III.

    Gregory D. Kutz Managing Director Forensic Audits and Special
    Investigations

    Objectives, Scope, and Methodology Appendix I

    This report responds to your request that we audit and investigate
    internal controls over State's centrally billed travel accounts, which
    include travel related to the Department of State, other U.S. government
    agencies principally engaged in activities abroad, and other domestic
    departments and agencies with international operations. The objectives of
    our audit were to determine the effectiveness of the Department of State's
    internal controls over its centrally billed travel card program and
    determine whether fraudulent, improper, and abusive travel expenses exist.
    Specifically we evaluated the effectiveness of State's internal controls
    over (1) the authorization and justification of premium-class tickets
    charged to State's centrally billed travel accounts and (2) monitoring
    unused tickets, reconciling monthly statements, and maximizing performance
    rebates.

    To assess the effectiveness of internal controls over State's use of the
    centrally billed accounts, we obtained an understanding of the travel
    process, including premium-class travel authorization, unused ticket
    identification, and overall travel card management and oversight, by
    interviewing State officials from Resource Management, Travel and
    Transportation Management Division; Diplomatic Security, Overseas Building
    Operations; Educational and Cultural Affairs; U.S. Consulate, Frankfurt,
    Germany and U.S. Embassy, Pretoria. We also interviewed key officials from
    the American Express, Carlson Wagonlit, and Concorde travel management
    centers. We reviewed General Services Administration's (GSA) Federal
    Travel Regulations (FTR) and State's Foreign Affairs Manual (FAM) and
    Foreign Affairs Handbook (FAH). We reviewed State's internal department
    notices and other travel-related guidance. Finally, we conducted
    "walk-throughs" of the domestic and overseas travel processes.

    Evaluating the Effectiveness of Controls over Premium-Class Travel

    We audited controls over the authorization and issuance of premium-class
    travel during fiscal years 2003 and 2004. State's credit card vendor,
    Citibank, could not provide the first 6 months of fiscal year 2003
    (October 2002-March 2003) level III data due to limitations in its
    archiving capabilities. The level III data indicate whether a transaction
    is premium or coach. Therefore, we used 18 months of data from April 2003
    through September 2004 to select a probability sample of premium-class
    transactions and also used this same time period for our data mining and
    analysis of premium-class transactions. Our assessment covered the
    following:

    o The extent to which State used the centrally billed accounts to obtain
    premium-class travel was determined.

    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 used
    data mining to identify other selected transactions throughout the
    premium-class travel transactions to determine if indications of improper
    transactions existed.

    o State's management policy towards the use of premium-class travel was
    determined.

    Magnitude of Premium-Class Travel

    To assess the magnitude of premium-class travel by State and other foreign
    affairs agencies, we obtained from Citibank a database of fiscal years
    2003, 2004, and 2005 travel transactions charged to State's centrally
    billed and individually billed travel card accounts. The databases
    contained transaction-specific information, including ticket fares, codes
    used to price the tickets-fare basis codes-ticket numbers, names of
    passengers, and numbers of segments in each ticket. We reconciled these
    data files to control totals provided by Citibank and to data reported by
    GSA on State's centrally billed account activities. We queried the
    database of positive debit transactions (charges) for fare codes that
    corresponded to the issuance of first- and business-class travel,
    identifying all airline transactions that contained at least one leg in
    which State and other foreign affairs agencies paid for premium-class
    travel accommodations.

    We further limited the first- and business-class transactions to those
    costing more than $750 because many premium-class tickets on
    intra-European flights cost less than $750 and the corresponding
    coach-class tickets were not appreciably less. By eliminating from our
    population first- and business-class transactions costing less than $750,
    we avoided the possibility of identifying 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 1,067, costing approximately $532,000. While
    we excluded premium-class transactions costing less than $750, we (1) did
    not exclude all intra-European flights and (2) potentially excluded
    unauthorized premium-class flights. Limitations of the database prevented
    a more precise methodology of excluding lower-cost first- and
    business-class tickets.

    Statistical Sampling and Data Mining

    Table 3 summarizes the population1 of State and other foreign affairs
    agencies' airline travel transactions containing at least one
    premium-class leg charged to State's centrally billed accounts from April
    2003 through September 2004 and the subpopulation subjected to testing.

    Table 3: State and Other Foreign Affairs Agencies' Premium-Class Travel
    Populations Subjected to Sampling

    Source: GAO analysis of Citibank data.

    To assess the implementation of key controls over the authorization and
    issuance of premium-class travel, we tested a probability sample of
    premium-class transactions. In general, the population from which we
    selected our transactions for testing was the set of positive debit
    transactions totaling $750 or more for both first- and business-class
    travel that were charged to State's centrally billed accounts during April
    2003 through September 2004. 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
    populations tested.

    We further limited the population of first- and business-class
    transactions to those without a matching credit. By eliminating
    transactions with matching credits, we avoided selecting a large number of
    transactions in which the potential additional cost of the premium-class
    ticket was mitigated by a credit refund so as not to raise concerns about
    the effectiveness of the internal controls. The total number of
    transactions excluded was 2,799, totaling approximately $11.7 million.
    While we excluded premium-class transactions with a matching credit, we
    did not exclude all transactions with a matching credit because sometimes
    the data did not always identify the fare basis codes to allow us to
    determine if the travel was premium or coach.

    To test the implementation of key control activities over the issuance of
    premium-class travel transactions, we selected a probability sample of
    transactions. Specifically, we selected 107 premium-class transactions
    totaling about $467,000. For each transaction sampled, we requested that
    State 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 State had adhered to
    key internal controls over authorizing and justifying premium-class
    tickets. On the basis of the information State provided, we determined
    whether a valid official approved the premium-class travel and whether the
    premium-class travel was justified in accordance with State regulations.
    We also applied criteria set forth in our internal control standards and
    sensitive payments guidelines in evaluating the proper authorization of
    premium-class travel. For example, while State travel regulations and
    policies do not address subordinates authorizing their supervisors'
    premium-class travel, our internal control standards consider such a
    policy to be flawed; therefore, a premium-class transaction that was
    approved by a subordinate would fail the control test. The results of the
    samples of these control attributes can be projected to the population of
    transactions at State and other foreign affairs agencies as a whole, but
    not to individual bureaus or posts.

    With our 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 10 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 10 percentage points or less. Table 4 summarizes
    the premium-class statistical sample results.

    Table 4: Premium-Class Statistical Sample Results

    Source: GAO analysis of Citibank data.

    Note: Each test is dependent on the result of the prior test(s). For
    example, if no travel order was provided the transaction failed and no
    other tests were conducted to determine whether the travel order was
    signed. The justification test was dependent on the outcome of the
    authorization test(s). Therefore, since 42 of 107 transactions (39
    percent) failed the authorization test, we tested 65 total transactions
    specifically to determine whether there was justification for
    premium-class travel.

    In addition to our statistical sample, we selected other transactions
    identified by our data mining efforts for review. Our data mining
    identified individuals who frequently flew using first- or business-class
    accommodations. For data mining transactions, we also requested that State
    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 State policies. If the documentation provided indicated that the
    transactions were proper and valid, we did not pursue the matter further.
    However, if the documentation was not provided, or if it indicated further
    issues related to the transactions, we obtained and reviewed additional
    documentation about these transactions.

    High-Level Officials

    Our initial data mining efforts identified executives that frequently flew
    first and business class. On the basis of our findings, we expanded our
    selection of high-level officials to include most of State's top
    executives, including presidential appointees and senior executives. We
    evaluated these transactions in the same manner as described above.

    Diplomatic Couriers

    Based on the statistical sample of premium class transactions, we estimate
    that 6 percent of the transactions in the sample population represent
    travel by diplomatic couriers. We also identified courier transactions by
    data mining for travelers that frequently flew first and business class.
    We found six courier transactions in our statistical sample and an
    additional 16 transactions identified during data mining for proper
    authorization and justification. We reviewed pertinent laws, federal
    regulations, and State department policies and procedures and interviewed
    current and former Diplomatic Courier Service staff. We also conducted an
    on-site inspection of classified pouch procedures at the Logistics
    Operations Center and observed the FedEx process for inventory, pouching,
    and packaging of classified materials for shipment to London, Paris, and
    Frankfurt. We did not have authorization to open, inspect, and verify that
    classified pouches contained only classified materials. Also, we did not
    observe and assess courier procedures at foreign airports related to
    accessing the tarmac to take custody of outgoing and incoming diplomatic
    pouch materials. During the course of our work, we interviewed Department
    of State Inspector General, Diplomatic Courier Service, and Administrative
    Logistics Management officials and Department of Homeland Security
    officials responsible for customs and border protection.

    Evaluating the Effectiveness of Controls over Other Centrally Billed
    Account Activities

    We also audited the controls over other centrally billed account
    activities, including the identification and processing of unused tickets
    and disputing of unauthorized transactions, during fiscal years 2003 and
    2004. Our assessment covered

    o the magnitude of centrally purchased tickets that were not used and not
    processed for a refund, and

    o the extent of unauthorized transactions that were not disputed and of
    the rebates lost, as a result.

    To assess the internal controls over these other CBA activities, we first
    applied the fundamental concepts and standards set forth in our Standards

    for Internal Control in the Federal Government2  to the practices followed
    by these units to manage unused tickets and to dispute transactions that
    did not match or that the reconciliation process determined were
    unresolved. Because we determined that controls over unused tickets were
    ineffective, we did not assess these controls.

    Magnitude of Unused Tickets

    To assess the magnitude of tickets charged to the centrally billed
    accounts, which were unused and not refunded, we requested that the six
    airlines that State and other foreign affairs agencies used most
    frequently provide us with data relating to tickets State and other
    foreign affairs agencies purchased during fiscal years 2003 and 2004 that
    were unused and not refunded. These six airlines-American, Delta,
    Northwest, Continental, United, and U.S. Airways-together accounted for
    about 80 percent of the value of total airline tickets State and other
    foreign affairs agencies purchased. To obtain assurance that the tickets
    the airlines reported as unused represented only airline tickets charged
    to State centrally billed accounts, we compared data provided by the
    airlines to transaction data provided by Citibank. Because State does not
    track whether tickets purchased with centrally billed accounts were used,
    we were unable to confirm that the population of unused tickets that the
    airlines provided was complete in that it included all State and other
    foreign affairs agencies' tickets that were unused and not refunded.

    While American, Delta, Northwest, and United provided data that allowed us
    to identify the centrally purchased tickets that were fully unused and not
    refunded and partially used and not refunded, Continental could only
    provide data on fully unused and not refunded tickets and U.S. Airways did
    not provide any data. Because none of the airlines provided data
    sufficient for calculating the exact unused value (residual value), we
    were limited to reporting the amount charged to the centrally billed
    accounts related to both fully unused and partially unused tickets.

    Extent of Unauthorized Transactions Not Disputed

    To determine the extent of airline tickets that did not reconcile between
    the tickets issued by State's travel management center and the Citibank
    invoice of tickets purchased on the centrally billed account, we (1)
    obtained unresolved transaction reports for State's largest domestically
    managed centrally billed accounts and (2) verified that the transactions
    were charged to a State centrally billed account using the Citibank
    transaction data.

    Magnitude of Rebates Lost

    To identify the potential rebates lost3 on State's centrally billed
    accounts, we requested that Citibank provide (1) the total amount of
    rebates earned by State on its centrally billed account program for fiscal
    year 2003 and fiscal year 2004, (2) the volume of transactions used by
    Citibank to compute the rebate amounts, and (3) the rebate pricing
    schedule Citibank used to determine the amount of rebates. Using the
    volume of transactions and the rebate pricing schedule provided by
    Citibank, we calculated the highest potential rebate that State could have
    earned on the centrally billed account program. We then compared the
    potential rebate amounts to the actual rebates earned.

    Data Reliability Assessment

    We assessed the reliability of the Citibank centrally billed account data
    by (1) performing various testing of required data elements, (2) reviewing
    existing information about the data and system that produced them, and (3)
    interviewing Citibank officials knowledgeable about the data. In addition,
    we verified that totals from the databases agreed with the centrally
    billed account activity reported by GSA. We determined that data were
    sufficiently reliable for the purposes of our report.

    To assess the reliability of the unused ticket data provided to us by
    American, Continental, Delta, Northwest, and United Airlines, we (1)
    consulted airline officials knowledgeable about the data and (2) performed
    testing on specific data elements. In addition, we validated that the
    tickets reported as unused by each airline represented tickets centrally
    purchased by State by comparing each airline's data to the Citibank
    centrally billed account. We also reviewed the 2003 and 2004 Notes to the
    Consolidated Financial Statements for each airline to verify that amounts
    related to unused tickets were included as a liability. We concluded that
    the data were sufficiently reliable for the purposes of this report.

    Comments from the Department of State Appendix II

    GAO Contacts and Staff Acknowledgments Appendix III

    Cindy Brown Barnes (202) 512-9345, brownbarnesc@gao.gov  John V. Kelly
    (202) 512-6926, kellyj@gao.gov Michael C. Zola (202) 512-3867,
    zolam@gao.gov

    Key contributors to this report include Cindy Barnes, Felicia Brooks,
    Norman Burrell, Beverly Burke, Jennifer Costello, Francine DelVecchio, Abe
    Dymond, Aaron Holling, Jason Kelly, John V. Kelly, Andrea Levine, Barbara
    Lewis, Jenny Li, Katherine Peterson, Mark Ramage, John Ryan, Sidney H.
    Schwartz, and Michael C. Zola.

    (192145)

    www.gao.gov/cgi-bin/getrpt? GAO-06-298 .

    To view the full product, including the scope

    and methodology, click on the link above.

    For more information, contact Gregory Kutz at (202) 512-7455 or
    kutzg@gao.gov.

    Highlights of GAO-06-298 , a report to the Committee on Homeland Security
    and Governmental Affairs, U.S. Senate

    March 2006

    STATE'S CENTRALLY BILLED FOREIGN AFFAIRS TRAVEL

    Internal Control Breakdowns and Ineffective Oversight Lost Taxpayers Tens
    of Millions of Dollars

    The relative size of the Department of State's (State) travel program and
    continuing concerns about fraud, waste, and abuse in government travel
    card programs led to this request to audit State's centrally billed travel
    accounts. GAO was asked to evaluate the effectiveness of internal controls
    over (1) the authorization and justification of premium-class tickets
    charged to the centrally billed account and (2) monitoring of unused
    tickets, reconciling monthly statements, and maximizing performance
    rebates.

    What GAO Recommends

    To improve controls over premium-class travel, systematically monitor
    unused airline tickets, and provide assurance of accurate and timely
    payment of the centrally billed accounts to maximize rebates, GAO is
    making 18 recommendations to State, including that it

               o  develop a management plan requiring audits of State's
               premium-class travel,
               o  modify international travel management center contracts to
               require identification and processing of unused electronic
               tickets,
               o  establish procedures to either pay or dispute transactions on
               the Citibank invoice, and
               o  urge other users of State's centrally billed travel accounts to
               comply with existing travel requirements.

    State concurred with all 18 recommendations.

    Breakdowns in key internal controls, a weak control environment, and
    ineffective oversight of State's centrally billed travel accounts resulted
    in taxpayers paying tens of millions of dollars for unauthorized and
    improper premium-class travel and unused airline tickets. State's over 260
    centrally billed accounts are used by State and other foreign affairs
    agencies to purchase transportation services, such as airline and train
    tickets. GAO found that between April 2003 and September 2004 State's
    centrally billed accounts were used to purchase over 32,000 premium-class
    tickets costing almost $140 million. Premium-class travel-primarily
    business-class airline tickets-represented about 19 percent of the tickets
    issued but about 49 percent of the $286 million spent on airline tickets
    with State's centrally billed account travel cards. GAO determined that
    this trend continued for fiscal year 2005. GAO found that 67 percent of
    this premium-class travel was not properly authorized, justified, or both.
    Because premium-class tickets typically cost substantially more than coach
    tickets, improper premium-class travel represents a waste of tax dollars.
    The examples below illustrate premium-class travel by senior State
    executives that was improperly authorized by annual blanket
    authorizations. Most of these blanket premium-class travel authorizations
    were signed by subordinates who told us they couldn't challenge the use of
    premium-class travel by senior executives.

    Examples of Improper Authorization by Subordinates of Executive
    Premium-Class Travel

    Source: GAO.

    Ineffective oversight and control breakdowns also contributed to problems
    with monitoring unused tickets, reconciling monthly statements, and
    maximizing performance rebates. Although federal agencies are authorized
    to recover payments made to airlines for tickets that they ordered but did
    not use, State failed to do so and paid for about $6 million for airline
    tickets that were not used or processed for refund. State was unaware of
    this problem before our review because it neither monitored travelers'
    adherence to travel regulations nor systematically identified and
    processed all unused tickets. State also failed to reconcile or dispute
    over $420,000 of unauthorized charges before paying its monthly bank
    invoice and instead deducted the amounts from its bill. Because these
    amounts were not properly disputed under the contract terms, State
    underpaid its monthly bills and was thus frequently delinquent. Handling
    questionable charges in this ad hoc manner sharply reduced State's
    eligible rebates. Overall, State earned only $700,000 out of a possible
    $2.8 million in rebates that could have been earned if it had properly
    disputed unauthorized charges and paid the bill in accordance with the
    contract.
    *** End of document. ***