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 [email protected]  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, [email protected]  John V. Kelly
(202) 512-6926, [email protected] Michael C. Zola (202) 512-3867,
[email protected]

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
[email protected].

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. ***