The White House: Travel Office Operations (Chapter Report, 05/02/94,
GAO/GGD-94-132).
Although the White House had the authority to fire several employees in
its press travel office in 1993, the White House should have made the
effort to insulate its management decisions from influence from persons
with a personal interest in travel office operations. Catherine
Cornelius, Harry Thomason, and Darnell Martens, all of whom had
potential personal or business interests in the Travel Office
operations, created the momentum to examine the Travel Office by raising
allegations about improper management to White House officials and
participating in activities that appeared to anticipate the firings.
Although Mr. Thomason and Mr. Martens had passes that gave them
unrestricted access to the White House and participated in discussions
about the Travel Office, GAO did not conclude that they were "special
government employees" subject to conflict of interest laws. GAO does
question the practice of granting nongovernment employees uncontrolled
access to White House offices without having policies to govern their
activities because the appearance of influence and authority that access
conveys could lead to inappropriate actions or abuses. This report
discusses (1) past operations and oversight of the Travel Office; (2)
current Travel Office operations and the extent to which identified
problems have been corrected; (3) actions taken in the spring of 1993
that prompted the White House decision to investigate Travel Office
operations and fire the employees; (4) actions taken by other agencies
during this period, including the Federal Bureau of Investigation and
Internal Revenue Service; and (5) other matters related to the Travel
Office situation.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-94-132
TITLE: The White House: Travel Office Operations
DATE: 05/02/94
SUBJECT: Investigations by federal agencies
Human resources utilization
Conflict of interest
Crimes or offenses
Personnel management
Internal controls
Accounting procedures
Financial management
Employee dismissal
Executive agencies
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Cover
================================================================ COVER
Report to the Congress
May 1994
WHITE HOUSE - TRAVEL OFFICE
OPERATIONS
GAO/GGD-94-132
White House Travel Office
Abbreviations
=============================================================== ABBREV
CRS - computer reservation system
DNC - Democratic National Committee
DOJ - Department of Justice
DOT - Department of Transportation
EOP - Executive Office of the President
FBI - Federal Bureau of Investigation
FTMC - Federal Travel Management Center
GFU - Governmental Fraud Unit (FBI)
GSA - General Services Administration
IRS - Internal Revenue Service
ITGCU - Interstate Theft and Government Crimes Unit (FBI)
KPMG - KPMG Peat Marwick
MTMC - Military Traffic Management Command
NPR - National Performance Review
OIG - Office of the Inspector General (Treasury Department)
OMB - Office of Management and Budget
OPR - Office of Professional Responsibility
RFP - request for proposals
SIU - Special Inquiry Unit (FBI)
WCCU - White Collar Crime Unit (FBI)
Letter
=============================================================== LETTER
B-255157
May 2, 1994
The President of the Senate and the
Speaker of the House of Representatives
This report was prepared in response to Public Law 103-50, which
requires us to conduct a review of the actions taken with respect to
the White House Travel Office.
We are sending copies of this report to appropriate congressional
committees, the Assistant to the President and the Chief of Staff,
the Attorney General, and other interested parties. We will also
make copies available to others upon request.
This report was prepared under the direction of Nancy Kingsbury,
Director, Federal Human Resource Management Issues, who may be
reached on (202) 512-5074 if there are any questions. Other major
contributors to this report are listed in appendix IV.
Charles A. Bowsher
Comptroller General
of the United States
EXECUTIVE SUMMARY
============================================================ Chapter 0
PURPOSE
---------------------------------------------------------- Chapter 0:1
On May 19, 1993, the White House Press Secretary announced that all
seven employees of the White House Travel Office were being dismissed
because of poor management practices. The Press Secretary suggested
in the following question-and-answer period that possible criminal
activity was being investigated. Media reaction and subsequent
public and congressional debate about the details of the White
House's action resulted in an internal White House review of the
matter and an accompanying report issued on July 2, 1993. The
Supplemental Appropriations Act of 1993 (P.L. 103-50), signed the
same day, required that GAO "conduct a review of the action taken
with respect to the White House Travel Office . . . ."
On the basis of discussions with majority and minority congressional
staff and a review of the White House's internal study of the matter,
GAO identified and reviewed a range of issues. Specifically, GAO
reviewed (1) past operations and oversight of the Travel Office; (2)
the current operations of the Travel Office and the extent to which
problems identified in the past had been corrected; and (3) the
actions taken in the spring of 1993 that led to White House
officials' decision to investigate the operations of the Travel
Office and remove the employees; (4) the actions of other federal
agencies during this period, including the Federal Bureau of
Investigation (FBI) and Internal Revenue Service (IRS); and (5)
certain other matters related to the events that occurred in the
Travel Office.
BACKGROUND
---------------------------------------------------------- Chapter 0:2
The White House Travel Office has functioned for many years to
provide travel and communications services to the Executive Office of
the President (EOP). The Travel Office provides travel arrangements
for members of the press corps who accompany the President on trips.
The Travel Office also provides ticketing and travel services for EOP
staff traveling on official business.
In assisting the press on presidential trips, White House Travel
Office staff arrange for or coordinate such services as chartered air
transportation, ground transportation services, and working space and
telephone services. The press travel services of the White House
Travel Office are unusual in that they are provided by government
employees but paid for with private funds, and the operations are
carried out in close proximity to the President. Because the
President may travel on short notice, these services must sometimes
be arranged in a few hours or days. For the 1-year period from May
1992 through April 1993, the Travel Office disbursed about $7.7
million to pay for expenses related to press travel.
In May 1993, on the basis of allegations of mismanagement and
possible wrongdoing, senior White House officials contracted with
KPMG Peat Marwick (KPMG), a public accounting firm, to study the
Travel Office's financial operations and referred these allegations
to the FBI. KPMG found serious financial management weaknesses and,
on the basis of its findings, the seven Travel Office employees were
removed from their positions. The FBI decided to investigate whether
criminal acts had occurred, and that investigation was ongoing at the
time GAO finished its work in mid-April 1994. Because of the ongoing
criminal investigation, GAO was unable to interview certain
individuals, including the seven former Travel Office employees and
two individuals whose allegations about the Travel Office operations
played a significant role in the events that transpired in May 1993.
This limited the information available to GAO for evaluating (1) the
operations of the Travel Office before May 1993 and (2) the status in
the White House of the two individuals who played a role in the
events.
The White House did an internal review of the events surrounding the
removal of the Travel Office employees and on July 2, 1993, issued a
report on the results of its review. The report, entitled the White
House Travel Office Management Review, criticized some of the actions
of White House officials in the matter.
RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3
Although the Travel Office had carried out press travel activities
for many years, GAO found that, historically, no criteria had been
identified for how the Travel Office should be managed. Little
guidance or oversight of the Travel Office's function had been
provided to its employees, despite evidence that the operations may
have had significant financial management weaknesses.
The May 1993 assessment of the Travel Office's financial management
practices by KPMG found significant financial management weaknesses,
including the lack of formal guidelines and procedures for
procurement, poor accounting systems, inadequate documentation and
billing practices, and ineffective controls over cash management.
GAO's review of records from the Travel Office and KPMG's workpapers,
as well as discussions with KPMG and former and current White House
officials, confirmed that serious financial management weaknesses
existed. GAO noted that these results were similar to findings from
a review requested by a former Director of Administration in the
early 1980s, which reportedly found "tremendously lax accounting" and
led to the resignation of the Travel Office Director.
The Management Review stated that a new accounting system was
developed and procedures were in use in July 1993 to resolve the
deficiencies in Travel Office operations. GAO found that the
deficiencies were not fully resolved at that time. While a number of
actions were taken between June and October to improve the day-to-day
press travel operations, documented systems and procedures needed to
achieve, on a continuing basis, the "stringent internal control
procedures to assure sound financial management" announced in the
Management Review had not been fully implemented by the time GAO
completed its work on April 15, 1994.
GAO noted, however, that in the past few months the new Travel Office
Director had made additional progress in improving systems and
procedures. For example, an automated accounting system now
identifies and records costs, and internal controls were implemented
to provide for review and approval of vouchers prior to payment.
On the basis of a review of financial management and procurement
procedures that apply in federal government and private sector
activities, GAO identified and used 29 specific criteria in its
evaluation of Travel Office operations. White House officials agreed
that these 29 criteria constituted a reasonable and prudent
framework. At the time GAO finished its work, the Travel Office
Director had taken, or had agreed to take, action to implement
procedures and systems consistent with GAO's 29 criteria.
GAO found that White House officials had legal authority to terminate
the White House Travel Office employees without cause in May 1993
because their appointments were made at the pleasure of the
President. Senior White House officials told GAO that the decision
to remove the employees was based on KPMG's findings of serious
financial management weaknesses. However, GAO also found that
Catherine Cornelius, Harry Thomason, and Darnell Martens, individuals
who had potential personal or business interests in the Travel Office
operations, created the momentum to examine the Travel Office by
raising allegations about the management of the Office to White House
officials and participating in actions that appeared to anticipate
the removal of the employees.
Although Mr. Thomason and Mr. Martens had passes that gave them
unrestricted access to the White House complex and participated in
discussions about the Travel Office matter, the facts available did
not support a conclusion that they were "special government
employees" subject to the conflict-of-interest laws.
GAO believes that the White House should have, but did not, make
efforts to insulate its management decisions from influence by
individuals with a personal interest in Travel Office operations.
The Management Review reached the same conclusion. Further, GAO
questioned the practice of permitting nongovernment employees to have
uncontrolled access to White House offices without having policies in
place to govern their activities because the appearance of influence
and authority that access conveys could lead to inappropriate actions
or abuses.
GAO found that FBI and IRS officials' actions during the period
surrounding the removal of the Travel Office employees were
reasonable and consistent with the agencies' normal procedures. GAO
found no evidence that White House staff made any contact with IRS
about the Travel Office matter. However, GAO believes that some
White House officials' actions in conveying the FBI officials a sense
of urgency and high level interest in the matter created an
appearance of inappropriate White House pressure. The Management
Review reached the same conclusion.
PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4
CRITERIA GAO USED TO
EVALUATE PRESS TRAVEL
OPERATIONS
-------------------------------------------------------- Chapter 0:4.1
GAO could find no criteria or guidance established by the current or
previous administrations to use in evaluating the press travel
operations of the Travel Office. Thus, GAO researched private sector
financial management and procurement practices and federal government
guidance and concluded that 29 specific financial management and
procurement practices provided a reasonable framework for evaluating
the Travel Office operations.
These criteria fall into six basic areas: (1) administrative
guidelines to establish lines of authority and documented policies
and procedures to ensure assets are properly safeguarded and
oversight provided; (2) procurement processes that provide for
competition to ensure value for funds expended; (3) standards for
accumulation and allocation of costs to provide a basis for accurate
billing for services rendered; (4) procedures for preparation and
distribution of bills for services; (5) cash management procedures to
ensure that vendors are paid, funds are collected, and cash balances
are reconciled in a timely manner; and (6) documentation of financial
transactions in an accounting system that permits accurate disclosure
of those transactions in financial reports. Although explicit
criteria were not identified in KPMG's study of the Travel Office
press travel operations, GAO noted that KPMG's work provided evidence
and observations related to 25 of the 29 criteria GAO identified.
POOR FINANCIAL MANAGEMENT
WITH LIMITED OVERSIGHT AND
GUIDANCE
-------------------------------------------------------- Chapter 0:4.2
In response to allegations in the spring of 1993 by Ms. Cornelius,
Mr. Thomason, and Mr. Martens of poor management practices and
possible wrongdoing in the operations of the Travel Office, White
House officials engaged KPMG to conduct a study of certain policies,
procedures, and practices of the Travel Office. KPMG found numerous
financial management weaknesses, including
informal or poorly communicated accounting policies and no
documentation of systems and procedures;
no evidence of competition in the procurement of air transportation
or a formal contract for the principal air carrier used;
no general ledger;
informal and inconsistent billing practices, including inadequate
documentation to support billings; and
improper controls over cash.
GAO reviewed the trip files from 42 of the 98 press trips that
occurred between March 1992 and May 1993 and other available Travel
Office financial records. GAO also reviewed KPMG workpapers and
discussed them with KPMG officials. Because of limitations created
largely by the FBI's ongoing criminal investigation, GAO could not
fully evaluate the Travel Office's financial management prior to May
1993. However, on the basis of its own observations and the results
of the KPMG study, GAO concluded that significant financial
management weaknesses existed in the press travel operations.
Notwithstanding those significant weaknesses, the trip files reviewed
by GAO showed that major expenses were documented, travelers were
identified, and calculations were made to divide the costs of the
trips and bill those costs to the press' employing organizations.
According to press representatives, services provided in making and
implementing these arrangements were satisfactory. The most
significant costs for the trips were air transportation and telephone
services. Because one air carrier was used almost exclusively during
the period between June 1992 and May 1993, GAO also traced selected
transactions to the financial records of that air carrier and
identified no discrepancies with Travel Office records.
GAO found that, during the 1980s and early 1990s, White House
officials provided little guidance or oversight to Travel Office
employees concerning press travel operations, even though there were
some indications of financial management weaknesses. For example, in
the early 1980s, a review of the Travel Office conducted by the
Office of Management and Budget (OMB) staff was reported to have
found poor financial management practices and excess money in the
Travel Office bank account; this money was then refunded to press
organizations. The OMB staff review led to the resignation of the
Travel Office Director. Former White House officials charged with
supervising the Travel Office told GAO they had provided virtually no
oversight or guidance. Similarly, current White House officials told
GAO they had paid little attention to the Travel Office until the
additional allegations were made by Ms. Cornelius, Mr. Thomason,
and Mr. Martens in the spring of 1993.
PROGRESS WAS MADE IN 1993 TO
IMPROVE TRAVEL OFFICE
OPERATIONS
-------------------------------------------------------- Chapter 0:4.3
The July 1993 Management Review stated that a new accounting system
was developed and procedures were in use to resolve the deficiencies
in Travel Office operations. However, GAO found that the
deficiencies were not fully resolved at that time. GAO noted that,
at the request of White House officials, General Services
Administration (GSA) staff had established interim procedures for
identifying air charter companies eligible to be considered to
provide service and had established a process to solicit quotes from
a number of these companies for each presidential trip. Regarding
the EOP staff travel function, GAO noted that GSA awarded a contract
to American Express under Federal Travel Management Center
guidelines. American Express is continuing to operate under this
contract.
GAO also found that, although a new accounting system was installed
in the Travel Office in June 1993, the Management Review's statement
that the system established "stringent internal control procedures to
assure sound financial management" was not accurate, and "detailed
accounting procedures" described as "in use" were not fully
implemented. White House officials told GAO that other corrective
actions had not been implemented due in part to pressures to meet the
continuing demands for press travel services and catch up on billing
for and reconciliation of past trips. The new Travel Office Director
appointed in October 1993 was charged with completing the work to
improve financial management.
WHITE HOUSE STRATEGY FOR
COMPLETING FINANCIAL
MANAGEMENT IMPROVEMENTS
-------------------------------------------------------- Chapter 0:4.4
GAO documented and discussed with the Travel Office Director the
processes and procedures being used in the Travel Office and made
suggestions for additional improvements. The Travel Office Director
and responsible White House officials agreed that GAO's criteria and
resulting recommendations were useful. They also identified actions
taken or planned for implementation by July 1994 to ensure that the
Travel Office would operate consistent with GAO's criteria in the
future.
Significant steps to be accomplished include completion of
documentation of operating procedures and implementation of the plan
to obtain annual financial statement audits. Although improvements
have been made, as of April 1994, press representatives reported that
they were concerned that the billing process was not yet timely or
accurate.
ACTIONS RELATED TO REMOVAL
OF TRAVEL OFFICE EMPLOYEES
-------------------------------------------------------- Chapter 0:4.5
Although the Travel Office employees had served in the Office for
between 8 and almost 30 years, they were appointed under employment
authorities that authorize the President to appoint and remove
employees essentially at his discretion. Within a few days after the
removal of the seven employees, White House officials reconsidered
the action in the case of five of the employees (the other two filed
for retirement, for which they were eligible), and these five were
maintained in pay status until they were offered and accepted
positions in other federal agencies.
Although the Travel Office staff had provided services for a decade
with virtually no oversight, interest in the propriety of the
operations was stimulated in the spring of 1993 largely by the
actions of Ms. Cornelius, Mr. Thomason, and Mr. Martens. Ms.
Cornelius was a junior White House staff member who wanted to run the
Office and who had observed what she said was possible wrongdoing in
the Travel Office. Mr. Thomason, although a private citizen, served
as an adviser to the President. While in this capacity, he made
inquiries about obtaining Travel Office business on behalf of Mr.
Martens, his business partner, and carried his concerns about the
operations of the Travel Office to senior White House officials and
the First Lady. Once these allegations were brought to their
attention, White House officials initiated the KPMG assessment of the
Travel Office operations and made inquiry to the FBI about whether
additional investigation was warranted. The White House Chief of
Staff told GAO that, on the basis of KPMG's findings, he had approved
the removal of the employees.
Mr. Thomason's and Mr. Martens' participation in events preceding
the removal of the Travel Office employees raised concerns about
whether they were special government employees subject to the
criminal conflict-of-interest laws. Absent evidence that either Mr.
Thomason or Mr. Martens had an appointment to a government position
or an employment relationship with the White House, these facts did
not support a conclusion that they were special government employees
subject to the conflict-of-interest laws. However, as noted above,
GAO was unable to interview the two individuals, and the Department
of Justice's investigation is still ongoing.
GAO believes that every effort should be made to insulate the federal
government's management decisions from the appearance that personal
interests play a role. That did not happen in this instance. The
Management Review reached the same conclusion. GAO further noted
that the appearance of inappropriate influence was heightened in this
case by the fact that Mr. Thomason and Mr. Martens had been granted
temporary passes that gave them access to the White House complex for
several months. Such access conveys the appearance of influence and
authority. Thus, GAO questions the appropriateness of granting such
unrestricted access to nongovernment employees without having
policies in place for governing their activities.
Because limited information was provided to FBI officials by
Associate Counsel to the President William Kennedy and others in
early discussions, FBI agents who responded to the White House
inquiry on May 12 required some time and additional discussions to
determine whether an investigation was warranted and, if so, how it
should proceed. Following discussions with Ms. Cornelius, FBI
agents concluded that further investigation was warranted and
consulted appropriate FBI and Justice officials to approve that
decision on May 14. FBI interactions with Associate Counsel Kennedy
and White House press officials occurred in a mode of urgency, but
GAO found no evidence that the FBI took any inappropriate action as a
result of those conditions. Following these events, the White House
Counsel issued additional guidance to White House staff that required
any contact with the FBI to be directed through the Counsel's office
to the most senior Justice officials.
GAO finished its work in mid April, at which time the FBI
investigation was still ongoing. GAO has a long-standing policy of
not interfering in ongoing executive branch criminal investigations
and, thus, obtained no information about the FBI investigation.
Media reports that IRS agents issued to a taxpayer a summons for
records in response to the Travel Office controversy, and that Mr.
Kennedy had suggested to FBI officials that IRS might be called,
raised concerns that the White House may have attempted to influence
IRS action, either directly or through the FBI. On the basis of
GAO's review of investigations by the IRS Inspection Service, the
Department of the Treasury Office of Inspector General, and its own
review, GAO found that IRS officials acted within the scope of their
procedures and regulations. GAO found no evidence that White House
officials contacted the IRS about the Travel Office matter, or that
the FBI made any inappropriate contacts with the IRS. Tax laws that
protect the confidentiality of taxpayer information prohibit GAO from
publicly disclosing the details of the IRS' actions.
The White House Counsel issued guidelines to White House staff in
February 1993 that contain the White House procedures for obtaining
from and providing information to the IRS. Expanded in July 1993,
these guidelines require all information concerning potential tax
violations to be sent to the White House Counsel, who in turn is to
refer the information to either the Attorney General or the Deputy
Secretary of the Treasury.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5
To further improve the operations of the White House Travel Office,
GAO recommends that the Assistant to the President and Chief of Staff
direct the Assistant to the President for Management and
Administration to
complete efforts to prepare comprehensive and accurate guidance for
Travel Office staff to better ensure that procedures are
implemented properly;
establish a process to ensure that appropriate oversight and review
of Travel Office operations is provided, including an annual
financial audit;
give priority to completing other actions that will fully implement
systems and procedures consistent with the financial management
criteria described in this report; and
establish a mechanism to validate that the actions taken and
promised have been effectively implemented.
To better ensure that White House access is commensurate with
accountability, GAO also recommends that the Chief of Staff to the
President develop policies governing appropriate activities by
nongovernment employees granted regular White House access and
establish a mechanism for periodically assessing the implementation
of those policies.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6
GAO arranged for senior White House, Justice, and KPMG officials to
review a draft of this report. Justice officials provided written
comments on the report; White House officials and KPMG did not. GAO
considered the specific comments that were made as the reviews took
place and made changes where appropriate. Justice officials in
general agreed with our findings about the interactions between FBI
and White House officials and noted that they were consistent with
Justice's investigation of the matter.
INTRODUCTION
============================================================ Chapter 1
On May 19, 1993, the White House Press Secretary announced that all
seven employees of the White House Travel Office were being replaced
because of poor management practices, and suggested in the following
question-and-answer period that possible criminal activity was being
investigated. The White House Travel Office is a small, previously
little known activity in the White House that makes commercial travel
arrangements for employees of the Executive Office of the President
(EOP) and arranges transportation and ground services for the press
who travel with the President to cover his activities.
The press reaction to the announcement and subsequent public and
congressional debate about the details of the White House's actions
in the Travel Office matter led the White House Chief of Staff, on
May 25, to initiate an internal review of the episode. The results
of this review were issued on July 2, 1993, in a report entitled
White House Travel Office Management Review. The Management Review
provided a description of events leading up to the decision to remove
the Travel Office employees; concluded that some of the actions taken
by White House officials or other individuals were inappropriate or
gave the appearance of conflicts of interest; and announced that
corrective actions were being taken to improve the management of the
Travel Office, avoid similar inappropriate actions in the future, and
assist some of the affected Travel Office employees to find new
positions.
Congressional concerns about the White House Travel Office episode
resulted in an amendment to the Supplemental Appropriations Act of
1993 (P.L. 103-50), which was signed by the President on July 2,
1993. That amendment, section 805, reads as follows:
"Notwithstanding any other provision of law, the Comptroller
General of the United States shall conduct a review of the
action taken with respect to the White House travel office and
shall submit the findings from such review to the Congress by no
later than September 30, 1993."
On September 30, 1993, we issued an interim report\1 on the status of
our work in response to this legislative mandate. That report
described delays encountered in reaching agreement with the White
House and Department of Justice concerning our access to individuals
and documents needed for our review. Subsequently, we were able to
obtain sufficient access to enable us to address the issues related
to the Travel Office events.
--------------------
\1 Letter to the President of the U.S. Senate and the Speaker of the
U.S. House of Representatives, GAO/GGD-93-143, Sept. 30, 1993).
BACKGROUND
---------------------------------------------------------- Chapter 1:1
The White House Travel Office, officially called the White House
Travel and Telegraph Office, has functioned for many years to provide
travel and communications services to the EOP, including the
President's immediate offices. It is unclear when the travel and
communications functions were originally established, but the
President of the White House Correspondents' Association told us of a
reference to a White House office arranging for trains to carry
members of the press accompanying President Andrew Johnson (who held
office from 1865 to 1869) on his travels in the United States.
Federal agencies routinely provide travel services for their staffs
when they travel on official business. Until recent years, such
services were provided by agency staff. Now, nearly all agencies
provide staff travel services through Federal Travel Management
Center (FTMC) contracts awarded by the General Services
Administration (GSA) to private sector travel agents. A GSA official
told us that, as of May 1993, the White House Travel Office and the
Federal Bureau of Investigation (FBI) were the only two executive
branch civilian entities in the Washington, D.C., area using
government employees to provide travel services.
To permit the press to accompany the President to report on his
activities when he travels, White House Travel Office staff arrange
for or coordinate chartered air transportation and airborne meal
service; ground transportation services for press and their equipment
and baggage; working space, electrical sources, and telephone
services to permit reports to be sent to news organizations; and
other miscellaneous services, such as suitable background decorations
for press conferences and food when other sources of food are not
readily available. On international trips, officials from the
Immigration and Naturalization Service and Customs Service travel
with the press to facilitate immigration and customs' matters with
foreign governments and to enforce immigration and customs laws when
the press travelers return to the United States.
The Travel Office staff and facilities (office space, telephones) are
a part of the EOP and are paid for with appropriated funds. The
costs of transportation and other travel services arranged for the
press corps by the Travel Office are paid for by the press and not by
the government. Except for costs paid by the government for
employees who participate in these trips as part of their official
duties, the costs are prorated and billed to the press' employing
organizations on a trip-by-trip basis. The Travel Office maintains a
checking account in a local bank to pay service providers (e.g., air
charter companies, ground transportation services, workspace
providers, and telephone companies.)
The requirement for the press travel services appears to arise from
(1) the need for the White House to maintain security control of
press activity because of the proximity of press corps members to the
President on a routine basis, and the amount of accompanying baggage
and equipment that must also be contained in a secure environment;
(2) the need to closely coordinate timely access of press to the
President as plans and schedules change and to manage inflight
operations so that the press can cover the arrival of the President
at destinations; and (3) the public interest, in a democracy, in
facilitating press coverage of the President's activities so that the
public can be fully informed about those activities.
Systematic data on the costs of the Travel Office's activities were
not available. Information developed on actual ticket sales for EOP
employees traveling on official business for the first 6 months after
the replacement of the Travel Office employees in May indicated that
EOP staff travel costs are currently about $2 million per year. From
May 1992 through April 1993, the Travel Office records showed that
about $7.7 million was disbursed from the press travel fund for
expenses related to press travel.
The White House Travel Office is located in the Old Executive Office
Building, adjacent to the White House. In May 1993, it was staffed
by seven White House employees who had served in the White House from
8 to almost 30 years. Since the removal of the seven employees from
the Travel Office in May 1993, and following the short-term
arrangements made to replace them (described further in ch. 3),
American Express has provided EOP staff travel services under a
modification to the State Department's FTMC contract. Consistent
with standard FTMC contract terms, staff travel services are provided
at no additional cost to the government;\2 four American Express
employees currently handle the staff travel function in the Travel
Office.
Press travel arrangements are currently provided by the Travel Office
Director, a Deputy Director, two White House employees who travel
with the press and facilitate the arrangements, and a detailee from
the Department of Agriculture who assists with the Office's
accounting functions. The White House Press Advance Office carries
out certain duties such as advance planning. In addition, American
Express staff perform limited duties in conjunction with the press
charter operations. As in the past, the Travel Office Director
reports to the Assistant to the President for Management and
Administration.
--------------------
\2 Under FTMC contracts, travel service providers like American
Express are paid commissions by airlines and other vendors, as they
would be for any private sector transaction. Thus, the services are
provided at no direct cost to the government. See ch. 3 for further
discussion of the American Express contract and plans for future
solicitations.
OBJECTIVES, SCOPE, AND
METHODOLOGY
---------------------------------------------------------- Chapter 1:2
The language of section 805 of Public Law 103-50 requires that we
"conduct a review of the action taken with respect to the White House
travel office . . . ." To identify the issues to be covered in
this assignment, we (1) reviewed the White House Travel Office
Management Review to inventory the issues considered by the White
House to be pertinent to the actions taken and (2) discussed the
events surrounding the Travel Office matter and the Management Review
with the staffs of the committees and Members of Congress who
contacted us, or who had been cited in the media as expressing
concerns about the Travel Office matter and who could meet with us to
discuss their concerns.\3
Throughout our review, we addressed issues involving White House
Travel Office operations that were raised by these sources. Because
they raised issues that involved only the White House Travel Office's
services provided to the press, this report focuses on the Travel
Office's press travel operations.
The issues we examined are described in this report within three
broad areas of inquiry:
(1) the past financial management and procurement practices and
oversight of the Travel Office, including a discussion of the
criteria we identified as a framework for the evaluation of the
Travel Office press travel operations; the study of financial
management in the Travel Office conducted for the White House in May
1993 by KPMG Peat Marwick (KPMG), a public accounting firm; and the
steps taken to carry out the press travel function during the period
following the removal of the Travel Office employees;
(2) the current operations of the Travel Office, including financial
management systems and procedures, and the extent to which problems
identified in the past had been corrected; and
(3) the removal of the White House Travel Office employees in mid-May
1993, including the origins of that decision, the involvement of
various parties in events preceding the decision, including the roles
and involvement of individuals who had personal or business interests
in Travel Office operations and actions actually taken affecting the
employees; and actions taken by White House officials and officials
of the FBI and the Internal Revenue Service (IRS) during the few
weeks leading up to and following the decision to remove the
employees.
To examine these issues, we
interviewed (1) current and former officials of the White House and
the EOP who were involved in the Travel Office matter or could
inform us about the operations of the Travel Office\4 and (2)
representatives of other organizations who were knowledgeable
about the White House press charter operations, including
airlines, airline brokers, travel agencies, the White House
Correspondents' Association, and press travelers' employing
organizations;
reviewed records from the White House Travel Office documenting
operations between January 1992 and March 1994 and workpapers
from KPMG's May 1993 study of Travel Office operations; we
discussed the workpapers with KPMG officials;
reviewed the July 2, 1993, White House Travel Office Management
Review;
interviewed officials of various executive branch agencies who were
involved in the Travel Office events or related matters,
including the Department of Justice, FBI, Immigration and
Naturalization Service, Customs Service, GSA, IRS, Office of
Government Ethics, Office of Management and Budget (OMB),
Department of Transportation, and U.S. Park Police. (A list of
all of the individuals interviewed is provided in app. II.)
Reports in the press about certain actions of IRS officials during
May 1993 that appeared to be connected to the White House Travel
Office matter led to an investigation of IRS officials' actions by
the IRS Inspection Service and later, in response to a congressional
inquiry, a further investigation by the Department of the Treasury
Office of Inspector General (OIG). Because the OIG investigation was
ongoing at the same time as our review, and consistent with the
cooperation expected between Inspectors General and GAO under the
Inspector General Act of 1978, we initiated a cooperative arrangement
in which we obtained access to and largely relied on workpapers from
the Treasury OIG review in our assessment of the actions of IRS
officials. In turn, we provided for Treasury OIG investigators
access to related documents and interviews we obtained to supplement
their investigation. The Treasury OIG communicated its investigation
results to the congressional requester on April 1, 1994.
After the announcement of the removal of the Travel Office employees
in May 1993, the FBI initiated a criminal investigation related to
the Travel Office operations. We have a long-standing policy of not
interfering in ongoing executive branch criminal investigations and,
thus, obtained no information about the FBI investigation.
Also because of the criminal investigation, some of the key
individuals with whom we wished to speak refused to speak with us.\5
We have no subpoena power with which to compel their testimony.
Since it was unlikely that interviews with the individuals would be
possible for the foreseeable future, we decided to report on our
findings without talking to them.
Our inability to interview certain individuals, most notably the
former Travel Office employees, was one factor preventing us from
fully evaluating the financial management operations of the Travel
Office prior to May 1993. In addition, although we examined certain
records from the operation of the Travel Office during the period
from January 1992 to May 1993, an independent evaluation of the
effectiveness of financial management operations would require us to
observe transactions being processed by the employees and to discuss
with the employees the records we obtained and procedures we
observed. We are also limited in our ability to describe,
independently of the Management Review, the roles of the individuals
we did not interview in the decisions to replace the Travel Office
employees and retain other parties to provide travel services.
Much of the information for this review was obtained from interviews
with the individuals who participated in the events described. These
interviews took place during a period when other investigations of
the events were ongoing, including the criminal investigation and an
investigation by the Justice Office of Professional Responsibility
(OPR). As a result, interviews we conducted were in some cases
preceded by interviews by other investigating officials. In many
instances, legal representatives from Justice or the White House
attended the interviews; in some cases, interviewees invited their
private attorneys to attend. We have no basis to object to the
participation of such representatives, or to believe that the
circumstances of these interviews materially affected our findings.
We did our work in Washington, D.C.; Houston, TX; New York, NY;
Smyrna, TN; Little Rock, AR; Albuquerque, NM; and Norfolk, VA, from
August 1993 through April 15, 1994. We conducted our review in
accordance with generally accepted government auditing standards.
We arranged for senior White House, Justice, and KPMG officials to
review a draft of this report. Justice officials provided written
comments that are reprinted in Appendix III and discussed in chapter
4. White House officials and KPMG did not provide written comments.
--------------------
\3 These contacts included (1) majority and minority staff of the
Senate Appropriations Committee, which authored the language of P.L.
103-50; (2) the Senate Republican Leader's staff; (3) majority and
minority staff of the House Government Operations Committee (the
Ranking Minority Member from this Committee had previously requested
that we provide staff on detail to investigate the Travel Office
matter, but withdrew that request on the enactment of the P.L.
103-50); (4) majority staff of the House Appropriations Subcommittee
on Treasury, Post Office and General Government, which has
jurisdiction over the White House's appropriation; (5) staff
representing the House Republican Policy Committee; and (6) staff
from the office of Congressman Frank Wolf, a member of the House
Appropriations Subcommittee whose district includes the residence of
at least one of the affected Travel Office employees. Toward the end
of our review, we were contacted by Senators Charles E. Grassley and
Christopher S. Bond, who expressed interest in some of the issues
being addressed in our review but did not raise any additional
issues.
\4 In a few instances, including our inquiries to the First Lady, we
obtained information by submitting questions in writing to White
House officials. These officials obtained and forwarded to us
responses to these questions.
\5 During earlier periods of our review, Justice asked us not to
interview a number of individuals because to do so at that time would
possibly impact the criminal investigation. Most of those interviews
were held. The individuals we have still been unable to
interview--the seven former Travel Office employees, Mr. Harry
Thomason, and Mr. Darnell Martens--have all refused to meet with us
until the criminal investigation is completed or they are formally
cleared of any wrongdoing. We have also not interviewed the FBI
field agents responsible for the criminal investigation, which is
consistent with FBI policy about access to investigators during
ongoing investigations.
PROGRESS MADE BUT FINANCIAL
MANAGEMENT WEAKNESSES REMAIN
============================================================ Chapter 2
Through several administrations, the White House Travel Office
operated with little guidance concerning its financial management or
procurement activities, and White House officials to whom the Travel
Office reported provided inadequate oversight of the Office, despite
some evidence that serious management problems existed. The
assessment of the Travel Office operations by KPMG in May 1993 showed
that significant financial management weaknesses existed in the press
travel operations. To evaluate the Travel Office's financial
management procedures and practices, we identified and used 29
criteria for sound financial management. Our review confirmed the
KPMG findings concerning financial management in the Office before
May 1993, which included the lack of formal guidelines and procedures
for procurement, poor accounting systems, inadequate documentation
and billing practices, and ineffective controls over cash management.
The White House Travel Office Management Review said that a new
accounting system had been developed and procedures were in use in
July 1993 to resolve the deficiencies in Travel Office operations.
However, our work showed that while a number of actions were taken
between June and October to improve the day-to-day press travel
operations of the Travel Office, the documented systems and
procedures needed to achieve on a continuing basis the "stringent
internal control procedures to assure sound financial management"
announced in the Management Review had not been fully implemented
when we completed our work on April 15, 1994. The new Travel Office
Director has taken, or has promised to take, actions that, if
properly implemented, should resolve the Travel Office weaknesses we
identified.
PAST REVIEWS OF TRAVEL OFFICE
NOTED FINANCIAL MANAGEMENT
PROBLEMS AND OTHER CONCERNS
---------------------------------------------------------- Chapter 2:1
According to the Director of Administration in the EOP from 1981 to
1985, OMB reviewed the operations of the White House Travel Office in
1981 or 1982.\1 The former Director of Administration said that he
recalled that he did not suspect the Travel Office of engaging in any
wrongdoing but that he was interested in good management.
According to the former Director of Administration, the review found
no evidence of criminal wrongdoing but did reveal lax accounting
practices that had the potential for fraud and a substantial excess
of cash (a balance of about $150,000) in the Travel Office checking
account. The former Director of Administration instructed that the
excess balance in the checking account be refunded to the press. The
Director of the Travel Office at that time retired; the former
Director of Administration told us that if the Travel Office Director
had not retired, he would have been removed. According to an
employee of the Office at the time, a new Travel Office Director was
appointed who was an acquaintance of a senior official in the new
(Reagan) administration. We were told by an employee of the Travel
Office at that time that the new Director "didn't work out" and was
replaced after a few months by an experienced Travel Office staff
member, who served as the Director until May 1993.
In 1988, the GAO Hotline\2 received an anonymous letter regarding the
Travel Office. In keeping with its standard practice, the Hotline
referred the letter to the appropriate agency officials for action,
in this instance to the White House Counsel's office. The
allegations made in the letter included lack of competitive bidding,
favoritism based on personal relationships toward a particular
airline (Pan American World Airways--PanAm--which was the principal
air carrier used by the Travel Office at the time), and inappropriate
gratuities such as gifts and travel upgrades provided by the airline
to the press corps, Travel Office employees, and other White House
officials. According to documents retrieved by White House officials
at our request from the Reagan Presidential Library, White House
Counsel staff reviewed the allegations by interviewing the Travel
Office employees in 1989 but concluded that the allegations were not
substantiated and closed the matter without further action.
--------------------
\1 The former Director of Administration said that he no longer had a
copy of the review but that it should be available in the Reagan
Presidential Library. At our request, the White House Counsel's
office asked the Reagan and Bush Presidential Libraries to search for
records of this report. However, neither library staff was able to
find it.
\2 GAO maintains a Hotline that receives reports by telephone, fax,
and mail of potential fraud, waste, or abuse in government
activities. The Hotline receives about 5,600 contacts annually.
Most matters brought to the Hotline's attention that warrant further
investigation are referred to appropriate agency officials, usually
agency Inspectors General, for investigation.
PRESS CONCERNS ABOUT COSTS
AND SERVICES EMERGED IN
EARLY 1990S
-------------------------------------------------------- Chapter 2:1.1
According to White House Correspondents' Association representatives,
a combination of factors led to reduced press participation in
presidential trips. Press organizations, including television
networks, faced increasingly limited budgets at the same time that
President Bush was traveling more frequently. As fewer press members
signed up for trips because of limited resources, the cost of the
trips, which were billed on a prorated basis, increased for the press
who continued to travel. This problem became more acute as the 1992
presidential campaign progressed.
In November of 1991, White House Correspondents' Association members
met with the White House Press Secretary to discuss alternatives for
providing travel services to the press. Options considered included
reducing the number of press travelers for some trips so that smaller
and less expensive aircraft could be used; not providing air
transportation services in some instances; limiting other White House
services to reduce costs, such as reducing the number of White House
staff traveling with the press to provide transcription services; and
providing a lesser standard of service with respect to seating and
meals on flights. Although such options continued to be discussed
during the ensuing months, solutions did not readily appear. Each of
the options seemed to have effects that were not acceptable either to
the press or the White House, such as unworkable restrictions on
press coverage, unacceptable press working conditions like the
unavailability of hot meals, or unacceptable impacts on presidential
security.
OVERSIGHT OF TRAVEL OFFICE
ALMOST NONEXISTENT THROUGH
SEVERAL ADMINISTRATIONS
-------------------------------------------------------- Chapter 2:1.2
Prior to the emergence of allegations of potential wrongdoing in the
Travel Office in May 1993, virtually no oversight of the Office was
provided by the Assistant to the President for Management and
Administration or his predecessors, to whom the Travel Office
Director reported. Mr. David Watkins, Assistant to the President
for Management and Administration, told us that he had not set any
job or performance expectations for the Travel Office Director, and
he had not provided any guidance about the financial management of
the Office, requested any financial statements or reports, or
provided procurement guidance. He said that, during its first few
months, the Clinton Administration had higher priorities to deal
with.
A White House official's notes from discussions held at the time of
the KPMG study of the Travel Office operations in May 1993 suggested
that the Travel Office Director believed that the financial and
billing systems used in the Travel Office had been provided in the
past by the White House Office of Administration, but no systems and
procedures to implement sound financial management practices were
required or established.
Similar lack of oversight occurred in previous administrations. The
Bush Administration official responsible for oversight of the Travel
Office told us that she had provided no instructions to the Travel
Office Director on how to procure services or account for the money
that was used in the Travel Office operations because the Office was
functioning well and did not use government funds for press trips.
As we undertook our review of the Travel Office operations, covering
events that occurred both before and after May 1993, we sought
information about the financial management and procurement criteria
that guided the operations of the Office. We found no evidence that
questions about what financial management and procurement practices
were appropriate had been considered in the past, and none of the
officials responsible for oversight of the Travel Office indicated
that such criteria had been identified. We believe the lack of
identified criteria for and guidance to the Travel Office employees
about expectations for procurement and financial management
contributed to the serious financial management weaknesses in the
Travel Office.
CRITERIA WE USED IN OUR
EVALUATION
---------------------------------------------------------- Chapter 2:2
Neither the current nor previous administrations had established
criteria or guidance to use in evaluating the Travel Office's press
travel operations. These operations involve activities carried out
by government employees using private monies. Researching private
sector financial management and procurement practices and federal
government guidance, we established and used a framework of 29
financial management and procurement practices for evaluating Travel
Office press travel operations. White House officials agreed that
this framework was prudent and reasonable.
Our 29 criteria fall into six basic areas: (1) administrative
guidelines to establish lines of authority and documented policies
and procedures to ensure assets are properly safeguarded and
oversight provided; (2) procurement processes that provide for
competition to ensure value for funds expended; (3) standards for
accumulation and allocation of costs to provide a basis for accurate
billing for services rendered; (4) procedures for preparing and
distributing bills for services; (5) cash management procedures to
ensure that vendors are paid, funds are collected, and cash balances
are reconciled in a timely manner; and (6) documentation of financial
transactions in an accounting system that permits accurate disclosure
of those transactions in financial reports. A detailed discussion of
the 29 criteria is presented in appendix I.
FINANCIAL MANAGEMENT IN THE
TRAVEL OFFICE PRIOR TO MAY 1993
---------------------------------------------------------- Chapter 2:3
We examined trip records from 42 of 98 press trips accompanying the
President that occurred between March 1992 and May 1993. We also
examined bank statements, receipt logs, and various other records of
operations that were available. These records provided some
information about the types of transactions and costs associated with
press travel arrangements. However, we were unable to independently
evaluate the effectiveness of the Travel Office's financial
management for the period through May 19, 1993, because (1) we did
not observe transactions being processed by Travel Office employees
prior to May 1993 and (2) we were unable to talk with the seven
former Travel Office employees because of the ongoing FBI criminal
investigation. In addition, the records available for our
examination were incomplete.\3 Nonetheless, on the basis of our
review of KPMG work and the financial records made available to us,
we found that significant financial management weaknesses existed in
the press travel operations.
--------------------
\3 We verified that White House officials provided copies of avaiable
records.
TRAVEL OFFICE MAINTAINED
SOME RECORDS TO SUPPORT
TRIPS
-------------------------------------------------------- Chapter 2:3.1
We observed financial records the Travel Office used, both manual and
automated, that recorded and summarized the press charter activity.
For example, the Travel Office paid vendor invoices and deposited
press members' reimbursement checks into a single bank account that
appeared to be reconciled periodically. The Office tracked invoices
received from vendors for goods and services in logs that grouped the
invoices by type of good or service provided. Separate logs were
maintained for bus companies, truck rental, hotel/food/electric, and
telephone service. The Office tracked press members' checks in a log
that detailed for each check the (1) date received, (2) payer, (3)
check number, (4) date of check, and (5) amount.
The Travel Office apparently maintained all data related to a trip in
folders referred to as "trip files." These trip files typically
contained (1) planning documents that included areas to note the name
of the charter company, dates/times requested, locations, support
unit notification, equipment ordered, Air Force contact
information,\4 bus contact information, and pricing information; (2)
sign-up sheets filled in by press members that requested plane seats
and indicated whether a hotel room should be reserved; (3) manifests
of press traveling on the charter plane and on Air Force One, which
were produced by an automated system; (4) invoices from vendors; (5)
a worksheet showing manually computed costs for each leg of each trip
per press member; and (6) an automated spreadsheet that summarized
and totaled the amounts billed to each press member by type of
expense (air, ground, other) for each leg of each trip.
The Travel Office staff also prepared worksheets for each trip that
itemized the estimated amount for each type of cost; how much the
Travel Office billed the press for these costs; and the actual amount
paid, along with the check number and date.
--------------------
\4 Press travel operations require close coordination with officials
of the Air Force's 89th Military Airlift Wing, located at Andrews Air
Force Base, MD. The 89th Wing is responsible for the President's
travel on Air Force One and supporting military aircraft. As a
standard practice, a press contingent flew on Air Force One with the
President. The Air Force billed the Travel Office for the costs of
the press passengers on Air Force One, which were included in the
total costs billed in turn on a prorated basis to all press
travelers.
TRAVEL OFFICE RECORDS WERE
INCOMPLETE AND
RECONCILIATION WAS NOT
POSSIBLE
-------------------------------------------------------- Chapter 2:3.2
We could not reconcile the former Travel Office's transactions on an
individual trip or aggregate basis because the available records were
incomplete. The White House provided us records for 98 of the trips
arranged by the Travel Office from March 1, 1992, to May 19, 1993, as
well as bank statements, cancelled checks, deposit slips, petty cash
fund records, and logs of incoming checks from the press, and
invoices from vendors. From the records provided, we attempted to
recreate the financial activity that occurred in the Travel Office
during this period. Our effort included attempts to analyze the
promptness of reimbursements by trip participants, verify that trip
participants were accurately billed, summarize trip costs, and
determine whether checks written and monies spent were properly
supported by documentation.
We reviewed in detail the contents of 42 trip files and found that
none of the files included a complete set of bills for press that
traveled on the trips. Nor could we reconcile the amounts included
on the Travel Office documents that summarized the amount each press
member should be billed with the log of checks received from the
press. In addition, we did not have access to data contained in an
automated system that produced the press bills. Also, we did not
find any financial reports to assist in our attempt to verify the
validity of data in the trip files we received. We were able to
trace selected records from the Travel Office trip files to the
records of UltrAir,\5 the principal air carrier used during the
period covered by our review (March 1992 to May 1993); we found no
discrepancies in those records.
Figures 2.1 and 2.2 show costs, respectively, for a trip involving
multiple destinations over a short period and for a trip whose
itinerary was fairly simple. This information is provided to
illustrate the relative percentages of individual types of costs
incurred. As shown in these figures, the largest sources of costs
are air charter arrangements and installation of telephone
equipment.\6
Figure 2.1: Costs Incurred for
Press Travel on President's May
28-30, 1992, Trip to Phoenix,
Los Angeles, Fresno, and Dallas
(See figure in printed
edition.)
Source: White House Travel Office trip files.
Figure 2.2: Costs Incurred for
Press Travel on President's
April 30, 1992, Trip to
Columbus, OH
(See figure in printed
edition.)
Source: White House Travel Office trip files.
Although the Travel Office staff appeared to be periodically
reconciling its cash balance with the bank's balance, we could not
find support in the records provided for several checks written to
the order of cash totaling $8,000. This concurs with the work done
by KPMG. In addition, we received only journals, rather than the
actual vouchers, to support the payment of more than $25,000 from the
petty cash fund. The journal we received indicated the expenses paid
from the petty cash fund ranged from $10 for a tip to a bellman to
$600 paid to ground handlers. We do not know if the Travel Office
required receipts for expenses paid from this fund.
--------------------
\5 Airline of the Americas, later UltrAir, was founded by Charles P.
Caudle, a former PanAm pilot, and Gordon A. Cain, Chairman of the
Sterling Group, Inc. Mr. Caudle told us that the airline was
founded initially to provide charter services for tour operators, and
they solicited the White House business when Airline of the Americas'
certification to fly was approved too late for them to take advantage
of the tourist season that year. He said that White House business
alone was not sufficient to support the airline's operations. More
recently, UltrAir has established limited regularly scheduled
commercial service on the East Coast of the United States. When
UltrAir was determined by the White House Travel Office to meet press
requirements for seating and service and was regularly available, the
Travel Office appears to have reestablished the past practice of
using one provider for most press service. For the press charters,
UltrAir used the same crews who had served the press charters with
PanAm and were familiar to the traveling press.
\6 Charges for telephone calls are paid directly by press travelers
through credit cards or other arrangements. Hotel charges noted are
for items such as meeting rooms and setups for filing centers; press
travelers pay directly for their hotel sleeping rooms.
TRAVEL OFFICE LACKED
PROCESSES FOR SEEKING
COMPETITION AND DOCUMENTING
PROCUREMENTS
-------------------------------------------------------- Chapter 2:3.3
As discussed previously, until allegations of potential wrongdoing in
the Travel Office emerged in April 1993, the Office operated with
little or no guidance concerning the financial management and
procurement practices it was to follow. The Travel Office had no
established processes for seeking competition among travel service
providers or for documenting the procurement actions that were taken.
To ensure that the Travel Office receives the best value for the
funds it spends, goods and services generally should be procured
through a competitive process. In the absence of an established
procurement process, arrangements for travel services during the
period we examined generally were made on an informal basis with
little or no competition. During the period between June 1992 and
May 1993, the Travel Office relied almost exclusively on one carrier,
UltrAir, apparently based on the carrier's willingness to regularly
meet the Travel Office's requirements with respect to equipment,
service, and availability.
We interviewed officials from 21 airlines that had equipment in their
fleets that would meet the Travel Office requirement for press travel
(such as 727s, L-1011s, or Airbus 300s) to determine whether they
might have been interested in competing for the press charter
business. Of these airlines, none said that they had approached the
Travel Office about competing for the business and were told they
would not be considered. However, officials from one airline, which
did eight press charters for the Travel Office in 1992, said that
once UltrAir was certified to fly in May 1992, the Travel Office did
not consider continuing to use their airline.
Of the 21 airlines we contacted, 7 said that they were not interested
in the press charter business because they had no charter fleet,
could not meet the requirements for the press charters, or flew
charters only at night. Some airline officials observed that some of
the requirements, especially requirements for first class meal
service throughout the cabin and for aircraft availability (for
security reasons) 6 hours before flight time without additional
compensation, were unreasonable.\7
Since May 1993, officials from four airlines that we talked to have
provided press charter services. In view of the information provided
us by the 21 carriers and the Travel Office's experiences since May
1993, it appears that had the Travel Office solicited among air
charter carriers for domestic travel services,\8 offers from
qualified carriers would have been limited, but some competition
could have occurred. In some cases, the Travel Office's reliance on
UltrAir, without soliciting other price quotes, might have been
justified by circumstances existing at the time, such as specific
requirements pertaining to security, service, and timing of press
travel. However, without a reasonable effort to solicit other
carriers or documentation of the reasons why such an effort was not
made, neither the press nor the public\9 can be assured that the
Travel Office attempted to obtain the best possible value for the
funds spent on press travel services.
--------------------
\7 The standard of air service the press has requested has been
controversial in discussions about the Travel Office matter.
According to White House Correspondents' Association representatives,
reasonable requirements include (in order of priority) (1) safety,
(2) sufficient space (seat pitch or distance between the seats) on
the aircraft to use computers to work, and (3) hot meal service since
other options for meals are frequently not available.
\8 The Travel Office sought competition for international flights
after the bankruptcy of PanAm because UltrAir did not have
sufficiently long-range aircraft.
\9 Because government officials are managing and spending the press
corps' funds for an activity in which the government has an interest,
the Travel Office has an obligation to obtain the best value for the
goods and services it procures.
KPMG FOUND NUMEROUS WEAKNESSES
---------------------------------------------------------- Chapter 2:4
In response to the allegations about the financial management of the
Travel Office in early May 1993, KPMG was engaged by White House
officials to quickly assess the operations of the Office. A team of
auditors from KPMG began work at the Travel Office on Friday, May 14,
1993, and worked through the weekend. KPMG submitted a report dated
May 17, 1993 to Mr. William H. Kennedy, III, Associate Counsel to
the President, on the results of its study. KPMG found numerous
weaknesses, including
informal or poorly communicated accounting policies and no
documentation of systems or procedures;
no evidence of competitive bids for air transportation or a formal
contract for the air carrier used by the press;
no general ledger;
informal and inconsistent billing practices, including inadequate
documentation to support billings; and
improper controls over cash.
On the basis of our review of KPMG workpapers and the contract
between KPMG and the White House, it appears that KPMG performed the
tasks it was asked to do. KPMG agreed to document the practices of
the Travel Office in operation at that time and assess whether the
Office's accounting policies, practices, and procedures were
reasonable. KPMG staff interviewed the Travel Office Director to
gain an overall understanding of the Office's practices. In
addition, KPMG looked at certain aspects of the Travel Office's
operations, such as the timeliness of deposits in the bank, the
accuracy of billings to the press, and the accountability for checks
written to cash.
Some of the procedures performed were designed to obtain descriptive
information in that the goal was to quantify the level of financial
activity in the Travel Office. For example, using the Travel
Office's bank statements, KPMG summarized the volume of cash activity
flowing through the press travel fund account from January 1992
through April 1993. This analysis determined that both receipts to
and disbursements from the account totaled over $10 million for the
16-month period.
KPMG REPORTED WEAKNESSES IN
AREAS EQUIVALENT TO GAO
CRITERIA
-------------------------------------------------------- Chapter 2:4.1
In its study, KPMG did not develop a list of explicit criteria in the
six categories of management practices as we did. However, our work
showed that KPMG addressed 25 of the 29 criteria we identified. KPMG
agreed that it addressed 25 of the 29 criteria and concluded that the
White House Travel Office did not have adequate procedures in place
that would satisfy 19 of the 25. For example, KPMG found no evidence
of administrative guidelines, such as written policies and
procedures, audits, or oversight. They also found no evidence of
sound procurement procedures, such as competition and written
contracts, good cost accumulation and allocation practices, or any
financial reporting activity.
KPMG did find evidence of some practices that would indicate that the
Travel Office had procedures that addressed six of the other criteria
to some extent, which included (1) billings' being promptly prepared,
(2) bank statements' being reconciled monthly, (3) undeposited funds
being secured, (4) amounts owed being tracked, (5) press payments
being applied to more than one bill, and (6) receipts being deposited
at least weekly. Table 2.1 shows our assessment of the KPMG findings
as they relate to the criteria we identified.
Table 2.1
KPMG Observations Related to Criteria
GAO Identified
KPMG Observations
Category/criteria May 1993
---------------------------------------- ------------------
Administrative guidelines
------------------------------------------------------------
Written policies and procedures None
Segregated duties; lines of authority None
clearly communicated
Periodic audits None
Oversight and guidance None
Procurement of goods and services
------------------------------------------------------------
Customers' needs determined None
Goods and services acquired None
competitively
Documented agreements or written None
contracts
Accumulation and allocation of costs
------------------------------------------------------------
System to identify and record all costs None
System to determine costs to be Not tested
recovered
System to provide accurate data for None
billing
Billing practices
------------------------------------------------------------
Billings prepared timely Some procedures in
place
Payment due date identified Not tested
System to maintain history of billings None
and receipts
System to apply receipts to appropriate Some procedures in
outstanding bills place
System to track money owed and produce Some procedures in
collection letters for overdue accounts place
Cash management
------------------------------------------------------------
Vouchers reviewed and approved before None
payment
Procedures to prevent duplicate payments Not tested
Payments made timely Not tested
Receipts deposited on the day received None
or next business day
Small receipts accumulated and deposited Some procedures in
weekly place
Adequate internal controls for security Some procedures in
of funds place
Periodic bank reconciliations Some procedures in
place
Financial reporting
------------------------------------------------------------
Transactions accurately recorded and None
disclosed in financial reports
General ledger to classify, summarize, None
and report financial data
Subsidiary ledgers to provide detailed None
information, which are periodically
reconciled
System for reports None
Report on Financial Position None
Report on Operations None
Report on Cash Flows None
------------------------------------------------------------
Source: GAO analysis of KPMG data.
One of the significant accounting system weaknesses reported by KPMG
was the lack of documentation to support checks written to cash. The
accounting firm tested the propriety of 17 checks for amounts
totaling $48,500, that were written to cash during the scope of its
study. Of those 17 checks, the Travel Office staff could not fully
account for 8 checks written for amounts totaling $23,000. The
Travel Office normally used checks written to cash to replenish the
petty cash fund. However, the petty cash journal did not reflect
these amounts. The ledger page where three checks for amounts
totaling $7,000 should have been listed was missing, and one check
for $5,000 was recorded in the ledger for $2,000. Some of the funds
were accounted for prior to the conclusion of KPMG's study, resulting
in a final discrepancy of $18,200. As discussed earlier, our work in
this area concurs with KPMG's findings.
KPMG also reported it could not rely on the reports generated by the
automated billing system and that the Travel Office did not maintain
copies of bills sent to the press. KPMG attempted to compare the
actual costs incurred for a trip to the amounts billed to the press
for 28 trips. However, because the automated billing system produced
inconsistent reports, the accounting firm could not draw a conclusion
about the accuracy of the billing process.
STEPS TAKEN IN INTERIM PERIOD
BUT PROBLEMS NOT FULLY RESOLVED
---------------------------------------------------------- Chapter 2:5
In the interim period between mid-May 1993, when the Travel Office
employees were removed, and October 1993, when a new Travel Office
Director was named, White House Administrative Office officials, with
assistance from employees of other executive branch agencies,
provided press travel services and took a number of steps to improve
the management of the Travel Office. On July 2, 1993, the Management
Review stated that a new accounting system had been developed and
procedures were in use to provide "stringent internal controls to
assure sound financial management." In our view, "sound financial
management" involves systems and procedures that are documented,
accurate, applied routinely and consistently, and result in timely
billings and payments to customers and vendors. These goals were not
met by July 1993, and had not been fully implemented by the time we
completed our work in mid-April 1994.
On May 18, 1993, the day before the Travel Office employees were
dismissed, the White House requested help from OMB to acquire a new
accounting system in the Travel Office. On June 4, 1993, an OMB
senior systems examiner prepared a memorandum to the Acting Director
of Administration that stated that the Travel Office needed a basic
accounting system that provided adequate financial controls. The
examiner recommended, and the Travel Office purchased and installed,
an off-the-shelf accounting software package a few weeks after the
Travel Office employees were dismissed. This accounting system had
the capability to maintain accurate billing and payment records over
time and create financial reports covering transactions occurring
after it was installed.
White House Administrative Office officials established working
procedures to provide for supervisory review of vouchers and approval
of payments and eliminated the use of cash in the operations of the
Travel Office. Beginning on May 21, 1993, at the request of White
House officials, several senior travel management officials from GSA
became involved in the management of the Travel Office functions.\10
At the request of White House officials, GSA officials executed an
FTMC contract for EOP staff travel services, established interim
procedures, and provided press travel services. GSA officials also
established a system to obtain price quotes from a list of carriers
for air charter flights and documented procurements with contracts.
In addition to providing assistance to the Travel Office in making
press travel arrangements, GSA also reviewed the policies and
procedures of the Travel Office and made recommendations in a report
issued August 6, 1993.
As part of a management development program, the Travel Office
obtained the services of an accountant on detail from the Department
of Agriculture in August 1993.\11 The accountant worked briefly with
GSA staff before assuming full responsibility for the Office's
billings, receipts, and payments in September 1993.
During the fall of 1993, the Travel Office identified several trips
that occurred under the management of the Travel Office before May
1993 but had not been billed to the press. The Travel Office has
attempted to identify all press travel activity from the period
before May 1993 that has not been billed.
A new Travel Office Director was appointed on October 26, 1993. His
previous experience as a major in the U.S. Air Force included
service as the Director of White House Airlift Operations and as
Headquarters Director of the Air Force Flight Support and
Presidential Advance Agent Program. After his appointment, GSA
officials no longer provided assistance with travel arrangements.
During December 1993, GSA detailed an additional staff person to the
Travel Office to assist in eliminating the backlog of unbilled trips
from the period before October.
--------------------
\10 Immediately following the removal of the Travel Office employees
on May 19, 1993, White House officials invited World Wide Travel
Service, Inc., a travel services firm that had worked with the
Clinton campaign, to assume responsibility for EOP staff travel
arrangements, and Ms. Penny Sample, President of Air Advantage, an
air charter broker firm, to assist with the press travel
arrangements. Both parties left the White House after a short period
of time. Further details on this transition period are provided in
chapter 3.
\11 The accountant served initially at the White House as a part of a
management development program, not as a detailee. She was
officially detailed to the White House on October 1, 1993.
OPERATING PROCEDURES HAVE BEEN
FURTHER IMPROVED BUT ADDITIONAL
WORK REMAINS
---------------------------------------------------------- Chapter 2:6
Beginning in February 1994, we obtained access to the financial
records of the current Travel Office and interviewed and observed the
employees of the Travel Office carrying out their day-to-day duties.
We documented the practices and procedures we observed and discussed
them with Travel Office officials. The operating procedures we
observed were an improvement over the practices observed by KPMG in
May 1993. Travel Office officials were responsive to suggestions
made during these discussions about further improvements that could
be made. Additional work is still required to institutionalize and
refine current procedures so that "stringent internal controls to
assure sound financial management" are likely to be achieved on a
continuing basis.
As we completed our work in April 1994, the Travel Office Director
and White House Management and Administration officials agreed that
each of our financial management criteria should be achieved, and
identified the operating procedures implemented or planned for doing
so. When fully implemented and institutionalized, the steps taken
and planned should result in a framework for operating procedures and
internal controls for continuing sound financial management.
PROCEDURES CURRENTLY IN USE IN
TRAVEL OFFICE ADDRESS MANY
CRITERIA
---------------------------------------------------------- Chapter 2:7
Progress has been made in using operating procedures that address
many of the criteria we identified. However, at the time of our
observations and limited testing of those procedures, they had not
been institutionalized through established and documented operating
procedures. Without systematic and documented procedures,
periodically reviewed and updated, staff turnover or competing
priorities may result in a recurrence of financial management
problems.
ADMINISTRATIVE GUIDELINES
-------------------------------------------------------- Chapter 2:7.1
A fully functioning, sound financial management system includes
complete administrative guidelines in place to ensure that everyone
involved clearly understands the procedures and practices to follow,
so that assets are properly safeguarded. Such guidelines also
provide a basis for continuing good management practices through
transitions in personnel such as the events of May 1993.
Comprehensive guidelines should include written policies and
procedures, clearly documented lines of authority, periodic audits,
and effective oversight and guidance.
The new Travel Office Director told us during our initial interviews
with him that delivery of services, that is, getting the press to
presidential events, had been his top priority. However, he said he
was aware of the importance of maintaining current written policies
and procedures for the Office.
The Travel Office staff initially documented operating procedures for
the Office in July 1993. The Travel Office was expanding its
operating manual when we reviewed the operations in February and
March 1994. These improvements are intended, when they are
completed, to include instructions for executing transactions, such
as procuring airline charters, ground transportation services, and
other activities commonly associated with arranging press
transportation.
When the Travel Office Director took over the Office in October 1993,
he orally communicated the staff's roles and responsibilities to
them. Our interviews with the staff indicated they are aware of
their duties and the lines of authority. The Director has agreed,
however, to document staff responsibilities.
White House Management and Administration officials told us that
oversight of the Travel Office's activities was provided through
weekly staff meetings held since June 1993, which include review of
the status of improvements made and current activities. Internal
oversight of the Travel Office consisted primarily of supervisory
review. For example, Mr. Brian Foucart, Acting Director of
Administration, was responsible for reviewing the Travel Office
Director's work and the Travel Office Director was responsible for
reviewing the Accountant's and Trip Coordinator's work.
The White House does not have an internal audit function, nor is
there a unit in the White House that is independent of the Travel
Office and responsible for periodically reviewing the activities of
the Office. Accordingly, White House officials were considering
hiring a public accounting firm to perform financial statement audits
of the press charter operations. The Office planned to have its
first financial statement audit performed for the operating year
ending December 31, 1994, which is the end of the first calendar year
following full implementation of the new procedures.
PROCUREMENT OF GOODS AND
SERVICES
-------------------------------------------------------- Chapter 2:7.2
Good business practice includes obtaining value for funds expended
through appropriate competition for goods and services. As a result
of procedures instituted while GSA handled the press travel
activities between May and October 1993, the White House Travel
Office had in place procedures for determining customers' needs,
seeking quotes among travel service providers, and documenting
transactions. These procedures, effectively implemented, should
better ensure that the Office receives the best value for money
spent.
The Travel Office primarily procured air charter and ground
transportation services for the press. The White House Press Advance
Office determined needs and selected vendors for the other costs paid
for by the press.\12 When time permitted, the Travel Office sought
quotes from various carriers and brokers for air charter service.
The Office solicited interest from approximately 7 to 10 carriers
when it had an adequate lead time for procuring air charter service.
The contract was awarded primarily on the basis of cost, but other
factors such as the carrier's reputation or previous experiences in
dealing with the carrier were considered. When the trip lead time
was 2 days or less, the Director contacted several carriers by
telephone before a contract was awarded. In both instances, the
carrier prepared a formal written contract, signed it, and forwarded
it to the Travel Office for signature by authorized personnel in the
Travel Office.
The Travel Office procured ground transportation for press trips that
required air charter, as well as for trips that did not involve air
charter. Ground transportation associated with air charter primarily
involved transporting the press from the airport to the event and
back to the airport or to a hotel if the press remained in the city
overnight. Ground transportation not associated with air charter
typically involved trips that were relatively close to Washington,
D.C. The Travel Office called two or three bus companies to obtain
price quotes when procuring ground transportation. When there was
only one bus company in a city, the Travel Office necessarily
procured the service from that company. Also, formal contracts for
ground transportation were prepared when the transportation company
required them. In those instances, the contract was prepared by the
company. For example, rental car companies required contracts and
prepared them for cars rented to the White House Travel Office.
In the area of satisfying customer needs, the Travel Office Director
stated that he met with the White House Correspondents' Association
to determine the level of service the press wanted the Office to
provide them. The Director said he had established quarterly
meetings with the White House Correspondents Association to discuss
their needs. We suggested to the Travel Office Director that he also
discuss Travel Office billing and accounting practices with
accounting and business staff from the press' employing organizations
to determine their needs.
--------------------
\12 These arrangements include filing center locations, caterers, and
equipment rental companies. We did not review the operations of the
White House Press Advance Office during this assignment.
ACCUMULATION AND ALLOCATION
OF COSTS
-------------------------------------------------------- Chapter 2:7.3
Financial management systems and procedures should identify and
record all costs associated with an activity, determine which costs
should be recovered, and provide a basis for accurate pricing and
billings to customers. The accounting system software installed in
the Travel Office in June 1993 is capable of recording, storing, and
distributing the costs of press travel activities, and contained
records of transactions since June 1993. To improve the timeliness
of billings, the Travel Office staff also implemented new procedures
to collect and document service costs as they are incurred during
trips, which made actual cost information available for billings.
Many types of costs are incurred in providing press travel services.
Some of these costs are direct, while others are indirect. Direct
costs are incurred solely for--and can be specifically traced to--the
benefit of the White House press charter operations. For example,
charters are procured for the exclusive benefit of the press.
Indirect costs are those costs that benefit several activities of the
White House. For example, utilities are provided for several offices
in the White House including the press charter operation. Therefore,
the portion of this cost that benefits the press charter operation
could be considered an indirect cost of that operation.
The Travel Office identified and accumulated the direct costs of the
press travel operations that were billed to the press. Trip
coordinators gathered financial records, such as invoices, to support
costs incurred for the benefit of press travel operations. These
financial records were assembled and filed by trip. The Travel
Office used checklists in addition to reviews by the Director, and/or
Deputy Director, and the Accountant to ensure all direct costs
billable to the press were included and the amounts were accurate.
There were other direct costs that the White House has decided not to
bill the press. For example, salaries of the Travel Office staff
were not billed to the press although they could be directly
attributed to press charter operations. The Director said that the
decision not to charge the press for these costs was based on his
experience that it is common practice to use appropriated funds to
pay the salaries of staff that support nonappropriated activities.
The press was not billed for indirect costs.
BILLING PRACTICES
-------------------------------------------------------- Chapter 2:7.4
Accurate and timely billing is critical to any business activity, but
it is especially important to the press charter operation because it
is the only source of revenue available to pay vendors. An effective
billing system should also include such features as payment due
dates, customer histories, matching of receipts, and effective
follow-up procedures for past due accounts.
The Travel Office has a system that tracks and identifies passengers
on each leg of the air charters. This helped to ensure that the
Travel Office could bill all press members who flew on the charter.
The Travel Office's goal is to bill for trips within two weeks of
completion of the trip. Because the Travel Office staff were still
working on the backlog of billings that developed after the removal
of the former Travel Office employees in May 1993, that goal had not
yet been fully achieved. The Director estimated that the Office will
be issuing timely billings by the end of May 1994.
To ensure that the operation recovered the cash spent on press trips,
the Travel Office rebilled customers for any adjustments it or the
press made to previously billed amounts. Adjustments to billed
amounts (rebillings) occurred when the Travel Office received
additional vendor invoices after the bills had been sent to the
press, or when a customer (the press) complained that the bill was
incorrect and White House research also confirmed the bill was
incorrect.
The bills were generally based on actual costs and the amount due was
clearly listed on the bills. Bills were identified as due upon
receipt.\13 When estimates were used in determining the amount to
bill, this information was on the billing document. Estimates were
used for billing purposes only when vendors delayed submitting their
bills to the Travel Office. For example, one vendor, a telephone
company, billed the Travel Office as much as 6 months after a trip
was completed. The Travel Office has little recourse against vendors
that do not bill them promptly, but efforts to collect vouchers and
other actual cost information during trips are intended to minimize
the occurrence of late bills.
The Travel Office identified overdue bills and issued notices
manually. We pointed out that the accounting system being used could
provide periodic reports on overdue bills if fixed due dates were
identified and entered in the system, and the Travel Office Director
agreed to add due dates to the bills.
--------------------
\13 The Travel Office Director believed this statement was an
adequate identification of the date the bill was due. We pointed out
that postal delays and other factors may result in varying arrival
times and, accordingly, a fixed, identifiable "due date" is not
certain. The fixed date would be significant because it would be the
basis on which overdue bills were identified for further collection
notice and action.
CASH MANAGEMENT
-------------------------------------------------------- Chapter 2:7.5
Cash management procedures and practices are necessary and prudent to
safeguard the assets of an activity, and to ensure security of
negotiable assets and receipts and the accuracy of disbursements.
Current practice has been to maintain press travel funds in an
account in a Washington, D.C., bank. Other federal government
entities in which government employees are responsible for private
funds deposit the funds in a Treasury deposit account as described in
the Treasury Financial Manual.
After the removal of the former Travel Office employees, the Travel
Office instituted cash management policies and procedures that
collectively helped to ensure appropriate and timely disbursements of
amounts owed by the Office, and timely collection and prompt deposit
of funds owed to the Office. The Travel Office had also strengthened
the safeguarding of its cash by eliminating the petty cash fund.
Proper disbursements were facilitated by the Travel Office's review
and approval procedures. Disbursements were given two levels of
review prior to payment. First, the Director reviewed and initialed
documents supporting a disbursement. Then the Acting Director of
Administration was responsible for reviewing and initialing the
documents supporting the disbursement to ensure the charges were
reasonable before signing the checks. Additionally, all checks over
$2,500 were cosigned by the Assistant to the President for Management
and Administration.
The Travel Office also implemented procedures to help ensure
duplicate disbursements were not made. Specifically, the Accountant
visually inspected a computer screen or printout of past
disbursements to determine if a vendor had been paid more than once
for the same service.
Payments to vendors, especially for large bills such as the costs of
air charters, were sometimes delayed because the Travel Office
account had insufficient funds until the associated press trip bills
were paid. The Travel Office maintained a minimum cash balance of
$50,000 in the press travel fund bank account to ensure sufficient
funds were available to pay for services when advance payment was
required, as sometimes happened.
The Travel Office appeared to accumulate and deposit its receipts
generally on a daily basis. Funds that could not be deposited
immediately were locked in a safe until deposits could be made.
The Travel Office Director recognized that the Office's cash position
needed to be improved so that it could pay vendors for charters in a
more timely manner. Once all payments for old bills attributed to
the former Travel Office operation and the early months of the new
Travel Office are received from the press, the Office's cash position
may improve, thus allowing for prompt payment to vendors for amounts
owed. The Director projected that billings and collections would be
current by May 1994.
The Travel Office ensured its cash records were accurate by requiring
the Accountant to reconcile its cash balance with the cash balance
reported by the bank each month. Also, the Travel Office staff told
us they plan to contact Treasury officials to discuss establishing a
Treasury deposit fund account as described in the Treasury Financial
Manual.
FINANCIAL REPORTING
-------------------------------------------------------- Chapter 2:7.6
Financial reports provide a basis for interested parties--higher
level management, customers--to regularly review how well an entity's
managers controlled costs and managed assets entrusted to them. The
Travel Office Director recognized the need to implement financial
systems that identify, record, classify, and report the Office's
financial activities. Generally accepted guidance recognizes that
effective financial systems produce reports that can be used both
internally and externally to provide assurance that, financially, the
Travel Office is operating as directed. The Travel Office had taken
an important first step by acquiring an integrated general ledger
accounting system. The system was purchased in June 1993 on the
recommendation of OMB.
The accounting system has the capability of processing transactions
that depict amounts the Travel Office owes to vendors and amounts the
press owes the Office and it also can produce financial reports of
Travel Office activity. These reports include a schedule of (1)
resources owed to the Office and resources owed by the Office and the
net difference between the two at a given date, (2) revenues and
expenses and the difference between these two elements for a given
period, and (3) cash inflows and outflows over a given period.
Although the system has the capability to meet the criteria we have
identified, it had not produced financial reports for several
reasons. First, the Accountant had been tasked to ensure all amounts
owed to the Office and amounts the Office owes vendors are correctly
entered into the system before accurate reports can be generated.
The Office estimated that process will be complete by May 1994.
Second, there were numerous manual processes that supported feeding
information into the system that were cumbersome and inefficient.
The Office was working with a computer programmer to eliminate the
inefficiencies. Also, the Accountant was unfamiliar with some
features of the system such as report generation. During our later
interviews with the Accountant, she informed us that she had received
formal training on how to use the system and that she felt more
comfortable with operating it after receiving the training.
SUSTAINED IMPLEMENTATION OF
IDENTIFIED IMPROVEMENTS IS
NECESSARY TO ACHIEVE SOUND
MANAGEMENT OF TRAVEL OFFICE
---------------------------------------------------------- Chapter 2:8
White House and Travel Office officials agreed that completion of
improvements to address each of the 29 criteria identified during
this review is important for ensuring the sound management of the
Travel Office in the future. A summary of the status of the Travel
Office actions on each of the 29 criteria identified as of the
completion of our work in mid-April 1994 is shown in Table 2.2.
Target dates for planned actions are also shown. White House
officials estimate that most of the remaining steps will be
implemented by July 1994. The last objective to be achieved is the
completion of the first independent financial statement audit, which
White House officials plan to undertake at the end of calendar year
1994.
White House officials also told us that they recognized that the
process of maintaining sound financial management practices requires
regular review and refinement of operating procedures and continuous
oversight. Adoption of annual financial statement audits and
improvements resulting from audit recommendations would also assist
in maintaining those objectives.
Table 2.2
Status of Financial Management Criteria
Implementation in the White House Travel
Office as of April 15, 1994
Category/criteria GAO assessment
---------------------------------------- ------------------
Administrative guidelines
------------------------------------------------------------
Written policies and procedures Revised and
expanded (May
1994)
Segregated duties; lines of authority Revised and
clearly communicated expanded (May
1994)
Periodic audits Planned (December
1994)
Oversight and guidance Procedures in
place\a
Procurement of goods and services
------------------------------------------------------------
Customers' needs determined Procedures in
place\a
Goods and services acquired Procedures in
competitively place
Documented agreements or written Procedures in
contracts place\
Accumulation and allocation of costs
------------------------------------------------------------
System to identify and record all costs Procedures in
place\a
System to determine costs to be Procedures in
recovered place\a
System to provide accurate data for Procedures in
billing place\a
Billing practices
------------------------------------------------------------
Billings prepared timely Backlog
eliminated
(May 1994)
Payment due date identified Procedures in
place\a
System to maintain history of billings Procedures in
and receipts place
System to apply receipts to appropriate Procedures in
outstanding bills place
System to track money owed and produce Procedures in
collection letters for overdue accounts place\a
Cash management
------------------------------------------------------------
Vouchers reviewed and approved before Procedures in
payment place
Procedures to prevent duplicate payments Procedures in
place\a
Payments made timely Backlog eliminated
(June 1994)\a
Receipts deposited on the day received Procedures in
or next business day place\a
Small receipts accumulated and deposited Procedures in
weekly place\a
Adequate internal controls for security Procedures in
of funds place\a
Periodic bank reconciliations Procedures in
place\a
Financial reporting
------------------------------------------------------------
Transactions accurately recorded and Procedures in
disclosed in financial reports place
General ledger to classify, summarize, Procedures in
and report financial data place
Subsidiary ledgers to provide detailed Procedures in
information, that are periodically place
reconciled
System for reports Planned (July
1994)
Report on Financial Position Planned (July
1994)
Report on Operations Planned (July
1994)
Report on Cash Flows Planned (July
1994)
------------------------------------------------------------
\a The Travel Office's current operating procedures vary from the
procedures described in the Office's Accounting Procedures Handbook.
Source: GAO analysis of White House data.
WHITE HOUSE AND OTHER AGENCIES'
ACTIONS RELATED TO STAFF CHANGES
AT THE WHITE HOUSE TRAVEL OFFICE
============================================================ Chapter 3
Because the appointments of the White House Travel Office employees
were made at the pleasure of the President, White House officials had
the legal authority to terminate them without cause. Although senior
White House officials said that the decision to remove the seven
employees was based on KPMG's findings of serious financial
management weaknesses, we found that individuals who had potential
personal or business interests in the Travel Office operations
created the impetus to examine Travel Office matter. These
individuals--Catherine Cornelius, Harry Thomason, and Darnell
Martens--raised allegations about the management of the Travel Office
to White House officials and participated in actions that appeared to
anticipate the employees' removal.
Although the available facts do not support a conclusion that Mr.
Harry Thomason and Mr. Darnell Martens were special government
employees subject to conflict-of-interest laws, their participation
in discussions about the Travel Office events and their unrestricted
access to the White House complex raised questions about the
appropriateness of their roles and whether they were furthering
personal interests. If nongovernment employees are permitted to have
unrestricted access to White House offices, they should have a clear
understanding of expectations for their conduct to avoid
inappropriate influence and the appearance of conflict of interest.
FBI and IRS officials' actions at the time of the removal of the
Travel Office employees were reasonable and consistent with those
agencies' normal procedures. We found no evidence that White House
staff contacted the IRS about the Travel Office events. However, the
appearance of inappropriate White House pressure on FBI officials was
created by some White House officials' actions.
With the removal of the Travel Office employees, several
organizations were approached to provide White House travel services.
World Wide Travel Service, Inc. and Air Advantage had both been
involved in campaign travel. World Wide Travel was brought in on May
19, 1993, to handle Travel Office operations for an unspecified
period until a competitive procurement could be arranged. Air
Advantage was brought in on May 18 or 19 to provide temporary help in
procuring aircraft charters for the White House press corps. Both
organizations departed after a short time. GSA handled the
chartering of aircraft and made other arrangements for the White
House press corps until the appointment of the new Travel Office
Director in October 1993. American Express provides commercial
travel services for EOP staff. Although the Management Review said
problems in the Travel Office had been addressed, press organization
officials reported late and inaccurate billings and other problems in
Travel Office operations.
ALTHOUGH AUTHORITY TO REMOVE
TRAVEL OFFICE EMPLOYEES IS
CLEAR, DISMISSAL LED TO
RECONSIDERATION AND CRITICISM
---------------------------------------------------------- Chapter 3:1
The seven White House Travel Office employees had served for many
years. The Director and Deputy Director had been involved in the
Office in various capacities for almost 30 years, and the other five
employees had worked in the Office from 8 to 26 years. On May 19,
1993, Mr. David Watkins, Assistant to the President for Management
and Administration, to whom the Director of the Travel Office
reported, informed the employees that they were being dismissed
effective June 5, 1993. The employees were told they were being
dismissed because of poor management practices in the Travel Office.
Public announcements of the dismissals referred to possible criminal
wrongdoing.\1
Although many observers considered the Travel Office employees to be
career employees not tied to any particular administration or
political party, most of the seven employees were appointed to their
positions under the authority of title 3 of the U.S. Code.\2 title 3
is the appointing authority established to permit the President great
flexibility in the appointment of officials in his immediate office.
Under title 3,
"the President is authorized to appoint and fix the pay of
employees in the White House Office without regard to any other
provision of law regulating the employment or compensation of
persons in the Government service."\3
Likewise, the President may dismiss title 3 employees without
cause.\4 Accordingly, the announced dismissals of these employees
were within the President's authority.
--------------------
\1 The Director and some of the employees were in the Travel Office
when the dismissals were announced. The Deputy Director was in Japan
on an advance trip when he heard about the dismissals from news
reports. Another employee was on vacation in Ireland and was
informed of the dismissals by a family member who also heard about
the dismissals from news reports.
\2 Two of the seven employees served under Schedule A, excepted
appointments, but they had no adverse action appeal rights since they
were appointed by the President. See 5 U.S.C. 7511(b)(3) (Supp. II
1990).
\3 3 U.S.C. 105(a)(1). For a detailed discussion of the title 3
appointing authority, see Personnel Practices: Retroactive
Appointments and Pay Adjustments in the Executive Office of the
President (GAO/GGD-93-148, Sept. 9, 1993).
\4 See Haddon v. Walters, 836 F.Supp. 1 (D.D.C. 1993), sustained
on rehearing, 64 Fair Empl. Prac. Cas. (BNA) 66 (D.D.C. Feb. 17,
1994).
ADVERSE REACTION LED TO
RECONSIDERATION
-------------------------------------------------------- Chapter 3:1.1
Press reaction to the employees' removal was considerable. White
House officials reconsidered their decision to terminate the five who
had no direct financial management responsibilities and took no
formal action to remove them from the federal service. The
Management Review criticized the employees' removal, concluding that
the abrupt manner of the dismissals was "unnecessary and
insensitive."
In announcing the removal of the Travel Office employees, White House
press officials said they expected a positive reaction from the press
because they were taking action to resolve management problems,
reduce staff, and save money. The announcement attributed the
decision to poor financial management practices, as demonstrated by a
study conducted by a public accounting firm. However, in responding
to questions about the dismissals, White House Press Secretary Dee
Dee Myers, using talking points that Mr. Watkins gave her,
acknowledged that an investigation of possible criminal wrongdoing
was involved--an announcement that the Management Review said should
be done only in extraordinary circumstances. Press representatives
told us that they recognized the White House officials' authority to
dismiss the employees but that the announced allegations of
wrongdoing were inconsistent with press corps members' long-standing
personal knowledge of the White House Travel Office employees and
thus generated considerable reaction in the press.
Within days of the announcement of the dismissals, and before the
effective date of June 5, White House officials reconsidered the
decision to terminate the five employees who they said had not had
direct responsibility for financial management in the Travel Office.
Although these five employees were removed from their positions, they
were continued in pay status\5 and told that an effort would be made
to find suitable positions for them in other federal agencies once
the investigations of their roles were resolved. In the end, no
formal personnel action to remove the five employees from federal
service was taken.\6
Over the following months, White House officials made efforts to
locate positions for the five employees that were consistent with
their experience and qualifications. Also Justice notified the
employees that they were not targets of the ongoing criminal
investigation, and letters confirming that information were sent to
the five employees' legal representatives in June and July 1993.
Eventually, in the fall and winter of 1993, the five employees were
appointed to positions consistent with their experience in travel
management and communications at GSA, the Department of State, the
Department of Commerce, and the Department of Defense. Four of the
former employees were appointed to travel-related positions and one
was appointed to a communications position. All of them were
appointed to positions at the same salaries as their White House
Travel Office positions.\7 On the basis of the effective dates of the
new appointments, and the salary rates paid during the period the
employees were continued in pay status without working, we estimate
that the total net salary cost for the period of paid leave for the
five employees was about $103,300.\8
The Director and Deputy Director of the White House Travel Office
retired. According to Mr. Watkins, 2 days prior to the announced
dismissals, the Travel Office Director had said that he wanted to
retire. Mr. Watkins said he did not want to accept the Director's
retirement request until he met with the entire Travel Office staff.
When the dismissals were announced, the Director and Deputy Director
applied for retirement. They are currently on the Office of
Personnel Management's retirement rolls.
--------------------
\5 The Management Review and press reports referred to this action as
placing the employees on "administrative leave."
\6 To implement a personnel decision, even for title 3 employees, EOP
procedures require that documentation directing the Office of
Administration to terminate the appointment be prepared and submitted
to officials responsible for inputting actions to the White House
automated payroll system and a confirming Standard Form 50 (personnel
action) would be generated by the payroll system showing the
effective date of the action. None of these documents were prepared
in the case of the five nonsupervisory employees.
\7 Three employees were appointed to career positions under 5 CFR
315.602, a provision which permits noncompetitive career appointments
for employees who served in the office of the President or Vice
President, or on the White House staff, for at least two years and
who were appointed without a break in service. One was appointed to
a career position using a different appointing authority. One
employee is currently appointed to a temporary position, that will
expire in November 1994.
\8 Estimate is based on salary costs for the period from June 5,
1993, the originally announced effective date of the removals, to the
effective dates of the new appointments. We did not include benefits
in this calculation. One employee was detailed to a position for 6
weeks prior to actual appointment; the estimate of the cost of paid
leave for this employee was based on the effective date of the
detail.
MANAGEMENT REVIEW CRITICIZED
SOME ACTIONS
-------------------------------------------------------- Chapter 3:1.2
In its review of the actions of White House officials, the Management
Review concluded that, although the employees in question served at
the pleasure of the President, the abrupt manner of the dismissals
was "unnecessary and insensitive" and "need not have been so abrupt."
The Management Review stated that "All of the employees should have
had an opportunity to hear the reasons for their termination,
especially the allegations of wrongdoing, and should have been
afforded an opportunity to respond." The Management Review also
concluded that, although the legal right to terminate the employees
without cause was clear, the cause asserted--poor management and
possible wrongdoing--was "inappropriate with respect to the [five]
employees who did not exercise financial authority."
The Management Review also recognized that the public acknowledgement
of the criminal investigation had the effect of tarnishing the
employees' reputations, and the existence of the criminal
investigation caused the employees to retain legal counsel,
reportedly at considerable expense. Out of concern for this
financial burden, Congress amended the Department of Transportation
and Related Agencies Appropriation Act of 1994,\9
to provide financial relief for the employees. Title I of the act,
which appropriates money to the Department of Transportation (DOT),
provided $150,000 to the DOT Office of General Counsel for the Travel
Office investigation-related legal expenses of the five employees
during calendar year 1993, on the condition that the employees were
not subjects of the investigation. As of April 12, 1994, no funds
had been paid yet to reimburse the employees' legal expenses.\10
--------------------
\9 P.L. 103-122, 107 Stat. 1198, Oct. 27, 1993.
\10 According to the Special Counsel administering the fund, bills
have been submitted and the first reimbursements are expected to be
made soon.
ALLEGATIONS MADE BY PARTIES
WITH SPECIAL INTERESTS
---------------------------------------------------------- Chapter 3:2
The chronology of the Travel Office events shows that White House
management officials' interest in the activities of the Office may
have been initially stimulated by allegations or inquiries made by
individuals who were personally interested in changes in the Office's
management or business decisions. According to the Management
Review, Ms. Catherine Cornelius, a former campaign travel
coordinator, was interested in managing the White House Travel
Office. The Management Review further stated that in addition to Ms.
Cornelius, Mr. Harry Thomason and Mr. Darnell Martens, who both had
potential business interests in Travel Office operations, were also
catalysts that precipitated the movement to examine Travel Office
operations. These individuals' allegations led to the KPMG study and
the FBI inquiry into the allegations.
Although Mr. Thomason and Mr. Martens were issued White House
passes and participated in discussions about Travel Office
operations, the available facts did not support a conclusion that
they were special government employees and were subject to the
conflict-of-interest laws. However, their unrestricted access to the
White House complex and their participation in discussions and
activities leading up to the removal of the employees suggest that
their activities as nongovernment employees were not adequately
monitored or controlled.
CAMPAIGN STAFF MEMBER SHOWED
PERSISTENT INTEREST
-------------------------------------------------------- Chapter 3:2.1
As documented in the Management Review, Ms. Cornelius,\11 a junior
White House staff member who had worked on travel activities during
the Clinton campaign, sent three memoranda to Mr. Watkins during the
presidential transition period and the early days of the
administration criticizing the operations of the White House Travel
Office and suggesting alternative structures and practices for
carrying out the EOP staff and press travel functions.\12 Ms.
Cornelius had expressed interest in taking over the management of the
Travel Office for the Clinton Administration. One of the memoranda
she wrote proposed explicitly that she serve as a co-director of the
Travel Office.
Although assessments of White House activities by former campaign
staff during transitions or early in an administration are common,
the analyses presented by Ms. Cornelius contained significant
errors. For example, in a memorandum dated December 31, 1992, Ms.
Cornelius claimed that the Travel Office, although staffed with
government employees, used a branch of SatoTravel to access travel
schedules and information.\13 SatoTravel is an airline-owned
corporation that competes with commercial travel agencies for
government service contracts. Although SatoTravel operates travel
services for the Secret Service, the company told us it has never
been affiliated with or served the White House.
Further, the descriptions of the operations of the White House Travel
Office and travel industry practices used for comparisons in two of
the memoranda were inaccurate and resulted in estimates of costs and
savings that were significantly misleading. For example, an
overestimate of ticket sales and an inaccurate description of assumed
travel industry commission and rebate practices resulted in an
estimate by Ms. Cornelius that the White House Travel Office could
earn $210,000 in rebates. On the basis of a more factual assessment
of ticket sales and a better understanding of travel industry
practices, we determined estimated earnings would be closer to
$10,000 under the same conditions.
Although Ms. Cornelius, later with an associate,\14 made three such
proposals for changes to the Travel Office, Mr. Watkins told us he
had little recollection of the details of the memoranda and
apparently he did not respond substantively to any of them. None of
these inquiries resulted in changes to the Travel Office organization
or practices during the first 4 months of the administration.
Indeed, the former Travel Office Director later reported to a White
House Management and Administration official that he had no
substantive contact with Mr. Watkins during the first months of the
administration and did not know to whom he was supposed to report in
the Clinton White House. Mr. Watkins, as well as a predecessor in
the previous administration, told us they provided no guidance to the
Travel Office about procurement or financial management and asked for
no information about the operations of the Office.
In early April, Mr. Watkins assigned Ms. Cornelius to the Travel
Office to assist with staff travel arrangements and to prepare a
further report\15 on the operations of the Office that could form the
basis for considering how to reorganize the Travel Office to help in
achieving the previously announced 25-percent staff reduction in the
White House.
--------------------
\11 According to Ms. Cornelius, she is a third cousin to the
President. Her employment in the White House is not in violation of
5 U.S.C. 3110, which restricts the employment of relatives in the
federal service, because the statute specifically defines "relative,"
and the only cousins included in that definition are first cousins.
\12 Ms. Cornelius told us that she wrote the first memorandum on her
own initiative, but the later two memoranda were requested by Mr.
Watkins. Mr. Watkins said he did not ask for any of the memoranda.
He said he did ask for a report from Ms. Cornelius in May that was
not prepared because it was overtaken by events.
\13 SatoTravel officials told us that they believe that this
incorrect assertion, which in the context of Ms. Cornelius'
memorandum implied a political affiliation with the previous
administration, may have affected their ability to successfully
compete for White House staff travel business when the Travel Office
employees were replaced.
\14 The third memorandum, dated February 15, 1993, proposed a
hypothetical organizational structure for the Travel Office and named
Ms. Cornelius as a co-director, along with the co-author of the
memorandum, who was another White House staff member.
\15 Mr. Watkins said the allegations that surfaced shortly after Ms.
Cornelius was assigned to the Travel Office, and the subsequent
investigations apparently overtook the original plan for a report by
May 15, which was never written.
OTHERS SOUGHT TRAVEL OFFICE
BUSINESS
-------------------------------------------------------- Chapter 3:2.2
According to the Management Review, Mr. Harry Thomason, a friend and
informal unpaid consultant to the President, was a part owner of the
aviation consulting firm of Thomason, Richland, and Martens based in
Cincinnati. Another partner in the firm was Mr. Darnell Martens,
who is President of the firm.\16 Mr. Martens had been associated
with the Clinton campaign as a billing agent and consultant for the
campaign's air charter broker, Air Advantage.
The Management Review reported that Mr. Martens contacted Mr.
Thomason in early February 1993 seeking help in contacting the White
House to learn how to bid for the press air charter business. On the
basis of information obtained by Mr. Thomason, Mr. Martens was
referred to the White House Travel Office Director through Dee Dee
Myers. In a conversation with the Travel Office Director, described
in a memorandum attributed to Mr. Martens and reproduced in the
Management Review, the Travel Office Director told Mr. Martens that
there was no possibility of a commercial operation such as his (an
air charter broker) obtaining White House Travel Office press charter
business.
The Management Review stated that Mr. Martens learned from the Air
Advantage President, Ms. Penny Sample, that the White House Travel
Office had, for a long time, used only one air charter company for
domestic travel, without competitive bidding.\17 The Management
Review also stated that Mr. Martens "heard a rumor," the source of
which was not specified, that there was "corruption" in the Travel
Office. According to the Management Review, after discussing these
allegations with Mr. Martens, Mr. Thomason discussed his concern
with top White House officials. Mr. Watkins, who had until this
point directed little attention to the Travel Office's activities,
said he first heard allegations of possible wrongdoing in the Travel
Office from Mr. Thomason, who was at the time working temporarily in
the White House, in early April 1993. Mr. Watkins told us Mr.
Thomason reported that (1) the Travel Office was using only one
airline for domestic press charters, UltrAir; (2) there were rumors
about the Travel Office staff receiving kickbacks from airlines; and
(3) the Travel Office Director had expressed no interest in doing
business with Mr. Martens.
In response to the allegations made by Mr. Thomason, Mr. Watkins
told Ms. Cornelius, who had recently been assigned to work in the
Travel Office, about the rumors and told her to "keep her eyes and
ears open." Ms. Cornelius told us that, as directed by Mr. Watkins,
she began to look for suspicious activities in the Office. During
the next few weeks, she said she saw documents indicating that
numerous checks written to cash were signed and endorsed by the
Director and Deputy Director, invoices that seemed to be for trips
for the Bush political campaign, large fluctuations in the cash
balance at the local bank, and an apparent failure to reconcile
estimated bills with the invoices for actual costs and services
provided. She said she discussed these observations with Mr.
Watkins. She said she also told Mr. Watkins that two of the
employees talked about their lakefront homes, another employee was
planning a trip to Europe and talked about entering his race horse in
New Jersey races, and another talked about a ski boat.
The Management Review said that in remarks on May 1 at a White House
Correspondents' Association dinner in Washington, D.C., attended by
Mr. Thomason, the President of the Correspondents' Association
referred to the high cost of press travel with the President. The
Management Review further stated that Mr. Thomason viewed the no-bid
practices at the Travel Office as a part of this problem. However,
the Correspondents' Association President told us his remarks
concerned presidential travel practices (frequent trips during and
before the campaign) that, combined with constrained press budgets,
resulted in fewer press travelers and higher prorated costs for those
who did travel.
On May 10, according to the Management Review, Mr. Thomason asked
Mr. Watkins about the status of the Travel Office. Ms. Cornelius
told us she met with Mr. Thomason in the White House on May 12 to
discuss her observations about problems in the Travel Office. After
that meeting, they met with Mr. Watkins and were joined by Mr.
Martens, who brought up the allegation that a Travel Office employee
had solicited a kickback from a charter airline. Following this
meeting, Mr. Thomason repeated his concerns to the First Lady, and
later told Mr. Watkins that he had done so.
On the basis of these conversations, Mr. Watkins and Ms. Cornelius
met with White House Counsel officials to discuss the matter.
According to the Management Review and our interviews with some of
the participants, a series of meetings followed on May 13 and 14 to
discuss what steps to take, including the dismissal of the employees.
Some of these meetings are described further in the section below
that describes interactions with the FBI.
On May 14, Mr. Watkins talked with the First Lady and told her that
KPMG had found sloppy management in the Travel Office. He said that
she urged that action be taken to get "our people" into the Travel
Office to help achieve the 25-percent White House staff cut.
According to Mr. Watkins, the First Lady also mentioned, in the
context of the Travel Office, that the administration had been
criticized for being slow in making appointments.\18
At a meeting with the Chief of Staff to the President, Thomas F.
McLarty, III and Mr. Vincent Foster, the late Deputy Counsel to the
President, on May 14, Mr. Jeff Eller, White House Director of Media
Affairs, who was told about the matter by Ms. Cornelius,\19
recommended in a May 14 meeting that if the employees were to be
dismissed, they should be dismissed immediately--by the end of that
day. He told us that his recommendation was based on his judgment
that immediate action was necessary to avert negative press reaction.
According to the Management Review, Mr. Foster recommended against
action until the KPMG study was completed, and Mr. McLarty told us
that he agreed that no action should be taken at that time.
--------------------
\16 The third partner is Mr. Dan Richland. Throughout most of our
review, Justice requested that we not interview Mr. Thomason and Mr.
Martens because our doing so could have adversely affected the
ongoing criminal investigation. In an early contact through Mr.
Thomason's attorney, prior to the Justice request, Mr. Thomason
refused to meet with us until he was "cleared" of any involvement in
the criminal investigation. Although in late March, Justice informed
us that Mr. Thomason and Mr. Martens could be interviewed, their
attorney maintained the previous stance of refusing to allow them to
meet with us until they were cleared of any involvement.
Accordingly, we relied to a large degree on the Management Review's
version of the discussions between Mr. Thomason, Mr. Martens, and
others.
\17 Ms. Sample told us she had inquired about competitive bidding
for the charter business in a call to the Travel Office Director in
1991 and was told that the Travel Office had no need for any type of
air charter services. Other airline and air charter company
officials we talked with during this review told us that it was
common knowledge in the industry that, for many years, Pan American
World Airways (PanAm), and before it, United Airlines, had been the
sole provider of press charter services for the White House. After
the bankruptcy of PanAm, several carriers were used for some time.
\18 The First Lady, in the written responses to our inquiries
provided by the White House Counsel's office, said that she "does not
recall this conversation with the same level of detail as Mr.
Watkins." She acknowledged that she had a "very short telephone call
with Mr. Watkins" and that he conveyed to her that "his office was
taking appropriate action."
\19 Ms. Cornelius confirmed the statement in the Management Review
that she and Mr. Eller had a personal relationship. At the time the
Management Review was announced, Mr. Eller and Ms. Cornelius were
among the individuals reprimanded for their actions in the Travel
Office matter. In Mr. Eller's case, the reprimand was based on a
finding that his relationship had influenced his actions.
NO INDICATION THAT TWO
OUTSIDE PARTIES WERE SPECIAL
GOVERNMENT EMPLOYEES SUBJECT
TO CONFLICT-OF-INTEREST LAWS
-------------------------------------------------------- Chapter 3:2.3
As noted earlier in this report, concerns were raised by
congressional sources and others about the roles of Mr. Thomason and
Mr. Martens in the White House Travel Office matter. The
participation of these two individuals in discussions about the
Travel Office's operations raised questions about whether these
individuals were special government employees subject to the criminal
conflict-of-interest laws and were thereby prohibited from acting on
matters affecting their personal financial interests.\20 The
available facts provided no indication that either individual had an
appointment to a government position or an employment relationship
with the government, and therefore we found no basis for concluding
that they were special government employees subject to the
conflict-of-interest laws.
Under 18 U.S.C. 202(a), a "special government employee" is defined
as an "officer" or "employee" who is retained, designated, appointed,
or employed to perform duties not to exceed 130 days during any
consecutive period of 365 days. While the terms "officer" and
"employee" are not defined in the conflict-of-interest laws, the
definitions of those terms in the civil service laws, at 5 U.S.C.
2104 and 2105, have been used to identify covered officers and
employees.\21 The title 5 definitions prescribe three distinct
criteria that must be met for an individual to have the legal status
of a federal officer or employee: (1) an appointment in the civil
service by a federal official; (2) performance of a federal function;
and (3) supervision by a federal official.
Interpreting the title 5 definitions of "officer" and "employee," the
courts have consistently held that all of the enumerated criteria
must be satisfied to establish a federal employment relationship.
Thus, an individual will not be considered to be a federal officer or
employee without a formal appointment or other action evidencing a
mutual intent on the part of the government and the individual to
effect a federal employment relationship.\22
Applying these principles to the definition of a "special government
employee" in 18 U.S.C. 202(a), we believe that an individual may be
considered an officer or employee within the meaning of that
definition, and subject to the conflict-of-interest laws, only if
that individual has been appointed to a position by a federal
official or has entered into a mutual understanding that an
employment relationship exists.\23
According to Mr. McLarty and another White House official,\24 Mr.
Thomason was in the White House to provide advice to the President on
the use of the White House physical facilities in the staging of
public events and improving communications. Although Mr. Thomason
was granted access to the White House with a temporary pass for
several months,\25 and was allowed to use office space there, there
is no indication that he was appointed to any position by the
President or by White House officials or that Mr. Thomason and the
White House intended to establish a federal employment relationship.
None of the officials we spoke to could tell us what Mr. Martens did
in the White House, other than participate in discussions about the
Travel Office. Similarly, we found no evidence that Mr. Martens,
whose pass application was dated May 12, 1993, received an
appointment to a White House position or had entered into an
employment relationship with the White House.
Applying the standard described above, these facts alone did not
support a conclusion that either Mr. Thomason or Mr. Martens were
special government employees subject to the conflict-of-interest
laws. However, as discussed previously, we were unable to interview
Mr. Thomason and Mr. Martens and Justice's investigation is
ongoing. While we do not have a basis to conclude that Mr. Thomason
and Mr. Martens were special government employees, we believe that
the White House should have, but did not, make efforts to insulate
its management decisions from the appearance that personal interests
played a role. The Management Review reached the same conclusion.
Furthermore, the appearance of inappropriate influence in this case
was heightened by the fact that Mr. Thomason and Mr. Martens held
passes for several months, which gave them unrestricted access to the
White House complex. Such access conveys the appearance of influence
and authority. Unrestricted access of nongovernment employees
creates an opportunity for influence without the accountability that
would be provided if such nongovernment employees were guided by and
informed about the activities they were expected to carry out or
avoid.
--------------------
\20 A special government employee is subject to statutory
restrictions concerning conflicting financial interests (18 U.S.C.
208), postemployment activities (18 U.S.C. 207), and the
representation of parties (18 U.S.C. 203 and 205). In addition, a
special government employee is required to file a financial
disclosure statement, unless waived. A special government employee
is also subject to the standards-of-conduct regulations governing the
acceptance of gifts, impartiality in performing official duties, and
misuse of position (5 C.F.R., part 2635).
\21 Opinion 77-9, Office of Legal Counsel (OLC), Department of
Justice, Feb. 24, 1977.
\22 See, for example, Watts v. Office of Personnel Management. 814
F.2d 1576 (Fed. Cir. 1987), cert. denied., 484 U.S. 913 (1987);
Horner v. Acosta, 803 F.2d 687 (Fed. Cir. 1986); Costner v.
United States, 665 F.2d 1016 (Ct. Cl. 1981).
\23 See OLC Opinion 77-9, cited in footnote 21. While emphasizing
the need for a formal appointment, OLC suggested that an individual
could qualify as a special government employee without such action in
exceptional circumstances, such as where the parties agree to enter
into an employment relationship but avoid formalizing it to
circumvent the conflict-of-interest laws.
\24 Reta Lewis, Special Assistant to the President for Political
Affairs.
\25 The procedures for granting White House passes are the subject of
a separate GAO review that has just begun.
ALLEGATIONS LED TO FINANCIAL
INQUIRY
-------------------------------------------------------- Chapter 3:2.4
The allegations about the Travel Office included the possibility that
cash was withdrawn by the Director or Deputy Director from the Travel
Office account and not properly accounted for. To respond to these
allegations, Mr. Watkins recommended that the White House obtain the
services of KPMG to study the Travel Office. He reported that he
sought outside assistance because the White House had no internal
auditing capability. A KPMG principal was contacted late on May
13\26 and was asked to examine the handling of cash in the Travel
Office and to assess the financial operations of the Office. During
the same period, Mr. Kennedy contacted the FBI about the matter.
The interactions between White House officials and the FBI are
described later in this chapter.
A team of auditors from KPMG began work at the White House Travel
Office on May 14 (a Friday) and worked through the weekend. During
their engagement, the KPMG team interviewed some of the Travel Office
employees to obtain explanations about the operations of the Office
and the records they examined.\27
Several White House staff members who reported to Mr. Watkins were
present in the Travel Office for some periods during the KPMG study
to provide information if needed about White House operations. Other
White House staff members were occasionally present to answer
questions or carry out other responsibilities not related to the KPMG
work. White House officials' presence during the KPMG study raised
questions among some press and congressional staff as to whether the
study was influenced by White House officials.
The KPMG partner told us that White House staff members did not
participate in the KPMG study, and the KPMG workpapers we examined
included no evidence of work done or influenced by anyone outside the
firm. Two White House staff members involved told us they conducted
a separate interview on May 15 with the Travel Office Director to
learn about the operations of the Travel Office in the event they
needed to run the Office.
KPMG submitted a report to Mr. Kennedy on the results of its study
dated May 17. The results of the study indicated that the Travel
Office had significant financial management weaknesses. The report
documented the large dollar value of the Travel Office's transactions
(more than $10 million for the 16-month period examined), described
the inadequacies of the financial management records and the
procedures followed in billing for travel services, and documented
that eight checks had been written to "cash" for amounts totaling
$18,200 but were not posted to the petty cash journal. The report
stated that most of the cash could not be located during the course
of the study. This finding raised further concern on the part of
White House officials about whether criminal wrongdoing occurred in
the Travel Office.
--------------------
\26 According to the Management Review, the partner was contacted on
the basis of a recommendation from a White House staff member who had
attended a KPMG seminar for the staff of the National Performance
Review (NPR). Mr. Watkins reported to Mr. McLarty, Chief of Staff
to the President, on May 17 that the Travel Office staff had been
told the audit was a part of the NPR effort. We were told during
discussions about the scope of this assignment that the KPMG partner
was on leave and worked on a voluntary basis for the NPR. We
subsequently found that to be incorrect. A representative of the
Vice President's office informed us that, while the review of the
Travel Office was consistent with the objectives of the NPR, it was
not conducted under the auspices of the NPR. Mr. Watkins'
representative told us that, because Mr. Watkins was responsible for
NPR-related reviews in the White House, Mr. Watkins believed the
review was a part of his NPR responsibilities, although the timing of
the review was accelerated by events.
\27 See ch. 2 for additional information about the KPMG review.
FBI RESPONSE VIOLATED NO
PROCEDURES
---------------------------------------------------------- Chapter 3:3
On May 12, Mr. Foster and Mr. Kennedy were brought into the
discussions of allegations of wrongdoing in the White House Travel
Office by Mr. Watkins, who, as described earlier, said he had heard
about the allegations from Mr. Thomason and Ms. Cornelius. As a
result of the discussions, Mr. Kennedy initiated contact with the
FBI for "guidance" on the matter. Over May 13 and 14, a series of
contacts or meetings occurred between Mr. Kennedy and others, and
representatives of different organizational units within the FBI.
The number of meetings, reports that Mr. Kennedy had asserted high
level interest in the matter and that he had indicated that an FBI
failure to respond quickly would lead to his calling on other
organizations including the IRS, created concerns in the media and
Congress that White House officials were inappropriately pressuring
the FBI to initiate a criminal investigation.
Our review of policies governing contacts between the White House and
the FBI, and our interviews with most of the participants in the
meetings at the White House and in the FBI and Justice, indicated
that (1) some confusion was created by Mr. Kennedy's secrecy during
the first few contacts and meetings about what was actually involved
in the matter; (2) White House officials violated no existing policy
in initiating contact, and FBI officials acted reasonably to respond
to the allegations presented; and (3) FBI officials followed
appropriate policies and procedures in assessing the need for further
investigation.\28 While none of the FBI officials reported that they
felt pressure or took inappropriate action on account of Mr.
Kennedy's remarks, reports of Mr. Kennedy's assertions about high
level interest and statements that other agencies would be involved
created an inappropriate appearance of White House pressure on the
FBI. The Management Review reached the same conclusion.
--------------------
\28 We reviewed the general policies governing initiation and
approvals of investigations, which appear to have been followed.
Because we do not know the specifics of the FBI's ongoing criminal
investigation, we cannot comment further about the substance of the
decision to open a criminal investigation.
WHITE HOUSE INQUIRY VIOLATED NO
PROCEDURES
---------------------------------------------------------- Chapter 3:4
Procedures governing some interactions between the White House and
federal law enforcement agencies have been established by the current
administration. Between February and May 1993, the White House
Counsel's office issued three memoranda to all White House staff
reaffirming the long-established practice requiring that contacts
about ongoing criminal cases be referred through the White House
Counsel to the offices of the Attorney General or Deputy Attorney
General. However the memoranda did not address specific procedures
for initiating contact to determine whether an investigation was
warranted in a particular matter.
Upon learning on May 12 of allegations of possible criminal activity
in the Travel Office, Mr. Kennedy telephoned Mr. James Bourke, the
Chief of the FBI's Special Inquiry Unit, who was the principal point
of contact for routine coordination with the White House concerning
background investigations of potential political appointees. Mr.
Kennedy told Mr. Bourke that an unspecified office in the White
House was not "running properly" and asked him to find out "who to
talk to" at the FBI about it.
Mr. Bourke discussed the inquiry early the next day with Mr.
Richard Wade, Chief of the FBI's Governmental Fraud Unit, who
suggested that the matter might be referred to the FBI's Interstate
Theft and Government Reservations Crime Unit. Mr. Bourke called Mr.
Kennedy in an unsuccessful attempt to get additional information but
was told to respond quickly to the original inquiry. Mr. Bourke
then telephoned Mr. Howard Apple, Chief of the Interstate Theft and
Government Crimes Unit, who agreed to contact Mr. Kennedy.
Mr. Apple told us that in that telephone exchange Mr. Kennedy was
"nebulous and cryptic" and wanted to talk to someone about a "very
sensitive matter" involving theft or fraud but would not provide
further information on the telephone. To further assess
jurisdiction, Mr. Apple asked if the funds involved were federal and
was told they were not.\29 Mr. Apple told us that he suggested that
the FBI's Washington Metropolitan Field Office be called, but Mr.
Kennedy said he wanted to be sure an experienced agent dealt with the
matter and that the matter was "directed at the highest levels" in
the White House.
After consulting Mr. Daniel Coulson, Deputy Assistant Director of
the FBI's Criminal Division and the FBI Associate Deputy Director,
Mr. Douglas Gow, Mr. Apple and another supervisory agent met that
day (May 13) with Mr. Kennedy at the White House. Mr. Kennedy
revealed that the Travel Office was involved and reported allegations
from an unnamed Travel Office employee that other employees may be
hiding something. He said that he had heard rumors about the Travel
Office employees' lavish lifestyles and that a charter airline
company had been turned down in an attempt to bid on press
transportation. According to Mr. Apple, Mr. Kennedy reported again
about high level White House interest and expressed urgency to
resolve the matter. Mr. Apple told us he felt that Mr. Kennedy was
clearly under pressure and seemed to know little about how the
federal government operated. With respect to the allegations, Mr.
Apple said that he could not rule out criminal wrongdoing but the
information provided warranted further follow-up before that
determination could be made.
After the meeting, Mr. Apple and the supervisory agent briefed Mr.
Coulson, who agreed that the matter was more appropriately dealt with
by the White Collar Crime Unit's Governmental Fraud Unit (GFU). Mr.
Coulson asked Unit Chief Richard Wade to go to the White House to
meet with Mr. Kennedy. Mr. Wade and Mr. Thomas Carl, Supervisor
of the GFU unit with liaison responsibility to the Washington
Metropolitan Field Office, met that afternoon with Mr. Kennedy who
provided the same information he had provided earlier.\30 On the
basis of the information provided, Mr. Wade told Mr. Kennedy that
insufficient grounds existed for a criminal investigation.
Mr. Kennedy then arranged a meeting between the FBI agents and Ms.
Cornelius, who, according to Mr. Wade, provided additional details
about her allegations, including information about checks made out to
cash that were not accounted for, questionable practices in ferrying
aircraft by the principal air charter carrier, lack of bidding for
air charter services, and kickbacks.
From the information provided by Ms. Cornelius, Mr. Wade and Mr.
Carl concluded that there was a possibility of criminal wrongdoing
that warranted initiation of an investigation and informed the White
House Counsel officials. When they returned from the White House,
the FBI officials briefed their supervisors\31 and initiated contact
with the Washington Metropolitan Field Office.
Under the Attorney General Guidelines on Criminal Investigations,
initiation of an investigation of a public official is required to be
brought to the attention of the "appropriate Department of Justice
official," which in this case would be Justice's Public Integrity
Section. On May 14, GFU Supervisor Carl reported the allegations to
the Acting Chief of the Public Integrity Section, who agreed there
was predication for an investigation.\32 White House officials
initiated the KPMG study on May 14, but on the previous day
discussions occurred between Mr. Wade and Mr. Foster about whether
the FBI should be involved with the KPMG study. According to Mr.
Wade, it was eventually agreed that FBI action would be deferred
until the KPMG study was completed.
The investigation was assigned to the FBI's Washington Metropolitan
Field Office, which is responsible for conducting investigations in
the Washington, D.C., area and, as of April 15, 1994, we were told
that it is still an open investigation.
--------------------
\29 According to Mr. Apple, theft of private funds would normally be
referred to local police.
\30 According to the other participants, Mr. Foster also
participated in some parts of this meeting.
\31 The Section Chief and the Deputy Assistant Director of the White
Collar Crime Unit (WCCU).
\32 The Attorney General Guidelines on Criminal Investigations of
Individuals and Organizations state that "An investigation may be
opened when there are facts or circumstances that 'reasonably
indicate' a federal criminal violation has occurred, is occurring or
will occur". This standard, referred to elsewhere in the Guidelines
as "a reasonable factual predicate," hence the term "predication," is
defined as substantially lower than "probable cause," but does
require specific facts or circumstances to be identified.
WHITE HOUSE DISCLOSURE OF
INVESTIGATION WAS
INAPPROPRIATE
-------------------------------------------------------- Chapter 3:4.1
In the press briefing on May 19, 1993, during which the removal of
the White House Travel Office employees was announced, White House
Press Secretary Dee Dee Myers disclosed, in response to a question,
that the FBI was investigating possible criminal wrongdoing in the
matter. She had previously mentioned the FBI's involvement to a
reporter during a visit earlier in the day to the Capitol. This
announcement set off considerable press interest in the
investigation. FBI policy is not to announce or confirm the
existence of an investigation, unless such announcement is in the
public interest (in the aftermath of a major event like the World
Trade Center bombing in New York City, for example) or it has been
announced by another entity and an FBI response is necessary.
FBI officials differentiate between a press release, which is written
to be released officially for general distribution to the press as a
formal statement, and a press response, which is written to provide
internal guidance to FBI staff in responding to press inquiries but
is not intended to be released to the press as a formal statement.
Although a decision to open an investigation had been made several
days earlier, on May 19, the FBI--in accordance with its policy to
minimize comment on investigations--issued a press statement with the
following text: "We understand that the results of the audit of
the White House Travel Office will be referred to the FBI for
our review."
Over the next 2 days, as media and congressional interest in the
allegations of criminal wrongdoing escalated, the FBI press office,
to reflect emerging information about the matter from the White
House, prepared several iterations of a press response concerning the
investigation. Two versions were approved on May 20 for use in
responding to press inquiries.\33
On May 21, at the request of Dee Dee Myers, Mr. John Collingwood,
the FBI Inspector-in-Charge, Office of Public and Congressional
Affairs, went to the White House to advise about a further White
House press response concerning the investigation. He joined a large
meeting involving a number of individuals he did not recognize and a
few he did.\34 Mr. Collingwood told us he was asked (1) whether a
White House statement about the investigation was accurate [he said
it was] and (2) whether there was predication for the FBI
investigation [he said there was].\35
Following the meeting, the FBI press response was revised again to be
consistent with the White House statement. Ms. Myers said that
after the FBI sent a press statement to the White House on May 21
"for guidance," she asked Mr. Collingwood to make it clearer and
"consistent with the facts." The revision added a sentence
(underlined below) and stated in its entirety:
"At the request of the White House, the FBI has had preliminary
contact with the White House and the auditors brought in to
audit the White House Travel Office. That contact produced
sufficient information for the FBI to determine that additional
criminal investigation is warranted. We anticipate receiving
the final report of the auditors soon and will analyze their
findings to determine the next steps in the investigation.
Beyond that, we are not in a position to comment."
The revision is consistent with the facts of the matter at the time
in that an investigation had been approved on May 14, based on
information provided by Ms. Cornelius. The revision did not
represent, as was alleged in some media reports, a substantive change
to any previous FBI press statements or responses.
As a courtesy, and consistent with normal practice, the FBI faxed the
revised press response to the White House Press Office. Although the
text was not intended for general distribution, Ms. Myers provided
it to the press.
--------------------
\33 The first May 20 press response stated: "At the request of the
White House, the FBI has had preliminary contact with the White House
and the auditors brought in to audit the White House Travel Office.
We anticipate receiving the final report of the auditors soon and
will analyze their findings and conduct appropriate investigation.
Beyond that, we are not in a position to comment." (Emphasis
supplied.) The second May 20 press response contained the same
introductory sentence and modified the underlined portion above to
read "to determine the next steps in the investigation."
\34 The meeting took place in the office of George Stephanopoulos,
and was attended by Mr. Bernard Nussbaum, the White House Counsel;
Mr. Foster; Mr. Kennedy; and others associated with the Travel
Office matter.
\35 Mr. Collingwood told us that during the meeting in Mr.
Stephanopoulos' office, a KPMG staff member, in response to a
question, said that the Travel Office records were "in shambles" and
there was a large sum of money unaccounted for.
WHITE HOUSE OFFICIALS'
ACTIONS CREATED APPEARANCE
OF PRESSURE
ON FBI
-------------------------------------------------------- Chapter 3:4.2
Mr. Kennedy's initial decision to contact the FBI, and the FBI's
response to those inquiries were reasonable. Several FBI agents
involved told us that Mr. Kennedy expressed a sense of urgency and
"high level interest" in the matter and, in some cases, remarked that
other agencies including the IRS might be called in. However, the
agents also said that they did not feel undue pressure in their
conversations with White House officials because they were
experienced in dealing with sensitive issues at high levels.
Mr. Kennedy told us that he did not recall making any statements to
the agencies about "high level interest" in the matter and that he
denied raising the possibility that an FBI failure to respond quickly
would lead to his calling other organizations, including the IRS. He
said, however, that he mentioned the IRS and several other
organizations in some conversations as possible sources for audit
expertise to review the Travel Office matter.
While there are some differences in what participants recalled about
particular conversations, we noted that, when made public, Mr.
Kennedy's remarks created an impression that the White House was
exerting pressure on a law enforcement agency.
Similarly, given that the FBI had determined several days before the
public announcement of the removal of the Travel Office employees
that an investigation of the allegations made about those employees'
actions was warranted, the press responses and interactions with the
White House about those responses were consistent with FBI
procedures. However, with hindsight, Mr. Collingwood's
participation in a meeting at the White House to formulate public
statements about the matter should have been avoided because it
contributed to the appearance that the White House was pressuring the
FBI.
The Management Review also concluded that the direct contact by Mr.
Kennedy was not inconsistent with policies and procedures at the
time, and no pressure had been intended, but his remarks about
urgency, high level interest, and involving other agencies were
inappropriate because these remarks could give the impression that
pressure on the FBI was intended. The Management Review also
observed that the involvement of an FBI official in a White House
communications meeting was insensitive to the appearance of White
House influence.
In response to the concerns expressed at the time about the
possibility of inappropriate pressure on the FBI by the White House,
the Deputy Attorney General asked Justice's Office of Professional
Responsibility (OPR) to investigate the FBI's role in Travel Office
matter. The OPR report was completed in early April 1994. On April
15, 1994, we were provided an opportunity to read the report. We
determined that the report provided details consistent with our
descriptions of the interactions between White House and FBI
officials. The OPR report also reached similar conclusions about the
conduct of the FBI.
NO EVIDENCE OF INAPPROPRIATE
ACTIONS PERTAINING TO IRS
---------------------------------------------------------- Chapter 3:5
In media reports in June 1993 and in our discussions with
congressional staff at the outset of this review, serious concern was
expressed about whether a White House official had inappropriately
contacted the IRS to influence or direct action by the IRS as a part
of the White House Travel Office matter. These concerns arose
because of media reports that, during discussions with the FBI about
mismanagement and possible wrongdoing at the Travel Office, Mr.
Kennedy mentioned that he might call the IRS; the possibility of
inappropriate White House influence on the IRS caused controversy.
Such contact or influence would be contrary to both IRS and White
House policies\36 and, in our opinion, would have political
implications because of highly publicized instances in the past of
alleged presidential influence to initiate IRS investigations of
taxpayers.
On the basis of investigations by the IRS and the Department of the
Treasury OIG, and our review, we believe that actions taken by the
IRS at the time of the White House Travel Office matter were
reasonable and consistent with IRS regulations and procedures.
Further, we found no evidence to support allegations that White House
or FBI officials improperly contacted or influenced IRS officials
about the matter.
Section 6103 of the Internal Revenue Code\37 prohibits disclosure of
any information related to the tax return or tax status of an
individual taxpayer. We requested waivers from the taxpayers
involved in this matter so that we could report fully on the details
of IRS's actions but were unable to obtain all of the necessary
waivers. Accordingly, we cannot publicly disclose additional
information in this report.
--------------------
\36 IRS' policy is that all referrals of potential tax violations are
to be handled similarly, regardless of the source. Any referral is
to be reviewed by IRS field staff to determine if there is a
sufficient basis for initiating either a tax examination or a
criminal investigation. The White House Counsel issued guidelines to
White House staff in February 1993 that contain the White House
procedures for obtaining and providing information to the IRS.
Expanded in July 1993, these guidelines require all information
concerning potential tax violations to be sent to the White House
Counsel, who in turn is to refer the information to either the
Attorney General or the Deputy Secretary of the Treasury.
\37 Section 6103(b)(2)(A) of the Internal Revenue Code prohibits
disclosure of tax returns and return information because such
information is considered confidential. Specifically, the section
defines return information to include a taxpayer's identity; tax
payments; whether the taxpayer's return was, is being, or will be
examined or subject to other investigation or processing; or any
other data received by, recorded by, prepared by, furnished to, or
collected by the Secretary of the Treasury (or IRS) with respect to a
return or with respect to the determination of the existence, or
possible existence, of liability of any person for any tax, penalty,
or interest.
ALLEGATIONS WERE
INVESTIGATED BY IRS AND THE
TREASURY OIG
-------------------------------------------------------- Chapter 3:5.1
IRS' actions in this matter were investigated by the IRS Inspection
Service.\38 In a report issued on June 11, 1993, the IRS Inspection
Service concluded that no IRS official took any inappropriate action.
The report also said no evidence was found that there had been any
contact with the White House on the matter. Because of legal
restrictions contained in section 6103, IRS was prohibited from
releasing any specific information about the circumstances of the
visit or the substance of the investigation. IRS attempted to obtain
the taxpayer's consent to do so but was unsuccessful.
Because so little information had been released about the basis for
the IRS Inspection Service's conclusions, the Treasury OIG was asked
by Congressman Frank Wolf to conduct a further review of the matter
and to answer certain specific questions about the events of May
1993. We worked cooperatively with the OIG during our review. In
its responses to the congressman's questions, released on April 1,
1994, the OIG also concluded that no IRS official took any
inappropriate action and no evidence was found that there had been
any contact from the White House on the matter.
The OIG reported that FBI agents involved in the Travel Office
discussions with the White House had, in response to the press
reports about the IRS agents' actions, made inquiries to IRS about
whether a criminal investigation was under way.\39 However, the OIG
reported that IRS had provided no material information to the FBI and
the contacts had not affected IRS' subsequent actions in any way.
Again, because of the restrictions of section 6103, the OIG also was
restricted from providing details in its responses to many of the
Congressman's specific questions.
--------------------
\38 The IRS Inspection Service conducts internal investigations and
audits under the direction of the Chief Inspector and reports
directly to the IRS Commissioner.
\39 On the basis of our experience, it is not unusual for law
enforcement agencies in general, and the FBI and IRS in particular,
to contact one another when initiating an investigation. This is
done to avoid duplication of effort or jeopardizing one another's
investigation as well as to conduct joint investigations in some
instances.
IRS ACTIONS WERE REASONABLE
AND NO WHITE HOUSE CONTACT
OCCURRED OVER THE TRAVEL
OFFICE MATTER
-------------------------------------------------------- Chapter 3:5.2
We examined in detail the workpapers and findings from the IRS and
OIG investigations and discussed the events of May 1993 with White
House, IRS, OIG, and FBI officials and representatives of the
taxpayer in question. We concluded that the IRS officials' actions
were reasonable and consistent with IRS regulations and normal
practices and that there was no evidence of contact by any White
House official with the IRS related to the White House Travel Office
matter.
In response to media reports, an FBI official in Washington contacted
an IRS national office criminal investigator to inquire whether a
criminal investigation had been initiated by the IRS. The Washington
FBI official also called an FBI agent located near the IRS office
involved in the matter, who, in turn, made similar inquiries. In
both cases, the FBI was provided with no material information.
INITIAL REPLACEMENT OF TRAVEL
OFFICE EMPLOYEES WITH CAMPAIGN
TRAVEL PROVIDERS SHORTLIVED
---------------------------------------------------------- Chapter 3:6
World Wide Travel Service, Inc. had handled commercial air travel,
hotel arrangements, and charter billing for the Clinton presidential
campaign and the presidential transition staff. According to World
Wide officials, Ms. Cornelius became the Clinton/Gore Campaign
Travel Director in July 1992 but did not handle the airline charters.
World Wide officials told Ms. Cornelius during the transition period
that if the White House travel business became available for
competition, World Wide would be interested in bidding for the
business. World Wide Travel is the 25th largest travel services
company in the United States and has successfully competed for FTMC
contracts for federal agency regional travel services in the South.
Ms. Betta Carney, President of World Wide, told us that on May 11
she was telephoned by Ms. Cornelius, who reported that the White
House Travel Office staff would possibly be dismissed in the near
future, due to allegations of wrongdoing; Ms. Cornelius asked that
this information be kept secret. The next day, Ms. Cornelius, who
told us she called at the direction of Mr. Watkins, asked if World
Wide could staff the White House Travel Office for an interim period
until a competition could be held.\40
A representative of World Wide arrived in Washington on May 14 and
remained on call throughout the weekend, but was not called.
According to Mr. Stephen Davison, World Wide's Director of Customer
Service, on May 18 he and a World Wide travel agent met with Ms.
Cornelius, who reported that the Travel Office matter was not
resolved. However, that evening Ms. Cornelius called to ask that
the World Wide officials meet her the next morning (May 19) in Mr.
Watkins' office. At the meeting the next morning, Mr. Watkins
informed the World Wide representatives that the Travel Office
employees had been fired and were vacating the premises. He asked
World Wide to take over the EOP travel function for commercial air
travel and hotel accommodations, but not the press travel, for an
unspecified period until a competitive procurement could be arranged.
Mr. Davison told us that, after World Wide began working in the
Travel Office, he discovered that no commissions were being paid on
the airline tickets issued to EOP staff as he expected based on World
Wide's other FTMC experience. World Wide was unable to arrange a
contract with White House officials that would permit the company to
be reimbursed for its services. This fact, together with the adverse
publicity resulting from the media controversy about the dismissal of
the employees and the perception of favoritism in placing World Wide
in the Travel Office, led World Wide to inform the White House on May
21 that it would withdraw from providing travel services to the White
House as soon as a replacement could be arranged.
Ms. Penny Sample, President of Air Advantage, told us that she made
charter arrangements for the Clinton campaign. She reported that she
was contacted on May 17 or 18 by Mr. Martens, with whom she had
worked during the campaign, to inquire about her availability to work
in the White House Travel Office.\41 She was asked to call Ms.
Cornelius, who inquired if she would be available to provide
temporary assistance in the procurement of aircraft charters for the
White House press corps without compensation.\42 She agreed to do so
but said that she could only do so for a short period of time.
Ms. Sample began working at the Travel Office on May 19 or 20, and
worked with Ms. Cornelius to arrange air charters for the press for
three presidential trips. She told us the charters were
competitively bid. She left the Travel Office on June 2 and later
observed to us that the operation was "disorganized."
--------------------
\40 Ms. Cornelius said she believes these calls took place on May 12
and 13, rather than May 11 and 12.
\41 Ms. Cornelius said that Mr. Thomason had Mr. Martens call her
because Mr. Thomason believed Mr. Martens might be able to help the
White House arrange for charter airlines in the event that changes to
the Travel Office were made. Ms. Cornelius said that Mr. Martens
called her and said he could find a capable volunteer to help with
the charter arrangements. Mr. Martens subsequently called Ms.
Sample.
\42 Ms. Sample told us that after she arrived at the White House
Travel Office, she was told that she would be reimbursed for her
expenses. However, she said that she had not submitted any request
for reimbursement and that a payment for $1,409 received from one air
charter company as a commission was sent in error and was returned.
FTMC CONTRACT AWARDED FOR EOP
STAFF TRAVEL FUNCTION
---------------------------------------------------------- Chapter 3:7
On May 23, 1993, GSA contracted for American Express to handle
commercial travel services for EOP staff. According to the GSA
Assistant Regional Administrator for the Federal Supply Service, who
was the senior GSA official involved, GSA was called on May 21 by the
EOP Contracting Officer and asked to arrange interim commercial
travel services for EOP staff.
The GSA Transportation Management Branch Chief and his staff
solicited oral proposals from three FTMC contractors\43 to provide
EOP staff travel services on an extension of an existing FTMC
contract. Most FTMC contracts include expansion clauses that allow
additional business volume, accounts, or both to be added without
conducting formal procurements. Such expansion clauses may permit
adding more federal agencies or may be expressed as a percentage of
the original contract award value. Awards for expansion of services
occur regularly (the GSA officials said they do around 10 to 15 a
year) and can be done quickly, in from 1 to 3 days.
The Transportation Management Branch Chief told us that the
contractors were asked to submit verbal proposals by May 23 based on
their performance records, size, experience with international
travel, the specialized needs of their existing government clients,
and their ability to respond quickly. Although all three contractors
were considered basically qualified, GSA officials told us that
American Express was selected largely because of greater confidence
that they could be operational by 1:00 p.m. on May 24.\44
The contract with American Express was awarded late in the evening on
May 23 to provide interim FTMC services to the White House for 120
days, with a provision to renew the agreement in 30-day increments
thereafter through the life of the Department of State contract,
which is due to expire in November 1994. As is standard practice
with FTMC contracts, American Express provides ticketing and
reservations services for EOP staff at no cost to the government.
American Express staff arrived to begin services shortly before the
required 1:00 p.m. start-up time on May 24. World Wide staff were
still in the Travel Office and provided briefings on the operations
of the staff travel function prior to departing during the afternoon.
The American Express contract has been extended at regular 30-day
intervals and was still in effect as of the date of this report.
American Express had four employees working in the Travel Office to
provide EOP staff travel services. On February 23, 1994, GSA issued
a request for proposals to solicit bids from travel service providers
to serve EOP staff travel needs for up to 5 years.\45 A new contract
is expected to be in operation by September 1994.
--------------------
\43 The three contractors were American Express, which had an
existing FTMC contract with the Department of State; Carlson Travel
Network, which had an existing contract with Justice; and Scheduled
Airlines Traffic Offices, Inc. (doing business as SatoTravel), which
had a contract with the Secret Service.
\44 Our review of contract documents and discussions with GSA staff
and the other contractors provided evidence consistent with this
report of an informal competition. However, (1) SatoTravel officials
expressed concern that their bid was not fairly considered because of
incorrect allegations made in Ms. Cornelius' earlier memoranda about
Travel Office operations that were linked incorrectly to SatoTravel
and (2) George Stephanopoulos, who was Communications Director at the
time, made a statement on May 21 that American Express was taking
over the Travel Office account. We asked Mr. Stephanopoulos about
the source of his statement, since it appeared to contradict GSA's
efforts to solicit from several vendors; he told us he could not
remember the statement, but he did not have any role in the selection
of American Express. He said he assumed he misunderstood a comment
about bringing in a company "like" American Express.
\45 The request for proposals, solicitation No. 3FBG-W-CM-N-5164,
required offers to be submitted by April 12, 1994. It contained
standard FTMC requirements but also required rebates of commissions,
obligated offerors to agree to provide assistance as requested and
without charge to make hotel and other arrangements for press
travelers, and offered the possibility of additional work (without
further competition but with fees to be negotiated) to arrange air
charter services. Further, the successful contractor would be
required to make dedicated staff available both in the Travel Office
and at an off-site location. The request for proposals (RFP)
required a minimum of two supervisors and three reservation agents,
in contrast with the four people currently handling the account.
TICKETING EQUIPMENT LEASE
TRANSFERRED TO AMERICAN
EXPRESS
-------------------------------------------------------- Chapter 3:7.1
Former White House Travel Office staff made reservations for EOP
staff travel using the SABRE computer reservation system (CRS)
equipment leased from American Airlines and issued tickets on
American Airlines ticket stock. World Wide officials told us that
the equipment in the Office was old and out of date. World Wide's
Director of Customer Service said that when his staff arrived in the
Travel Office on May 19, they ordered new SABRE equipment from
American Airlines that day for the Travel Office. The equipment was
reportedly shipped the next day, but only a ticket printer, a printer
stand, and some cables were delivered before World Wide staff left on
May 24, and none of the equipment was installed.
On May 22, the day after World Wide decided to leave the White House
Travel Office, an official in World Wide's Little Rock office
contacted American Airlines to cancel the equipment order for the
White House. The American Airlines SABRE account representative for
World Wide, who had heard a press announcement\46 that American
Express would replace World Wide, on his own initiative contacted his
counterpart responsible for the American Express account to suggest
that American Airlines transfer the equipment ordered by World Wide
to American Express, thus saving the cost of shipping it twice and
speeding up delivery.
On May 24, when American Express representatives entered the White
House Travel Office, they found a new SABRE CRS ticket printer,
stand, and cables unopened in the Travel Office but were told the
rest of the equipment ordered by World Wide was being held at the
Washington Navy Yard. (All shipments of equipment or other bulky
items addressed to the White House are delivered to a facility at the
Navy Yard, which has the capability to conduct security screening
prior to delivery to the White House complex.) Accordingly, American
Express officials contacted American Airlines to transfer World
Wide's equipment to American Express. World Wide officials agreed to
the transfer. In the interim, American Express continued to use the
old CRS equipment left behind by the former Travel Office staff.
Meanwhile, neither American Airlines nor officials at the Washington
Navy Yard were able to locate the remaining equipment, which had
reportedly been shipped to World Wide. Consequently, American
Express placed a duplicate order with American Airlines on May 25 for
the same equipment that had been ordered by World Wide, and a new
order for additional CRS sets.\47 The World Wide equipment was
eventually located at the Navy Yard, so only the additional equipment
was shipped. The additional equipment was received at the Washington
Navy Yard, passed through security screening, delivered to the Travel
Office on May 26, and installed the same day, along with the new
ticket printer previously delivered to the Travel Office during World
Wide's tenure.
In our discussions with congressional staff about the White House
Travel Office matter, the issue of the status of the ticketing
equipment was raised as a concern because World Wide was known to be
responsible for travel services for the Democratic National Committee
(DNC), and there was some uncertainty whether the equipment ordered
for the White House was inappropriately connected to the DNC
contract. World Wide officials told us they were awarded the DNC
travel service contract on a competitive basis in late 1991 and that
neither the equipment ordered nor their arrangements for travel
services at the White House was connected to their DNC contract.
--------------------
\46 This appears to have been a report that a White House official
had announced on May 21 that American Express would be coming to the
White House. When contacted by the SABRE representative during the
weekend, American Express reported that it did not yet have a
contract for White House staff travel.
\47 American Express staff felt that they needed more CRS stations
than World Wide had ordered.
GSA OFFICIALS MADE PRESS TRAVEL
ARRANGEMENTS
---------------------------------------------------------- Chapter 3:8
In May 1993, the Chief of GSA's Travel Management Branch and two
other GSA staff members undertook responsibility for arranging the
press travel services in the White House Travel Office. The GSA
Chief reported to Mr. Foucart, Acting Director of Administration,
and worked with a White House staff member who accompanied the press
on the trips. GSA staff's work included establishing a system to
solicit quotes from a number of sources for air charter flights and
arranging for or coordinating services for ground transportation,
filing centers, and hotel rooms. GSA officials worked in the White
House Travel Office as necessary when trips were announced. They
told us that they estimated that collectively the staff averaged 30
hours a week in the Travel Office. Salaries and expenses for these
services were not reimbursed to GSA.
The GSA Chief obtained a list of carriers from Ms. Cornelius (who
continued to work in the Travel Office for about 1-� months after the
dismissals) and also met with officials of the Military Traffic
Management Command (MTMC) to obtain a list of carriers used by MTMC
for military air charters.\48 From these sources, GSA officials
identified eight carriers most likely to meet press travel needs.\49
Requirements to be included in the solicitations were identified in
meetings with White House Correspondents' Association representatives
and included (in order of priority) safety, quality of service, and
cost. The carriers are notified by a standard request for bids,
which are sent by fax.
A GSA staff person told us that she assisted the Travel Office for an
average of 30 hours a week from July through August 1993. She said
that she was responsible for billing the press, paying vendors, cost
accounting, and cash management (which included the receipt and
timely deposit of remittances and reconciliations of the bank
account). She also said Mr. Foucart provided guidance, resolved
billing and vendor complaints, and authorized all disbursements. In
September 1993, a detailee from the Department of Agriculture assumed
these responsibilities and currently holds this position.
A new Travel Office Director was appointed on October 26, 1993.
--------------------
\48 MTMC is the only other major government user of air charter
services. MTMC uses air charters for military airlift needs to
supplement internal military capability to move passengers. MTMC
requirements are significantly different from the White House
requirements in numbers of seats required, service needs (especially
for seat pitch and meal service), and ability to plan in advance.
\49 American Airlines, Delta Airlines, Evergreen International
Airlines, Miami Air International, Midwest Express, Northwest
Airlines, Trans World Airlines, and UltrAir.
PRESS ORGANIZATIONS SAY CURRENT
PRESS TRAVEL OPERATIONS
CONTINUE TO HAVE PROBLEMS
---------------------------------------------------------- Chapter 3:9
The Management Review stated that changes made in the Travel Office,
notably including implementation of competitive procedures for air
charter services, would reduce costs for the press corps while
"maintaining a level of service that is commensurate with White House
press corps needs." Our discussions with press corps and press
organization representatives--who are the primary users of Travel
Office services--suggest that these goals have not been entirely met.
Press representatives acknowledge that services and billing practices
have improved over their experiences in the months following the
former employees' removals. However, some problems were still being
experienced recently. The press complaints appear to relate to
billings for trips made in 1993, which the Travel Office is still
attempting to resolve.
In March and April 1994, officials from a major television network,
two large metropolitan newspapers, and a news service said that the
White House Travel Office had not improved the results of its
financial operations. They said that costs have escalated, billings
are late, bills do not contain sufficient detail on item costs, and
the service has deteriorated since the former employees were removed.
For example, a newspaper official termed reporters' costs of the trip
to Japan in July 1993, as "outrageous." Further, the newspaper was
billed for costs on this trip that its reporters had not incurred.
The television network's Washington bureau chief said that since the
new Travel Office staff took over bills have been received
sporadically, sometimes months after a trip.
Also, an official from a large newspaper said that although his
organization's records show that bills for the trip to Japan were
paid in August 1993, he was recently informed that he owed the Travel
Office about $15,000 because the Office had no record that his bills
for the Japan trip had been paid. Another official who said bills
were inaccurate said that for the trip to New York in October 1993,
he was overbilled by about $200 for telephone costs. According to
the Travel Office Director, these errors have been resolved.
White House officials provided an analysis done shortly after the
Travel Office employees were removed that indicated that flight hour
charges for air charters had been reduced. However, because each
trip is different, it is not possible to provide a comparison of
trips that would clearly demonstrate that costs have been reduced.
For example, one trip may involve several destinations and would
therefore involve many flight hours. Another trip may have one
short-range destination and therefore would require much less flying
time. A comparison of such trips would not show whether flight hour
charges had been reduced. An additional factor that often causes
variations in trip costs to the same location would be the number of
participants on the trip. If more press members are present on a
trip, the cost to each individual is lower; conversely, if fewer
press members are present, the cost to each is higher.
Because the Travel Office is still working to clear bills from trips
that were taken before its new accounting and billing procedures were
fully implemented, it is premature to conclude that the new
procedures will not eventually resolve many of these problems.
According to Travel Office officials, the traveling press and their
business organizations have different priorities concerning the
timing and content of bills. For these reasons, we believe it is
important that the Travel Office consult with a wide representation
of customers for their services to further refine the Travel Office's
billing and receivables systems.
CONCLUSIONS AND RECOMMENDATIONS
============================================================ Chapter 4
Although the Travel Office has carried out press travel activities
for many years, the current and recent previous administrations
provided virtually no guidance to the Office's employees or oversight
of its operations. This absence of guidance and oversight led to
serious financial management weaknesses within the Travel Office.
The White House had made progress since May 1993 to improve financial
management and internal controls in the Travel Office. In our view,
sound financial management involves systems and procedures that are
documented, accurate, applied routinely and consistently, and result
in timely billings and payments to customers and vendors. These
goals had not been fully achieved at the time we completed our work
in mid-April 1994. However, White House officials promised to
implement additional needed improvements by July 1994 and to arrange
for an independent financial audit in early 1995.
The appointments of the Travel Office employees were made at the
pleasure of the President. Thus, White House officials had legal
authority to terminate the Travel Office employees without cause.
While senior White House officials told us that the terminations were
based on KPMG's findings of serious financial management weaknesses,
we noted that individuals who had personal or business interests in
the Travel Office created the momentum that ultimately led to the
examination of the Travel Office operations.
We believe the White House should, but in this instance did not, make
efforts to insulate its management decisions from the appearance that
they are influenced by individuals having a personal interest in the
outcomes. The appearance of inappropriate influence was heightened
in this case by the fact that two private citizens had been given
passes that gave them unrestricted access to the White House complex
for several months. Such access conveys the appearance of influence
and authority. Thus, we question the appropriateness of granting
such unrestricted access to nongovernment employees without having
policies in place for governing their activities.
FBI and IRS actions during the period surrounding the removal of the
Travel Office employees were reasonable and consistent with the
agencies' normal procedures. But some White House officials' actions
in conveying to FBI officials a sense of urgency and high level
interest in the matter created an appearance of inappropriate White
House pressure.
RECOMMENDATIONS
---------------------------------------------------------- Chapter 4:1
To further improve the operations of the White House Travel Office,
we recommend that the Chief of Staff to the President direct the
Assistant to the President for Management and Administration to
complete comprehensive and accurate written guidance for Travel
Office staff to better ensure that procedures are implemented
properly;
establish a process to ensure that appropriate oversight and review
of Travel Office operations is provided, including an annual
financial audit;
give priority to completing other actions that will fully implement
systems and procedures consistent with the financial management
criteria described in this report;
establish a mechanism to validate that the actions taken and
promised have been effectively implemented; and
identify the full range of customers involved with the press travel
services and periodically determine customer satisfaction with
the services provided by the Travel Office.
To better ensure that White House access is commensurate with
accountability, we also recommend that the Chief of Staff develop
policies governing appropriate activities by nongovernment employees
granted unrestricted White House access and establish a mechanism for
periodically assessing the implementation of those policies.
AGENCY COMMENTS
---------------------------------------------------------- Chapter 4:2
We arranged for senior White House, Justice, and KPMG officials to
review a draft of this report. We noted comments made during the
course of the review, and invited written comments if reviewers
wished to provide them and could do so by Friday, April 22, 1994.
Justice provided written comments, which are provided in Appendix
III. The White House and KPMG did not provide written comments. We
considered specific comments from all of the reviewers and made
changes concerning factual matters where appropriate.
At the request of White House officials, we also arranged for the
draft to be reviewed by legal representatives for Mr. Watkins and
Ms. Cornelius who had been present during our interviews with their
clients.
Justice officials in general agreed with our findings about the
interactions between FBI and White House officials, and noted that
they were consistent with the OPR investigation of the FBI's actions.
Justice stated that it could not agree or disagree with our factual
or legal conclusions concerning the operations of the White House
Travel Office prior to May 1993 because its related criminal
investigation is still ongoing.
MANAGEMENT CRITERIA FOR WHITE
HOUSE PRESS TRAVEL OPERATIONS
=========================================================== Appendix I
We found no stated financial management objectives or written
criteria for how the Travel Office should be managed, despite
occasional past evidence that the operations may have had significant
financial management weaknesses. Accordingly, we researched
financial management and procurement practices and guidelines from
both the private sector and government regulations and identified 29
criteria that we believed provided a reasonable and prudent framework
for evaluating the press travel operations of the Travel Office.
WE IDENTIFIED 29 CRITERIA FOR
PRESS TRAVEL OPERATIONS
MANAGEMENT
--------------------------------------------------------- Appendix I:1
We were unable to identify an operation similar to the White House
Travel Office's press travel operation in either the private sector
or the federal government. Guidance available for the commercial
travel industry is geared toward standard travel agent activity and
does not provide information that would apply to the unique mix of
services and government/private interests of the White House Travel
Office operations. However, whether an operation is large such as a
Fortune 500 company, small like a corner grocery store, or unique
like the White House Travel Office press travel operations, there are
some good business practices that every operation should generally
implement to ensure that its assets are safeguarded and its records
fairly and accurately reflect activity that has occurred. Many of
these practices are embedded in federal regulations and other
guidelines that, although not specifically applying to the White
House, offer a gauge by which to measure the effectiveness of the
White House's press travel operations.
Based on our understanding of the Travel Office press travel
operations, we grouped the financial management operations into the
following six categories:
(1) Administrative guidelines,
(2) Procurement of goods and services,
(3) Accumulation and allocation of costs,
(4) Billing practices,
(5) Cash management, and
(6) Financial reporting.
These six categories, the financial management objectives for each,
and the 29 criteria we identified to assess how well each category's
objective is carried out are shown in Table I.1 and also are
discussed below. References to where those criteria are stated in
recognized documents or federal financial management guidance are
noted in parentheses.
Table I.1
Financial Management Criteria for White
House Travel Office's Press Travel
Operations
Category/criteria
------------------------------------------------------------
Administrative guidelines
Written policies and procedures should clearly describe
operating processes.
Duties should be appropriately segregated and
responsibilities and lines of authority should be clearly
communicated.
Audits should be periodically conducted.
Oversight and guidance should be provided by upper level
management and other interested parties to foster effective
management.
Procurement of goods and services
Goods and services that satisfy customers' needs should be
determined.
Goods and services should be acquired in a manner that
obtains good value and uses competition when appropriate.
Written contracts should be obtained showing prices, terms,
and quantities.
Accumulation and allocation of costs
The system should identify and record all costs associated
with a function.
The system should determine which costs should be recovered.
The system should provide accurate data for billing
customers.
Billing practices
Billings should be prepared and mailed within a cost-
effective time period after service has been rendered.
The date payment is due should be on the billing document
and should not be more than 30 days later than the date of
the billing document.
The system should maintain a history of billings and
receipts.
The system should apply receipts to the appropriate
outstanding bill or bills.
The system should track and report the length of time that
money owed has not been paid and produce collection letters
for overdue accounts.
Cash management
Vouchers and supporting documentation should be reviewed and
approved before payment.
Procedures should be established to prevent duplicate
payments.
Payments to vendors should be made on time and cash
discounts taken when appropriate.
Receipts should be deposited on the day they are received,
or if they are received too late, on the next business day.
Receipts of relatively small amounts should be accumulated
and deposited at least once a week.
Adequate internal controls should be in place to ensure the
security of all undeposited funds.
Bank reconciliations should be performed periodically.
Financial reporting
All transactions should be identified and accurately
recorded in an accounting system that can properly disclose
these transactions in financial reports.
A general ledger should be used to capture, classify,
summarize, and report current and cumulative financial data.
The general ledger should be supported by subsidiary ledgers
that provide detailed information, and these subsidiary
ledgers should be periodically reconciled with the general
ledger.
The system should provide financial information in a timely
and useful manner that supports management's fiduciary role,
program delivery, and decisionmaking.
A Report on Financial Position as of a certain date should
be prepared.
A Report on Operations, including revenues and expenses for
a specific period, should be prepared.
A Report on Cash Flow that depicts the sources and uses of
cash during a reporting period should be prepared.
------------------------------------------------------------
Sources: Detailed in appendix I.
ADMINISTRATIVE GUIDELINES
------------------------------------------------------- Appendix I:1.1
Financial Management Objective. Lines of authority and policies and
procedures should be clearly established and communicated to ensure
that assets are properly safeguarded and oversight is provided by
supervising organizations and independent audits or reviews.
Operations of an organization are most effective when they are
grounded in systematic procedures and lines of authority that provide
for a clear understanding of how activities will be carried out and
appropriate internal controls and supervision will operate. To
reduce the risk of error, waste, or wrongful acts or to reduce the
risk of their going undetected, no individual should control all key
aspects of a transaction or event. Rather, key duties and
responsibilities, such as authorizing, making and recording payments
should be appropriately segregated and assigned systematically to a
number of individuals to ensure that effective checks and balances
exist.
Documentation of those procedures and lines of authority helps to
ensure that everyone involved in the organization understands how the
organization operates, and provides a basis for continuation of
effective operations when personnel turnover occurs. Oversight and
review of the implementation of procedures and controls on a periodic
basis, through reports, supervision, and review or audit, provide
additional assurance that the organization is operating effectively
and regular opportunities are available to identify ways in which the
operations could be improved.
General requirements for establishing and documenting policies,
procedures, lines of authority, and review processes for federal
government operations are found in law and in OMB guidance. These
sources provide a useful inventory of specific actions to set the
overall philosophy for the management of an organization. These
actions include the following:
Written policies and procedures, organization charts, manuals and
other related materials necessary to describe and communicate
the responsibilities and authorities of management and staff,
organizational structure, operating procedures, and
administrative practices. (OMB Circular A-123.)
Financial audits to oversee and improve operations of federal
agencies, government corporations, revolving and trust funds,
and other federal activities that perform substantial commercial
functions. (The Chief Financial Officers Act of 1990, P.L.
101-576.)
Appropriate agency reviews of financial systems. (OMB Circular
A-127.)
Program audit coverage for activities as an aid in determining
whether information is reliable; resources have been
safeguarded; funds have been spent in a manner consistent with
related laws, regulations and policies; resources have been
managed economically and efficiently; and desired program
results have been achieved. (OMB Circular A-73.)
These activities influence the systems and procedures established to
carry out the other categories of financial management objectives.
To foster effective financial management and protect the financial
interests of all parties benefiting from the Travel Office's
services, oversight and guidance should be provided by higher level
White House management officials to whom the Travel Office reports
and who are responsible for the integration of Travel Office
activities with other presidential activities, and by other
interested parties, such as the White House Correspondents'
Association and the Congress.
PROCUREMENT OF GOODS AND
SERVICES
------------------------------------------------------- Appendix I:1.2
Financial Management Objective. Goods and services generally should
be procured through a competitive process, and procurement actions
should be documented to ensure that the Travel Office receives the
best value for the funds it spends.
Given the nature of the Travel Office's press travel operations and
the private source of funding involved, those operations are not
subject to the requirements that normally would apply to procurements
by federal agencies. Nevertheless, since government officials are
managing and spending the press corps' funds for an activity in which
the government clearly has an interest, we believe that the Travel
Office has an obligation to procure goods and services using
processes designed to ensure that the Office is receiving the best
value for the funds it spends. Fundamentally, these processes should
entail a determination of what goods and services are required to
satisfy the customers' needs, followed by the identification of
potential suppliers and a reasonable effort to seek competition among
them. The Federal Acquisition Regulation, although not applicable to
the procurement of press travel services, suggests the use of aids to
facilitate competition, such as source lists to assist in identifying
appropriate vendors, especially those who have provided good value
for goods and services acquired in the past.
In addition, procurement actions should be documented in writing for
management review purposes and to assist in the resolution of
disputes over billings or costs. To provide a basis for ensuring
that goods are accurately delivered and services rendered,
procurements generally benefit from agreements documented in formal
contracts.
ACCUMULATION AND ALLOCATION
OF COSTS
------------------------------------------------------- Appendix I:1.3
Financial Management Objective. All costs that result from the
procurement of White House press travel services should be accurately
accumulated in a timely manner so that the press' employing
organizations can be correctly billed for the services provided.
Generally, in the operation of any business or activity, accurate
cost information is essential to ensure that goods and services are
appropriately priced. Commercial sector cost accumulation strategies
emphasize that both direct and indirect costs should be identified
because profit or loss will be affected if all costs are not
considered in the pricing of goods and services provided to the
customer.
Specific guidance for accumulation and allocation of costs in the
management of federal programs is provided in the Joint Financial
Management Improvement Program (JFMIP) publication, Federal Financial
Management Systems, Core Financial System Requirements. Although the
complexity of a cost accumulation system depends on the operational
nature of the federal program, some general requirements are
identified that every system should have to support pricing and
billing for services. According to this publication, such a system
should (a) identify and record all costs (direct and indirect)
associated with a program; (b) determine those costs that should be
allocated to the program or activity and recovered or billed to the
customer; and (c) provide accurate, detailed data for billing
customers.
BILLING PRACTICES
------------------------------------------------------- Appendix I:1.4
Financial Management Objective. The system should accurately prepare
and transmit bills to customers in a timely manner, and subsequently
track them.
In order to remain solvent, a business should ensure that it
maintains an adequate level of cash to pay its obligations when they
are due. Most private sector businesses and some federal activities
can borrow money when their cash balance is insufficient to pay
outstanding obligations. The Travel Office's only source of cash is
from billing the press for services provided by the Travel Office.
Therefore, timely preparation and delivery of accurate billing
documents after the Travel Office renders services to the press are
critical steps the Office should take to maintain a level of cash
that could satisfy outstanding obligations in a timely manner.
Also, the Travel Office should have a system in place that tracks
such things as who was billed, how much they were billed, and how
much has been collected. This information should identify overdue
accounts so that actions could be taken to collect the cash due to
the Office.
Guidance for accurate and timely billing procedures is found in
Treasury and JFMIP publications. Specifically, these procedures
include the following:
A billing document for either an actual or estimated amount should
be prepared and delivered within a cost effective time period
after goods or services have been rendered. (Treasury Financial
Manual.)
The date payment is due should be on the billing document. Also,
the due date should not be more than 30 days from the date of
the billing document. (Treasury Financial Manual.)
A financial system should support an agency's billing process by
maintaining a history of billings and receipts, applying
receipts to appropriate outstanding bill(s), tracking and
reporting the length of time money owed to the billing office
has not been paid, and producing collection letters for overdue
accounts. (Federal Financial Management Systems, Core Financial
System Requirements.)
CASH MANAGEMENT
------------------------------------------------------- Appendix I:1.5
Financial Management Objective. Cash management policies and
procedures should be designed and implemented to ensure that, in a
timely manner, funds are collected, the cash balance is periodically
reconciled to the cash balance reported by the financial institution,
vendors are paid, and cash discounts are taken.
Cash management consists of the timely collection of funds, prompt
deposit of those funds, appropriate disbursement of amounts owed, and
elimination of idle cash balances. Effective cash management
policies and procedures, among other things, ensure an organization's
cash--which is usually the most vulnerable asset to fraud, theft, or
abuse--is adequately safeguarded. The policies and procedures should
also help to ensure that enough funds are on hand to pay for procured
goods and services in a timely manner.
Federal government guidelines require that agencies should deposit
receipts expeditiously to improve the availability of funds.
Specifically, (a) receipts should be deposited on the same day
received; (b) monies received too late in the day to meet the deposit
cut-off time should be deposited the following business day; (c)
adequate internal controls should be in place to ensure the security
of all undeposited funds; and (d) collections of relatively small
amounts should be accumulated and deposited at least once a week.
(Treasury Financial Manual.) In addition, Treasury guidance requires
records maintained by agencies should be compared, adjusted, and
agreed to balances in Treasury's summary accounts each month.
Although the funds provided by the press corps to pay for travel
arrangements made on their behalf by the Travel Office are not public
funds, they are clearly funds in which the government has an interest
by virtue of their being entrusted to, and accepted by, government
official in carrying out an authorized activity. In this regard, we
believe that the government would be liable either morally or legally
for the loss of private funds in the custody of government officials
serving in such a capacity. For example, we have held that the
Department of Veterans Affairs (VA) is liable to make up losses of a
hospital patient's personal funds that are entrusted to VA for
safekeeping from funds appropriated to the Department.\1
Because of this potential liability, it has long been the practice
for government officials to deposit nonpublic funds to the credit of
a Treasury deposit fund account as described in Vol. I, Treasury
Financial Manual 2-1500, thereby protecting the government's interest
by bringing the funds under the financial management procedures of
the government.
Other general requirements for cash disbursement procedures are found
in law and Treasury guidance. These requirements state
Executive departments and agencies should pay for goods and
services on time and pay interest penalties when payment for
those goods and services is late. (OMB Circular A-125.)
There should be controls over cash disbursements which ensure they
are legal, proper, correct and accurately recorded and reported
in a timely and efficient manner. This includes procedures that
require the review and approval of vouchers before they are
certified for payment, and prevent duplicate payments.
(Treasury Financial Manual.) Timely payment for goods and
services should (1) result in better relationship with vendors,
(2) improve competition among vendors bidding on entities'
business, and (3) reduce costs for services acquired from
vendors.
--------------------
\1 68 Comp. Gen. 601 (1989). See also, 67 Comp. Gen. 342 (1988)
and 64 Comp. Gen. 535 (1985).
FINANCIAL REPORTING
------------------------------------------------------- Appendix I:1.6
Financial Management Objective. A financial information system
should be in place that accurately captures, processes, and reports
the impact of economic events on the entity.
Financial reporting should be required of every business because,
among other things, it gives interested parties a true accounting of
how well managers controlled costs and managed assets entrusted to
them. Most businesses should prepare three primary financial
reports--a Report on Financial Position, a Report on Operations, and
a Report on Cash Flow. A Report on Financial Position is designed to
depict an organization's financial condition at a given point in
time--usually the end of a calendar or fiscal year. A Report on
Operations is designed to show the results of operations--money
earned less expenses incurred--for a given period of time. The
Report on Cash Flow's primary function is to inform the reader of the
organization's source of cash receipts and details of its cash
disbursements in carrying out its operations during a specific time
frame.
A Report on Financial Position for the Travel Office would include
items such as assets (cash and amounts owed the Travel Office),
liabilities (amounts the fund owed to vendors), and a fund balance
(the difference between assets and liabilities.) A Travel Office
Report on Operations would show money received for providing services
to the press, expenses incurred from procuring services by vendors,
and the net difference between these two items (breakeven, profit, or
loss). A Travel Office Report on Cash Flow would list the amount of
cash the office received from billing the press and the amount of
cash it paid vendors for goods and services.
All financial transactions--including amounts owed to vendors as well
as amounts owed by customers to the business--should be identified
and accurately recorded in an accounting system that can properly
disclose these transactions in financial reports. Data for such
financial reports should flow from financial management systems that
can accurately capture, process, and report day-to-day transactions
of the business. The integrity of these data and the reliability of
the systems that process them are critical to the preparation of
financial reports that fully and fairly disclose an organization's
financial condition.
Federal requirements for the preparation of financial reports are
found in law, federal publications, and Treasury and OMB guidance.
Specifically, the Chief Financial Officers Act of 1990 (P. L.
101-576) states that most federal organizations should prepare
financial reports. Further, these reports should reflect, among
other things, the organization's overall financial position, results
of operations, and cash flows. The JFMIP's Federal Financial
Management Systems, Core Financial Systems Requirements identifies
the general ledger as the most crucial accounting function of a
financial system. The publication states that a general ledger
should, among other things, be supported by subsidiary ledgers which
provide detailed information that management deems appropriate for
asset protection, and provide for capturing, classifying, summarizing
and reporting current year and cumulative data on financial activity.
In addition, a timely reconciliation of the subsidiary ledger to the
general ledger should be performed periodically.
OMB Circular No. A-127 (Revised Transmittal Memorandum No. 1)
states that federal financial management systems should be able to
provide financial information in a timely and useful manner that
supports management's fiduciary role, program delivery, and
decisionmaking. In addition, the system should capture and produce
financial information to support budgeting, program management, and
financial statement presentation.
The Treasury Financial Manual states that executive agencies should
prepare various financial reports. For example, the manual states
there should be a Report on Financial Position, a Report on
Operations, and a Report on Cash Flow. These types of financial
reports are also widely used in the commercial sector to determine,
among other things, the cost of operating a program, and the need for
cash and other resources. Typical users of these statements would
include the Travel Office management, the White House Office of
Management and Administration, as well as other organizations such as
the White House Correspondents Association.
LIST OF INDIVIDUALS INTERVIEWED
========================================================== Appendix II
AIRLINES, AIRLINE BROKERS, AND
TRAVEL AGENCIES
-------------------------------------------------------- Appendix II:1
AAA Headquarters, Manager, Travel Agency Industry
AAA-Potomac, Accounting Manager
Air Advantage, President
Alaska Airlines, Manager, Charter Marketing
America West Airlines, Charter Sales and Service Manager
American Airlines, Manager, Group and Charter Sales
American Express, Accounting Manager
American Society of Travel Agents, Manager of Educational
Services
American Trans Air, Charter Sales Manager
Carlson Travel Group, Vice President-Controller
Continental Airlines, Senior Manager for Schedule Administration
Delta Airlines, Account Executive, Military/Government Sales
Evergreen International Airlines, Passenger Sales Manager
Express One International, Director of Marketing
Flight Time, Inc., Chief Executive Officer
Great American Airways, Vice President and General Manager
Mark Air, Charter Director
Miami Air International, President
Midwest Express Airlines, Manager, Government Sales
National Air Charters, President
National Tour Association, Membership Coordinator
North American Airlines, President
Northwest Airlines, Manager, Charter Sales
Omega World Travel - Headquarters, Chief Financial Officer
Rich International Airways, Vice President, Sales and Marketing
Rosenbluth, Chief Financial Officer
SatoTravel, Senior Director, Field Operations
Southwest Airlines, Charter Coordinator
Sun Country Airlines, Chief Marketing Officer
Thomas Cook Travel, Chief Financial Officer
Trans World Airlines, Manager, Charter Operations
Travel Coordinators, Ltd., Director
UltrAir
Gordon Cain, Owner
Charles Caudle, former President
Tony Geata, Director of Operations
Ed Hamblin, former Chief Financial Officer
Barney Kogen, former investor
Jim Leahy, Catering Manager
Judy McLaughlin, Flight Attendant
J. Patrick Millinor, Jr., Vice Chairman and Chief
Executive Officer
United Airlines, Manager, Military/Government Sales
USAir, Charter Manager
U.S. Tour Operators Association, Executive Administrator
World Airways, Director, Government Sales
World Wide Travel Service, Inc., President; Director of Customer
Service
DEPARTMENT OF JUSTICE
-------------------------------------------------------- Appendix II:2
Joseph Gangloff, Principal Deputy Chief, Public Integrity Section,
Criminal Division
David Margolis, Associate Deputy Attorney General
Jerry McDowell, Chief, Fraud Section, Criminal Division
Carl Stern, Director, Office of Public Affairs
DEPARTMENT OF TRANSPORTATION
-------------------------------------------------------- Appendix II:3
Dayton Lehman, Deputy Assistant General Counsel for Aviation
Enforcement and Proceedings
Diane Liff, Special Counsel
Samuel Podberesky, Assistant General Counsel for Aviation
Enforcement and Proceedings
FBI
-------------------------------------------------------- Appendix II:4
Howard Apple, Chief, Interstate Theft and Government Reservations
Crime Unit
James Bourke, Chief, Special Inquiry Unit
Tom Carl, Supervisor, Government Fraud Unit
John Collingwood, Inspector-in-Charge, Office of Public and
Congressional Affairs
Daniel Coulson, Special Agent in Charge, Maryland-Delaware
Division
Pat Foran, Acting Chief, Violent Crimes and Major Offenders
Section
Douglas Gow, Associate Deputy Director
Weldon Kennedy, Associate Deputy Director of Administration
Michael Kortan, Chief, National Press Office
Tom Kubic, Chief, White-Collar Crime Unit
Charles Mandigo, Inspector Deputy Chief, Office of Public and
Congressional Affairs
Larry Potts, Assistant Director, Criminal Investigative Unit
Ben Purser, Senior Supervisory Resident Agent, Nashville, TN
Fred Verinder, Deputy Assistant Director, White-Collar
Crime Unit
Richard Wade, Chief, Government Fraud Unit
FORMER WHITE HOUSE STAFF
-------------------------------------------------------- Appendix II:5
Chris Emery, former Usher
Darrell Johnson, former Office of Administration staff member
John Rogers, former Director of Administration
John Vickroy, former Travel Office employee
Rose Zamaria, former Deputy Director of Operations
Bernard Nussbaum, former Counsel to the President
GENERAL SERVICES ADMINISTRATION
-------------------------------------------------------- Appendix II:6
Barbara Edelen, Secretary, Transportation Management Branch
Linwood Goad, Chief, Transportation Management Branch
Catherine Maloney, Contracting Officer, General Procurement
Branch
John Sapp, Chief, Travel Management Program
Jack Williams, Assistant Regional Administrator, Federal
Supply Service
OFFICE OF GOVERNMENT ETHICS
-------------------------------------------------------- Appendix II:7
Jane Ley, Deputy General Counsel
Vincent Salamone, Attorney-Advisor
THE WHITE HOUSE
-------------------------------------------------------- Appendix II:8
Ashley Adams, Travel Office Trip Coordinator
Clarissa Cerda, Assistant Counsel to the President
Catherine Cornelius, Special Assistant to the Office
of Scheduling and Advance
Catherine Cronin, Travel Office Accountant
Jeff Eller, Deputy Assistant to the President and Director
of Media Affairs
Kris Engskov, Travel Office Trip Coordinator
Brian Foucart, Acting Director of Administration
Mark Gearan, Assistant to the President for Communications
Thomas Hufford, Travel Assistant Office of Administration
Kim Johnson, Travel Office Deputy Director
William H. Kennedy, III, Associate Counsel to the President
Reta Lewis, Special Assistant to the President for Political
Affairs
Craig Livingstone, Director, White House Personnel Security
Thomas F. McLarty, III, Assistant to the President and Chief
of Staff
Dee Dee Myers, Deputy Assistant to the President and Press Secretary
Jennifer O'Connor, Special Assistant to the President
John Podesta, Assistant to the President and Staff Secretary
Steven Riewerts, Travel Office Director
George Stephanopoulos, Senior Policy Advisor
Todd Stern, Special Assistant to the President and Deputy Staff
Secretary
Patsy Thomasson, Special Assistant to the President for
Management and Administration and Director, Office of
Administration
David Watkins, Assistant to the President for Management and
Administration
WHITE HOUSE CORRESPONDENTS'
ASSOCIATION, PRESS
-------------------------------------------------------- Appendix II:9
George Condon, President, White House Correspondents' Association
Carl Leubsdorf, Board Member, White House Correspondents' Association
Peter Maer, Board Member, White House Correspondents' Association
Representatives of a major broadcasting network
Representative of a major newspaper
Representative of a national magazine
OTHERS
------------------------------------------------------- Appendix II:10
Una Brien, Assistant Chief Inspector, Immigration and
Naturalization Service
David Buxbaum, former Clinton campaign official
Larry Herman, Principal, KPMG
Philip Heymann, former Deputy Attorney General
Capt. Charles Hume, Assistant Commander, Criminal Investigations,
U.S. Park Service
Robert Jacksta, Inspector, U.S. Customs Service
Edwin Scott, General Counsel, KPMG
William Sessions, former FBI Director
Frank Stidman, Senior Systems Examiner, OMB
(See figure in printed edition.)Appendix III
COMMENTS FROM THE DEPARTMENT OF
JUSTICE
========================================================== Appendix II
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV
GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.
-------------------------------------------------------- Appendix IV:1
John Baldwin, Assistant Director
John Lovelady, Assistant Director
Robert Homan, Evaluator-in-Charge
Terry Angelo, Senior Evaluator
Nancy Patterson, Senior Evaluator
Jennifer Cruise, Evaluator
Marlene Zacharias, Secretary
ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION,
WASHINGTON, D.C.
-------------------------------------------------------- Appendix IV:2
David Clark, Director
McCoy Williams, Assistant Director
Kay Lambert, Senior Auditor
Paul Caban, Auditor
OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C.
-------------------------------------------------------- Appendix IV:3
Lynn Gibson, Associate General Counsel
Michael Volpe, Assistant General Counsel
NEW YORK REGIONAL OFFICE
-------------------------------------------------------- Appendix IV:4
Robert McKay, Senior Evaluator
OFFICE OF SPECIAL
INVESTIGATIONS
-------------------------------------------------------- Appendix IV:5
Barney Gomez, Assistant Director
OFFICE OF RECRUITMENT
-------------------------------------------------------- Appendix IV:6
Steven Kenealy, Deputy Director