A First Class Mess

The Defense Department's reputation already was besmirched by a series of General Accounting Office reports in 2002 highlighting employees' abuse of travel cards and failure to pay their bills. It took another hit in October.

GAO revealed that month that during fiscal 2001 and 2002, Defense staff spent $124 million on more than 68,000 airline tickets that included at least one leg of premium class travel-that is, either first class or business class service. Moreover, a whopping 44,000 employees flew premium class without proper permission. On Nov. 6, the Senate Governmental Affairs Subcommittee on Investigations held a hearing on GAO's findings.

According to the report (GAO-04-88), "senior civilian and military employees-including senior-level executives and presidential appointees with Senate confirmation-accounted for almost 50 percent of premium class travel." GAO estimated that 72 percent of premium class travel was not properly authorized and 73 percent was not properly justified.

In one case, a GS-14 civilian employee who was relocating flew his family of four via business and first class from London to Honolulu. Despite a lack of appropriate authorization and justification, the government picked up the $21,000 tab-even though coach class would have cost about $2,500. In many other cases, travelers claimed medical necessity for upgrades, but failed to adequately document medical conditions. Three of the 28 most frequent upgraders had subordinates sign their authorizations to fly premium class.

The $124 million Defense paid for officials to fly in style was more than the total travel and transportation tab-including airfare, lodging and meals-at 12 other federal agencies, including the Energy, Education, Housing and Urban Development, and Labor departments. The Defense Department's premium class air travel accounted for just 1 percent of its total airline transactions in fiscal 2001 and 2002.

Charles Abell, assistant secretary of Defense for force management, told lawmakers that the Pentagon has formed a task force to look into the matter. "The department's creation of this new task force underscores how seriously we take the type of problems identified by the GAO," he said. "We are not waiting on the task force's recommendations and have already made some changes to our policies." Abell said Defense is updating its travel regulations to more clearly state when premium class travel can be used and how it should be authorized. The department's Joint Federal Travel Regulations govern uniformed service members; the Joint Travel Regulations cover civilian personnel. Both are based on the Federal Travel Regulation for civilian agencies.

In 2002, GAO reports on widespread travel card abuse in the military suggested that the problem involved primarily lower-level employees who did not understand how to manage credit. With about 1.1 million cardholders, Defense is the government's biggest user of travel cards. Before GAO's reports, the department already had begun putting in place a variety of measures, including conducting credit checks before issuing new cards and directing reimbursements for card charges to banks, not employees. The department also increased oversight and redoubled efforts to cancel the cards of those leaving government. Abell says the new Defense Travel System also will enhance the department's ability to oversee and manage travel. The Web-based system, which allows Defense employees to make travel arrangements and file expense claims online, is in place at 24 sites and will replace 43 existing systems by 2006. In addition, the department has reviewed alternatives to travel cards, such as debit or stored value cards.

Defense's efforts have made a difference, at least in getting bills paid on time. From October 2001 to October 2003, the value of late bills fell from $23.4 million to $12.6 million, and less than 2 percent of cardholders now have delinquent accounts, according to Bryan Hubbard, a spokesman for the Defense Finance and Accounting Service. "The department is continuing to develop further efforts to improve card management, which include implementation of creditworthiness requirements and using data mining to identify and address discrepancies," he says.

The premium travel situation differs from earlier problems GAO unearthed, says Gregory Kutz, GAO's director of financial management and assurance. "For the abuse we saw with individual travel cards, it was young, enlisted military personnel who had abuse and delinquency problems. With the premium travel, it was senior military and civilian personnel."

Because the various GAO reports used different research methodologies, Kutz was unable to provide data comparing the total amount spent on unauthorized travel card purchases (for which individual travel cardholders were ultimately liable) with the amount spent on premium travel (for which the government was liable). However, he told lawmakers that Defense could have saved up to $30 million annually if employees had followed the correct procedures.

Legislative Remedies

Even before the report on premium class travel was released, lawmakers had crafted legislation to address late payments and inappropriate use of travel and purchase cards. The 2003 Credit Card Abuse Prevention Act, introduced Oct. 12 by Sens. Charles Grassley, R-Iowa, and Robert Byrd, D-W.Va., would codify processes for reconciling and auditing travel and purchase card spending governmentwide.

Bruce Sullivan, vice president of government services for Visa USA, says the proposed legislation is generally a good idea. "It requires things the agencies should be doing anyway. Procedures are in place, but [the agencies] are not always following them." He agrees with GAO's Kutz that the government's travel card problems-and purchase card problems, for that matter-stem from weak internal controls. In his view, better internal procedures, such as closer scrutiny of charge card statements, can help reveal many kinds of travel card abuse, including inappropriate premium travel. In the case of airline travel, those records identify the type of seat, premium or coach.

In introducing the Credit Card Abuse Prevention Act, Grassley said, "Unfortunately, government travel cards are routinely issued to individuals who have a bad credit history or even a record of credit card fraud. This opens up the door for abuse." If passed, the legislation would require federal agencies to run credit checks on all employees issued travel and purchase cards.

Visa USA's Sullivan thinks credit checks for travel cardholders make sense because individual cardholders, not the government, are liable for charges. But he has some misgivings about obtaining credit reports for employees who are issued purchase cards. The government guarantees payment of purchase card charges, so credit checks might not reduce risk of delinquencies. "No connection has been documented between creditworthiness and problems with purchase cards," Sullivan says. "The government needs to manage risk, not avoid risk. Credit checks for purchase card holders sound smart in theory, but they would erode the time and financial savings in the current program."

In addition, Sullivan says, "The ability to obtain a purchase card is not a condition of employment for the vast majority of cardholders. . . . I am afraid that [most of] these cardholders will take offense at the legislation inferring that their creditworthiness is an indication of their trustworthiness on the job. This could result in many of the cardholders refusing to accept cards, and that could be devastating to the government's efforts to date in streamlining acquisition."

Obtaining credit reports on travel cardholders is a "good business practice" that makes the arrangement "fair to the banks," Sullivan says. Throughout the government, internal controls are being more uniformly implemented, he notes, reducing delinquency rates and travel and purchase card abuse.

The proposed legislation mirrors many of those internal controls, says Sue McIver, director of the General Services Administration's Services Acquisition Center, which oversees the government's contracts with charge card issuers. "The critical thing about the travel card program is that it gives [agencies] the ability to gather centralized data on frequent travelers," she says. The transaction detail in travel card statements can provide information about each leg of a traveler's trip, McIver says, making it easier for supervisors to ensure that travelers are adhering to regulations.

Across government, agencies are improving their management of the travel card program, McIver notes, as evidenced by the continuing decline in delinquency rates, which now approach those in the private sector. A year ago, the governmentwide delinquency rate, including the Defense Department, was 6 percent, according to McIver. Now, she says, "travel card delinquency is at an all-time low of 4 percent. Credit card companies have consistently indicated that their desired delinquency rate for the private sector is 3 percent or less." In other words, GSA's efforts to provide widespread training and assistance for managers, the availability of nearly real-time data on card transactions, improved monitoring by agencies, and other controls are paying off.

Moving Forward

When the most frequent violators of premium class travel regulations were presented with GAO's findings, they provided a variety of explanations. One traveler's aide indicated that he flies premium class to reduce time out of the office; however, the traveler's office was not able to demonstrate a cost savings related to lost productivity. Several travelers claimed that the trips in question were "mission essential," but Defense travel regulations do not include that rationale as a justification for premium class travel.

Most travelers assured the GAO that they would adhere to appropriate authorization and justification procedures in the future. But because of the apparent widespread lack of understanding of the regulations, GAO's recommendations involve improving the Defense Department's efforts to ensure travelers are aware of the limited circumstances in which they can use premium class travel.

GAO's Kutz agrees that improved internal controls make all the difference, saying it is "within DoD's power to resolve the issue" and that the agency will fix the problems. GAO's findings on premium travel are "another example of why we have DoD financial management on our list of high-risk areas," Kutz told lawmakers. "The answer is business transformation, which will help minimize fraud and abuse."

For more information on "Travel Cards: Internal Control Weaknesses at DoD Led to Improper Use of First and Business Class Travel" (GAO-04-88), go to www.gao.gov/cgi-bin/getrpt?GAO-04-88.

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