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Testimony :

Before the Permanent Subcommittee on Investigations, Committee on 
Governmental Affairs, U.S. Senate:

For Release on Delivery Expected at 2:00 p.m. EST Thursday, November 6, 
2003:

TRAVEL CARDS:

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

Statement of Gregory D. Kutz Director, Financial Management and 
Assurance:

John J. Ryan Assistant Director, Office of Special Investigations:

John V. Kelly Assistant Director, Financial Management and Assurance:

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-229T] GAO-04-
229T:

GAO Highlights:

Highlights of GAO-04-229T, a testimony before the Permanent 
Subcommittee on Investigations, Committee on Governmental Affairs, 
United States Senate

Why GAO Did This Study:

Long-standing financial management problems, coupled with ineffective 
oversight and management of the Department of Defense’s (DOD) travel 
card program, which GAO has previously reported on, have led to 
concerns about DOD’s use of first and business class airfares. At the 
request of this Subcommittee, Senator Grassley, and Representative 
Schakowsky, GAO performed work to identify problems in DOD’s controls 
over premium class travel. This testimony focuses on (1) the extent of 
DOD premium class travel, (2) the effectiveness of key internal 
control activities and examples of improper premium class travel 
resulting from internal control breakdowns, and (3) DOD ‘s control 
environment over premium class travel. 

In a companion report being issued today, GAO made numerous 
recommendations—that DOD concurred with—to strengthen key internal 
control activities and improve the overall control environment.

What GAO Found:

Breakdowns in internal controls and a weak control environment 
resulted in a significant level of improper premium class travel and 
millions of dollars of unnecessary costs being incurred annually. 
Based on extensive analysis of records obtained from DOD’s credit card 
issuer—Bank of America, GAO found that for fiscal years 2001 and 2002, 
DOD spent almost $124 million on about 68,000 premium class tickets 
that included at least one leg of premium class service, primarily 
business class. To put the $124 million into perspective it exceeded 
the total travel expenses—including airfare, lodging, and meals—spent 
by each of 12 major CFO agencies. The price difference between a 
premium class ticket and a coach class ticket ranged from a few 
dollars to thousands of dollars. 

Based on statistical sample testing, GAO estimated that 72 percent of 
DOD’s fiscal year 2001 and 2002 premium class travel was not properly 
authorized, and that 73 percent was not properly justified. GAO 
estimated that senior civilian and military employees accounted for
almost 50 percent of premium class travel. Further, our data mining 
showed that 27 of the 28 most frequent premium class travelers were 
senior DOD officials. The table below provides examples of 
unauthorized and/or unjustified premium class travel compared to what 
the travel would have cost using coach class tickets.

Examples of Improper Premium Class Travel:

[See PDF for image]

[End of table]

Lack of oversight and a weak overall control environment characterized 
DOD’s management of premium class travel. DOD and the military 
services (1) did not have accurate and complete data on the extent of 
premium class travel, (2) issued inadequate policies on premium class 
travel that were inconsistent with government travel regulations and 
with each other, (3) did not issue guidance on how to document the 
authorization and justification of premium class travel, and (4) 
performed little or no monitoring of this travel. During the course of 
our audit, DOD began updating its travel regulations to more clearly 
articulate and to make more stringent the circumstances under which 
premium class travel can be authorized.

www.gao.gov/cgi-bin/getrpt?GAO-04-229T.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact Gregory Kutz at (202) 
512-9095 or kutzg@gao.gov.

[End of section]

Mr. Chairman, Members of the Subcommittee, Senator Grassley, and 
Representative Schakowsky:

Thank you for the opportunity to discuss the Department of Defense's 
(DOD) management of premium class travel acquired using centrally 
billed accounts. Our related report,[Footnote 1] released today and 
developed at the request of this Subcommittee, Senator Grassley, and 
Representative Schakowsky, describes the problems we identified in 
DOD's controls over premium class travel. These problems are 
illustrative of DOD's long-standing financial management problems, 
which are pervasive, complex, and deeply rooted in virtually all 
business operations throughout the department. Such problems led us in 
1995 to put DOD financial management on our list of high-risk areas--
those that are highly vulnerable to fraud, waste, and abuse--a 
designation that continues today.[Footnote 2] Due to these 
vulnerabilities, and our identification of fraud, waste, and abuse in a 
series of testimonies[Footnote 3] and reports[Footnote 4] we issued in 
fiscal years 2002 and 2003 on DOD's individually billed travel cards, 
you asked us to audit controls over the other major form of payment 
used by DOD for travel expenses--centrally billed accounts.

The centrally billed accounts are used by most DOD services and units 
to purchase transportation services such as airline and train tickets, 
facilitate group travel, and procure other travel-related 
expenses,[Footnote 5] while the individually billed accounts are used 
by individual travelers for lodging, rental cars, and other travel 
expenses. For fiscal years 2001 and 2002, DOD travelers incurred $7.1 
billion in expenses on the centrally billed and individually billed 
travel card accounts, with about $2.8 billion related to the use of 
centrally billed accounts.

Today, I will summarize our work on DOD's use of premium class travel 
charged to its centrally billed accounts. Federal travel regulations 
define premium class travel as any class of accommodation above coach 
class, that is, first or business class. General Services 
Administration (GSA) and DOD regulations state that travelers must use 
coach class accommodations for official business air travel--both 
domestic and international--except when a traveler is specifically 
authorized to use premium class. These regulations restrict premium 
class travel to limited circumstances. The regulations state that 
travelers on official government business must exercise the same 
standard of care in incurring expenses that a prudent person would 
exercise if traveling on personal business. Premium class flights are 
not something travelers are entitled to simply because certain 
conditions exist. Rather, when possible, travelers are to plan their 
travel in advance to avoid the necessity for premium class travel.

My testimony will focus on (1) the extent of premium class travel 
during fiscal years 2001 and 2002--the most recently available data at 
the time of our work, (2) the effectiveness of key internal control 
activities and examples of improper premium class travel resulting from 
internal control breakdowns, and (3) DOD's control environment over 
premium class travel.

Summary:

During fiscal years 2001 and 2002, DOD spent almost $124 million on 
over 68,000 premium class tickets that included at least one leg in 
premium class--primarily business class. The price difference between a 
premium class ticket and a coach class ticket ranged from a few dollars 
to thousands of dollars. Based on our statistical sample, we estimated 
that senior civilian and military employees--including senior-level 
executives and presidential appointees with Senate confirmation--
accounted for almost 50 percent of premium class travel.

During those fiscal years, breakdowns in key internal controls 
activities at DOD resulted in a significant level of improper premium 
class travel. The two basic internal control activities we tested--
proper authorization and proper justification--were ineffective. Based 
on our statistical sample, we estimated that 72 percent of all premium 
class tickets were not authorized and 73 percent were not justified--
and therefore improper. Because of the weaknesses we identified in the 
control environment and the breakdown in specific internal control 
activities, DOD did not detect these improper transactions. As each 
premium class ticket cost the government up to thousands of dollars 
more than a coach class ticket, unauthorized premium class travel 
resulted in millions of dollars of unnecessary costs being incurred 
annually.

A contributing factor to those excess costs was that DOD did not track 
premium class travel usage, design a strong control environment, or 
adhere to important internal control activities that provide reasonable 
assurance that DOD premium class travel regulations are consistent with 
federal travel regulations and are for authorized purposes only. DOD 
did not maintain adequate and accurate premium class travel data. For 
example, DOD's first class travel data, which DOD is required to report 
to GSA annually, were incomplete, and DOD did not obtain or maintain 
data on business class travel. Thus, DOD was not aware of the extent of 
premium class travel and did not have data available to identify trends 
and determine whether alternate, less expensive means of transportation 
could have been used. Other weaknesses in the area of policies and 
procedures exacerbated weak internal control procedures and contributed 
to ineffective oversight of premium class travel. In particular, DOD 
and the services did not issue (1) adequate and consistent policies on 
premium class travel, and (2) guidance on how to document the 
authorization and justification of premium class travel. Further, DOD 
had not performed audits or evaluations of premium class travel, and 
did not monitor training provided to travelers, authorizing officials, 
and commercial travel offices employees on governmentwide and DOD 
premium class travel regulations.

During our audit, DOD officials began to address some of the 
deficiencies we identified by updating the Joint Travel Regulations and 
the Joint Federal Travel Regulations-DOD's internal travel regulations-
-in April 2003 to articulate more clearly and to make more stringent 
the circumstances under which premium class travel can be authorized. 
As discussed in the report released today, DOD concurred with our 
recommendations to improve the overall control environment and 
strengthen key internal control activities.

Extent of Premium Class Travel Is Significant:

As shown in table 1, DOD spent nearly $124 million on airline tickets 
that included at least one leg of premium class service during fiscal 
years 2001 and 2002. However, because DOD did not maintain centralized 
data on premium class travel, we had to extract these data from Bank of 
America's databases of DOD centrally billed account travel, which 
included over 5.3 million transactions for airline tickets valued at 
over $2.4 billion. Due to limitations in the information collected on 
individual transactions, we were unable to determine the amount of 
premium class travel by military service or the amount of premium class 
travel used for domestic versus overseas flights.

Table 1: DOD Premium Class Travel for Fiscal Years 2001 and 2002:

First class; Number of: transactions: 1,240; Dollar amounts: (in 
thousands): $2,898.

Business class; Number of: transactions: 66,850; Dollar amounts: (in 
thousands): $120,947.

Total premium travel; Number of: transactions: 68,090; Dollar amounts: 
(in thousands): $123,845.

Source: GAO analysis of Bank of America data.

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

[End of table]

DOD's premium class air travel accounted for a very small percentage of 
DOD travel overall[Footnote 6]--about 1 percent of total DOD airline 
transactions and 5 percent of total DOD dollars spent on airline 
travel. However, to put the $124 million that DOD spent on premium 
class travel in perspective, the amount DOD spent on premium class-
related travel during these 2 fiscal years exceeded the total travel 
and transportation expenses--including airfare, lodging, and meals--
spent by each of 12 major agencies covered by the Chief Financial 
Officers Act of 1990, including the Social Security Administration; the 
Departments of Energy, Education, Housing and Urban Development, and 
Labor; and the National Aeronautics and Space Administration.

The difference between the price of a premium class ticket and a 
comparable coach class ticket can range from negligible--particularly 
if the traveler traveled within Europe--to thousands of dollars. In one 
instance, a traveler's first class flight between Washington, D.C., and 
Los Angeles was 14 times, or about $3,000 more than, the price of a 
comparable coach class flight at the government fare.

Higher-ranking civilian personnel and military officials accounted for 
a large part of premium class travel. Based on our statistical sample, 
we estimated that DOD civilian employees under the General Schedule 
(GS) grade GS-13 to GS-15 (supervisors and managers), Senior Executive 
Service (SES) (career senior executives), presidential appointees with 
Senate confirmation, and DOD senior military officers O-4 and above 
accounted for almost 50 percent of premium class travel. GAO's Guide 
for Evaluating and Testing Controls Over Sensitive Payments[Footnote 7] 
considers travel by high-ranking officials, in particular senior-level 
executives, to be a sensitive payment area because of its 
susceptibility to abuse or noncompliance with laws and regulations.

Internal Control Activities Not Effectively Implemented:

Control activities occur at all levels and functions of an agency. They 
include a wide range of diverse activities such as authorizations, 
reviews, approvals, and the production of records and documentation. 
For first and business class travel, we tested control activities 
designed to provide assurance that premium class travel transactions 
are (1) authorized and (2) justified in accordance to the Federal 
Travel Regulation (FTR), issued by GSA to implement travel policies for 
federal civilian employees and others authorized to travel at 
government expense, and DOD's travel regulations, including the Joint 
Federal Travel Regulations (JFTR), which applies to uniformed service 
members, and the Joint Travel Regulations (JTR), which applies to DOD 
civilian personnel who are subject to GSA's travel regulation. These 
regulations generally require that premium class travel be specifically 
authorized in advance of travel and only under specific circumstances. 
(See app. I for further details of GSA and DOD premium class travel 
regulations.) For example, although FTR and DOD travel regulations 
allow premium class travel when the scheduled flight time is in excess 
of 14 hours, these regulations prohibit use of premium class 
accommodation if the traveler has scheduled rest stops.

In addition to the FTR and DOD regulations, we also applied the 
criteria set forth in our internal control standards[Footnote 8] and 
sensitive payments guidelines[Footnote 9] in evaluating the proper 
authorization of premium class travel. For example, while DOD travel 
regulations and policies do not address the issue of subordinates 
authorizing their supervisors' premium class travel, our internal 
control standards consider such a policy to be flawed from an 
independence viewpoint. Therefore, a premium class transaction that was 
approved by a subordinate would fail the controls over authorization 
test. Using these guidelines, we estimated, based on our statistical 
sample, that an estimated 72 percent of the DOD centrally billed travel 
transactions containing premium class travel for fiscal years 2001 and 
2002 were not properly authorized and that an estimated 73 percent were 
not properly justified.

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

Control test: Not properly authorized by a designated official at equal 
or higher rank/grade to the traveler; Estimated percentage failure rate 
in key internal controls: [Empty]; Estimated percentage failure rate in 
key internal controls: 72.

Control test: * Premium class travel was not specifically authorized on 
the travel order or other supporting documentation; Estimated 
percentage failure rate in key internal controls: 64; Estimated 
percentage failure rate in key internal controls: [Empty].

Control test: * Travel order authorizing premium class travel was not 
signed; Estimated percentage failure rate in key internal controls: 6; 
Estimated percentage failure rate in key internal controls: [Empty].

Control test: * Premium class travel was authorized by a subordinate; 
Estimated percentage failure rate in key internal controls: 2; 
Estimated percentage failure rate in key internal controls: [Empty].

Control test: Not properly justified; Estimated percentage failure rate 
in key internal controls: [Empty]; Estimated percentage failure rate in 
key internal controls: 73.

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

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

[End of table]

As shown in table 2, an estimated 64 percent of premium class 
transactions did not contain travel orders that specifically authorized 
the traveler to fly premium class, and thus the commercial travel 
office--a travel agency--should not have issued the premium class 
ticket. Another 6 percent of premium class transactions were related to 
instances where the travel order authorizing business class was not 
signed (left blank) or the travel order authorizing first class was not 
signed by the service secretary or his or her designee, as required by 
DOD regulations. If the travel order is not signed, or not signed by 
the individual designated to do so, DOD has no assurance that the 
substantially higher cost of the premium class tickets was properly 
reviewed and represented an efficient use of government resources. We 
also estimated that 2 percent of the premium class transactions 
involved situations where a subordinate approved a superior's travel. 
Although these limited instances do not necessarily indicate the 
existence of a significant systemic problem, allowing subordinates to 
approve their supervisors' premium class travel is synonymous with 
self-approval and reduces scrutiny of premium class requests.

Another internal control weakness identified in the statistical sample 
was that the justification used for premium class travel was not always 
provided, not accurate, and/or not complete enough to warrant the 
additional cost to the government. As previously stated, premium class 
travel is not an entitlement and recent changes to DOD regulations 
state that in the context of lengthy flights premium class travel 
should only be used when exceptional circumstances warrant and 
alternatives should be explored to avoid the additional cost of premium 
class travel. As shown in table 2, an estimated 72 percent of premium 
class transactions were not authorized and therefore because they were 
not properly authorized they could not have been justified. An 
additional two transactions in our sample which were authorized but not 
justified in accordance with DOD's criteria increased our estimate of 
premium class transactions that were not justified to 73 percent.

Considering the significant breakdown in key internal controls, it was 
not surprising that our audit identified numerous examples of improper 
premium class travel that cost DOD significantly more than what would 
have been spent on a coach class ticket. Table 3 illustrates a few of 
the types of unauthorized and/or unjustified transactions from both our 
statistical samples and data mining work, along with a comparison 
between amounts actually paid and the comparable coach fares at that 
time. Without authorization or adequate justification, these cases 
illustrate the improper use of premium class travel and the resulting 
increase in:

travel costs. For further details on the cases shown in table 3, as 
well as additional examples of unauthorized and/or unjustified 
transactions, please refer to the report that we released today on this 
subject.[Footnote 10]

Table 3: Examples of Improper Use of Premium Class Travel:

Traveler: 1; Source: Data mining; Grade/ rank: GS-14[B]; Itinerary: 
One-way from London to Honolulu for a family of four for relocation 
purposes; Class of ticket: First and business; Cost of premium ticket 
paid: $20,943; Estimated cost of coach fare ticket[A]: $2,500[C]; 
[Empty]; Reason for exception: Travel order did not authorize use of 
premium class travel. Traveler obtained premium class tickets on the 
basis that these tickets were issued to other permanent change of 
station (PCS) moves exceeding 14 hours in total travel time. Navy 
policy excludes PCS move over 14 hours as a condition under which 
premium class travel can be authorized. Transaction failed 
authorization and justification.

Traveler: 2; Source: Statistical sample; Grade/ rank: GS-13; Itinerary: 
San Diego to Busan, Korea, and back; Class of ticket: Business; Cost of 
premium ticket paid: 3,695; Estimated cost of coach fare ticket[A]: 
2,161; Reason for exception: Travel order did not authorize 
business class travel. Transaction failed authorization and 
justification.

Traveler: 3; Source: Statistical sample; Grade/ rank: GS-13; Itinerary: 
San Francisco to Tokyo, and back; Class of ticket: Business; Cost of 
premium ticket paid: 3,168; Estimated cost of coach fare ticket[A]: 
610[C]; Reason for exception: Travel order authorizing the 
traveler to fly business class on the basis that the flight exceeded 14 
hours was not signed. Transaction failed authorization and 
justification.

Traveler: 4; Source: Statistical sample; Grade/ rank: GS-13; Itinerary: 
Tucson to Bahrain and Bahrain to Los Angeles; Class of ticket: 
Business; Cost of premium ticket paid: 8,308; Estimated cost of coach 
fare ticket[A]: 4,966; Reason for exception: Travel order 
contained authorization for traveler to fly business class on the basis 
that the flight lasted more than 14 hours. However, the traveler had a 
layover in London on both the outbound and return portions of the trip, 
which, per the FTR and JTR, would have precluded the traveler from 
traveling in premium class. Transaction passed authorization but failed 
justification.

Traveler: 5; Source: Statistical sample; Grade/ rank: GS-15; Itinerary: 
Los Angles to Washington, D.C., and back; Class of ticket: First; Cost 
of premium ticket paid: 3,253; Estimated cost of coach fare ticket[A]: 
238; Reason for exception: First Class Ticket not authorized 
by the Secretary of Defense or designee as required.

Traveler: 6; Source: Data mining; Grade/ rank: GS-15; Itinerary: 
Washington, D.C. to Amsterdam, and back; Class of ticket: Business; 
Cost of premium ticket paid: 4,525; Estimated cost of coach fare 
ticket[A]: 570[C]; Reason for exception: Business class travel 
authorized but no justification provided on the order. Over 18 months 
after the trip occurred, the traveler's supervisor--not a physician--
wrote a note stating that he authorized premium class based on a 
medical need. The traveler also flew coach on a number of trips that 
lasted longer than his flight from Washington D.C. to Amsterdam. The 
traveler admitted that he should not have traveled business class. 
Transaction passed authorization but failed justification.

Traveler: 7; Source: Statistical sample and data mining; Grade/ rank: 
Political appointee; Itinerary: Washington, D.C. to London, then Paris 
to Moscow; Class of ticket: Business; Cost of premium ticket paid: 
7,450; Estimated cost of coach fare ticket[A]: 3,060[C]; 
Reason for exception: Business class travel authorized on basis that 
travel is mission essential, which is not a DOD criterion for 
authorizing business class travel. Traveler was part of a group of 13 
attending a conference in Moscow. Transaction passed authorization but 
failed justification.

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

[A] Source of estimated coach fares is GSA city pair or expedia.com.

[B] GS designates General Schedule pay schedule.

[C] Fares do not include all applicable taxes and airport fees.

[End of table]

Our work also included data mining to identify the individuals who 
traveled premium class most frequently. We identified 28 of the most 
frequent premium class travelers from the 68,090 premium class 
transactions during fiscal years 2001 and 2002. All but 1 of the 28 
frequent travelers were at least GS-13 civilians or O-4 military, that 
is, senior DOD personnel. We found that the most frequent travelers 
were, in most instances, authorized to obtain premium class travel by 
people at the same or higher levels, with 3 of the 28 failing the 
authorization test because they or their subordinates authorized their 
travel orders. However, we determined that many of the transactions 
were improper because their justification was not supported by the 
documentation provided or did not adhere to FTR and DOD travel 
regulations.

Some cases involving frequent travelers were questionable because the 
justification documentation was not adequate to determine whether the 
transaction met DOD's criteria. We found that 12 of the 28 frequent 
premium class travelers justified their more expensive flights with a 
medical condition. However, we identified several anomalies in the 
application of medical condition justification, as evidenced by 
travelers who used both coach and premium class accommodations during 
flights of similar duration and during the same time period. For 
example, frequent traveler 1 in table 4 took 14 premium and 31 coach 
class trips during fiscal years 2001 and 2002. Many of the coach class 
trips, for example, from Washington, D.C., to Honolulu or cities in 
California were similar in duration to premium class trips from 
Washington, D.C., to Frankfurt or Amsterdam. This may indicate that 
additional steps should be taken to verify the validity of the medical 
certification. During testing, an Army official at the Traffic 
Management Office informed us that his office forwards all medical 
certifications to the Surgeon General for an opinion before 
recommending to the Secretary of the Army that approval be granted for 
first class travel. For further details on the cases shown in table 4, 
as well as additional examples of travelers who frequently used premium 
travel, please refer to the report that we released today.[Footnote 11]

Table 4: Examples of Travelers Who Frequently Used Premium Travel:

Traveler: 1; Grade/ rank: GM-14; Number/ cost of premium class trips: 
14/$88,000; Justification provided for premium travel: 
Doctor's note claiming medical necessity did not indicate whether 
premium class travel was needed on all flights or flights of certain 
duration; GAO's concern with premium class travel: Traveler took 45 
flights--14 premium and 31 coach class trips during fiscal years 2001 
and 2002. Many coach class trips were similar in duration to premium 
class trips; Response by traveler or traveler's staff: Traveler 
admitted to inconsistent application of medical necessity. Traveler 
considered extra room in business class to be more comfortable for long 
flights.

Traveler: 2; Grade/ rank: PAS[A]; Number/ cost of premium class trips: 
17/$68,000; Justification provided for premium travel: First 
and business class travel justified through a blanket order based on a 
medical condition; GAO's concern with premium class travel: 1. Blanket 
authorization was used to justify first and business class travel; 2. 
Premium travel was authorized by a subordinate; 3. Traveler flew in 
coach class on some flights; 4. Medical certification not attached to 
travel orders or vouchers, but a doctor's note dated 9/11/2001 was 
provided a month after we requested additional documentation; Response 
by traveler or traveler's staff: The traveler's aide said that she will 
get the Deputy Secretary's approval for first class travel and only 
schedule the traveler for first or business class when alternative 
seating is not available.

Traveler: 3; Grade/ rank: GS-15; Number/ cost of premium class trips: 
11/$35,000; Justification provided for premium travel: First 
class travel on domestic flights justified through a certification from 
medical authority; GAO's concern with premium class travel: Travel 
orders were not signed, but the official authorizing first class travel 
was the traveler himself. Further, first class travel was not 
authorized by the Under Secretary of the Navy, as required by Navy 
regulations; Response by traveler or traveler's staff: Traveler told 
us he was not aware that first class travel had to be approved by the 
Under Secretary of the Navy. Traveler is no longer authorized to fly 
first class based on medical condition.

Traveler: 4; Grade/ rank: SES[B]; Number/ cost of premium class trips: 
10/$48,000; Justification provided for premium travel: Claimed 
mission essential, so that the traveler would be ready for meetings 
upon arrival at destination; GAO's concern with premium class travel: 
1. DOD travel regulations do not list mission essential as a basis to 
justify premium class travel; 2. Some premium class flights were less 
than 14 hours; 3. Business class was taken on return flights; 4. 
Specific justification was not always accurate, for example, 
justification for first class travel from Washington, D.C., to Tampa 
used to support first class travel from Washington, D.C., to Atlanta; 
Response by traveler or traveler's staff: The traveler said that he did 
not make his flight arrangements. The traveler's assistant had no 
explanation for why some premium class trips were not authorized, or 
why the specific justification was not accurate. The traveler's 
assistant said that the traveler did not want to leave the day before 
to avoid the additional cost of a business class flight.

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

[A] Presidential appointment with Senate confirmation.

[B] Senior Executive Service appointment.

[End of table]

Weaknesses in Internal Control Environment:

GAO's Standards for Internal Control[Footnote 12] states that a 
positive control environment is the foundation for all other standards. 
The importance of the "tone at the top" or the role of management in 
establishing a strong control environment cannot be overstated. 
However, we found that prior to us initiating this audit, DOD had not 
taken actions to encourage a strong internal control environment over 
premium class travel. Specifically, DOD and the military services did 
not (1) maintain adequate and accurate premium class travel data, (2) 
issue adequate policies related to the approval of premium travel, (3) 
require consistent documentation to justify premium class travel, and 
(4) perform audits or evaluations of premium class travel and did not 
monitor training provided to travelers, authorizing officials, and 
commercial travel offices employees on governmentwide and DOD premium 
class travel regulations. During the course of our work, DOD updated 
the JTR and JFTR in April 2003 to articulate more clearly and to make 
more stringent the circumstances under which premium class travel can 
be authorized.

DOD Did Not Maintain Centralized Management Data on Premium Class 
Travel:

The FTR requires DOD, along with all other executive and legislative 
branch agencies, to provide GSA annual reports listing all instances in 
which the organization approved the use of first class transportation 
accommodations. We found that the Military Traffic Management Command 
(MTMC), responsible for tracking DOD's first class travel, understated 
DOD's cost and frequency of first class travel reported to GSA. 
According to DOD's first class travel reports submitted to GSA for 
fiscal years 2001 and 2002, DOD civilian and military personnel took 
less than 1,000 first class flight segments[Footnote 13] totaling less 
than $600,000. In contrast, our analysis of the Bank of America airline 
transaction data indicates that DOD purchased more than 1,240 tickets 
containing over 2,000 separate segments with first class 
accommodations. Our analysis also found that these first class tickets 
costs of about $2.9 million were almost 5 times the amount DOD reported 
to GSA. We found that a number of cities were omitted from DOD's first 
class report. For example, while DOD data indicated that no first class 
flights were taken into Washington, D.C., during fiscal year 2001, Bank 
of America data identified 88 first class flights into Washington D.C., 
during the same time period.

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

Control Environment Is Flawed by Inconsistencies in Premium Class 
Travel Guidance:

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

Inconsistencies have accumulated within the various premium class 
travel regulations because DOD did not revise its directives, or 
require the military services to revise their travel policies or 
implementing guidance, when DOD modified the JTR or JFTR. For example, 
DOD first issued the JTR in 1965 and since then has modified it 450 
times through April 2003, including 30 modifications since October 
2000. While the JFTR has had fewer modifications--196 through April 
2003--the JFTR has also been modified 30 times since October 2000. In 
contrast, DOD Directive 4500.9, Transportation and Traffic Management, 
was last revised in 1993 while DOD Directive 4500.56, Use of Government 
Aircraft and Air Travel, was last updated in 1999. Similarly, the Navy 
Passenger Transportation Manual was last updated in 1998, the Marine 
Corps Order P4600.7C Marine Corps Transportation Manual was last 
changed in 1992, and while the Air Force Instruction 24-101 Passenger 
Movement was last updated in 2002, it contains some provisions that are 
contrary to GAO's internal control standards and sensitive payments 
guidelines.

Inconsistencies also exist because DOD and its components have elected 
to authorize the use of premium class travel in different circumstances 
or have described the authorization to use premium class using 
different language. For example,

* DOD Directive 4500.9 grants blanket authority for high-ranking 
officials to use premium class when traveling overseas on official 
government business. This policy contradicts and is less stringent than 
the FTR, which does not cite rank as a condition for obtaining premium 
class travel.

* GSA's FTR authorizes agencies to approve the use of first class or 
business class accommodations when required by an agency's mission, but 
neither the JTR nor the JFTR adopt this authorization. In contrast, 
DOD's policies on transportation and traffic management--DOD Directive 
4500.9--states that the use of business class on domestic 
travel[Footnote 14] may be authorized when necessitated by mission 
requirements.[Footnote 15]

* GSA's FTR prohibits premium class travel if the traveler is 
authorized a rest stop en route or a rest period upon arrival at the 
duty site, even if the scheduled flight time is in excess of 14 hours. 
While DOD's JTR and JFTR that were in effect at the time of our audit 
should have contained the same restriction, they were silent as to 
whether a rest period upon arrival would exclude a traveler from 
traveling in premium class. Further, the services' implementing 
guidance is inconsistent in their application of the 14-hour 
rule.[Footnote 16]

DOD Does Not Have a Standard Format for Documenting Premium Class 
Travel:

Because premium travel is to be used only on an exception basis after 
all other alternatives have been exhausted, the documentation for 
authorization and justification should be held to the highest standards 
to provide reasonable assurance that in every case, the substantially 
higher premium travel cost is warranted. The JTR and JFTR state that 
approval for premium class travel should be obtained in advance of 
travel, except in extenuating/emergency circumstances that make 
authorization impossible, and specify the circumstances under which 
premium travel is to be permitted. However, we found substantial 
inconsistencies in the documentation trail indicating that appropriate 
officials approved premium class travel based on inadequate 
documentation.

In contrast, other federal agencies have issued clear and consistent 
guidelines related to the documentation of premium class travel. For 
example, the Department of Agriculture approves the use of premium 
class accommodations on a case-by-case basis and specifies that premium 
travel be approved by the under secretary except when frequent travel 
benefits are used. The justification must include the specific 
circumstances relating to the criteria, such as a medical justification 
from a competent medical authority, which must include a description of 
the employee's disability, medical condition, or special need; 
approximate duration of the medical condition or special need; and a 
recommendation of a suitable means of transportation based on medical 
condition or special need. The National Institutes of Health (NIH) 
requires that the traveler, when requesting premium class travel based 
on a medical condition, detail the nature of the disability or special 
need on an authorization form for employees with disabilities or other 
special needs. The authorization form must be signed by both the 
employee and a competent medical authority. NIH's policies state that 
the medical statement should specifically address why it is necessary 
to use upgraded accommodations. The form also limits the authority to a 
period of 6 or 12 months from the initial date of approval depending on 
the nature of the disability or special need. In the instance of a 
permanent disability, NIH policy is that authorized use of premium 
class accommodations is valid for up to 3 years, but that resubmission 
is necessary to ensure that there continues to be a need for the 
premium class travel.

Oversight and Monitoring Needs Improvement:

In general, effective oversight activities would include management 
review and evaluation of the process for issuing premium class travel 
and independent evaluations aimed directly at the effectiveness of 
internal control activities. Our internal control standards state that 
separate evaluations of control should depend on the assessment of 
risks and the effectiveness of ongoing monitoring procedures. As 
mentioned above, we consider executive travel as a high-risk area 
susceptible to abuse or noncompliance with laws and regulations. 
However, we found no evidence of any audits or evaluations of premium 
class travel. The lack of effective oversight and monitoring was 
another contributing factor to DOD and the services' lacking knowledge 
of the extent of improper premium class transactions.

The lack of oversight was further demonstrated by the fact that 
travelers, supervisors/managers, and employees at the commercial travel 
offices (CTO) responsible for issuing airline tickets to the travelers 
were not adequately informed on governmentwide and DOD travel 
regulations concerning when premium class travel is or is not to be 
authorized. Thus, it was not surprising that some DOD travelers and 
authorizing officials were under the mistaken impression that travel 
regulations entitled travelers to travel in business class when their 
flights exceed 14 hours. These individuals were not aware that the FTR 
provides that, in order to qualify for business class travel, travelers 
have to proceed directly to work upon arriving at the duty location. 
DOD also did not verify whether CTO employees receive training in DOD 
premium travel regulations. A representative from one commercial travel 
office informed us that they issue premium class travel if premium 
class was requested on the travel order, even if justification for 
obtaining premium class travel was flawed--for example, the flight was 
not at least 14 hours.

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

During the course of our work, in April 2003, DOD updated the 
JTR[Footnote 17] and JFTR[Footnote 18] to articulate more clearly and 
make more stringent the circumstances under which premium class other 
than first class travel, that is, business class, is authorized for DOD 
travelers on flights to and/or from points outside the continental 
United States when the scheduled flight time exceeds 14 hours. The 
revised regulations prohibit the use of business class travel when 
travelers are authorized a "rest period" or an overnight stay upon 
arrival at their duty station, and state that business class 
accommodations are not authorized on the return leg of travel.

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

Conclusions:

The ineffective management and oversight of premium class travel 
provides another example of why DOD financial management is one of our 
"high-risk" areas, with the department highly vulnerable to fraud, 
waste, and abuse. DOD does not have the management controls in place to 
identify issues such as improper use of premium class travel. As a 
result, millions of dollars of unnecessary costs are incurred annually. 
Because premium class travel is substantially more costly than coach 
travel, it should only be used when absolutely necessary, and the 
standards for approval and justification must be appropriately high. 
During our audit, DOD began taking steps to improve its policies and 
procedures for premium class travel. DOD must build on these 
improvements and establish strong controls over this sensitive area to 
ensure that its travel dollars are spent in an economical and efficient 
manner.

Our related report on these issues released today includes 
recommendations to DOD. Our recommendations address the need to improve 
internal controls to provide reasonable assurance that authorization 
and justification for premium class travel are appropriate, monitor the 
extent of premium class travel, modify policies and procedures to make 
them consistent with GSA regulations, and issue policies prohibiting 
subordinates or the travelers themselves from authorizing premium class 
travel. In oral comments on a draft of this report, DOD officials 
concurred with our recommendations to resolve the control weaknesses.

Mr. Chairman, Members of the Subcommittee, Senator Grassley, and Ms. 
Schakowsky, this concludes my prepared statement. I would be pleased to 
answer any questions that you may have.

Contacts and Acknowledgments:

For future contacts regarding this testimony, please contact Gregory D. 
Kutz at (202) 512-9095, John J. Ryan at (202) 512-9587, or John V. 
Kelly at (202) 512-6926. Individuals making key contributions to this 
testimony included Kris Braaten, Beverly Burke, Francine DelVecchio, 
Aaron Holling, Jeffrey Jacobson, Julie Matta, Sidney H. Schwartz, and 
Tuyet-Quan Thai.

[End of section]

Appendix I: GSA and DOD Premium Class Travel Regulations:

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

GSA and DOD regulations authorize the use of premium class travel under 
specific circumstances. The JTR and the JFTR limit the authority to 
authorize first class travel to the Secretary of Defense, his or her 
deputy, or other officials as designated by the Secretary of Defense. 
However, while both the JTR and JFTR provide that the authority to 
authorize first class travel may be delegated and re-delegated, the 
regulations specify that the authority must be delegated to "as high an 
administrative level as practicable to ensure adequate consideration 
and review of the circumstances necessitating the first class 
accommodations." DOD travel regulations also require that authorization 
for premium class accommodations be made in advance of the actual 
travel unless extenuating circumstances or emergency situations make 
advance authorization impossible. DOD regulations also provide that 
first class accommodations may be used without authorization only when 
regularly scheduled flights between the authorized origin and 
destination (including connecting points) provide only first class 
accommodations. Specifically, the JTR and JFTR state that first class 
accommodation is authorized only when at least one of the following 
conditions exists:

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

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

* exceptional security circumstances require such travel.

The JTR and JFTR allow the transportation officer,[Footnote 19] in 
conjunction with the official who issued the travel order, to approve 
premium class travel other than first class. In accordance with the 
FTR, DOD restricts premium class travel to the following eight 
circumstances:

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

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

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

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

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

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

* transportation is paid in full by a nonfederal source; or:

* travel is to or from a destination outside the continental United 
States, and the scheduled flight time (including stopovers) is in 
excess of 14 hours. However, if premium class accommodations are 
authorized, a rest stop is prohibited.[Footnote 20]

Both GSA and DOD regulations allow a traveler to upgrade to premium 
class other than first class travel at personal expense, through 
redemption of frequent traveler benefits. GSA also identified agency 
mission as one of the criteria for premium class travel. However, 
agency mission is not a DOD criterion for obtaining premium class 
travel.

(192112):

FOOTNOTES

[1] U.S. General Accounting Office, Travel Cards: Internal Control 
Weaknesses at the DOD Led to Improper Use of First and Business Class 
Travel, GAO-04-88 (Washington, D.C., Oct. 24, 2003).

[2] U.S. General Accounting Office, High-Risk Series: An Overview, GAO/
HR-95-1 (Washington, D.C.: February 1995), and High-Risk Series: An 
Update, GAO-03-119 (Washington, D.C.: January 2003).

[3] U.S. General Accounting Office, Travel Cards: Control Weaknesses 
Leave Army Vulnerable to Potential Fraud and Abuse, GAO-02-863T 
(Washington, D.C.: July 17, 2002), and Travel Cards: Control Weaknesses 
Leave Navy Vulnerable to Fraud and Abuse, GAO-03-148T (Washington, 
D.C.: Oct. 8, 2002).

[4] U.S. General Accounting Office, Travel Cards: Control Weaknesses 
Leave Army Vulnerable to Potential Fraud and Abuse, GAO-03-169 
(Washington, D.C.: Oct. 11, 2002), Travel Cards: Control Weaknesses 
Leave Navy Vulnerable to Fraud and Abuse, GAO-03-147 (Washington, D.C.: 
Dec. 23, 2002), and Travel Cards: Air Force Management Focus Has 
Reduced Delinquencies, but Improvements in Controls Are Needed, GAO-03-
298 (Washington, D.C.: Dec. 20, 2002).

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

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

[7] GAO/AFMD-8.1.2.

[8] GAO/AIMD-00-21.3.1.

[9] GAO/AFMD-8.1.2.

[10] GAO-04-88.

[11] GAO-04-88.

[12] GAO/AIMD-00-21.3.1.

[13] A flight segment is any portion of a ticket with a separate flight 
number.

[14] DOD Directive 4500.56, DOD Policy on Use of Government Aircraft 
and Air Travel, last updated April 19, 1999, states that all DOD travel 
outside the continental United States is subject to the JTR and the 
JFTR.

[15] DOD Directive 4500.9, Transportation and Traffic Management, ¶ 
3.4.3.1.3, Dec. 29, 1993.

[16] The Secretary of the Army policy, last updated in March 2003, 
adopts the FTR "rest period upon arrival." limitations, but did not 
define what is considered a "rest period." The Navy's OPNAVINST 
4650.15, issued in July 1998, prohibits a "rest period en route." Air 
Force Instruction 24-101 (March 2002) states that Air Force travelers 
might be authorized business class accommodations if they are required 
to perform a full day (8 hours) of work immediately upon arrival. 
Finally, the Marine Corps Order 4600.25C does not address this matter.

[17] JTR Change 450, April 1, 2003.

[18] JFTR Change 196, April 1, 2003.

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

[20] The April 2003 change to the JTR and JFTR states that premium 
class travel is authorized for DOD travelers on flights to and/or from 
points outside the continental United States when the scheduled flight 
time exceeds 14 hours. The revised regulations prohibit the use of 
business class travel when travelers are authorized a "rest period" or 
an overnight stay upon arrival at their duty station, and state that 
business class accommodations are not authorized on the return leg of 
travel.