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United States General Accounting Office: 
GAO: 

Report to Congressional Requesters: 
December 2002: 

Travel Cards: 

Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse: 

GAO-03-147: 

GAO Highlights: 

Highlights of GAO-03-147, a report to Congressional Requesters. 

Why GAO Did This Study: 

Poor oversight and management of DOD’s travel card program has led to 
high delinquency rates, costing DOD millions in lost rebates and 
increased ATM fees. As a result, the Congress asked GAO to report on 
(1) the magnitude, impact, and cause of delinquencies, (2) the types of 
fraudulent and abusive uses of the travel card, and (3) the 
effectiveness of internal controls over DOD’s travel card program. GAO 
previously reported on travel card management at the Army. This report 
focuses on travel card management at the Navy, including the Marine 
Corps. 

What GAO Found: 

As of March 31, 2002, over 8,000 Navy cardholders had $6 million in
delinquent debt. For the prior 2 years, the Navy’s average delinquency 
rate of 12 percent was nearly identical to that of the Army, which had 
the highest federal agency delinquency rate. Since November 1998, Bank 
of America had charged off nearly 14,000 Navy accounts totaling almost 
$17 million, and placed many more in a salary offset program similar to 
garnishment. 

During the period covered under this review, over 250 Navy personnel 
might have committed bank fraud by writing three or more nonsufficient 
fund (NSF) checks to Bank of America. In addition, as shown in the 
table, many cardholders abusively used the card for inappropriate 
purchases including prostitution and gambling without Navy management 
being aware of it. Many of these purchases were made when individuals 
were not on travel. 

Table: 

Category: Legalized brothels; 
Examples of vendors: James Fine Dining, Chicken Ranch; 
Number of transactions: 80; 
Dollar amount: $13,250. 

Category: Jewelry; 
Examples of vendors: Kay Jewelers; 
Number of transactions: 199; 
Dollar amount: $20,800. 

Category: Gentlemen's clubs; 
Examples of vendors: Spearmint Rhino, Cheetah's Lounge; 
Number of transactions: 247 
Dollar amount: $28,700. 

Category: Gambling; 
Examples of vendors: Seinpost Holding; 
Number of transactions: 80; 
Dollar amount: $34,250. 

Category: Cruises; 
Examples of vendors: Carnival, Norwegian; 
Number of transactions: 72; 
Dollar amount: $38,300. 

Category: Sports, theater, and
concert tickets; 
Examples of vendors: New York Yankees, Ticketmaster; 
Number of transactions: 502; 
Dollar amount: $71,400. 

[End of table] 

The Navy’s overall delinquency and charge-off problems were primarily
associated with lower-paid, low- to midlevel enlisted military 
personnel. A significant relationship also existed between travel card 
fraud, abuse, and delinquencies and individuals with substantial credit 
history problems. For example, some cardholders had accounts placed in 
collections while others had filed bankruptcies prior to receiving the 
card. The Navy’s practice of authorizing issuance of the travel card to 
virtually anyone who asked for it compounded these problems. 

We also found inconsistent documented evidence of disciplinary actions
against cardholders who wrote NSF checks, or had their accounts charged
off or put in salary offset. Further, almost one-half of these 
cardholders still had, as of August 2002, active secret or top-secret 
clearances. Other control breakdowns related to the Navy’s failure to 
provide the necessary staffing and training for effective oversight, 
and infrequent, or nonexistent, monitoring of travel card activities. 

As a result of these and similar findings in the Army travel card 
program, the recently enacted fiscal year 2003 Defense Appropriations 
Act included provisions requiring the Secretary of Defense to establish 
guidelines and procedures for disciplinary actions and to deny issuance 
of the travel card to individuals who are not creditworthy. 

What GAO Recommends: 

GAO makes numerous recommendations to the Navy in the areas of card 
issuance, account monitoring, and disciplinary actions, including: 

* evaluate the feasibility of deactivating all cards when the 
cardholders are not on authorized travel; 

* review the adequacy of program staffing; 

* provide sufficient training to APCs to ensure proper oversight of the 
travel card program, including effective monitoring for inappropriate
transactions; and; 

* review security clearances of cardholders with financial problems. 

[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-147]. 

To view the full report, including the scope and methodology, click on 
the link above. For more information, contact Gregory Kutz at (202) 512-
9505 or kutzg@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Navy Has High Delinquency and Charge-off Rates but Recent Actions Have 
Resulted in Some Improvements: 

Potentially Fraudulent and Abusive Travel Card Activity: 

Weak Overall Control Environment and Ineffective Travel Card Program 
Controls: 

Statistical Tests of Key Control Activities: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Background: 

Travel Card Program Guidelines: 

The Navy Travel Process: 

Appendix II: Objectives, Scope, and Methodology: 

Appendix III: Navy Major Command Delinquency Rates: 

Appendix IV: Navy Personnel Grade, Rank, and Associated Basic Pay 
Rates: 

Appendix V: Comments from the Department of Defense: 

Tables Table 1: Cumulative Charge-offs and Recoveries and Delinquencies
by Military Service: 

Table 2: Outstanding Balance and Delinquency Rate as of March 31, 2002, 
by Major Navy Commands: 

Table 3: Examples of Potentially Fraudulent Activities: 

Table 4: Examples of Abusive Travel Card Activity, Fiscal Year 2001 
through March 31, 2002: 

Table 5: Examples of Abusive Travel Card Activity Where Accounts Were 
Charged Off or Placed in Salary Offset: 

Table 6: Examples of Abusive Activity Where the Cardholders Paid the 
Bills: 

Table 7: Average Ratio of Fiscal Year 2001 Cardholders to APCs at Navy 
Sites Audited: 

Table 8: Results of Testing of Key Internal Controls: 

Table 9: Comparison of Number of Individually Billed Travel Cardholders 
and Related Charges for DOD versus Total Federal Government Charges for 
Fiscal Year 2001: 

Table 10: Population of Fiscal Year 2001 Travel Transactions at Navy 
Units Tested: 

Table 11: Estimates of Fiscal Year 2001 Transactions That Failed 
Control Tests for Approved Travel: 

Table 12: Estimates of Fiscal Year 2001 Transactions That Failed 
Control Tests for Accurate Travel Voucher Payments: 

Table 13: Estimates of Fiscal Year 2001 Transactions That Failed 
Control Tests for Timely Submission and Processing of Travel Vouchers: 

Table 14: Navy Major Command Delinquency Rates (By Quarter) for the 2 
Years Ending March 31, 2002: 

Table 15: Navy Military Grades, Ranks, and Associated Average Basic Pay 
Rates for Fiscal Year 2001: 

Table 16: Marine Corp Military Grades, Ranks, and Associated Basic Pay 
Rates for Fiscal Year 2001: 

Table 17: Civilian Grades and Associated Basic Pay Rates for Calendar 
Year 2001: 

Figures: 

Figure 1: Navy, Army, Other DOD, and Non-DOD Civilian Agencies Travel 
Card Delinquency Rates for the 2-Year Period Ending March 31, 2002: 

Figure 2: Navy Delinquent and Total Outstanding Travel Card Balances by 
Military Grade and Civilian Populations as of September 30, 2001: 

Figure 3: Navy Delinquency Rate by Military Grade and Civilian 
Populations Compared to Navy’s Average as of September 30, 2001: 

Figure 4: Fiscal Year 2001 Navy Charge-offs by Military Grades and 
Total Civilian Populations: 

Figure 5: Navy Travel Card Charge-off and Recovery History from October 
1, 2000, to March 31, 2002: 

Figure 6: Overview Flowchart of the Navy Travel Process: 

Figure 7: Travel Card Application: 

Figure 8: Required DOD and Bank of America Delinquency Process 
Management Actions: 

[End of section] 

United States General Accounting Office: 
Washington, D.C. 20548: 

December 23, 2002: 

The Honorable Charles E. Grassley: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate: 

The Honorable Stephen Horn: 
Chairman: 
The Honorable Janice D. Schakowsky: 
Ranking Minority Member: 
Subcommittee on Government Efficiency, Financial Management and 
Intergovernmental Relations: 
Committee on Government Reform: 
House of Representatives: 

On October 8, 2002, we testified[Footnote 1] before the Subcommittee on 
Government Efficiency, Financial Management and Intergovernmental 
Relations, House Committee on Government Reform, on the results of our 
audit of internal controls over travel activity at the Department of 
the Navy (including the United States Marine Corps). During fiscal year 
2001, the Navy had about 395,000 individually billed travel card 
accounts and $510 million in related travel card charges. In contrast 
to the purchase card program, where charges are billed directly to the 
government for payment, the individually billed travel cardholder is 
directly responsible for all charges incurred on his or her travel card 
account and for remitting payments on the monthly bill to the card 
issuer, Bank of America. The cardholder is expected to use the 
government travel card only for valid expenses related to official 
travel and to submit a properly documented voucher to get reimbursed 
for valid expenses. The intent of the travel card program was to improve
convenience for the traveler and to reduce the government’s costs of
administering travel (see app. I for additional background information 
on the Navy’s travel card program). While we support the use of a 
travel card program to streamline the administration of official 
government travel, it is important that agencies have adequate internal 
controls in place to protect the government from fraud, waste, and 
abuse. 

This work was performed in response to your request for a comprehensive
examination of the Department of Defense’s (DOD) and the military 
services’ purchase and travel card programs. We have previously reported
on the results of our Army travel card audit[Footnote 2] and will be 
reporting on the results of our Air Force travel card audit. This 
report provides details and results of our Navy travel card audit, 
which was summarized in our recent testimony. 

The objectives of our audit of the Navy’s travel card program were to
determine, for fiscal year 2001 and the first 6 months of fiscal year 
2002, (1) the reported magnitude and impact of delinquent and charged-
off Navy travel card accounts, along with an analysis of related causes 
and DOD and Navy corrective actions, (2) whether indications existed of 
potentially fraudulent and abusive activity [Footnote 3] related to the 
Navy travel cards, and (3) the effectiveness of the overall control 
environment and key internal controls for the Navy’s travel program. To 
achieve these objectives, we analyzed the Navy’s account delinquency 
and charge-off information and compared it to that of non-Navy DOD 
components and other federal agencies. We also used data mining 
techniques to review Navy transactions for potential fraud and abuse. 
In addition, we evaluated the effectiveness of selected, specific 
internal control policies, procedures, and activities at 3 Navy 
installations, representing 3 of the Navy’s 27 major commands. 
[Footnote 4] 

We selected the three installations we audited based on the relative 
amount of travel card activity at the different Navy commands and of the
installations under these commands, the number and percentage of
delinquent accounts, and the number and percentage of charged-off
accounts. For these installations, we tested a statistical sample of 
travel card transactions and conducted other audit work to evaluate the 
design and implementation of key internal control procedures and 
activities. Our statistical sample test results can be projected only 
to the individual installations where we performed the testing and 
cannot be projected to the command level or to the Navy as a whole. 
Through auditing travel card transactions at the three installations 
during fiscal year 2001, and data mining of transactions incurred 
throughout the Navy during fiscal year 2001 and the first 6 months of 
fiscal year 2002, we identified numerous examples of potentially 
fraudulent and abusive travel card activity. However, our work was not 
designed to identify, and we cannot determine, the extent of 
potentially fraudulent and abusive activity. Appendix II provides 
details on our scope and methodology. 

We conducted our audit work from December 2001 through October 2002
in accordance with U.S. generally accepted government auditing 
standards, and we performed our investigative work in accordance with 
standards prescribed by the President’s Council on Integrity and 
Efficiency. We received written comments on a draft of this report from 
the Under Secretary of Defense (Comptroller) dated December 5, 2002. We 
addressed DOD’s comments in the “Agency Comments and Our Evaluation” 
section and reprinted them in appendix V. 

Results in Brief: 

For fiscal year 2001, the Navy had significant breakdowns in internal
controls over individually billed travel cards. These breakdowns
contributed to the significant delinquencies and charge-offs of Navy
employee account balances and potentially fraudulent and abusive 
activity related to the travel card. The breakdowns resulted primarily 
from a weak control environment, flawed policies and procedures, and a 
lack of adherence to valid policies and procedures. 

Most Navy travel cardholders used the travel cards for authorized 
official government travel expenses and paid the amounts owed to Bank of
America promptly. However, the Navy’s average delinquency rate of about
12 percent over the last 2 years is nearly identical to the Army’s, 
which is the highest delinquency rate in the federal government, and 
about 6 percentage points higher than that of federal civilian 
agencies. In addition, from November 1998 through March 2002, Bank of 
America charged off over 13,800 Navy travel card accounts totaling 
about $16.6 million. The Navy’s delinquency and charge-off problems are 
primarily associated with low- to midlevel enlisted military personnel. 
These delinquencies and charge-offs have cost the Navy millions of 
dollars in lost rebates, higher fees, and substantial resources spent 
pursuing and collecting on delinquent accounts. In response, in 
November 2001, the Navy and DOD began offsetting wages of certain 
military and civilian employees, as well as retirement benefits of 
military retirees whose accounts were delinquent or had been charged 
off. DOD and the Navy also encouraged increased use of the split 
disbursement payment process, in which cardholders elected to have part 
or all of their reimbursements sent directly to Bank of America for 
payment of their travel card bills. These and other actions have begun 
to significantly reduce the number and dollar value of charge-offs 
during fiscal year 2002. However, these actions are primarily focused 
on treating the symptoms, or “back-end” problems, such as delinquencies 
and chargeoffs, rather than the “front-end,” or preventive controls, 
such as the weak overall control environment and specific travel 
program control weaknesses. 

Our work identified numerous instances of potentially fraudulent and
abusive activity during fiscal year 2001 and the first 6 months of 
fiscal year 2002. During this period, more than 250 Navy employees 
might have committed bank fraud by writing 3 or more nonsufficient fund 
(NSF) checks. In one case, a petty officer wrote 12 NSF checks, 
totaling $61,000, to Bank of America. The government cards were also 
used for numerous abusive transactions clearly not related to 
government travel. As part of our statistical sampling work at three 
audit sites, we projected that personal use of the travel cards in 
fiscal year 2001 ranged from 7 percent at one Navy installation to 27 
percent at another. Government travel cards were used for inappropriate 
transactions at legalized brothels, gentlemen’s clubs, cruise lines, 
jewelry stores, and sporting and theatre venues. During the period 
under audit, 50 Navy employees purchased more than $13,000 in 
prostitution services from two known legalized brothels. An additional 
137 individuals charged more than $29,000 at gentlemen’s clubs, which 
provide adult entertainment. Some of these individuals circumvented 
their travel card cash limits by converting the card to cash or “club 
cash” at these adult entertainment establishments and paying a 
surcharge that was as high as 10 percent. To illustrate, one cardholder 
charged $2,420 at one of these clubs in exchange for $2,200 in cash. 
The $2,200 in cash and the 10 percent fee of $220 were processed as a 
restaurant charge. 

Another frequent form of abuse was the failure to pay the travel card 
bill. Many individuals who used the cards for inappropriate purposes 
also failed to pay their accounts. Others abused the travel card by 
failing to pay charges associated with official government travel, even 
though they had been reimbursed. However, we did not find documented 
evidence of disciplinary actions against many Navy personnel who abused 
the cards. Of the 10 individuals we reviewed who made improper charges 
but paid their bills, only 1 had evidence of disciplinary action. In 
addition, of the 57 individuals we reviewed who wrote NSF checks or 
whose accounts were charged off or put in salary offset, 37 were 
apparently not disciplined, and 27 still had active secret or top-
secret clearances as of August 2002. Navy personnel with security 
clearances who have financial problems may pose security risks to the 
Navy. 

Our audit found that weaknesses in the Navy’s overall control 
environment, including a number of specific controls that were either 
flawed in their design or in their implementation, are the root causes 
of the Navy’s inability to prevent and/or effectively detect the 
numerous instances of potentially fraudulent and abusive travel card 
related activity. During fiscal year 2001, management at the three 
units we audited was primarily focused on delinquencies and did not 
implement sufficient front-end controls to prevent severe credit 
problems or promptly detect or prevent potentially fraudulent and 
abusive activities. In general, the Navy did not provide an adequate 
control infrastructure—primarily in the area of human capital—to manage 
its travel card program and effectively prevent or provide for early 
detection of travel card misuse. Agency program coordinators (APC), who 
have the key responsibility for managing and overseeing travel 
cardholders’ activities, were given little opportunity to succeed. Some
were assigned APC responsibilities as collateral duties, while others 
had oversight of a large number of cardholders—for example up to 6,000
cardholders for the APC at one installation. Many did not have adequate
time to follow up with delinquent cardholders and perform detailed 
review of transaction activities. Others had not received adequate 
training and were not proficient with the tools available for travel 
card management. In fact, Bank of America data show that 23 percent of 
APCs had never logged on to the Web-based system containing travel card 
transaction data. In contrast, proactive actions of the APC at one Navy 
site we audited contributed to that site’s low delinquency rate. 

Additionally, critical weaknesses existed in other controls the Navy 
relied on to manage its travel card program. For example, many problems 
we identified were the results of ineffective controls over issuance of 
the travel cards. Although DOD’s policy allows exemptions from the use 
of travel cards for certain groups or individuals, we found that, 
without exception, any Navy personnel who requested the card were 
authorized to have one, regardless of credit history. We found that 
individuals who had histories of prior credit problems tended to be 
those who committed travel card fraud and abuse. The prior and current 
credit problems we identified for Navy travel cardholders included 
charged-off credit cards, bankruptcies, judgments, accounts in 
collections, and repeated writing of NSF checks. 

As a result of similar findings from our work on the Army and Navy 
travel card programs, the Congress has taken actions in the fiscal year 
2003 Defense Appropriations Act, Public Law 107-248, to require the 
Secretary of Defense to establish guidelines and procedures for 
disciplinary actions to be taken against cardholders for improper, 
fraudulent, or abusive use of the government travel card and to deny 
issuance of government travel cards to individuals who are not 
creditworthy. Further, in the Bob Stump National Defense Authorization 
Act for Fiscal 2003, (Public Law 107-314), the Congress authorized the 
Secretary of Defense to require the split disbursement procedure for 
all travel cardholders, and clarified the authority of the Secretary to 
offset delinquent travel card debt against the pay or retirement 
benefits of DOD civilian and military employees and retirees. In this 
report, we provide additional recommendations to the Navy to strengthen 
the overall control environment for its travel card program and improve 
specific internal controls. Our recommended actions are in the areas of 
card issuance, monitoring, review, and travel voucher and payment 
processes. 

In written comments on a draft of this report, DOD concurred with 21 of
our 23 recommendations and described actions completed, under way, or
planned. DOD partially concurred with our recommendations regarding
(1) establishing Navy-wide procedures requiring that supervisors and
commanding officers notify the APCs of actions taken with respect to
delinquent cardholders and (2) having commanders at each unit identify
causes of the high error rate related to travel voucher review and 
provide refresher training to voucher examiners and auditors. However, 
DOD’s planned actions, if effectively implemented, should 
satisfactorily address the intent of these two recommendations. 

Navy Has High Delinquency and Charge-off Rates but Recent Actions Have
Resulted in Some Improvements: 

The Navy’s delinquency rate[Footnote 5] was slightly lower than the 
Army’s, which is the highest delinquency rate in the federal 
government. Cumulative Navy charge-offs since the inception of the Bank 
of America travel card program in November 1998 were nearly $16.6 
million. As discussed in further details in the following sections of 
this report, weaknesses in the Navy’s overall control environment and a 
lack of front-end controls over travel card issuance and use 
exacerbated the Navy’s delinquency problems. Without proper management 
control, demographics such as the age and pay rates of Navy personnel 
also contributed to delinquencies and charge-offs. These problems have 
led to contract modifications with Bank of America that resulted in the 
Navy, the federal government, and the taxpayers losing millions of 
dollars in rebates, higher fees, and substantial resources spent 
pursuing and collecting on past due accounts. 

DOD and the Navy have taken a number of positive actions to address the
Navy’s high delinquency and charge-off rates, and results from the 
first half of fiscal year 2002 showed a significant drop in charged-off 
accounts. Most of this reduction could be attributed to a salary and 
military retirement offset program, which began in November 2001. DOD 
and the Navy also encouraged cardholders to voluntarily use the split 
disbursement payment process (split disbursements) to direct that a 
portion or all of their reimbursements be sent directly to the bank for 
payment of their travel card bills. The Navy also increased management 
attention and focus on the delinquency issue. However, except for split 
disbursements, the Navy’s actions primarily address the symptoms of 
delinquency and charge-offs after they had already occurred. Control 
weaknesses remain in the front-end management of the travel card 
program, such as issuing the cards and overseeing the proper use of the 
cards. 

The Navy’s Delinquencies and Charge-offs: 

Over the last 2 years, the Navy’s delinquency rate fluctuated from 10 
to 18 percent and on average was 5.6 percentage points higher than 
other non-Army DOD components and 6 percentage points higher than non-
DOD federal civilian agencies. As of March 31, 2002, over 8,000 Navy
cardholders had collectively $6 million in delinquent debt. As discussed
below, the nature of the Navy’s mission, which requires personnel in 
certain Navy commands to travel often for training and preparation for
deployment, contributes, at least in part, to the Navy’s high 
delinquency rate. Figure 1 compares delinquency rates among the Navy, 
Army, other DOD, and the 23 largest civilian agencies. [Footnote 6] 

Figure 1: Navy, Army, Other DOD, and Non-DOD Civilian Agencies Travel 
Card Delinquency Rates for the 2-Year Period Ending March 31, 2002: 

[See PDF for image] 

This figure is a multiple line graph depicting delinquency rates for 
Navy, Army, Other DOD, and Non-DOD civilian agencies. 

The lines represent the percentage of delinquency rate for each group 
during the time period of third quarter, 2000 through second quarter, 
2002. 

Source: Bank of America and General Services Administration data. 

[End of figure] 

Since Bank of America took over the DOD travel card contract on 
November 30, 1998, Bank of America has charged off over 13,800 Navy
travel card accounts with nearly $16.6 million of bad debt. Table 1 
provides a comparison of cumulative charge-offs, recoveries, [Footnote 
7] and delinquencies by military service as of March 31, 2002. 

Table 1: Cumulative Charge-offs and Recoveries and Delinquencies by 
Military Service (Dollars in millions): 

DOD service: Navy; 
Cumulative charge-offs[A]: $16.6; 
Cumulative recoveries[A]: $6.2; 
Net cumulative charge-offs[A]: $10.4; 
Delinquencies as of March 31, 2002[B]: $6.0. 

DOD service: Army; 
Cumulative charge-offs[A]: $33.5; 
Cumulative recoveries[A]: $12.9; 
Net cumulative charge-offs[A]: $20.6; 
Delinquencies as of March 31, 2002[B]: $8.4. 

DOD service: Air Force; 
Cumulative charge-offs[A]: $11.6; 
Cumulative recoveries[A]: $4.7; 
Net cumulative charge-offs[A]: $6.9; 
Delinquencies as of March 31, 2002[B]: $5.0. 

Source: GAO analysis of Bank of America and General Services 
Administration data. 

[A] Cumulative charge-offs and recoveries are for November 1998 through 
March 2002. 

[B] Delinquencies represent amounts not paid within 60 days of the 
travel card monthly statement closing date, which is the cutoff date 
for charges to be included in the monthly statement. Under the terms of
the travel cardholder’s agreement with Bank of America, payment of the 
travel card statement is due to Bank of America within 25 to 30 days of 
the statement closing date. 

Age and Pay Grade Are Correlated to Delinquency and Charge-off 
Problems: 

Our analysis showed a correlation between certain demographic factors
and high delinquency and charge-off rates. Available data showed that 
the travel cardholder’s rank or grade (and associated pay)[Footnote 8] 
is a strong predictor of delinquency problems. As shown in figure 2, 
the Navy’s delinquency and charge-off problems are primarily associated 
with low- and mid-level enlisted military personnel grades E-1 to E-6, 
with relatively low incomes and little experience in handling personal 
finances. 

Figure 2: Navy Delinquent and Total Outstanding Travel Card Balances by 
Military Grade and Civilian Populations as of September 30, 2001: 

[See PDF for image] 

This figure is a multiple vertical bar graph depicting the following 
approximated data (dollars in millions): 

Military grade: E1-3; 
Delinquent: approximately $1 million; 
Outstanding balance: approximately $2 million. 

Military grade: E4-6; 
Delinquent: approximately $4 million; 
Outstanding balance: approximately $20 million. 

Military grade: E7-9; 
Delinquent: approximately $1 million; 
Outstanding balance: approximately $6 million. 

Military grade: W01-05; 
Delinquent: approximately 0; 
Outstanding balance: approximately $1 million. 

Military grade: O1-3; 
Delinquent: approximately $0.5 million; 
Outstanding balance: approximately $4 million. 

Military grade: O4-6; 
Delinquent: approximately $.05 million; 
Outstanding balance: approximately $6 million. 

Military grade: O7-10; 
Delinquent: approximately 0; 
Outstanding balance: approximately $0.25 million. 

Military grade: Civilian; 
Delinquent: approximately $1 million; 
Outstanding balance: approximately $15 million. 

Source: GAO analysis of Bank of American data. 

[End of figure] 

Available data indicate that military personnel grades E-1 (seaman 
recruit in the Navy or private in the Marine Corps) to E-6 (petty 
officer first class in the Navy or staff sergeant in the Marine Corps) 
account for about 78 percent of all Navy military personnel. These 
enlisted military personnel have basic pay levels ranging from $12,000 
to $27,000. These individuals were responsible for 40 percent of the 
total outstanding Navy travel card balances as of September 30, 2001. 

Figure 3 compares the delinquency rates by military rank and civilian
personnel to the Navy’s average delinquency rate as of September 30, 
2001. As shown, the delinquency rates were as high as 34 percent for E-
1 to E-3 military personnel and 20 percent for E-4 to E-6 military 
personnel, compared to the Navy’s overall delinquency rate of 12 
percent. These rates were markedly higher than the rates for officers, 
which ranged from a low of 1 percent for O-7 to O-10 (admirals in the 
Navy or generals in the Marine Corps) to a higher 8 percent for O-1 to 
O-3 (ensign to lieutenant in the Navy or second lieutenant to captain 
in the Marine Corps). These rates were also substantially higher than 
that of Navy civilians, which at 5 percent was comparable with the 
federal civilian agencies rate shown in figure 1. 

Figure 3: Navy Delinquency Rate by Military Grade and Civilian 
Populations Compared to Navy’s Average as of September 30, 2001: 

[See PDF for image] 

This figure is a horizontal bar graph depicting the following data: 

Rank: O7-10; 
Delinquent amount as a percentage of outstanding balance: 1%. 

Rank: Civilian; 
Delinquent amount as a percentage of outstanding balance: 5%. 

Rank: O4-6; 
Delinquent amount as a percentage of outstanding balance: 5%. 

Rank: O1-3; 
Delinquent amount as a percentage of outstanding balance: 8%. 

Rank: W01-05; 
Delinquent amount as a percentage of outstanding balance: 11%. 

Rank: E7-9; 
Delinquent amount as a percentage of outstanding balance: 11%. 

Rank: Average Navy; 
Delinquent amount as a percentage of outstanding balance: 12%; 

Rank: E4-6; 
Delinquent amount as a percentage of outstanding balance: 20%. 

Rank: E1-3; 
Delinquent amount as a percentage of outstanding balance: 34%. 

Source: GAO analysis of Bank of America data. 

[End of figure] 

The delinquency rate of military personnel E-4 to E-6 in particular had 
an important negative impact on the Navy’s delinquency rate. 
Specifically, these are petty officers in the Navy and corporals to 
staff sergeants in the Marine Corps. Pay levels for these personnel, 
excluding supplements such as housing, ranged from approximately 
$18,000 to $27,000. These individuals also traveled often. As shown by 
Bank of America data, personnel E-4 to E-6 accounted for 36 percent of 
the total Navy outstanding balance, which was higher than the 
outstanding balance of all other military and civilian personnel. This 
combination of high outstanding balance and high delinquency rate 
largely explained the high Navy delinquency rate. 

As shown in figure 4, charged-off amounts for military personnel grades 
E-1 to E-6 during fiscal year 2001 totaled more than $3.6 million. This
represented 72 percent of the almost $5 million in total Navy charge-
offs during fiscal year 2001. 

Figure 4: Fiscal Year 2001 Navy Charge-offs by Military Grades and 
Total Civilian Populations (dollars in millions): 

[See PDF for image] 

This figure is a vertical bar graph depicting the following 
approximated data: 

Grade/classification: E1-E3; 
Charge-off: approximately $0.8 million. 

Grade/classification: E4-E6; 
Charge-off: approximately $2.75 million. 

Grade/classification: E7-E9; 
Charge-off: approximately $0.2 million. 

Grade/classification: O1-O10; 
Charge-off: approximately $0.1 million. 

Grade/classification: WO-1 to WO-5; 
Charge-off: approximately $0.025 million. 

Grade/classification: Civilian; 
Charge-off: approximately $0.5 million. 

Source: GAO analysis of Bank of America data. 

[End of figure] 

According to Navy representatives, these individuals often had little
experience handling personal resources. Although their basic pay rates 
are supplemented with housing and food allowances, the low salaries may 
not permit payment of excessive personal charges on travel cards. If 
these individuals get into financial difficulty, they have fewer 
resources at their disposal to pay their travel card balances in full 
every month. Also, if cardholders in these lower grade levels do not 
receive their travel card reimbursements promptly because of either 
delays in filing their vouchers or voucher processing, they may lack 
the financial resources to make timely payments on their travel card 
accounts. In addition, as discussed later in this report, the Navy did 
not exempt personnel with poor credit histories from required use of 
travel cards. Consequently, these low- and midlevel enlisted military 
personnel are often issued travel cards even though some may already be 
in serious financial trouble and, therefore, may not have been 
appropriate credit risks. Lack of adequate training and the failure to 
adequately monitor travel card use may also have exacerbated the 
delinquency rates for these individuals. 

Delinquency Rates Vary Across Navy Commands: 

Navy delinquency rates also varied widely across commands. Table 2 
shows the outstanding balance and delinquency rates of major Navy 
commands as of March 31, 2002. As shown, the delinquency rates as of
March 31, 2002, ranged from 22 percent for the Naval Reserve Force to as
low as 2 percent for four commands, including the Naval Air Systems 
Command. Table 2 also shows that high credit card activity was not 
necessarily associated with high delinquency rates. In fact, some Navy
commands with high credit card activity also had low delinquency rates. 

Table 2: Outstanding Balance and Delinquency Rate as of March 31, 2002, 
by Major Navy Commands: 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Naval Reserve Force; 
Outstanding balance as of 3/31/2002: $9,751,402; 
Delinquency rate: 22%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Naval Sea Systems Command; 
Outstanding balance as of 3/31/2002: $8,058,740; 
Delinquency rate: 3%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: U.S. Atlantic Fleet; 
Outstanding balance as of 3/31/2002: $5,447,558; 
Delinquency rate: 14%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Naval Air Systems Command; 
Outstanding balance as of 3/31/2002: $4,363,939; 
Delinquency rate: 2%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: U.S. Pacific Fleet; 
Outstanding balance as of 3/31/2002: $4,096,954; 
Delinquency rate: 12%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: U.S. Marine Corps Forces Pacific; 
Outstanding balance as of 3/31/2002: $2,631,628; 
Delinquency rate: 16%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: U.S. Marine Corps Forces Atlantic; 
Outstanding balance as of 3/31/2002: $2,330,153; 
Delinquency rate: 17%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Chief of Naval Operations[A]; 
Outstanding balance as of 3/31/2002: $1,944,676; 
Delinquency rate: 4%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Space and Naval Warfare Systems Command; 
Outstanding balance as of 3/31/2002: $1,726,445; 
Delinquency rate: 2%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Marine Forces Reserve; 
Outstanding balance as of 3/31/2002: $1,657,040; 
Delinquency rate: 18%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Bureau of Medicine and Surgery; 
Outstanding balance as of 3/31/2002: $1,452,869; 
Delinquency rate: 8%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Chief of Naval Education and Training[A]; 
Outstanding balance as of 3/31/2002: $1,258,219; 
Delinquency rate: 7%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Bureau of Naval Personnel; 
Outstanding balance as of 3/31/2002: $1,272,454; 
Delinquency rate: 11%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Naval Special Warfare Command; 
Outstanding balance as of 3/31/2002: $1,264,380; 
Delinquency rate: 9%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Naval Facilities Engineering Command; 
Outstanding balance as of 3/31/2002: $1,182,028; 
Delinquency rate: 2%. 

Major Navy command with outstanding balance of $1 million or over as of 
3/31/2002: Office of the Undersecretary of the Navy[A]; 
Outstanding balance as of 3/31/2002: $1,094,918; 
Delinquency rate: 2%. 

Source: GAO calculation based on information from Bank of America. 

Note: Table shows only commands with outstanding balances greater than 
$1 million as of March 31, 2002. Delinquency rates shown represent the 
total amount delinquent (amounts not paid within 61 days of the travel 
card monthly statement closing date) as a percentage of total amount 
outstanding for all travel card accounts in the command at that point 
in time. 

[A] These units had outstanding balances of $1 million or more, but are 
not considered major commands. 

[End of table] 

The six major commands with the highest delinquency rates—ranging from
22 to 12 percent—as of March 31, 2002, were the Naval Reserve Force, the
U.S. Atlantic Fleet, the U.S. Pacific Fleet, U.S. Marine Corps Forces 
Pacific, U.S. Marine Corps Forces Atlantic, and Marine Forces Reserve. 
Navy officials expressed the belief that demographics and logistics were
important contributing factors to these high delinquency rates. 
According to Navy officials, Atlantic and Pacific fleet personnel, as 
well as Marine Corps Forces Atlantic and Pacific, travel frequently for 
training and preparation for deployment. Because they are always on the 
move, these individuals might not be filing vouchers and making 
payments in a timely manner. In addition, fleet personnel often consist 
of low- and mid-level recruits, demographics which, as discussed 
previously, are a contributing factor to the high delinquency rate. 

Navy officials attributed the delinquency problems with the reserve 
forces to logistics of a different kind. Reserve forces are spread 
throughout the country and report to duty only once a month. Reservists 
typically fill out their vouchers when they return home and then mail 
them to the processing centers, sometimes weeks after the training. 
According to Navy officials, the high delinquency rates in the reserve 
forces could be attributed partly to the fact that some had not 
received travel reimbursement by the time their bills became 
delinquent. 

In contrast, some commands, such as Naval Sea Systems Command and
Naval Air Systems Command, had large numbers of travel card accounts
and high travel card activity, yet low delinquency rates. According to 
Navy officials, this is because personnel in these commands are 
typically civilians, are older and more mature, and therefore are 
better at managing their finances. These demographic factors, coupled 
with the fact that these sites typically have full-time APCs and a 
better control environment, may explain why their delinquency rates are 
lower than the Navy average, and sometimes even lower than the average 
rate for federal civilian agencies. 

The case study sites we audited followed the pattern described above. 
For example, at Camp Lejeune, a principal training location for Marine 
air and ground forces, over one-half of the cardholders are enlisted 
personnel. Representative of the Navy’s higher delinquency rate, Camp 
Lejeune’s quarterly rates over the 18 months ending March 31, 2002, 
averaged over 15 percent. As of March 31, 2002, the delinquency rate at 
this site was nearly 10 percent. In contrast, at Puget Sound Naval 
Shipyard, where the mission is to repair and modernize Navy ships, 
civilian personnel earning more than $38,000 a year made up 84 percent 
of total government travel cardholders and accounted for 86 percent of 
total fiscal year 2001 travel card transactions. This site’s 
delinquency rate had declined to below 5 percent as of March 31, 2002. 

High Delinquency and Charge-off Rates Have Resulted in Increased Costs
to the Government: 

High delinquencies and charge-offs have resulted in increased costs to 
the Navy. In fiscal year 2001, DOD entered into an agreement with Bank 
of America to adjust the terms of its travel card contract. DOD agreed 
to increased fees and a change in rebate calculation. These changes 
have cost the Navy an estimated $1.5 million in lost rebates on 
combined individually and centrally billed accounts in fiscal year 2001 
alone and will cost, in addition, about $1.3 million in automated 
teller machine (ATM) fees annually. Other costs, such as the 
administrative burden of monitoring delinquent accounts, are harder to 
measure, but no less real. For example, employees with delinquent 
accounts must be identified, counseled, and disciplined, and their 
account activity must be closely monitored. In addition, employees with 
financial problems who have access to sensitive data may pose a 
security risk, as discussed later in this report. 

Dispute between Contractor and DOD: 

Unexpectedly high defaults by DOD’s travel cardholders, including the
Navy’s, resulted in a 5-month legal dispute with Bank of America over 
the continuation of the travel card contract. In 1998, under the 
provisions of the General Services Administration’s (GSA) master 
contract with Bank of America, DOD entered into a tailored task order 
with Bank of America to provide travel card services for a period of 2 
years, ending November 29, 2000. Under the terms of the task order, DOD 
had three 1-year options to unilaterally renew the contract. On 
September 29, 2000, prior to the expiration of the initial task order, 
DOD gave notice to Bank of America that it intended to exercise its 
option to extend the task order for an additional year. In November 
2000, Bank of America contested the provisions of the DOD task order 
with the GSA contracting officer. Bank of America claimed that the task 
order was unprofitable because of required “contract and program 
management policies and procedures” associated with higher-than-
anticipated credit losses, because an estimated 43,000 DOD employees 
had defaulted on more than $59 million in debts. Consequently, in April 
2001, the master contract and the related DOD-tailored task order for 
travel card services were renegotiated. Specifically, Bank of America 
was able to reduce its financial risk by instituting additional fees, 
such as higher cash advance and late payment fees; offsetting credit 
losses against rebates, as explained later; facilitating the collection 
of delinquent and charged-off amounts through salary and military 
retirement pay offset; and participating in split disbursements, in 
which the government sends part or all of the travel voucher 
reimbursements directly to Bank of America. 

Effect of Increased Fees: 

One of the terms of the renegotiated task order between Bank of America
and DOD was that, effective August 10, 2001, the travel card cash 
advance fee would be increased from 1.9 percent to 3 percent, with a 
minimum fee of $2. The Navy reimburses all cash advance fees [Footnote 
9] related to authorized cash withdrawals. We estimate that this 
contract modification will result in approximately $1.3 million of 
increased costs to the Navy each year. Our estimate was made by 
applying the new fee structure that went into effect in August 2001 to 
cash advances made throughout fiscal year 2001 to ascertain how much 
more Bank of America would have charged. Other fee increases agreed to 
in the renegotiation, such as the fee for expedited travel card 
issuance, will also result in additional costs to the Navy. 

Delinquent Account Payment Affects Rebates to the Navy: 

The GSA master contract modification also changed the rebate 
calculation, making it imperative that the Navy improve its payment 
rates to receive the full benefits of the program. Under the GSA master 
contract, credit card companies are required to pay a quarterly rebate, 
also known as a refund, to agencies and GSA based on the amount charged 
to both individually billed and centrally billed cards. The rebate to 
the agency is reduced, or eliminated, if significant numbers of an 
agency’s individual cardholders do not pay their accounts on time. 
Specifically, credit losses or balances that reach 180 calendar days 
past due reduce the rebate amounts. Effective January 2001, the 
contract modification changed the way that rebates are calculated and 
how credit losses are handled. If the credit loss of an agency’s 
individually billed travel card accounts exceeds 30 basis points— or 30 
one-hundredths of a percent (.003)—of net sales[Footnote 10] on the 
card, the agency is assessed a credit loss fee, or rebate offset, 
against the rebate associated with both individually billed and 
centrally billed travel card accounts. 

This credit loss fee, or rebate offset, which resulted solely from 
individually billed account losses, significantly affected the amount 
of rebates that the Navy received as a result of combined individually 
and centrally billed net sales in fiscal year 2001. In fiscal year 
2000, the Navy received approximately $2.0 million in rebates from the 
travel card program. In contrast, in fiscal year 2001, the Navy 
collected only about $800,000 of the $2.3 million in rebates that we 
estimated it would have received, based on fiscal year 2001 net sales, 
had individually billed account payments been timely. This is due to a 
contract modification in January 2001, which changed the way rebates 
were calculated. In fact, during the first quarter of fiscal year 2001, 
the Navy collected almost $470,000 in total rebates from Bank of 
America. However, rebates for the last three quarters affected by the 
contract change had dwindled to $351,000. 

Navy and DOD Have Taken Steps to Reduce Delinquencies and Chargeoffs,
but Additional Actions Are Needed: 

The Navy has taken a number of positive actions to address its high
delinquency and charge-off rates, and results from the first half of 
fiscal year 2002 showed a significant drop in charged-off accounts. 
Most of this reduction may be attributed to a salary and military 
retirement payment offset program—similar to garnishment—started in 
November 2001. Other Navy actions included increasing the use of split 
disbursements, in which Navy disburses a portion of a travel 
reimbursement directly to the bank (instead of sending the entire 
amount of the reimbursement to the cardholder), and increased 
management attention and focus on delinquency. Except for split 
disbursements, the actions primarily addressed the symptoms, or back-
end result, of delinquency and chargeoffs after they have already 
occurred. As noted in the remaining sections of this report, the Navy 
has significant control weaknesses, particularly with respect to the 
front-end management of the travel card program, such as issuing the 
cards and overseeing their proper use, which it has not yet effectively 
addressed. 

Charge-offs Have Decreased: 

As shown in figure 5, the amount of charge-offs has decreased 
substantially at the same time that recoveries have increased. At the 
start of fiscal year 2001, the charge-off balance greatly exceeded the 
recovery amount. Starting in the third quarter of fiscal year 2001, the 
amount charged off started to decline and by the quarter ended December 
31, 2001, the amount charged off was about the same as the recovery 
amount. By March 31, 2002, recoveries for the first time exceeded the 
charged-off amount. 

Figure 5: Navy Travel Card Charge-off and Recovery History from October 
1, 2000, to March 31, 2002 (Dollars in millions): 

[See PDF for image] 

This figure is a multiple vertical bar graph depicting the following 
approximated data: 

Fiscal year: 2001, first quarter; 
Charge-offs: approximately $1.3 million; 
Recoveries: approximately $0.7 million. 

Fiscal year: 2001, second quarter; 
Charge-offs: approximately $1.5 million; 
Recoveries: approximately $0.8 million. 

Fiscal year: 2001, third quarter; 
Charge-offs: approximately $1.0 million; 
Recoveries: approximately $0.7 million. 

Fiscal year: 2001, fourth quarter; 
Charge-offs: approximately $0.6 million; 
Recoveries: approximately $0.4 million. 

Fiscal year: 2002, first quarter; 
Charge-offs: approximately $0.4 million; 
Recoveries: approximately $0.3 million. 

Fiscal year: 2002, second quarter; 
Charge-offs: approximately $0.1 million; 
Recoveries: approximately $0.7 million. 

Note: The charge-off and recovery history is for Navy only and does not 
include the Marine Corps. The recovery data for the Marine Corps were 
not available. 

Source: GAO analysis of Bank of America data. 

[End of figure] 

Salary and Military Retirement Offset Program: 

Starting in fiscal year 2002, DOD began to offset the retirement 
benefits of military retirees and the salaries of certain civilian and 
military employees against the delinquent and charged-off balances on 
travel card accounts. The DOD salary offset program[Footnote 11] 
implements a provision of the Travel and Transportation Reform Act of 
1998 (TTRA) [Footnote 12] that allows any federal agency, upon written 
request from the travel card contractor, to collect by deduction from 
the amount of pay owed to an employee (or military member) any amount 
of funds the employee or military member owes on his or her travel card 
as a result of delinquencies not disputed by the employee. [Footnote 
13] The salary and military retirement offset program was implemented 
DOD-wide. 

DOD’s offset program came into being as part of the task order 
modification. From April to August 2001, DOD and Bank of America
worked together to establish program protocols. Starting in August 2001,
Bank of America sent demand letters to cardholders whose accounts were
more than 90 days delinquent. The Defense Finance and Accounting
Service (DFAS) processed the initial offsets of delinquent accounts in
October 2001 in the various DOD pay systems. The first deductions were
made from the November pay period and paid to Bank of America starting
in December 2001. Bank of America can also use the offset program to
recover amounts that were previously charged off. January 2002 was the
first month in which Bank of America requested offsets for accounts that
had already been charged off. 

The offset program works as follows. When an account is 90 days 
delinquent, Bank of America is to send a demand letter to the individual
cardholder requesting payment in full within 30 days. The demand letter
specifies that salary offsets will be initiated if payment is not made 
in full within 30 days. The cardholder may negotiate an installment 
agreement or dispute the charges with the bank. The cardholder has a 
right to review all records such as invoices and to request a hearing 
if the bank’s disposition of the dispute is not satisfactory. 

After the 30 days have elapsed, if payment is not made and the 
cardholder does not dispute the debt, the bank includes the account in 
the list of accounts requested for offset. Individuals in the following 
categories may not be accepted for offset. 

* Civilian employees in bargaining units that have not agreed to the 
salary offset program cannot be accepted. According to a DFAS official, 
as of July 2002, 1,002 of 1,227 DOD bargaining units have agreed to 
participate in the program. 

* Individuals with debts to the federal government or other garnishments
already being offset at 15 percent of disposable pay are considered to 
be in protected status and are not eligible for the offset program. 

* Individuals who cannot be located in the various payroll and military
retirement (i.e., active, reserve, retired military, or civilian) 
systems cannot be accepted for offset. 

* Civilian retirees were not subject to offset during the period 
covered by our audit. The authorizing statutes for both the Civil 
Service Retirement System [Footnote 14] and the Federal Employees 
Retirement System [Footnote 15] specify that retirement benefits may be 
offset only to the extent expressly authorized by federal statutes. 
TTRA, Section 2, provides authority to offset salaries of “employees” 
of agencies but does not provide such authority for civilian employee 
retiree annuitants. However, Public Law 107-314 authorizes the 
Secretary of Defense to offset delinquent travel card debt against the 
retirement benefits of DOD civilian retirees. 

Once an individual is accepted for offset, the related debt is 
established in the appropriate pay system and DFAS can deduct up to 15 
percent of disposable pay. Disposable pay is defined in GSA’s Federal 
Travel Regulation [Footnote 16] as an employee’s compensation remaining 
after the deduction from an employee’s earnings of any amounts required 
by law to be withheld (e.g., tax withholdings and garnishments). The 
amounts collected are paid to the bank monthly for military personnel 
and retirees and biweekly for civilian personnel. 

According to DFAS, from October 2001 through July 2002, Bank of America
referred 53,462 DOD-wide cases with debt of approximately $77.5 million
to DOD for offset. DOD accepted and started offset for 74 percent of the
cases and 69 percent of the debt amounts referred. The number and debt
amount of Navy-specific cases forwarded by Bank of America were not
available. From November 2001 through July 2002, DFAS collected
approximately $5.2 million from active and retired Navy military 
personnel through the offset program. Although DFAS was unable to break 
down the amount of civilian offset by military service, the amount 
collected from all DOD employees was $1.6 million during the same 
period. The salary and retirement offset program is expected to 
continue to reduce the amount of accounts that need to be charged off, 
at the same time increase the amount of recoveries. 

Split Disbursement Payment Process: 

DOD has recently encouraged cardholders to make greater use of split
disbursements, a payment method by which cardholders elect to have all 
or part of their reimbursement sent directly to Bank of America. A 
standard practice in many private sector companies, split disbursements 
have the potential to significantly reduce delinquencies. However, 
during the period covered by our audit no legislative authority existed 
requiring the use of split disbursements by Navy employees. This 
practice was voluntary, resulting in a low participation rate. As shown 
by Bank of America data, only 14 percent of fiscal year 2001 travel 
card payments were made using this method. Although payments made 
through split disbursements have increased during the first three 
quarters of fiscal year 2002, they made up only 25 percent of all 
travel card payments. 

Our report on the Army travel card program included a matter for 
congressional consideration that would authorize the Secretary of 
Defense to require that employees’ travel allowances be used to pay the 
travel card issuers directly for charges incurred using the travel 
card. [Footnote 17] We believe that this action would help to reduce 
DOD’s travel card delinquency and chargeoff rates. Public Law 107-314 
authorized the Secretary of Defense to require split disbursement for 
all DOD travel cardholders. 

Management Focus and Attention: 

The Navy has also initiated actions to improve the management of travel
card usage. The Navy’s three-pronged approach to address travel card
issues is as follows: (1) providing clear procedural guidance to APCs 
and travelers, available on the Internet, (2) providing regular 
training to APCs, and (3) enforcing proper use and oversight of the 
travel card through data mining to identify problem areas and abuses. 
Noting that the delinquency rates for many Navy commands still exceeded 
the Navy’s established goal of no more than 4 percent, the Assistant 
Secretary of the Navy, Financial Management and Comptroller, in April 
2002 issued a memorandum on travel card control procedures and 
policies. This memorandum addressed a number of travel card issues, 
including (1) requiring that the travel card be deactivated when 
employees are separated from the service, (2) changing the definition 
of infrequent travel to traveling four times or less a year, (3) 
lowering the delinquency goal to 4 percent, (4) deactivating all cards 
whenever the cardholders are not scheduled for official travel, and (5) 
requiring spot checks for travel card abuse. The Assistant Secretary 
also required all units with delinquency rates higher than 4 percent to 
take immediate actions to lower the delinquency rates and to report on 
these results within 30 days of receiving the memorandum. 

Further, the DOD Under Secretary of Defense (Comptroller) created a
DOD-wide Charge Card Task Force in March 2002 to address management
issues related to DOD’s purchase and travel card programs. The task 
force issued its final report on June 27, 2002. We have reviewed the 
report and believe that many of the actions proposed by the task force 
will improve the controls over the travel card program. Important task 
force recommendations include canceling inactive accounts and expanding 
the salary offset program. However, actions to implement additional 
front-end or preventive controls, such as strengthening the critical 
role of the APCs and denying cards to individuals with prior credit 
problems, were not addressed in the report. We believe that strong 
preventive controls will be critical if DOD is to effectively address 
the high delinquency rates and charge-offs, as well as the potentially 
fraudulent and abusive activity discussed in this report. 

Potentially Fraudulent and Abusive Travel Card Activity: 

Our review identified numerous instances of potentially fraudulent and
abusive activity associated with the Navy’s travel card program during
fiscal year 2001 and the first 6 months of fiscal year 2002. For 
purposes of this report, cases where cardholders wrote three or more 
NSF checks or wrote checks on closed accounts to pay their Bank of 
America bill were characterized as potentially fraudulent. 

We considered abusive travel card activity to include (1) personal use 
of the cards—any use other than for official government 
travel—regardless of whether the cardholders paid the bills and (2) 
cases in which cardholders were reimbursed for official travel and then 
did not pay Bank of America, thus benefiting personally. In addition, 
some of the travel card activity that we categorized as abusive may be 
fraudulent if it can be established that the cardholders violated any 
element of federal or state criminal codes. Failure to implement 
controls to reasonably prevent such transactions can increase the 
Navy’s vulnerability to additional delinquencies and chargeoffs. 

Potentially Fraudulent Transactions: 

Our review identified numerous examples of potentially fraudulent 
activity where the cardholders wrote checks against closed checking 
accounts or repeatedly wrote NSF, or “bounced,” checks as payment for 
their travel card accounts. Knowingly writing checks against closed 
accounts or writing three or more NSF checks may be bank fraud under 18 
U.S.C. 1344. [Footnote 18] Further, it is a violation of the Uniform 
Code of Military Justice (UCMJ)[Footnote 19] article 123a when a 
soldier makes, draws, or utters (verbally authorizes) a check, draft, 
or order without sufficient funds and does so with intent to defraud. 
During fiscal year 2001 and the first 6 months of fiscal year 2002, in 
total over 5,100 Navy cardholders wrote NSF checks, or made NSF 
payments by phone, as payment to Bank of America for their travel card 
bills. Of these, over 250[Footnote 20] might have committed bank fraud 
by writing three or more NSF checks to Bank of America during either 
fiscal year period. Table 3 shows the 10 cases we selected for review 
where the cardholders wrote three or more NSF checks to Bank of 
America, and their accounts were charged off or placed in salary offset 
or another fixed pay agreement due in part to repeated use of NSF 
checks. We have referred the cases in which potential bank fraud has 
occurred to the Navy Criminal Investigation Service for further review. 

Table 3: Examples of Potentially Fraudulent Activities: 

Cardholder: 1; 
Total amount (number) of NSF checks: $61,004 (12); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): SO – $20,535; 
Grade: E-5; 
Unit: U.S. Pacific Fleet, Honolulu; 
Credit history problems: Multiple bankruptcies and numerous charge-offs 
prior to card issuance; 
Documented disciplinary action: Administrative counseling/warning. 

Cardholder: 2; 
Total amount (number) of NSF checks: $37,150 (15); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): FP – $4,094; 
Grade: E-6; 
Unit: Naval Recruiting, Omaha; 
Credit history problems: Multiple judgments and merchandise 
repossession prior to card issuance; 
Documented disciplinary action: None. 

Cardholder: 3; 
Total amount (number) of NSF checks: $23,894 (9); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): SO – $11,310; 
Grade: E-6; 
Unit: U.S. Marine Corps, Marine Aircraft Group 12, Japan; 
Credit history problems: Charged-off and referral to collection prior 
to card issuance; one account in collection and one charged off prior 
to card issuance; 
Documented disciplinary action: Dishonorable discharge for misconduct 
directly related to travel card misuse. 

Cardholder: 4; 
Total amount (number) of NSF checks: $22,873 (11); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $2,579; 
Grade: E-4; 
Unit: U.S. Transportation Command, Illinois; 
Credit history problems: None prior to card issuance; 
Documented disciplinary action: Prosecution pending for travel card 
misuse and absence without leave. 

Cardholder: 5; 
Total amount (number) of NSF checks: $20,052 (9); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $4,589; account in SO; 
Grade: E-5; 
Unit: Mobile Inshore Undersea Warfare, San Jose; 
Credit history problems: Charged-off account prior to card issuance; 
delinquencies since card issuance; 
Documented disciplinary action: None; promotion to E-6 after charge-
off; pending investigation for desertion, theft, and issuance of NSF 
checks. 

Cardholder: 6; 
Total amount (number) of NSF checks: $18,148 (13); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $7,229; 
Grade: GS-11; 
Unit: Navy Inventory Control Point – Mechanicsburg; 
Credit history problems: Bankruptcies and charge-offs prior to card 
issuance; delinquencies since card issuance; 
Documented disciplinary action: None; cardholder retired. 

Cardholder: 7; 
Total amount (number) of NSF checks: $10,908 (16); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $1,381; 
Grade: E-5; 
Unit: Navy Seals, San Diego; 
Credit history problems: None prior to card issuance; delinquencies 
since card issuance; 
Documented disciplinary action: Administrative action related to abuse 
of the government travel card; honorable discharge. 

Cardholder: 8; 
Total amount (number) of NSF checks: $8,231 (6); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): SO – $4,530; account paid off Sept. 2002; 
Grade: E-8; 
Unit: U.S. Marine Corps, Camp Lejeune; 
Credit history problems: Charged-off account prior to card issuance; 
Documented disciplinary action: Counseling; article 15 pending for 
credit card misuse. 

Cardholder: 9; 
Total amount (number) of NSF checks: $5,785 (4); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $4,923; 
Grade: E-4; 
Unit: Navy and Marine Corps Reserve Center, Bessemer; 
Credit history problems: Bankruptcies and judgment prior to card 
issuance; serious delinquencies since card issuance; 
Documented disciplinary action: None. 

Cardholder: 10; 
Total amount (number) of NSF checks: $3,250 (12); 
Total amount charged off (CO), in salary offset (SO), or voluntary fixed
pay (FP): CO – $5,347; account in FP; 
Grade: E-4; 
Unit: Naval Air Warfare Center, Patuxent River; 
Credit history problems: Bankruptcy and charged-off account prior to 
card issuance; delinquencies since card issuance; 
Documented disciplinary action: None. 

Source: GAO analysis. 

Note: NSF includes accounts with nonsufficient funds, closed accounts, 
accounts not located, and stop payment orders. 

[End of table] 

The 10 cardholders in table 3 wrote a total of 107 checks that were 
returned by Bank of America because they were NSF, drawn on closed 
accounts, and/or had payments stopped for other reasons. These checks 
totaled over $211,000. Eight of the 10 cardholders had significant 
credit problems prior to card issuance, such as bankruptcies, charged-
off credit card accounts, accounts in collection, and serious 
delinquencies. Two of the cardholders did not have credit problems 
prior to card issuance; however, one of these two experienced serious 
financial problems after issuance of the Bank of America travel card. 
The following provides illustrative detailed information on two of 
these cases. 

* Cardholder #1 was a petty officer second class with the U.S. Pacific
Fleet in Honolulu. The cardholder wrote 12 NSF checks totaling more
than $61,000 for payment on his Bank of America travel card account.
These checks were written partly to cover charges incurred while on
official travel, but records showed that the cardholder made many more
charges at convenience stores, restaurants, gas stations, and travel
agencies in the vicinity of his hometown. An examination of the
cardholder’s credit history also revealed that, prior to receiving his
government travel card in May 2000, the cardholder had multiple 
chargeoffs, in addition to filing personal and business bankruptcies. 
Despite his financial history, the cardholder was issued a standard 
card, instead of a restricted card with a lower credit limit. 

From March 2001 through December 2001, the cardholder wrote about
one NSF check a month, with three of these NSF checks, totaling more
than $12,500, written in the month of December 2001 alone. Financial
industry regulations require that an account be credited immediately
upon receipt of a check. Consequently, when Bank of America posted
the NSF checks, the account appeared to have been paid, which
provided credit to the cardholder to make additional purchases. Thus,
by writing NSF checks, and submitting NSF payments over the phone,
which Bank of America had to credit to his travel card account, the
petty officer was able to, in effect, increase his credit limit to more 
than $20,000—a practice known as “boosting.” He used each of these 
successive increases in his effective credit limit to charge additional
items on his travel card. Thus, despite the repeated NSF checks written
throughout 2001, the individual was able to continue making charges
through December 2001. 

The cardholder’s APC did not know of the NSF check problems until Bank 
of America notified him of the fact. Because the cardholder was 
considered a good sailor, he was given administrative counseling for
potential fraud and abuses related to his travel card. The terms of the
administrative counseling specified that the cardholder would face an
administrative discharge in case of continued abuse of the credit card
or any other misconduct. 

* Cardholder #5 was a petty officer (E-5) assigned to the Naval Reserve
Forces in San Jose, California. Prior to receiving the Bank of America
travel card in June 2000, the individual had a number of unpaid accounts
with other creditors. The individual was given a restricted card, which
should have been issued in “inactive” status and only activated when
needed for travel. However, records showed that the cardholder was
able to make about 130 separate purchases and ATM transactions in the
vicinity of his hometown while not on official travel. These 
transactions totaled more than $5,000. In addition, from September 2000 
through December 2001, the cardholder wrote eight NSF checks and one 
stop payment check totaling $20,052 to Bank of America. During fiscal 
year 2001, not a single valid payment was made to Bank of America for 
this account. The cardholder had an unpaid balance of $4,589 at the 
time his account was charged off in July 2002. The cardholder also had 
three other unrelated charge-offs to accounts other than the government
travel card in July 2002. 

We found no documentation that disciplinary actions had been taken
against the cardholder. The APC assigned to the cardholder told us that
he had received little training for his APC responsibility, which is a
collateral duty. He recalled advising the cardholder once to pay off his
travel card balance. Although a Bank of America official informed us
that access to NSF check information had been available to APCs since
2000, the APC said he was not aware of the NSF checks written by the
cardholder. The APC also informed us that he was not aware that the
cardholder’s account was charged off until he was notified by Bank of
America. Despite having his Bank of America account charged off and
other financial problems, the cardholder was recently promoted from
petty officer second class (E-5) to petty officer first class (E-6). 
[Footnote 21] His account had been referred to salary offset. 

Abusive Travel Card Use: 

We found instances of abusive travel card activity by Navy cardholders 
that covered charges for a wide variety of personal goods and services,
including prostitution, jewelry, gentlemen’s clubs, gambling, cruises, 
and tickets to sporting and other events. Further, we found abusive card
activities where (1) cardholders who were reimbursed for official 
travel did not pay Bank of America and (2) cardholders used the card 
for personal charges and failed to pay Bank of America. 

Abusive Card Activities Related to Inappropriate Purchases: 

We found that the government cards were used for numerous abusive
transactions that were clearly not for the purpose of government 
travel. As discussed further in appendix II, we used data mining tools 
to identify transactions we believed to be potentially fraudulent or 
abusive based upon the nature, amount, merchant, and other identifying 
characteristics of the transactions. Through this procedure, we 
identified thousands of suspect transactions. Government travel cards 
were used for purchases in categories as diverse as legalized 
prostitution services, jewelry, gentlemen’s clubs, gambling, cruises, 
and tickets to sporting and other events. In addition, we found 
evidence that cardholders circumvented prescribed ATM procedures by 
obtaining cash at adult entertainment establishments. 

Table 4 illustrates a few of the types of abusive transactions and the
amounts charged to the government travel card in fiscal year 2001 and 
the first 6 months of fiscal year 2002 that were not for valid 
government travel. The number of instances and amount shown include 
cases in which the cardholders paid the bills and where they did not 
pay the bills. 

Table 4: Examples of Abusive Travel Card Activity, Fiscal Year 2001 
through March 31, 2002: 

Dollar amount: 
Category: Legalized brothels; 
Examples of vendors: James Fine Dining, Chicken Ranch; 
Number of transactions: 80; 
Dollar amount: $13,250. 

Category: Jewelry; 
Examples of vendors: Kay Jewelers, Zales Jewelers; 
Number of transactions: 199; 
Dollar amount: $20,800. 

Category: Gentlemen's clubs; 
Examples of vendors: Spearmint Rhino, Mr. Magoo's Lounge, Cheetah's 
Lounge; 
Number of transactions: 247; 
Dollar amount: $28,700. 

Category: Gambling, including Internet; 
Examples of vendors: www.proccy2, Seinpost Holding, GCA (cash advance); 
Number of transactions: 80; 
Dollar amount: $34,250. 

Category: Cruises; 
Examples of vendors: Carnival, Disney, Norwegian, Princess; 
Number of transactions: 72; 
Dollar amount: $38,300. 

Category: Entertainment (sporting events, theatre, concerts); 
Examples of vendors: NY Yankees, LA Lakers, Atlanta Braves, Phantom of 
the Opera, other Ticketmaster purchases; 
Number of transactions: 502; 
Dollar amount: $71,400. 

Source: GAO analysis of Bank of America data. 

[End of table] 

We found that Navy cardholders used their government travel cards to
purchase prostitution services. We arrived at this information by first
identifying that two institutions frequented by Navy cardholders were
legalized brothels in Nevada. Based on a price list provided by one of 
the brothels, we eliminated transactions that were most likely for bar 
charges and determined that 50 cardholders used their government travel 
card to purchase over $13,000 in prostitution services. These charges 
were processed by the brothels’ merchant bank, and authorized by Bank of
America, in part because a control afforded by the merchant category 
code (MCC), [Footnote 22] which identifies the nature of the 
transactions and is used by DOD and other agencies to block improper 
purchases, was circumvented by the establishments. In these cases, the 
transactions were coded to appear as restaurant and dining or bar 
charges. For example, the merchant James Fine Dining, which actually 
operates as a brothel known as Salt Wells Villa, characterizes its 
services as restaurant charges, which are allowable and not blocked by 
the MCC control. According to one assistant manager at the 
establishment, this is done to protect the confidentiality of its 
customers. Additionally, the account balances for 11 of the 50 
cardholders purchasing services from these establishments were later 
charged off or put into salary offset. For example, one sailor, an E-2 
seaman apprentice, charged over $2,200 at this brothel during a 30-day 
period. The sailor separated from the Navy, and his account balance of 
more than $3,600 was eventually charged off. 

We also found instances of abusive travel card activity where Navy
cardholders used their cards at establishments such as gentlemen’s 
clubs, which provide adult entertainment. Further, these clubs were 
used to convert the travel card to cash by supplying cardholders with 
actual cash or “club cash” [Footnote 23] for a 10 percent fee. For 
example, we found that an E-5 second class petty officer circumvented 
ATM cash withdrawal limits [Footnote 24] by charging, in a single 
transaction, $2,420 to the government travel card and receiving $2,200 
in cash. Subsequently, the club received payment from Bank of America 
for a $2,420 restaurant charge. Another cardholder, an E-7 chief petty 
officer, obtained more than $7,000 in cash from these establishments. 
For fiscal year 2001 and through March 2002, 137 Navy cardholders made 
charges totaling almost $29,000 at these establishments. 

These transactions represented abusive travel card use that was clearly
unrelated to official government travel. The standard government travel
card used by most Navy personnel is clearly marked “For Official 
Government Travel Only” on the face of the card. Additionally, upon
receipt of their travel cards, all Navy cardholders are required to 
sign a statement of understanding that the card is to be used only for 
authorized official government travel expenses. However, as part of our 
statistical sampling results at three Navy locations, we estimated that 
7 percent of fiscal year 2001 transactions at one site to 27 percent at 
another site were for purposes not related to official travel, 
[Footnote 25] and therefore, were abusive. 

Personal use of the card increases the risk of charge-offs related to 
abusive purchases, which are costly to the government and the taxpayer. 
Of the 50 cardholders who purchased prostitution services described 
above, 11 were later charged off or put into salary offset. As we 
discussed earlier in the report, charged-off and delinquent accounts 
resulted in contract modifications and other monitoring efforts, which 
have cost the Navy millions of dollars. 

Travel Card Abuse Due to Failure to Pay Bank of America Charges: 

Our work at three case study sites and our Navy-wide data mining
identified numerous examples of abusive travel card use where 
cardholders failed to pay their travel card bills. This abusive activity
included (1) authorized transactions incurred in conjunction with 
approved travel orders where the cardholders received reimbursement but 
did not pay the bills or (2) transactions incurred by cardholders that 
were not associated with approved travel orders. These accounts were 
subsequently charged off or placed in salary offset or other fixed pay 
agreement. In many cases, APCs, commanders, and supervisors did not 
effectively monitor travel card usage or take documented disciplinary 
actions against cardholders. Table 5 provides specific examples of 
cardholders who failed to pay their travel card bills. 

Table 5: Examples of Abusive Travel Card Activity Where Accounts Were 
Charged Off or Placed in Salary Offset: 

Cardholder: 1; 
Grade: E-5; 
Unit: U.S. Marine Corps Reserve, Camp Lejeune; 
Total amount charged off (CO) or in salary offset (SO): CO – $19,971; 
Transactions contributing to charge-off or salary offset: Did not use 
reimbursement to pay travel card charges; numerous large cash 
withdrawals; 
Credit history problems: Account charge-offs, referral to collection 
agency, and other account
delinquency prior to card issuance; 
Documented disciplinary action: None; court-martial being considered. 

Cardholder: 2; 
Grade: E-7; 
Unit: Naval Shore Intermediate Maintenance Activity, Mayport; 
Total amount charged off (CO) or in salary offset (SO): SO – $11,190; 
Transactions contributing to charge-off or salary offset: ATM 
withdrawals totaling $15,000 from October 2000 through July 2001; 
nearly $7,000 in cash and other expenses at Platinum Plus and Mr. Magoo 
gentlemen’s clubs; 
Credit history problems: Bankruptcy, account charge-offs, and serious 
credit card delinquency prior to card issuance; 
Documented disciplinary action: None. 

Cardholder: 3; 
Grade: E-4; 
Unit: LeMoore Naval Air Station; 
Total amount charged off (CO) or in salary offset (SO): CO – $8,036; 
Transactions contributing to charge-off or salary offset: Over $6,250 
of computer equipment from Best Buy and other Web sites; 
Credit history problems: Numerous unpaid accounts prior to card 
issuance and charge-off on the American Express card; 
Documented disciplinary action: Administrative discharge in lieu of 
court-martial for misuse of the travel card and other offenses. 

Cardholder: 4; 
Grade: O-5; 
Unit: Naval and Marine Corps Reserve Center, Washington, D.C. 
Total amount charged off (CO) or in salary offset (SO): SO – $5,678; 
Transactions contributing to charge-off or salary offset: Over $700 
worth of candles and cookware; over $1,400 charged to D.B. 
Entertainment, which owns Baby Dolls and other adult entertainment 
clubs; 
Credit history problems: Numerous account chargeoffs, delinquencies, 
and bankruptcy prior to card
issuance; 
Documented disciplinary action: None. 

Cardholder: 5; 
Grade: E-3; 
Unit: Marine Forces Reserve, San Diego; 
Total amount charged off (CO) or in salary offset (SO): CO – $4,041; 
Transactions contributing to charge-off or salary offset: $3,800 at 
local restaurants and $1,400 in ATM withdrawals over a 2-month period; 
Credit history problems: Serious delinquencies, unpaid accounts, and 
referrals to collection
agencies prior to card issuance; 
Documented disciplinary action: Court-martialed for misuse of the 
government travel card; appeal ongoing. 

Cardholder: 6; 
Grade: O-6; 
Unit: Naval and Marine Corps Reserve Center, Washington, D.C. 
Total amount charged off (CO) or in salary offset (SO): CO – $3,511; 
Transactions contributing to charge-off or salary offset: $2,000 in 
cash withdrawals and nearly $1,500 at local grocery and drug stores; 
Credit history problems: None; 
Documented disciplinary action: None. 

Cardholder: 7; 
Grade: WS-10[A]; 
Unit: Puget Sound Naval Shipyard, Naval Sea Systems Command; 
Total amount charged off (CO) or in salary offset (SO): CO - $3,243; 
Transactions contributing to charge-off or salary offset: Numerous 
personal charges, including groceries, gasoline, cash advances, and 
$150 at Bethel Animal Hospital; 
Credit history problems: None prior; serious credit card delinquencies 
and mortgage foreclosure in 2001 and 2002; 
Documented disciplinary action: Removal from employment due to 
unauthorized absence and travel card misuse. 

Cardholder: 8; 
Grade: GS-12; 
Unit: Naval Air Systems Command, Patuxent River; 
Total amount charged off (CO) or in salary offset (SO): SO – $1,202; 
Transactions contributing to charge-off or salary offset: Airline 
tickets totaling $608; 
Credit history problems: Serious delinquencies, account charge-offs, 
mortgage foreclosure in
2000, bankruptcies prior to and since card issuance; 
Documented disciplinary action: None. 

Cardholder: 9; 
Grade: O-5; 
Unit: Marine Forces Reserve, New Orleans; 
Total amount charged off (CO) or in salary offset (SO): SO – $1,674; 
Transactions contributing to charge-off or salary offset: Car rental 
transactions and numerous charges at local restaurants; 
Credit history problems: Serious delinquencies prior to and since card 
issuance; 
Documented disciplinary action: None. 

Cardholder: 10; 
Grade: E-6; 
Unit: U.S. Marine Corps, Camp Lejeune; 
Total amount charged off (CO) or in salary offset (SO): CO – $672; 
Transactions contributing to charge-off or salary offset: Unauthorized 
use of card for charges associated with permanent change of station 
move; 
Credit history problems: Serious delinquency and bad debts at the time 
of card issuance; 
Documented disciplinary action: None. 

Source: GAO analysis. 

[A] Wage supervisors designation used to denote supervisory workers on 
hourly salary. 

[End of table] 

Eight of the 10 cardholders included in table 5 had significant credit
problems prior to card issuance, such as charged-off credit card 
accounts, mortgage foreclosures, bankruptcies, serious delinquencies, 
unpaid accounts, and referrals to collection agencies. One cardholder 
had similar problems subsequent to issuance of the Bank of America 
travel card. The following provides illustrative detailed information 
on abusive activities for three of these cases. 

* Cardholder #1 was a sergeant (E-5) with the U.S. Marine Corps Reserve
assigned at Camp Lejeune. Despite a history of credit problems, which
included several charged-off and delinquent commercial credit accounts, 
Bank of America issued the cardholder a standard card, with a credit 
limit of $10,000, in March 2000. The cardholder was deployed to Europe 
in August 2000 and his credit limit was increased to $20,000. Within a 
month of his deployment, the cardholder had charged $10,700 to the 
card, including $8,500 in ATM withdrawals. Although the cardholder 
received reimbursements for his travel expenses, he failed to settle 
his account in full. In December 2000, the cardholder informed the APC 
that his account was 30 days past due and promised to pay the full 
outstanding balance. He again failed to do so and his account balance 
of $11,467 went delinquent in January 2001. The APC did not deactivate 
the travel card account but put the cardholder in “mission critical” 
status as his tour in Europe was coming to a close. The cardholder’s 
credit limit was then raised to $25,000 to enable the cardholder to 
return to the United States. Consequently, when the account was closed 
on February 8, 2001, the outstanding balance had increased to $19,971. 
The APC admitted to us that he failed to carefully monitor this 
account. No disciplinary action was taken against the cardholder, who 
had returned to civilian life; however, judicial action against the 
cardholder is pending. We have referred this matter to DOD’s Office of 
Inspector General for appropriate action. 

In addition, our review indicated that the cardholder might have filed a
fraudulent travel voucher in January 2001. This travel voucher claimed
reimbursement for expenses in Germany over the holiday period from late 
December 2000 to early January 2001, allegedly for official purposes. 
However, Bank of America data showed that the government travel card 
belonging to this cardholder was used to make transactions in the 
vicinity of the traveler’s hometown during this holiday period. It 
appeared that the cardholder might have returned to the United States
for the holiday, yet continued to claim expenses as if he was still in
Germany, a potentially fraudulent act. 

* Cardholder #3 was a petty officer third class (E-4) assigned to the 
LeMoore Naval Air Station in California. Our review indicated that the
cardholder had numerous unpaid cable, medical, and communication 
accounts and serious delinquency of more than $5,000 on his personal 
credit card account prior to receiving the travel card. The unit to 
which the cardholder was assigned had a policy of activating the 
government travel card only when a cardholder travels. However, from 
February through April 2001, while not on travel, the cardholder 
purchased over $6,250 worth of electronic and computer equipment from 
Best Buy and various Web sites using the government travel card. The 
cardholder did not pay his balance and thus came to the attention of 
the APC when his name appeared in the delinquency report. Upon 
determining that the cardholder was able to use the card when not on 
travel, the APC contacted Bank of America, which was unable to tell the 
APC who had activated the account. The cardholder’s balance of more 
than $8,000 was charged off, and he was granted an administrative 
separation in lieu of a court-martial for offenses unrelated to the 
travel card misuse, including absence without leave, making false 
statements, and stealing government property of less than $100. 

* Cardholder #4 was a commander (O-5) with the Naval Reserves assigned 
to the Naval and Marine Corps Reserve Center in Washington, D.C. Our 
review showed that Bank of America issued the cardholder a standard 
card in May 2000, although the cardholder’s credit history indicated 
serious financial problems before and at the time of card issuance. For 
example, in October 1998, the cardholder filed for Chapter 7 bankruptcy 
with only $37,169 in assets against $542,063 in liabilities. Further, 
in January 2000, right before the Bank of America card was issued, an 
account with a balance of more than $30,000 was charged off. This Navy 
commander continued, after the issuance of the government travel card, 
a pattern of delinquencies on numerous accounts, and in one instance 
had merchandise repossessed for nonpayment. 

During fiscal year 2001 and the first 3 months of fiscal year 2002, the
cardholder used the government travel card to make numerous personal 
transactions. Transactions included more than $1,400 to D.B. 
Entertainment, which owns Baby Dolls Saloon, a gentlemen’s club in
Dallas, and more than $700 to Wearever cookware and Partylite Gifts, a
manufacturer of candles and candle accessories. A delinquency letter
was sent to the cardholder on August 9, 2002, when the account was 120 
days past due; however, no documentation existed to indicate that any 
action was taken prior to this date. Although the cardholder had been 
placed in salary offset, no other disciplinary action had been taken 
against the cardholder. 

Travel Card Abuse Where Cardholder Paid Bank of America Charges: 

As discussed above, some individuals who used the card for improper
purposes paid their travel card bills when they became due. We 
considered these occurrences to be abusive travel card activity because 
these cardholders benefited by, in effect, getting interest-free loans. 
Personal use of the card increases the risk of charge-offs, which are 
costly to the government and the taxpayer. In addition, the high rate 
of personal use is indicative of the weak internal control environment 
and the failure of APCs to monitor credit card activities, as discussed 
later in this report. Table 6 provides examples of the types of abusive 
charges we found during our review. 

Table 6: Examples of Abusive Activity Where the Cardholders Paid the 
Bills: 

Cardholder: 1; 
Unit: PEO Theatre Air and Surface, Naval Sea Systems Command, 
Washington D.C. 
Grade: GS-15; 
Vendor: Seinpost Holdings; 
Amount: Over $23,000 in charges; 
Nature of transaction: 35 transactions for Internet gambling; 
Documented disciplinary action: Written reprimand. 

Cardholder: 2; 
Unit: Mobile Inshore Undersea Warfare, Newport; 
Grade: E-5; 
Vendor: Cardholder’s own business; 
Amount: $8,622; 
Nature of transaction: Bogus charges of $7,222 to cardholder’s own 
limousine company; 
Documented disciplinary action: None. 

Cardholder: 3; 
Unit: Portsmouth Naval Shipyard; 
Grade: WG-10[A] 
Vendor: Herbal Life; 
Amount: $6,758; 
Nature of transaction: 17 purchases for vitamins and health 
supplements; 
Documented disciplinary action: None. 

Cardholder: 4; 
Unit: Naval Undersea Warfare Center, Newport; 
Grade: ND-5[B]; 
Vendor: Carnival Cruise; 
Amount: $3,790; 
Nature of transaction: Alaskan cruise for two for 7 nights; 
Documented disciplinary action: None. 

Cardholder: 5; 
Unit: U.S. Naval Academy, Annapolis; 
Grade: MIDN[C]; 
Vendor: Best Buy; 
Amount: $2,442; 
Nature of transaction: Home electronics; 
Documented disciplinary action: None. 

Cardholder: 6; 
Unit: U.S. Marine Corps, Camp Pendleton; 
Grade: E-7; 
Vendor: United Vacation; 
Amount: $1,326; 
Nature of transaction: United Airlines plane ticket for cardholder’s 
spouse; 
Documented disciplinary action: None. 

Cardholder: 7; 
Unit: U.S. Marine Corps, Camp Pendleton; 
Grade: E-6; 
Vendor: DeAngelo Tax Service; 
Amount: $800; 
Nature of transaction: For preparation of tax returns from 1997-2000; 
Documented disciplinary action: None. 

Cardholder: 8; 
Unit: Naval Reserves Forces Command, Virginia; 
Grade: E-7; 
Vendor: Ticketmaster; 
Amount: $460; 
Nature of transaction: Four concert tickets to the Backstreet Boys; 
Documented disciplinary action: None. 

Cardholder: 9; 
Unit: Norfolk Naval Air Station; 
Grade: E-4; 
Vendor: Fredricks of Hollywood; 
Amount: $184;
Nature of transaction: Women’s lingerie; 
Documented disciplinary action: None. 

Cardholder: 10; 
Unit: Naval Medical Research Center, San Antonio; 
Grade: E-4; 
Vendor: GTEAir; 
Amount: $148; 
Nature of transaction: Airplane telephone call; 
Documented disciplinary action: None. 

Source: GAO analysis. 

[A] Wage grade system used for workers who are on hourly salary. 

[B] Scientific and engineering career path equivalent to GS-14 to GS-
15. 

[C] Midshipmen are cadets in training to become Navy officers. They may 
receive stipends while in college. 

[End of table] 

As shown in table 6, cardholders used their travel cards for a wide 
variety of personal goods or services. Some transactions were similar 
to the services procured in table 4. The cards were also used to 
purchase home electronics, women’s lingerie, tax services, and in one 
instance, to make bogus charges to the cardholder’s own business. In 
this instance, an E-5 second class petty officer reservist, whose 
civilian job is with the U.S. Postal Service, admitted making phony 
charges of over $7,200 to operate his own limousine service. In these 
transactions, the reservist used the travel card to pay for bogus 
services from his own limousine company during the first few days of 
the card statement cycle. By the second day after the charges were 
posted, Bank of America would have deposited funds—available for the 
business’ immediate use—into the limousine business’ bank account. 
Then, just before the travel card bill became due, the limousine 
business credited the charge back to the reservist’s government travel 
card and repaid the funds to Bank of America. This series of 
transactions had no impact on the travel card balance, yet allowed the 
business to have an interest-free loan for a period. This pattern was 
continued over several account cycles. Navy officials were unaware of
these transactions until we brought them to their attention and are
currently considering what, if any, action should be taken against the
cardholder. 

Few Documented Disciplinary Actions Taken against Cardholders Who 
Misused the Travel Card: 

It is critical that cardholders who misuse their travel cards are 
identified and held accountable for their actions. The DOD Financial 
Management Regulation (FMR) states that “commanders or supervisors 
shall not tolerate misuse of the DOD travel cards and cardholders who 
do misuse their cards shall be subject to appropriate disciplinary 
action.” However, DOD and Navy policies and procedures do not define 
appropriate disciplinary action to help ensure that consistent punitive 
actions are taken against cardholders who abuse their travel cards. 
Lacking such guidance, disciplinary actions are left solely to the 
discretion of commanders and supervisors. As a result, we did not find 
documentation indicating that commanders and supervisors took any 
disciplinary actions against almost two-thirds of individuals we 
reviewed who abused or misused their cards during fiscal year 2001 and 
the first 6 months of fiscal year 2002. Failure to identify and 
discipline abusive cardholders will likely result in the Navy 
continuing to experience the types of potentially fraudulent and abusive
activity identified in our work. 

For many cardholders we inquired about, the misuse or abuse of the 
travel
card led Navy officials to counsel cardholders on proper use of the 
card and the cardholders’ responsibility for timely payment of travel 
card bills. We found only a few cases where the Navy court-martialed or 
issued administrative warnings to individuals solely because of card 
misuse. More often than not, severe disciplinary actions were taken in 
response to travel card abuse in conjunction with other more serious 
offenses—such as failing to obey orders or unauthorized absences. In 
these instances, documented disciplinary actions included dismissal 
from the Navy. 

At the sites we audited, the Navy could not provide documentation of
disciplinary actions taken against cardholders in 37 of the 57 NSF check
cases and charged-off or salary offset accounts we reviewed. For 
example, cardholder #9 in table 3, whose account was charged off for 
more than $4,900, did not receive any disciplinary action. Cardholder 
#5 in table 3 was promoted after his unpaid account balance of almost 
$4,600 was charged off. 

Also, we found little evidence that cardholders faced adverse 
consequences for personal use of the card as long as they paid their 
travel card bills. Of the 10 cases detailed in table 6, only 1 had 
evidence of disciplinary action. We saw few indications that 
supervisors were aware that these abusive transactions occurred. To the 
extent we found that APCs or supervisors were aware of such travel card 
abuse, we saw little evidence of disciplinary actions. 

Further, we found that some individuals who abused their travel card
privileges held high-level positions, where they may have been 
responsible for taking appropriate disciplinary action in response to 
travel card abuse by personnel within their commands. In instances 
where these individuals abused the card, they rarely received 
disciplinary action. For example, a commander became severely 
delinquent in January 2002 after making more than $2,000 in purchases 
of inappropriate items such as cookware and adult entertainment. 
However, there was no indication that this officer’s superior was 
informed of his delinquency or misuse of the travel card until the 
account was at least 120 days past due. Consequently, although the 
cardholder’s account was placed in salary offset, the cardholder was not
disciplined. 

We have reported similar problems with the Army travel card program and
in our testimony on the Navy travel card program. As a result, the 
fiscal year 2003 Department of Defense Appropriations Act, Public Law 
107-248, contains provisions that address this problem. Specifically, 
the Act requires the Secretary of Defense to establish guidelines and 
procedures for disciplinary actions to be taken against cardholders for 
improper, fraudulent, or abusive use of the government travel card. 

Cardholders with Credit Problems Continued to Have Active Security 
Clearance: 

We found that many cardholders who had abused the travel card or been
involved in potentially fraudulent activities continued to have active
security clearances. Both DOD and Navy rules provide that an 
individual’s finances are one of the factors to be considered in 
determining whether an individual should be entrusted with a security 
clearance. The U.S. Department of the Navy Central Adjudication 
Facility (commonly referred to as DON CAF) is responsible for issuing 
and updating security clearances for Navy personnel. Secret clearances 
are updated every 10 years and top-secret clearances are updated every 
5 years. During the interim periods, Navy instructions [Footnote 26] 
require commanders of personnel with clearances, such as secret or top 
secret, to submit to DON CAF any evidence of financial irresponsibility 
on the part of an individual that would affect his or her clearance. 
Such evidence would include information on financial impropriety, such 
as excessive indebtedness. DON CAF is to evaluate this information and 
determine whether to revoke or downgrade the clearance. 

We found that commanders responsible for referring evidence of financial
irresponsibility to DON CAF were sometimes not aware of their 
subordinates’ financial problems. Consequently, Navy security officials
might not be in possession of all information necessary to assess an
individual’s security clearance. Our audit found that 27 of 57 travel
cardholders we examined whose accounts were charged off or placed in
salary offset as of March 2002 still had active secret or top-secret 
security clearances in August 2002. These financially troubled 
individuals may present security risks to the Navy. We provided the 
information we collected on individuals with charged-off accounts to 
DON CAF for its consideration in determining whether to revoke, change, 
or renew the individuals’ security clearances. 

Further guidance for this procedure is also contained in the fiscal 
year 2003 Defense Appropriations Act. In addition to requiring the 
Secretary of Defense to establish guidance and procedures for 
disciplinary actions, the act states that such actions may include (1) 
review of the security clearance of the cardholders in cases of misuse 
of the government travel card and (2) modification or revocation of the 
security clearance in light of such review. 

Weak Overall Control Environment and Ineffective Travel Card Program 
Controls: 

A weak overall control environment and ineffective internal controls 
over the travel card program contributed to the potentially fraudulent 
and abusive travel card activity and the Navy’s high rates of 
delinquency and charge-offs. The foundation of all other controls, a 
strong control environment provides discipline and structure as well as 
the climate that positively influences the quality of internal 
controls. Although we observed improvements in the first half of fiscal 
year 2002, we identified several factors that contributed to a weak 
overall control environment for fiscal year 2001, including, as 
discussed previously, few documented disciplinary actions taken against 
cardholders who abused their travel cards and a lack of management 
attention and focus on establishing and maintaining the organizational 
structure and human capital needed to support an effective Navy travel 
card management program. We found that this overall weak control 
environment contributed to design flaws and weaknesses in six 
management control areas needed for an effective travel card program.
Specifically, we identified weaknesses in the Navy travel program 
controls related to (1) travel card issuance, (2) cardholders’ 
training, (3) APCs’ capacity to carry out assigned duties, (4) 
procedures for limiting card activation to meet travel needs, (5) 
procedures for terminating accounts when cardholders leave military 
service, and (6) access controls over Bank of America’s travel card 
database. 

All six of these areas related to two key overall management weaknesses:
(1) lack of clear, sufficiently detailed Navy policies and procedures 
and (2) limited travel card audit and program oversight. First, during 
fiscal year 2001, the sites we audited used DOD’s travel management 
regulations DOD FMR (Vol. 9, Ch.3) as the primary source of policy 
guidance for management of Navy’s travel card program. [Footnote 27] 
However, in many areas, the existing guidance was not sufficiently 
detailed to provide clear, consistent travel management procedures to 
be followed across all Navy units. Second, as recognized in the DOD 
Inspector General’s March 2002 summary report[Footnote 28] on the DOD 
travel card program, “because of its dollar magnitude and mandated use, 
the DOD travel card program requires continued management emphasis, 
oversight, and improvement by the DOD. Independent internal audits 
should continue to be an integral component of management controls.” 
However, the DOD Inspector General report noted that no internal review 
reports were issued from fiscal year 1999 through fiscal year 2001 
concerning the Navy’s travel card program. According to the NAS, no 
internal review report related to Navy’s travel card had been issued 
since then. 

Ineffective Controls over Issuance of Travel Cards: 

The Navy’s ability to prevent potentially fraudulent and abusive
transactions that can eventually lead to additional delinquencies and
charge-offs is significantly weakened if individuals with histories of
financial irresponsibility are permitted to receive travel cards. 
Similar to what we found at Army, the Navy’s practice is to facilitate 
the issuance of travel cards—with few credit restrictions—to all 
applicants regardless of whether they have histories of credit 
problems. Although the DOD FMR provides that all DOD personnel are to 
use the travel card to pay for official business travel, the policy 
also provides that exemptions may be granted under a number of 
circumstances, including for personnel who are denied travel cards for 
financial irresponsibility. However, DOD’s policy is not clear as to 
what level of financial irresponsibility by a travel card applicant
would constitute a basis for such an exemption. We found no evidence 
that the Navy exempted any individuals or groups from required 
acceptance and use of travel cards, even those with histories of severe 
credit problems. 

The DOD FMR provides that credit checks be performed on all travel card
applicants, unless an applicant declines the conduct of a credit check. 
In July 1999, Bank of America began conducting credit checks on DOD 
travel card applicants and used the resulting information as a basis for
determining the type of account—restricted or standard—it would provide
to new DOD travel applicants. While, as mentioned above, DOD FMR would 
allow the Navy to exempt individuals with financial irresponsibility 
from the use of the government travel card, in practice any applicant 
who does not authorize a credit check, has no credit history, or has a 
history of credit problems, is issued a restricted travel card with a 
$2,500 credit limit. All other applicants are issued standard travel 
cards with a $10,000 credit limit. In January 2002, the Navy further 
reduced the credit limit on a restricted travel card to $2,000 and the 
limit on a standard card to $5,000. However, DOD and Navy policy also 
permit APCs to raise the credit and ATM limits of all cards after they 
have been issued to meet travel and mission requirements. 

As discussed previously, many of the Navy travel cardholders that we
audited who wrote numerous NSF checks, were severely delinquent, or had
their accounts charged off had histories of delinquencies and charge-
offs relating to other credit cards, accounts in collection, and 
numerous bankruptcies. Our analysis of credit application scoring 
models and credit risk scores used by major credit bureaus confirmed 
that applicants with low credit scores due to histories of late 
payments are poor credit risks. Credit bureau officials told us that if 
their credit rating guidelines for decisions on commercial credit card 
application approvals were used to make decisions on travel card 
applicants, a significant number of low- and midlevel enlisted Navy 
cardholders would not even qualify for the restricted limit cards. A 
credit history showing accounts with collection agency action or charge-
offs poses an even higher credit risk. Any of these problems can be a 
reason for denying credit in the private sector. However, individuals 
with no credit history, or little credit history, are generally issued 
cards with lower credit limits, as reflected by current DOD policy. 

By authorizing all individuals regardless of past credit history who 
apply for cards to get them, the Navy has exposed the government to 
increased losses from increased fees and lost rebates associated with 
these individuals. Credit industry research and the results of our work
demonstrate that individuals with previous late payments are much more
likely to have payment problems in the future. 

Further, as a result of our audit findings and an amendment proposed by
Senators Byrd and Grassley, the fiscal year 2003 Department of Defense
Appropriations Act requires that the Secretary of Defense evaluate 
whether an individual is creditworthy[Footnote 29] before authorizing 
the issuance of any government travel charge card. An individual found 
not to be creditworthy may not be issued a government travel charge 
card. Implementing procedures to assess the creditworthiness of an 
individual prior to issuing a credit card, and denying a credit card to 
anyone found not creditworthy as required by the fiscal year 2003 
Department of Defense Appropriations Act, should improve delinquency 
rates and reduce fraud and abuse. 

Inadequate Cardholder Training: 

The DOD FMR requires that APCs provide training to cardholders on the
proper use of the government travel card prior to card issuance. The FMR
also requires DOD components to ensure that current cardholders are 
informed of policy and procedure changes to the travel card program. 
However, we found that the three case study sites we visited did not 
provide consistent and periodic training to cardholders. The APCs we 
interviewed generally informed us that they viewed the signature on a
travel card application as indication that the cardholder had read, and
understood, the regulations governing the use of the government travel
card. In addition, the APCs stated that the cardholders also received a
statement of understanding when they were issued a travel card. Only one
APC informed us that she discussed travel card restrictions with 
employees at the time they submitted the travel card applications, and 
that the fleet support group periodically provided individuals with 
briefings on proper travel card use. The failure to provide 
standardized, consistent, and periodic training on travel card 
procedures might have contributed, in part, to high incidences of 
misuse because individuals did not fully understand the rules governing 
travel card usage. 

Unrealistic APC Performance Expectations: 

DOD policy provides that APCs are the primary focal points for day-to-
day management of the travel card program. However, at units with low- 
and midlevel military personnel who are often deployed, APC duties are
generally “other duties as assigned.” This exacerbated an already 
existing disposition towards delinquency of these individuals, as 
discussed above. 

Further, the sheer number of responsibilities assigned to APCs, coupled
with issues concerning APC span of control and training, greatly 
affected the APCs’ abilities to carry out their critical duties 
effectively. Consequently, we found that APCs were generally 
ineffective in performing their key travel card program management 
oversight duties. However, the proactive measures by a full-time APC 
contributed to a low delinquency rate at one installation we audited. 

APC Responsibilities: 

As prescribed by the DOD FMR, APCs “are responsible for the day-to-day
operations of the DOD Travel Card Program.” DOD FMR volume 9, chapter
3, provides that APCs are responsible for a variety of key duties, 
including establishing and canceling cardholder accounts, tracking 
cardholder transfers and terminations, monitoring and taking 
appropriate actions with respect to account delinquencies, interacting 
with the bank, and fielding questions about the program from both 
cardholders and supervisors. APCs are also required to notify 
commanders and supervisors of all travel card misuse so they can take 
appropriate actions. 

We found distinct differences in how APC duties were assigned at the 
three case study sites. At Camp Lejeune, a military installation, the 
six APCs that we interviewed were primarily responsible for other 
duties. For example, some were assigned duties as personnel officers in 
units providing specialized training for infantry and engineering. 
These individuals’ APC responsibilities were “other duty as assigned,” 
and most spent less than 20 percent of their time carrying out these 
duties. Additionally, one APC indicated to us that it was a challenge 
to keep up with his APC responsibilities, mainly because he was 
expected first and foremost to perform his primary duties. In contrast, 
at Patuxent River and Puget Sound Naval Shipyard, two installations 
with mainly civilian cardholders, the APC role is a full-time post and 
therefore the APCs spend all of their time carrying out APC 
responsibilities. 

Most of the APCs at the case study sites focused monitoring efforts on
delinquencies, and rarely conducted detailed review of charge card
transactions. All APCs have access to account transaction activity 
reports and declination reports, which detail activities that were 
rejected by Bank of America and thus would be useful in identifying 
individuals who might have attempted to misuse the card. One APC 
interviewed told us that detailed transaction reviews were too time-
consuming. If she reviewed account activities at all, it was in 
conjunction with, and after she had identified delinquent accounts. 
Failure to systematically and regularly review transaction activities 
meant that most APCs were not able to promptly detect, and therefore 
take further actions to prevent, abusive travel card activity. This is 
illustrated by the fact that personal use of the card was estimated to 
be 27 percent at one site we audited. 

In contrast, the APC at another case study site informed us that she
reviewed delinquency reports several times a month to identify and
promptly notify supervisors about the status of delinquent accounts. She
also told us that, in addition, she monitored transactions in the Bank 
of America database for improper and abusive uses of the card monthly, 
and sent out notices to the cardholders and the cardholder supervisors 
if such transactions were identified. We believe these proactive actions
contributed to that site’s low delinquency rate and fewer incidences of
personal use. 

Failure to review cardholder transactions and take action to address
inappropriate card usage can lead to delinquencies and account 
chargeoffs. For example, one APC was not aware that a cardholder within 
her sphere of responsibility made 17 personal use transactions to 
Herbalife International, as shown in table 6, from January 2001 to May 
2001 until the cardholder became delinquent in August 2001. By that 
time, the cardholder had charged over $6,750 to the vitamin company. In 
another example, an APC did not detect that a cardholder had misused 
his card to purchase over $6,250 in electronic and computer equipment 
until he appeared in the delinquency report. His account balance of 
more than $8,000 was subsequently charged off. 

APC Span of Control: 

The DOD’s FMR guidance does not address the appropriate span of control
for an APC—the number of cardholders that an APC should be responsible
for managing and overseeing. A reasonable span of control is critical 
for effective management and proper travel program oversight. In 
addition, because APC duties often are assigned as collateral duties, 
the span of control should be commensurate with the time available to 
carry out APC responsibilities effectively. As shown in table 7, at the 
three sites we audited, the average ratio of cardholders to APCs ranged 
from 214 to 1 to 5,984 to 1. 

Table 7: Average Ratio of Fiscal Year 2001 Cardholders to APCs at Navy 
Sites Audited: 

Span of control: Number of cardholders; 
Camp LeJeune, U.S. Marine Forces Atlantic: 1,713; 
Patuxent River, Naval Air Systems Command: 8,804; 
Puget Sound Naval Shipyard, Sea Systems Command: 5,984. 

Span of control: Number of APCs; 
Camp LeJeune, U.S. Marine Forces Atlantic: 8; 
Patuxent River, Naval Air Systems Command: 2; 
Puget Sound Naval Shipyard, Sea Systems Command: 1. 

Span of control: Average ratio of cardholders to APCs; 
Camp LeJeune, U.S. Marine Forces Atlantic: 214:1; 
Patuxent River, Naval Air Systems Command: 4,402:1; 
Puget Sound Naval Shipyard, Sea Systems Command: 5,984:1. 

Source: GAO analysis of Bank of America data. 

[End of table] 

While table 7 shows the average span of control, the actual span of 
control for the APCs at the three sites we audited ranged from a low of 
25 to about 6,000 cardholders. Bank of America guidance provides that 
an optimal span of control is 100 cardholders per APC. While we did not 
evaluate the guidance provided by Bank of America, we believe that one 
APC cannot effectively carry out all management and oversight 
responsibilities discussed previously if he or she, even working full 
time, has responsibility for hundreds or thousands of cardholders. In 
fact, the supervisor of one APC with about 6,000 cardholders informed 
us that the APC simply did not have time to systematically perform 
other types of monitoring beyond identifying and notifying supervisors 
and commanders of delinquent accounts. 

Decisions on the optimal span of control must take into account not only
the number of accounts for which the APC has direct responsibility, but
also the number of accounts for which a lower-level APC has direct
responsibility.[Footnote 30] For example, an APC at Patuxent River had 
direct responsibility for 2,244 cardholders and oversight 
responsibility for another 5,560 cardholders. 

APC Training: 

Our internal control standards state that management’s commitment to
competence and good human capital practices are key factors in 
establishing and maintaining a strong internal control environment. 
Specifically, our standards provide that management identify appropriate
knowledge and skills required for various jobs and provide needed 
training. They also state that establishing appropriate human capital 
practices, including hiring, training, evaluating, counseling, and 
disciplining personnel, is another critical environmental factor. 

DOD policy provides that travel card training materials are to be
distributed throughout the department and that APCs are to be informed 
of policy and procedural changes relating to the travel card program.
However, neither DOD nor Navy procedures detail requirements for the
extent, timing, and documentation of travel program training for APCs.
APCs are not required to receive training on the duties of the position 
or on how to use available Web-based tools and reports from Bank of 
America before they assume their APC duties. 

We found that APC training had not been considered a priority. Of the 
nine APCs we spoke to, only one had received official APC training. The 
other eight told us they relied heavily upon on-the-job learning, trial 
and error, or other program coordinators for advice on how to carry out 
their duties when they assumed their APC responsibilities. One full-
time APC had been in her position for more than 2 years but had not 
attended formal Bank of America training, even though training seminars 
are offered annually. Some APCs we interviewed indicated that they were 
not proficient in using the tools available through the Bank of America 
Web-based system containing travel card transaction data—Electronic 
Account Government Ledger System (EAGLS)—to monitor cardholders’ travel 
activities. The lack of emphasis on training could negatively affect 
APCs’ ability to monitor delinquencies and promptly detect and prevent 
potentially fraudulent and abusive activities. According to data 
provided by Bank of America, as of May 2002 about 23 percent of the 
Navy’s APCs had never logged on to EAGLS. 

Controls over Activating/Deactivating Travel Cards to Meet Travel 
Needs: 

Allowing Navy travel cardholders to maintain accounts in an active 
status when not needed for government travel unnecessarily increases 
the risk of misuse—through cardholders either mistakenly or 
intentionally using the card for personal purposes. DOD’s FMR provides 
that restricted cards are issued to cardholders in an “inactive” status 
and initially activated only when the cardholders have authorized 
government travel needs. Standard cards, however, are “active” when 
they are issued to cardholders. DOD policy guidance does not address 
deactivating restricted and standard travel cards when not needed for 
official purposes. 

Lacking overall policy and procedural guidance in this area, we found
instances in which individual commands or sites established their own
practices for deactivating restricted cards when individuals were not on
travel. In fact, APCs at the case study sites we audited informed us 
that they generally deactivated restricted cards when individuals were 
not on travel. In contrast, during fiscal year 2001 and most of fiscal 
year 2002, the standard cards were issued in an “active” status, and 
remained active when individuals were not traveling. Leaving cards in 
active status increased the risk of misuse, as supported by our 
statistical sampling work, which showed that most improper use occurred 
while the individuals were not on official travel. Recognizing this 
internal control weakness, the Navy issued a directive in April 2002 
requiring that the U.S. Marine Corps, which continued to have a high 
delinquency rate, deactivate cards for all personnel not scheduled for 
official travel. The directive also required that, once activated for 
official travel, the cards be deactivated immediately upon the 
conclusion of official travel. 

Exit Control Procedures for Separating Employees: 

We found that the Navy lacks clear, sufficiently detailed procedures 
that would ensure that travel cards are deactivated or terminated when
cardholders leave the Navy. DOD’s FMR provides that APCs are 
responsible for terminating travel cards when cardholders retire, 
separate, or are dismissed from DOD. Operating procedures established by
individual Navy commands and installations to notify APCs in the case of
retirement or separation of employees were neither consistent nor
effective. Controls were also ineffective in ensuring that prompt 
actions were taken to deactivate or terminate cards even when the APC 
is notified. Consequently, some cardholders’ accounts remained active, 
creating an opportunity for abuse. 

In general, the three case study sites had standard exit procedures, 
which required a signature from the APC, or the unit where the APC 
worked, before individuals could complete outprocessing. The purpose of 
such procedures is to ensure that travel cards are promptly deactivated 
or closed. However, our work found that these procedures were not always
followed. For example, at one case study site, the APC is a checkpoint 
on the checkout list, and cardholders are expected to obtain the APC’s
signature before completing outprocessing. However, there was no 
control at the unit where the cardholder turned in the checkout list to 
ensure that the list was complete. Consequently, the APC informed us 
that exit procedures were not effective. 

We also found that the Navy did not have procedures requiring periodic
comparisons between active travel card accounts and their employees to
ensure that accounts of separated or retired employees were closed. All
three case study sites we visited maintained databases of their active
employees. However, the APCs at these locations generally did not 
compare these records against the list of active travel card accounts to
identify accounts that should have been deactivated and/or closed but
remained open. Periodic reconciliation of the two lists would have 
enabled these units to identify separated cardholders with active 
accounts so that appropriate, timely actions could be taken. 

Ineffective exit procedures and the inability to effectively identify 
and terminate travel cards of individuals no longer in the Navy led to 
numerous travel card abuses and charge-offs. These separated Navy 
employees benefited by using the travel cards to purchase a variety of 
goods and services, possibly at discounted government rates. Some did 
not pay their monthly bills, thereby essentially obtaining the personal 
items for no cost. 

The following cases are examples of what can happen when travel cards
are not effectively deactivated or closed upon separation. 

* In one Navy unit, a cardholder died in October 1999. However,
ineffective controls over the notification process resulted in the APC 
not being aware that this had occurred. Therefore, the APC did not take
actions to close this individual’s government travel card account.
Consequently, in October 2000, when the old card was about to expire,
Bank of America mailed a new card to the address of record. When the
card was returned with a forwarding address, the bank remailed the
card and the personal identification number, which is used to activate
the card, to the new address without performing other verification
procedures. The card was activated in mid-December 2000, and within a
month, 81 fraudulent transactions for hotel, food, and gas totaling 
about $3,600 were charged to the card. In January 2001, in the course 
of her monthly travel card monitoring, the APC noticed suspicious 
charges in the vicinity of the cardholder’s previous post-of-duty. The 
APC took immediate action to deactivate the card, thus preventing 
additional charges from occurring. Upon finally learning of the 
cardholder’s death from the cardholder’s unit, the APC immediately 
reported the case to a Bank of America fraud investigator. 
Investigations indicated that a family member of the cardholder might 
have made these charges. No payment was ever made on this account, and 
the entire amount was subsequently charged off. We referred this case 
to the U.S. Secret Service Credit Card Task Force for further 
investigation and potential prosecution. 

* A chief warrant officer (W-3) at Naval Air Force, U.S. Atlantic Fleet,
repeatedly used his travel card after his retirement on December 1, 
2000. The cardholder currently works for a private company. He used the
government travel card since his retirement to make charges totaling
more than $41,000 for hotels, car rentals, restaurants, and airline 
tickets for personal and business purposes. In a number of instances, 
the cardholder was able to obtain the government rate—which can be 
substantially lower than the commercial rate—for lodging in San Diego,
Philadelphia, and Cincinnati. Because the Navy does not routinely 
monitor cardholder transactions for abusive activity and because this
particular account was always paid in full, abusive activity was not
detected. Bank of America data showed that the cardholder’s account was 
still open in early September 2002 and thus available for further 
charges. 

* In another instance, a mechanic trainee at the Puget Sound Naval
Shipyard was convicted of a felony for illegal possession of a firearm 
in October 2000 and placed on indefinite suspension by his employer in
November 2000. However, neither the security office, which took action
against the employee, nor the office where the individual worked 
notified the APC to cancel or deactivate the cardholder’s government
travel card account. Following his suspension, the cardholder used the
government travel card to make numerous cash withdrawals and purchases 
totaling almost $4,700. The APC was not aware of these abusive charges 
until the monthly delinquency review identified the account as 
delinquent. The account balance of $1,600 was subsequently charged off 
in January 2002. Although security officers at the Puget Sound Naval 
Shipyard referred the case to DON CAF in October 2000, our work 
indicated that the employee, who was still in suspended status as of 
August 2002, continued to maintain a secret clearance, despite the
travel card charge-off and felony conviction. 

We also found instances where the APC did not promptly deactivate or
terminate the travel card upon being notified of an employee’s death,
retirement, dismissal, or separation from the Navy. At one case study 
site, we audited 10 accounts of employees who died, retired, separated, 
or were otherwise removed since November 2000. Of the 10, 4 cardholders
obtained signatures from the travel branch, where the APC works, upon
leaving the unit. However, 3 of these 4 accounts were not deactivated or
terminated in a timely manner. In one case, a cardholder continued to 
use the card to make numerous charges totaling $4,900 for more than 9 
months following separation. The cardholder failed to make timely 
payments on her account and became delinquent in September 2001. The 
APC did not report this cardholder’s delinquent status to the 
appropriate unit supervisor until the account was 90 days past due. The 
supervisor stated that she took actions to have the card deactivated 
immediately upon learning of the delinquency. The individual’s account 
was charged off on November 27, 2001, and as of July 13, 2002, had a 
remaining balance of $4,800. Available data also indicated that another 
cardholder who retired in August 2001 continued to maintain possession 
of an active card until September 2002, although he did not use the 
card. Failure to promptly deactivate or terminate travel card accounts 
of individuals no longer with the Navy increases the risk of 
delinquencies and charge-offs and can lead to increased cost to the 
Navy. 

Access Controls over Bank of America’s Travel Card System: 

Thousands of Bank of America and DOD employees have access to Bank of
America’s travel card transaction data system, known as EAGLS. Computer 
system access controls are intended to permit authorized users to 
access the system to perform their assigned duties and preclude 
unauthorized persons from gaining access to sensitive information. 
Access to EAGLS is intended to be limited to authorized users to meet 
their information needs and organizational responsibilities. Authorized 
EAGLS users access levels include customer-level access (APCs requiring 
access to travel data for cardholders under their purview and 
individual travelers requiring access to their own travel transaction 
histories) and bank employee-level access (Bank of America employees 
may be granted one of five different levels of access depending on 
their assigned duties). The highest level of Bank of America employee 
access to EAGLS is the “super user” level. According to Bank of America 
security officials, this level of access—which provides users the 
ability to add, delete, or modify anything in the system, including 
creating accounts and editing transaction data in the system—should be 
granted to as few individuals as possible. 

We found that 1,127 Bank of America employees had some level of access
to the EAGLS system, including 285 with super-user-level access. After 
we brought this matter to the attention of Bank of America security 
officials, they reviewed employee access and deactivated access for 655 
employees that they determined should not have had any level of access. 
This included 22 employees with super-user access. Further, Bank of 
America has since initiated periodic reviews to ensure that it 
maintains appropriate levels of employee access. 

In addition, DOD employees retained APC access to EAGLS after 
relinquishing their APC duties or after they may have been transferred 
or terminated. In a 2000 survey of 4,952 individuals with APC-level 
access to EAGLS, DOD found that approximately 10 percent could not be 
located and may have been transferred or terminated or no longer had APC
responsibilities. Because of concern that many of these accounts should
be deactivated, Bank of America has begun a review to determine if DOD
employees with APC-level access no longer have APC responsibilities or
have left the service. 

Statistical Tests of Key Control Activities: 

With the weak control environment and related program control 
weaknesses we identified, it is not surprising that we found weaknesses 
in the implementation of selected key control activities we 
statistically tested at the three Navy sites we audited. We selected 
four key control activities to test related to basic travel transaction 
and voucher processing. As discussed previously, for the three 
locations, we estimate that the percentage of transactions during 
fiscal year 2001 that represented personal use varied from 7 percent at 
one location to 27 percent at another location. 

We tested the implementation of the following internal control 
activities for a statistically valid sample of travel card 
transactions. 

* Was there a travel order associated with the transaction that was 
approved prior to the start of travel? 

* Was there a travel voucher associated with the transaction that was
properly reviewed to ensure that payment was accurate and properly
supported? 

* Did the traveler submit a travel voucher associated with the 
transaction to the installation travel office for processing within 5 
days of completion of travel, as required by government travel 
regulations? 

* In accordance with TTRA and the DOD FMR, was the traveler paid within 
30 days of the date a properly approved travel voucher associated with 
the transaction was submitted for payment? 

Table 8 shows the results of our statistical samples. Appendix II 
includes the specific criteria we used to assess the effectiveness of 
these controls. 

Table 8: Results of Testing of Key Internal Controls: 

Navy unit: Camp Lejeune; 
Percentage of failure, Travel orders are approved prior to travel: 
11.5%; 
Percentage of failure, Travel voucher reimbursements are accurate: 
32.6%; 
Percentage of failure, Travel vouchers are submitted within 5 days of 
travel completion: 11.5%; 
Percentage of failure, Travel vouchers are paid within 30 days of 
submission: 3.1%. 

Navy unit: Patuxent River; 
Percentage of failure, Travel orders are approved prior to travel: 
3.1%; 
Percentage of failure, Travel voucher reimbursements are accurate: 
35.4%; 
Percentage of failure, Travel vouchers are submitted within 5 days of 
travel completion: 36.5%; 
Percentage of failure, Travel vouchers are paid within 30 days of 
submission: 1.0%. 

Navy unit: Puget Sound Naval Shipyard; 
Percentage of failure, Travel orders are approved prior to travel: 
49.0%[A]; 
Percentage of failure, Travel voucher reimbursements are accurate: 
39.6%; 
Percentage of failure, Travel vouchers are submitted within 5 days of 
travel completion: 34.4%; 
Percentage of failure, Travel vouchers are paid within 30 days of 
submission: 1.0%. 

Source: GAO analysis. 

Note: The numbers in the table represent point estimates of the 
percentage of failure in the population based on our sampling tests. 
The confidence intervals for our sampling estimates are presented in
app. II. 

[A] The high failure rate is attributable to management’s failure to 
maintain copies of the original signed travel orders, which were sent 
to the travelers. 

[End of table] 

Controls over Travel Order Approval: 

Timely approval of the travel orders is the first step in ensuring that 
travel is authorized. At one of the three installations we audited, 
Patuxent River, the controls over travel order approval were partially 
effective. In contrast, Puget Sound Naval Shipyard, which had a failure 
rate of 49 percent, had ineffective controls over travel order 
approval. At Puget Sound, the high failure rate was primarily 
attributable to travel personnel not consistently ensuring that all 
copies of the six-part travel orders used in fiscal year 2001 were 
signed before sending the originals to the travelers. Consequently, 
this unit was unable to provide us with signed copies of the travel 
orders. Puget Sound Naval Shipyard management informed us that it had 
recently instituted procedures that require signed copies of travel 
orders be maintained by the unit. 

Controls over Travel Voucher Review and Accuracy Were Not Effective: 

Once travel is completed, the traveler is required to submit a voucher 
for all reimbursable expenses and must include receipts for certain 
claimed amounts. The voucher review process is intended to ensure that 
only authorized, properly supported travel charges are reimbursed and 
that the amounts are accurately calculated. All three case study sites 
we audited had ineffective controls to ensure that travel orders were 
properly reviewed for accuracy and support. The estimated failure rates 
during fiscal year 2001 for the three case study sites ranged from 33 
to 40 percent. 

Travel voucher errors resulted in both over- and underpayments to the
traveler and created an additional administrative burden for the Navy,
which had to take additional actions to recover overpayments or make
payments on previous underpayments. Travel voucher errors were 
attributed to ineffective review and audit of travel vouchers. At one 
case study site we audited, a communication breakdown had occurred 
between the office that helped travelers prepare vouchers and the 
office that entered voucher data into the automated system used to 
record relevant travel voucher data so that payment could be made by 
DFAS.[Footnote 31] At this site, each office thought that the other was 
responsible for reviewing the vouchers for accuracy. As a result, the 
vouchers were not consistently reviewed to ensure that they were filed 
in accordance with travel regulations. In addition, we found that the 
voucher auditing process was not effective, resulting in payment errors 
that should have been detected. 

In our samples, we found that most errors were in the following 
categories. 

* Missing or inconclusive receipts – We found instances in which 
voucher packages did not include all receipts required to support 
claims, as required by DOD and Navy regulations, yet payments were 
made. For example, a cardholder at Puget Sound Naval Shipyard who 
claimed cell phone charges totaling more than $1,000 on several partial
vouchers did not submit a detailed breakdown of these phone charges.
As a result, there was no indication that all of the charges were for
official use. However, the voucher was processed and full payment was
made to the traveler. 

* Errors in calculating amounts paid – We found instances in which the
voucher processing units paid for lodging expenses not incurred and 
made other errors in calculating incidental expenses, resulting in both
over- and underpayments to the traveler. At Patuxent River, one traveler
was reimbursed $395 in lodging expenses and $33 in lodging taxes;
however, the hotel receipt for this travel claim indicated lodging
expenses of $316 and lodging taxes of $24. Thus, the traveler was
overpaid a total of $88. Other errors related to the reimbursement of
telephone calls and car mileage, and the failure to pay excess baggage
fees expressly authorized in the travel order. Other errors related to 
the transposition of numbers. Most of these errors were relatively 
small in terms of dollar amounts. 

However, we found errors that were significant in comparison to the
travel voucher amount. For example, at one case study site a traveler
claimed an ATM fee of $17.25 on a voucher totaling less than $1,000, but
the amount was entered into the travel reimbursement system as $1,725. 
As a result, the cardholder was overpaid by more than $1,700. Although 
this voucher was audited by the voucher processing unit, the error was 
not detected. As a result of our audit, the Navy unit has taken actions 
to recover this and other overpayments. 

Conclusions: 

The intent of the travel card program was to improve convenience for the
traveler and to reduce the government’s costs of administering travel.
However, when the Navy implemented the travel card as part of its travel
program, it did not provide the control infrastructure—primarily human
capital—necessary to manage and oversee the use of government travel
cards. Consequently, a weak internal control environment in the travel
card program has resulted in a significant level of delinquencies and
charge-offs of bad debts, as well as travel card fraud and abuse. This 
has resulted in millions of dollars of costs to the Navy, including 
higher fees, lost rebates, and substantial time pursuing and collecting 
delinquent travel card accounts. 

DOD and the Navy have taken positive steps to reduce the delinquencies
and charge-offs, including establishing a system of wage and retirement
payment offset for many employees, encouraging the use of split 
disbursements where travel reimbursements are sent directly to the bank
rather than the employee, and making management of the travel program a
priority for the Navy commands. These actions have resulted in 
significant collections of previously charged-off and delinquent 
accounts. DOD and the Navy have also proposed additional steps as 
reported in the June 27, 2002, DOD Charge Card Task Force report to 
improve the controls over the travel card program. However, these Navy 
and DOD actions have primarily addressed the symptoms rather than the 
underlying causes of the problems with the program. Specifically, 
actions to date have focused on dealing with accounts that are 
seriously delinquent, which are back-end or detective controls rather 
than preventive controls. To effectively reform the travel program, DOD 
and the Navy will need to work to prevent potentially fraudulent and 
abusive activity and severe credit problems with the travel card. The 
fiscal year 2003 Department of Defense Appropriations Act requires the 
Secretary of Defense to establish guidelines and procedures for 
disciplinary actions to be taken against cardholders for improper, 
fraudulent, or abusive use of the government travel card and to deny 
issuance of the government travel card to individuals who are not 
creditworthy. Further, the Bob Stump National Defense Authorization Act
for Fiscal Year 2003 provides authority for the Secretary of Defense to
require (1) use of the split disbursement payment process, where any 
part of a DOD employee’s or service member’s travel reimbursement is 
paid directly to the travel card-issuing bank, and (2) deductions of 
prescribed amounts from salary and retirement pay of DOD employees or 
service members, including civilian and military retirees, who have 
delinquent travel card balances and payment of those amounts to the 
travel card-issuing bank. 

Recommendations for Executive Action: 

To strengthen the overall control environment and improve internal 
control for the Navy’s travel card program, we recommend that the 
Secretary of the Navy take the following actions. We also recommend 
that the Under Secretary of Defense (Comptroller) assess the following 
recommendations and, where applicable, incorporate them into or 
supplement the DOD Charge Card Task Force recommendations to improve 
travel card policies and procedures throughout DOD. 

Travel Card Issuance: 

We recommend that the Secretary of the Navy establish specific policies
and procedures governing the issuance of individual travel cards to 
military and civilian employees, including the following: 

* Provide individuals with no prior credit histories with “restricted” 
travel cards with low credit and ATM limits. 

* Develop procedures to periodically evaluate frequency of card usage to
identify accounts of infrequent travelers. 

* Cancel accounts for current infrequent travelers, as noted in the 
Charge Card Task Force report, in order to minimize exposure to fraud 
and abuse. 

* Evaluate the feasibility of activating and deactivating all cards,
regardless of whether they are standard or restricted cards, so that
cards are available for use only during the periods authorized by the
cardholders’ travel orders. At a minimum, this policy should focus on
controlling travel card use by “high-risk” enlisted military personnel 
in the E-1 to E-6 grades. 

* Develop comprehensive, consistent Navy-wide initial training and
periodic refresher training for travel cardholders, focused on the
purpose of the program and appropriate uses of the card. The training
should emphasize the prohibitions on personal use of the card, including
gambling, personal travel, and adult entertainment. Such training
should also address the policies and procedures of the travel order,
voucher, and payment processes. For entry-level personnel, the training
should also include information on basic personal financial management 
techniques to help avoid financial problems that could affect an 
individual’s ability to pay his or her travel card bill. 

Monitoring, Review, and Disciplinary Actions: 

We recommend that the Secretary of the Navy establish the following
specific policies and procedures to strengthen controls and disciplinary
actions for improper use of the travel card: 

* Establish guidance regarding the knowledge, skills, and abilities
required to carry out APC responsibilities effectively. 

* Establish guidance on APC span-of-control responsibilities so that 
such responsibilities are properly aligned with time available to ensure
effective performance. Determine whether certain APC positions should 
be staffed on a full-time basis rather than as collateral duties. 

* Establish Navy-wide procedures to provide assurance that APCs receive
training on their APC responsibilities. The training should include how
to use EAGLS transaction reports and other available data to monitor
cardholder use of the travel card—for example, reviewing account
transaction histories to ascertain whether transactions are incurred
during periods of authorized travel and appear to be appropriate travel
expenses and are from approved MCCs. 

* Establish guidance requiring APCs to review EAGLS reports to identify
cardholders who have written NSF checks for payment of their account
balances, and refer these employees for counseling or disciplinary
action. 

* Investigate and, if warranted, take appropriate disciplinary actions
against cardholders who wrote three or more NSF checks to Bank of
America. 

* Establish Navy procedures to develop a data mining program to further
facilitate APCs’ ability to identify potentially inappropriate 
transactions for further review. 

* Establish Navy-wide procedures requiring that supervisors and 
commanders notify APCs of actions taken with respect to delinquent
cardholders. 

* Establish a Navy requirement for cognizant APCs to retain records 
documenting cardholders’ fraudulent or abusive use of the travel card. 

* Establish appropriate, consistent Navy-wide procedures as a guide for
taking disciplinary actions with respect to fraudulent and abusive 
activity and delinquency related to the travel card. 

* Review records of individuals whose accounts have been charged off or
placed in salary offset to determine whether they have been referred to
DON CAF for security reviews. 

* Strengthen procedures used to process employees separating from the
service to ensure that all accounts are deactivated or closed, and 
repayment of any outstanding debts is arranged. 

* Perform periodic review of exit procedures to determine that accounts
of separated cardholders are deactivated or closed in a timely manner. 

* Develop procedures to identify active cards of separated cardholders,
including comparing cardholder and payroll data. 

* Review, in conjunction with Bank of America, individuals with APC-
level access to EAGLS to limit such access to only those with current 
APC duties. 

* Develop a management plan to ensure that audits of the Navy travel
card program are conducted regularly, and the results are reported to
senior management. 

Voucher and Payment Processes: 

To improve travel voucher accuracy, we recommend that commanders at
each unit identify causes of the high error rates related to travel 
voucher review and provide refresher training to ensure that voucher 
examiners and auditors are informed and can accurately apply travel 
regulations and updates. 

To ensure that travel vouchers are consistently reviewed prior to
processing, we recommend that the Commander of Puget Sound Naval
Shipyard take the following actions: 

* Issue procedures to clearly assign responsibilities for reviewing the
accuracy of the travel vouchers. 

* Conduct periodic review to assess the effectiveness of the new 
procedures in reducing the frequency and amount of voucher errors. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, which are reprinted in
appendix V, DOD concurred with 21 of 23 recommendations and partially
concurred with the remaining 2 recommendations. DOD partially concurred 
with our recommendations regarding (1) establishing Navy-wide 
procedures requiring that supervisors and commanding officers notify the
APCs of actions taken with respect to delinquent cardholders and
(2) having commanders at each unit identify causes of the high error 
rates related to travel voucher review and provide refresher training 
to voucher examiners and auditors. We believe that DOD’s planned 
actions for these two areas, if effectively implemented, will address 
the intent of our recommendations. 

Concerning our recommendation that APCs be notified of actions by
supervisors with respect to delinquent cardholders, DOD responded that
providing this type of sensitive information to APCs is not appropriate.
DOD considers it to be more appropriate that actions taken with respect 
to delinquent cardholders be reported up the chain of command and that 
the department decide at what level and at what frequency this reporting
occur. Our recommendation did not contemplate that APCs would 
necessarily need details of disciplinary action, only that the APCs be
informed that actions have been taken and by whom. Often the actions
taken include verbal counseling. The written documentation maintained
by the APC, which should refer to the official from whom authorized
personnel may obtain details of the disciplinary actions, will provide a
record that actions were taken and be a source for new 
commanders/supervisors in identifying people with previous credit card
problems. 

Regarding having commanders identify causes of the high error rate 
related to travel voucher review and provide refresher training, DOD 
has requested that NAS conduct a review of the department’s end-to-end 
travel process and make recommendations to improve accountability and 
efficiency. Upon completion of the NAS review, DOD said it will 
distribute the appropriate guidance to all major commands. We agree 
that it would be beneficial for NAS to perform a comprehensive review 
of the travel process. In addition, to ensure immediate results, we 
believe that commanders, who are ultimately responsible and are more 
involved in the day-to-day operations, should take proactive steps in 
reviewing and correcting the weaknesses identified in this report. 

In addition, although DOD concurred with our recommendations to 
establish policies and procedures governing the issuance of individual
travel cards to military and civilian employees, its response regarding
employees with no prior credit history indicated that some may be issued
cards with “…higher than ‘restricted’ limits to accomplish their 
mission.” While this may be required on a case-by-case basis, we 
believe that additional preventive managerial oversight to monitor 
these accounts would be beneficial. Management should also consider 
lowering the limit to established restricted levels once the mission is 
completed. 

As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute this report until 30 days from 
its date. At that time, we will send copies of this report to 
interested congressional committees, the Secretary of Defense, the 
Under Secretary of Defense (Comptroller), the Secretary of the Navy, 
and the Director of the Office of Management and Budget. We will make 
copies available to others upon request. In addition, the report will 
be available at no charge on the GAO Web site at [hyperlink, 
http://www.gao.gov]. 

Please contact Gregory D. Kutz at (202) 512-9095 or kutzg@gao.gov or 
John J. Ryan at (202) 512-9587 or ryanj@gao.gov if you or your staffs 
have any questions concerning this report. 

Signed by: 

Gregory D. Kutz: 
Director: 
Financial Management and Assurance: 

Signed by: 

Robert J. Cramer: 
Managing Director: 
Office of Special Investigations: 

[End of section] 

Appendix I: Background: 

In 1983, the General Services Administration (GSA) awarded a 
governmentwide master contract with a private company to provide
government-sponsored, contractor-issued travel cards to federal
employees to be used to pay for costs incurred on official business 
travel. The intent of the travel card program was to provide increased
convenience to the traveler and lower the government’s cost of travel by
reducing the need for cash advances to the traveler and the 
administrative workload associated with processing and reconciling 
travel advances. The travel card program includes both individually 
billed accounts—accounts held and paid by individual cardholders—and 
centrally billed accounts that are used to purchase transportation or 
for the travel expenses of a unit and are paid directly by the 
government. As of the end of fiscal year 2001, over 2.1 million 
individually billed travel cards were issued to federal government 
travelers. These travel cardholders charged $3.6 billion in the same 
fiscal year. 

Under the current GSA master contract, the Department of Defense
entered into a tailored task order with Bank of America[Footnote 32] to 
provide travel card services to DOD and the military services, 
including the Navy. Table 9 provides the number of individually billed 
travel cards outstanding and related dollar amount of travel card 
charges by DOD and its components in relation to the total federal 
government. 

Table 9: Comparison of Number of Individually Billed Travel Cardholders 
and Related Charges for DOD versus Total Federal Government Charges for 
Fiscal Year 2001: 

Entity: Navy (includes Marine Corps); 
Number of individually billed travel cardholders as of September 30, 
2001: 394,952; 
Fiscal year 2001 individually billed travel card charges (dollars in 
millions): $510. 

Entity: Army; 
Number of individually billed travel cardholders as of September 30, 
2001: 432,460; 
Fiscal year 2001 individually billed travel card charges (dollars in 
millions): $619. 

Entity: Air Force; 
Number of individually billed travel cardholders as of September 30, 
2001: 501,306; 
Fiscal year 2001 individually billed travel card charges (dollars in 
millions): $831. 

Entity: Other DOD; 
Number of individually billed travel cardholders as of September 30, 
2001: 86,922
Fiscal year 2001 individually billed travel card charges (dollars in 
millions): $174. 

Entity: Total DOD; 
Number of individually billed travel cardholders as of September 30, 
2001: 1,415,640
Fiscal year 2001 individually billed travel card charges (dollars in 
millions): $2,134. 

Entity: Total federal government; 
Number of individually billed travel cardholders as of September 30, 
2001: 2,132,031; 
Fiscal year 2001 individually billed travel card charges (dollars in 
millions): $3,634. 

Entity: DOD percentage of total government;; 
Number of individually billed travel cardholders as of September 30, 
2001: 66%; 
Fiscal year 2001 individually billed travel card charges (dollars in 
millions): 59%. 

Source: Bank of America. 

[End of table] 

As shown in table 9, DOD accounts for about 1.4 million, or 66 percent, 
of the total number of the individually billed travel cards issued by 
the entire federal government and DOD’s cardholders charged about $2.1 
billion, or about 59 percent of the federal government’s travel card 
charges during fiscal year 2001. Table 9 also shows that the Navy 
provided about 395,000 individually billed cards to its civilian and 
military employees as of September 2001. These cardholders charged an 
estimated $510 million to their travel cards during fiscal year 2001. 

Travel Card Program Guidelines: 

The Travel and Transportation Reform Act of 1998 (Public Law 105-264)
expanded the use of government travel cards by mandating the use of the
cards for all official travel unless specifically exempted. The act is
intended to reduce the overall cost of travel to the federal government
through reduced administrative costs and by taking advantage of rebates
from the travel card contractor. These rebates are based on the volume 
of transactions incurred on the card and cardholders paying their 
monthly travel card bills on time. To help timely payments, the act 
requires that agencies reimburse cardholders for proper travel claims 
within 30 days of submission of approved travel vouchers by the 
cardholders.[Footnote 33] Further, the act allows, but does not 
require, agencies to offset a cardholder’s pay for amounts the 
cardholder owes to the travel card contractor as a result of travel 
card delinquencies not disputed by the cardholder. The act calls for 
GSA to issue regulations incorporating the requirements of the act. 

GSA incorporated the act’s requirements into the Federal Travel 
Regulation. The Federal Travel Regulation governs travel and 
transportation and relocation allowances for all federal government
employees, including overall policies and procedures governing the use 
of government travel cards. Agencies are required to follow the 
requirements of GSA’s Federal Travel Regulation, but can augment these 
regulations with their own implementing regulations. 

DOD issued its Financial Management Regulations (FMR), Volume 9, 
Chapter 3, Travel Policies and Procedures to supplement GSA’s travel
regulations. DOD’s Joint Travel Regulations, Volume 1 (for Uniformed
Service Members), and Volume 2 (for Civilian Personnel) refer to the FMR
as the controlling regulation for DOD’s travel cards. Further, in 
January 2002, the Navy eBusiness Operations Office issued Instruction 
4650.1, Policies and Procedures for the Implementation and Use of the
Government Travel Charge Card to supplement the FMR. In addition, some 
of the Navy’s individual commands and units have issued their own 
instructions supplementing GSA and DOD guidelines. 

The Navy Travel Process: 

As shown in figure 6, the Navy’s travel card management program for
individually billed travel card accounts encompasses card issuance, 
travel authorization, cardholders charging goods and services on their 
travel cards, travel voucher processing and payment, and managing 
travel card usage and delinquencies. 

Figure 6: Overview Flowchart of the Navy Travel Process: 

[See PDF for image] 

The flowchart depicts the following information: 

1) Traveler requests travel card; 

2) Agency Program Coordinator (APC) processes travel card application 
approved by supervisor and controls credit limits; 

3) Bank issues travel card; 

4) Official government travel authorized (travel order); 

5) Traveler charges goods and services on travel card; 
* APC monitors card usage and delinquencies[B] by accessing
EAGLS; 
- Bank credit card data in EAGLS[C]; 
* Merchant (e.g., rental car co.) provides goods/services and charges 
travel card; 
* Bank processes card charges, pays merchant bank, and bills traveler; 
- Bank credit card data in EAGLS[C]; 
* Merchant bank accepts transaction deposit slips and transfers 
payment; 

6) Traveler prepares voucher and provides to supervisor for review and 
submission to voucher processing unit; 

7) Installation voucher processing unit processes voucher and submits 
to DFAS; 

8) DFAS pays[A] voucher; 

9) Traveler leaves services or moves; 

10) APC terminates or suspends card for traveler leaving Navy or 
moving. 

Source: GAO analysis. 

[A] The Defense Finance and Accounting Service allows travelers to 
direct a portion, or all, of their voucher reimbursement to Bank of 
America. 

[B] See figure 8 for specific actions to be taken by the Agency Program 
Coordinator. 

[C] Electronic Account Government Ledger System. 

Source: GAO analysis. 

[End of figure] 

Travel Card Issuance and Termination: 

When a Navy civilian or military employee or the employee’s supervisor
determines that he or she will need a travel card, the employee 
contacts the unit’s travel card agency program coordinator (APC) to 
complete an individually billed card account application form. As shown 
in figure 7, the application requires the applicant to provide 
pertinent information, including full name and social security number, 
and indicate whether he or she is an active, reserve, or a civilian 
employee of the Navy. The applicant is also required to initial a 
statement on the application acknowledging that he or she has read and 
understands the terms of the travel card agreement and agrees to be 
bound by these terms, including a provision acknowledging that the card 
will be used only for official travel. The APC is required to complete 
the portion of the member’s application concerning who will be 
responsible for managing the use and delinquencies related to the card. 
Bank of America is required to issue a travel card to all applicants 
for whom it receives completed applications signed by the applicants, 
the applicants’ supervisors, and the APCs. 

Figure 7: Travel Card Application: 

[See PDF for image] 

This figure is a copy of the Bank of America travel card application 
form. 

Source: Department of Defense. 

[End of figure] 

Bank of America issues travel cards with either a standard or restricted
credit limit. If an employee has little or no credit history or poor 
credit based on a credit check performed by Bank of America, it will 
suggest to the service that the applicant receive a restricted credit 
limit of $2,500 instead of the standard credit limit of $10,000. 
[Footnote 34] However, as shown in figure 7, the application allows the 
employee to withhold permission for Bank of America to obtain credit 
reports. If this option is selected, Bank of America automatically 
issues a restricted credit limit card to the applicant. 

When cardholders leave the Navy, they are required to contact their APCs
and notify them of their planned departure. Based on this notification 
from the cardholders, the APCs are to deactivate or terminate the 
cardholders’ accounts. 

Travel Authorization: 

When a cardholder is required to travel for official government 
purposes, he or she is issued a travel order authorizing travel. The 
travel order is required to specify the timing and purpose of the 
travel authorized. For example, the travel order is to authorize the 
mode of transportation, the duration and points of the travel, and the 
amounts of per diem and any cash advances. Further, the Navy can limit 
the amount of authorized reimbursement to military members based on the 
availability of lodging and dining facilities at military 
installations. 

Using the Travel Card for Official Travel Expenses: 

For authorized travel, travelers must use their cards to pay for 
allowable expenses such as hotels and rental cars. The Navy generally 
uses a centrally billed transportation account to pay for air and rail
transportation. Also, some units utilize unit cards, a form of 
centrally billed account, in lieu of travel charge cards for 
individually billed accounts for meals and lodging for group trips. 

When the travel card is submitted to a merchant, the merchant will 
process the charge through its banking institution, which in turn 
charges Bank of America. At the end of each banking cycle (once each 
month), Bank of America prepares a billing statement that is mailed to 
the cardholder for the amounts charged to the card. The statement also 
reflects all payments and credits made to the cardholder’s account. 
Bank of America requires that the cardholder make payment on the 
account in full within 30 days of the statement closing date. If the 
cardholder does not pay his or her monthly billing statement in full, 
and does not dispute the charges within 60 days of the statement 
closing date, the account is considered delinquent. 

Travel Voucher Submission and Processing: 

Within 5 working days of return from travel, the cardholder is required 
to submit a travel voucher claiming legitimate and allowable expenses
incurred while on travel. Further, the standard is for the cardholder to
submit an interim voucher every 30 days for extended travel of more than
45 days. The amount that cardholders are reimbursed for their meals and
incidental expenses and hotels is limited by geographical rates 
established by GSA. 

Upon submission of a proper voucher by the cardholder, the Navy has 30 
days in which to make reimbursement without incurring late payment fees.
Cardholders are required to submit their travel vouchers to their 
supervisors or other designated approving officials who must review the
vouchers and approve them for payment. If the review finds an omission 
or error in a voucher or its required supporting documentation, the 
approving official must inform the traveler of the error or omission. 
If the payment of the approved proper voucher takes longer than 30 
days, the Navy is required to pay the cardholder a late payment fee 
plus an amount equal to the amount Bank of America would have been 
entitled to charge the cardholder had the cardholder not paid the bill 
by the due date. 

After the supervisor approves a cardholder’s travel voucher package for
payment, it is processed by a voucher processing unit at the location to
which the cardholder is assigned. The voucher processing unit enters 
travel information from the approved voucher into DOD’s Integrated 
Automated Travel System (IATS). IATS calculates the amount of per diem
authorized in the travel order and voucher and the amount of mileage, if
any, claimed by the cardholder. In addition, any other expenses claimed
and approved are entered into IATS. Once the travel information from the
voucher has been entered into IATS, the voucher may be selected for
further review or “audit.” IATS selects 10 percent of vouchers under 
$2,500 and all vouchers $2,500 or greater for audits. If problems with 
the voucher are found during the initial entry of the information into 
IATS or during the audit of the information, the transaction can be 
rejected and returned to the cardholder for correction. Once the 
vouchers are processed and audited, they are sent to DFAS for payment 
to the cardholder or to Bank of America and the cardholder, if the 
cardholder elected split disbursements whereby part of the DFAS 
reimbursement is sent to Bank of America. 

Monitoring Travel Card Transaction Activity: 

In addition to controlling the issuance and credit limits related to 
the travel card, APCs are also responsible for monitoring the use of and
delinquencies related to travel card accounts for which they have been
assigned management responsibility. Bank of America’s Web-based 
Electronic Account Government Ledger System (EAGLS) provides on-line
tools that are intended to assist APCs in monitoring travel card 
activity and related delinquencies. Specifically, APCs can access EAGLS 
to monitor and extract reports on their cardholders’ travel card 
transaction activity and related payment histories. 

Managing Delinquent Cardholder Accounts: 

Both the Navy and Bank of America have a role in managing travel card
delinquencies under GSA’s master contract. While APCs are responsible
for monitoring cardholders’ accounts and for working with cardholders’
supervisors to address any travel card payment delinquencies, Bank of
America is required to use EAGLS to notify the designated APCs if any of
their cardholders’ accounts are in danger of suspension or cancellation.
When Bank of America has not received a required payment on any travel
cardholder’s account within 60 days of the billing statement closing 
date, it is considered delinquent. As summarized in figure 8, there are 
specific actions required by both DOD and Bank of America based on the 
number of days a cardholder’s account is past due. 

Figure 8: Required DOD and Bank of America Delinquency Process 
Management Actions: 

[See PDF for image] 

This figure is an illustration that depicts the required DOD and Bank 
of America delinquency process management actions, as follows: 

Statement date: 
DOD actions: None. 
Bank of America actions: Sends statement to cardholder. 

45 days: 
DOD actions: None. 
Bank of America actions: Sends a delinquency reminder to cardholder. 

55 days: 
DOD actions: None. 
Bank of America actions: Sends a presuspension letter to the 
cardholder. 

60 days: 
DOD actions: Agency Program Coordinator (APC) issues 60-day delinquency 
notification memorandum to the cardholder and immediate supervisor. 
Supervisor investigates and takes appropriate disciplinary action; 
Bank of America actions: Suspends the account prohibiting purchases.
Mails suspension letter to cardholder. 

75 days: 
DOD actions: None; 
Bank of America actions: Assesses late fee every 30 days. 

90 days: 
DOD actions: APC issues 90-day delinquency notification memorandum to 
the cardholder, immediate supervisor, and the company commander who 
investigates and takes appropriate disciplinary action; 
Bank of America actions: Sends 90-day letter to cardholder Sends letter 
to cardholder of intent to initiate salary offset. 

120 days: 
DOD actions: APC issues a 120-day delinquency notification memorandum 
to the company commander. The company commander investigates and takes 
appropriate disciplinary action; 
Bank of America actions: Sends a precancellation letter to the 
cardholder. Requests Defense Finance and Accounting Service (DFAS) to 
offset salary. 

126 days: 
DOD actions: None; 
Bank of America actions: Closes account, mails notice of cancellation 
letter to cardholder. 

150 days: 
DOD actions: DFAS offsets salary; 
Bank of America actions: None. 

180 days: 
DOD actions: None. 
Bank of America actions: Mails a precharge-off letter to the cardholders
for accounts not in salary offset or other payment agreements. 

210 days: 
DOD actions: None. 
Bank of America actions: Charges off account for which no payments were
being made. 

Source: GAO analysis. 

Note: Starting in fiscal year 2002, DOD began to offset the salaries of 
certain civilian employees and military and retired military members 
from all services including the Navy, for the amounts delinquent or 
charged off on travel card accounts. 

[End of figure] 

The following is a more detailed explanation of the required actions by
DOD and/or Bank of America with respect to delinquent travel card
accounts. 

* 45 days past due—Bank of America is to send a letter to the cardholder
requesting payment. Bank of America has the option to call the 
cardholder with a reminder that payment is past due and to advise the
cardholder that the account will be suspended if it becomes 60 days past
due. 

* 55 days past due—Bank of America is to send the cardholder a 
presuspension letter warning that Bank of America will suspend the 
account if it is not paid. If Bank of America suspends an account, the
card cannot be used until the account is paid. 

* 60 days past due—The APC is to issue a 60-day delinquency notification
memorandum to the cardholder and to the cardholder’s immediate 
supervisor, informing them that the cardholder’s account has been 
suspended due to nonpayment. The next day, a suspension letter is to
be sent by Bank of America to the cardholder providing notice that the
card has been suspended until payment is received. 

* 75 days past due—Bank of America is to assess the account a late fee. 
The late fee charged by Bank of America was $20 through August 9, 2001. 
Effective August 10, 2001, Bank of America increased the late fee to 
$29 under the terms of the contract modification between Bank of 
America and DOD. Bank of America is allowed to assess an additional 
late fee every 30 days until the account is made current or charged 
off. 

* 90 days past due—The APC is to issue a 90-day delinquency 
notification memorandum to the cardholder, the cardholder’s immediate 
supervisor, and the company commander (or unit director). The company
commander is to initiate an investigation into the delinquency and take
appropriate action, at the company commander’s discretion. At the same 
time, Bank of America is to send a “due process letter” to the 
cardholder providing notice that the account will be canceled if 
payment is not received within 30 days unless he or she enters into a
payment plan, disputes the charge(s) in question, or declares 
bankruptcy. 

* 120 days past due—The APC is to issue a 120-day delinquency 
notification memorandum to the cardholder’s commanding officer. At 126 
days past due, the account is to be canceled by Bank of America. 
Beginning in October 2001, once accounts were 120 days past due, Bank 
of America began sending files to DFAS listing these accounts for salary
offset. 

* 180 days past due—Bank of America is to send “precharge-off” or last
call letters to cardholders whose accounts were not put in salary offset
informing them that Bank of America will charge off their accounts and
report them to a credit bureau if payment is not received. A credit
bureau is a service that reports the credit history of an individual.
Banks and other businesses assess the creditworthiness of an individual
using credit bureau reports. 

* 210 days past due—Bank of America is to chargeoff any delinquent 
account that it was unable to put in the offset program and, if the 
balance is $50 or greater, report it to a credit bureau, unless another
form of payments was forthcoming. 

Some accounts are pursued for collection by Bank of America’s recovery
department, while others are sent to attorneys or collection agencies 
for recovery. The delinquency management process can be suspended when a
cardholder’s APC informs Bank of America that the cardholder is on
official travel, but is unable to submit vouchers and make timely 
payments on his or her account, through no fault of his or her own. 
Under such circumstances, the APC is to notify Bank of America that the 
cardholder is in “mission-critical” status. By activating this status, 
Bank of America is precluded from identifying the cardholder’s account 
as delinquent until 45 days after such time as the APC determines the 
cardholder is to be removed from mission-critical status. According to 
Bank of America, approximately 800 to 1,000 cardholders throughout DOD 
were in this status at any given time throughout fiscal year 2001. 

[End of section] 

Appendix II: Objectives, Scope, and Methodology: 

Pursuant to a joint request by the Chairman and Ranking Minority Member
of the Subcommittee on Government Efficiency, Financial Management and 
Intergovernmental Relations, House Committee on Government Reform, and 
the Ranking Minority Member of the Senate Committee on Finance, we 
audited the controls over the issuance, use, and monitoring of 
individually billed travel cards and associated travel processing and
management for the Department of the Navy. Our assessment covered: 

* the reported magnitude and impact of delinquent and charged-off Navy
travel card accounts for fiscal year 2001 and the first 6 months of 
fiscal year 2002, along with an analysis of causes and related 
corrective actions; 

* an analysis of the universe of Navy travel card transactions during 
fiscal year 2001 and the first 6 months of fiscal year 2002 to identify 
potentially fraudulent and abusive activity related to the travel card; 

* the Navy’s overall management control environment and the design of 
selected Navy travel program management controls, including controls 
over (1) travel card issuance, (2) APCs’ capacity to carry out assigned
duties, (3) limiting card activation to meet travel needs, (4) 
transferred and “orphan” accounts, (5) procedures for terminating 
accounts when cardholders leave military service, and (6) access for 
Bank of America’s travel card database; and; 

* tests of statistical samples of transactions to assess the 
implementation of key management controls and processes for three Navy 
units’ travel activity including (1) travel order approval, (2) 
accuracy of travel voucher payments, (3) the timely submission of 
travel vouchers by travelers to the approving officials, and (4) the 
timely processing and reimbursement of travel vouchers by the Navy and 
DOD. 

We used as our primary criteria applicable laws and regulations, 
including the Travel and Transportation Reform Act of 1998 (Public Law 
105-264),[Footnote 35] the General Services Administration’s (GSA) 
Federal Travel Regulation,[Footnote 36] and the Department of Defense 
Financial Management Regulations, Volume 9, Travel Policies and 
Procedures. We also used as criteria our Standards for Internal Control 
in Federal Government[Footnote 37] and our Guide to Evaluating and 
Testing Controls Over Sensitive Payments.[Footnote 38] To assess the 
management control environment, we applied the fundamental concepts and 
standards in our internal control standards to the practices followed 
by management in the six areas reviewed. 

To assess the magnitude and impact of delinquent and charged-off 
accounts, we compared the Navy’s delinquency and charge-off rates to
other DOD services and federal agencies. We did not verify the accuracy 
of the data provided to us by Bank of America and GSA. We also analyzed 
the trends in the delinquency and charge-off data from fiscal year 2000 
through the first half of fiscal year 2002. 

We also used data mining to identify Navy travel card transactions for
individually billed accounts for audit. Our data mining procedures 
covered the universe of individually billed Navy travel card activity 
during fiscal year 2001 and the first 6 months of fiscal year 2002 and 
identified transactions that we believed were potentially fraudulent or 
abusive based upon the nature, amount, merchant, and other identifying 
characteristics of the transaction. However, our work was not designed 
to identify, and we did not determine, the extent of any potentially 
fraudulent or abusive activity related to the travel card. 

To assess the overall control environment for the travel card program 
at the Department of the Navy, we obtained an understanding of the 
travel process, including travel card management and oversight, by 
interviewing officials from the Office of the Undersecretary of 
Defense, Comptroller; Department of the Navy; Defense Finance and 
Accounting Service (DFAS); Bank of America; and GSA. We reviewed 
applicable policies and procedures and program guidance they provided. 
We visited three Navy units to “walk through” the travel process 
including the management of travel card usage and delinquency. Further, 
we contacted one of the three largest U.S. credit bureaus to obtain 
credit history data and information on how credit scoring models are 
developed and used by the credit industry for credit reporting. 

At each of the Navy locations we audited, we also used our review of
policies and procedures and the results of our “walk-throughs” of travel
processes and other observations to assess the effectiveness of controls
over segregation of duties among persons responsible for issuing travel
orders, preparing travel vouchers, processing and approving travel
vouchers, and certifying travel voucher payments. 

We also reviewed computer system access controls for Electronic Account
Government Ledger System (EAGLS)—the system used by Bank of America to 
maintain DOD travel card data. To determine whether these controls over 
EAGLS were effective, we interviewed Bank of America officials and 
observed EAGLS functions and capabilities. 

To test the implementation of key controls over individually billed Navy
travel card transactions processed through the travel system—including
the travel order, travel voucher, and payment processes—we obtained and
used the database of fiscal year 2001 Navy travel card transactions to
review random samples of transactions at three Navy locations. Because
our objective was to test controls over travel card expenses, we 
excluded credits and miscellaneous debits (such as fees) from the 
population of transactions used to select random samples of travel card 
transactions to review at each of the three Navy units we audited. Each 
sampled transaction was subsequently weighted in the analysis to account
statistically for all charged transactions at each of the three units, 
including those transactions that were not selected. 

We selected three Navy locations for testing controls over travel card
activity based on the relative size of travel card activity at the 27 
Navy commands and of the units under these commands, the number and
percentage of delinquent accounts, and the number and percentage of
accounts written off. We selected one unit from the Naval Sea Systems
Command because that command represented 19 percent of the total travel
card activity, 9 percent of past due accounts, and 7 percent of accounts
charged off during fiscal year 2001. We also selected one unit from 
Naval Air Systems Command because that command represented approximately
12 percent of travel card activity, 4 percent of past due accounts, and 
4 percent of accounts charged off during fiscal year 2001 across the 
Navy. We also selected U.S. Marine Corps Forces Atlantic because this 
command represented about 24 percent of Corps charge card activity, 23 
percent of accounts past due, and 26 percent of accounts charged off. 
Each of the units within the commands was selected because of the 
relative size of the unit within the respective command. Table 10 
presents the sites selected and the number of fiscal year 2001 
transactions at each location.[Footnote 39] 

Table 10: Population of Fiscal Year 2001 Travel Transactions at Navy 
Units Tested: 

Navy unit tested: Camp Lejeune; 
Number of fiscal year 2001 travel transactions[A]: 14,209; 
Dollar value of fiscal year 2001 travel transactions[A]: $1,747,316. 

Navy unit tested: Patuxent River; 
Number of fiscal year 2001 travel transactions[A]: 179,547; 
Dollar value of fiscal year 2001 travel transactions[A]: $20,335,864. 

Navy unit tested: Puget Sound Naval Shipyard; 
Number of fiscal year 2001 travel transactions[A]: 80,583; 
Dollar value of fiscal year 2001 travel transactions[A]: $11,025,669 . 

Source: GAO analysis based on Bank of America data. 

[A] Transactions represent charges for sales and cash advances and 
exclude credits and fees. 

[End of table] 

We performed tests on statistical samples of travel card transactions at
each of the three case study sites to assess whether the system of 
internal controls over the transactions was effective, as well as to 
provide an estimate of the percentage of transactions by unit that were 
not for official government travel. For each transaction in our 
statistical sample, we assessed whether (1) there was an approved 
travel order prior to the trip, (2) the travel voucher payment was 
accurate, (3) the travel voucher was submitted within 5 days of the 
completion of travel, and (4) the traveler was paid within 30 days of 
the submission of an approved travel voucher. We considered 
transactions not related to authorized travel to be abuse and incurred 
for personal purposes. The results of the samples of these control 
attributes, as well as the estimate for personal use—or abuse—related to
travel card activity, can be projected to the population of 
transactions at the respective test case study site only, not to the 
population of travel card transactions for all Navy cardholders. 

We concluded that a control was effective if both the projected point
estimate of the failure rate and the upper bound of a one-sided 95 
percent confidence interval associated with the estimate were no more 
than 5 percent. We concluded that a control was ineffective if both the 
point estimate of the failure rate and the lower bound of a one-sided 
95 percent confidence interval associated with the estimate were 
greater than 10 percent. Otherwise, we concluded that the control was 
partially effective. Tables 11 through 13 show (1) the results of our 
tests of key attributes, (2) the point estimates of the failure rates 
for the attributes, and (3) the two-sided 95 percent confidence 
intervals for the failure rates for each attribute. Table 11 shows the 
results of our test of the key control related to the authorization of 
travel—(approved travel orders were prepared prior to dates of travel). 

Table 11: Estimates of Fiscal Year 2001 Transactions That Failed 
Control Tests for Approved Travel: 

Navy unit tested: Camp Lejeune
Number of failed transactions: 11 of 96; 
Estimated failure rate (2-sided 95% confidence interval): 11.5%; 
(5.9%, 19.6%). 

Navy unit tested: Patuxent River
Number of failed transactions: 3 of 96; 
Estimated failure rate (2-sided 95% confidence interval): 3.1%; 
(0.6%, 8.9%). 

Navy unit tested: Puget Sound Naval Shipyard
Number of failed transactions: 47 of 96; 
Estimated failure rate (2-sided 95% confidence interval): 49.0%; 
(38.6%, 59.4%). 

Source: GAO analysis. 

[End of table] 

Table 12 shows the results of our test for effectiveness of controls in 
place over the accuracy of travel voucher payments. 

Table 12: Estimates of Fiscal Year 2001 Transactions That Failed 
Control Tests for Accurate Travel Voucher Payments: 

Navy unit tested: Camp Lejeune; 
Number of failed transactions: 14 of 43; 
Estimated failure rate (2-sided 95% confidence interval): 32.6%; 
(19.1%, 48.5%). 

Navy unit tested: Patuxent River; 
Number of failed transactions: 34 of 96; 
Estimated failure rate (2-sided 95% confidence interval): 35.4%; 
(25.9%, 45.8%). 

Navy unit tested: Puget Sound Naval Shipyard; 
Number of failed transactions: 38 of 96; 
Estimated failure rate (2-sided 95% confidence interval): 39.6%; 
(29.8%, 50.1%). 

Source: GAO analysis. 

[End of table] 

Table 13 shows the results of our tests of two key controls related to 
timely processing of claims for reimbursement of expenses related to 
government travel—timely submission of the travel voucher by the 
employee and timely approval and payment processing. 

Table 13: Estimates of Fiscal Year 2001 Transactions That Failed 
Control Tests for Timely Submission and Processing of Travel Vouchers: 

Navy unit tested: Camp Lejeune
Timely voucher submission by employee (5-day rule), Number of failed 
transactions: 11 of 96; 
Timely voucher submission by employee (5-day rule), Estimated failure 
rate (2-sided 95% confidence interval): 11.5% (5.9%, 19.6%); 
Timely reimbursement to the traveler (30-day rule), Number of failed 
transactions: 3 of 96
Timely reimbursement to the traveler (30-day rule), Estimated failure 
rate (2-sided 95% confidence interval): 3.1% (0.6%, 8.9%). 

Navy unit tested: Patuxent River
Timely voucher submission by employee (5-day rule), Number of failed 
transactions: 35 of 96; 
Timely voucher submission by employee (5-day rule), Estimated failure 
rate (2-sided 95% confidence interval): 36.5% (26.9%, 46.9%); 
Timely reimbursement to the traveler (30-day rule), Number of failed 
transactions: 1 of 96
Timely reimbursement to the traveler (30-day rule), Estimated failure 
rate (2-sided 95% confidence interval): 1.0% (0.03%, 5.7%). 

Navy unit tested: Puget Sound Naval Shipyard 
Timely voucher submission by employee (5-day rule), Number of failed 
transactions: 33 of 96; 
Timely voucher submission by employee (5-day rule), Estimated failure 
rate (2-sided 95% confidence interval): 34.4% (25.0%, 44.8%); 
Timely reimbursement to the traveler (30-day rule), Number of failed 
transactions: 1 of 96
Timely reimbursement to the traveler (30-day rule), Estimated failure 
rate (2-sided 95% confidence interval): 1.0% (0.03%, 5.7%). 

Source: GAO analysis. 

[End of table] 

To determine if cardholders were reimbursed within 30 days, we used
payment dates provided by DFAS. We did not independently validate the
accuracy of these reported payment dates. 

We briefed Navy managers, including Assistant Secretary of the Navy
(Financial Management and Comptroller) officials; and unit commanders
and APCs of the details of our audit, including our findings and their
implications. We incorporated their comments where appropriate. We 
conducted our audit work from December 2001 through October 2002 in
accordance with generally accepted government auditing standards, and
we performed our investigative work in accordance with standards 
prescribed by the President’s Council on Integrity and Efficiency. We
received DOD comments on a draft of this report from the Under Secretary
of Defense (Comptroller) dated December 5, 2002, and have reprinted
those comments in appendix V. 

[End of section] 

Appendix III: Navy Major Command Delinquency Rates: 

Table 14 shows the travel card delinquency rates for Navy’s major 
commands (and other Navy organizational units at a comparable level) 
that had outstanding balances over $1 million as of March 31, 2002. 
Commands with a March 31, 2002, balance outstanding under $1 million 
have been combined into "other." The Navy’s commands and other units 
are listed in descending order based on their respective delinquency 
rates as of March 31, 2002. The delinquency rates shown represent the 
total amount delinquent (amounts not paid within 61 days of the travel 
card monthly statement closing date) as a percentage of total amount 
owed by the command’s travel cardholders at the end of each quarter. 

Table 14: Navy Major Command Delinquency Rates[A] (By Quarter) for the 
2 Years Ending March 31, 2002: 

Major Command: Naval Reserve Forces; 
June 2000: 14%; 
September 2000: 18%; 
December 2000: 42%; 
March 2001: 17%; 
June 2001: 14%; 
September 2001: 15%; 
December 2001: 30%; 
March 2002: 22%. 

Major Command: Marine Reserve Forces; 
June 2000: 15%; 
September 2000: 21%; 
December 2000: 30%; 
March 2001: 15%; 
June 2001: 16%; 
September 2001: 24%; 
December 2001: 26%;
March 2002: 18%. 

Major Command: U.S. Marine Forces Atlantic; 
June 2000: 16%
September 2000: 17%
December 2000: 25%
March 2001: 13%
June 2001: 14%
September 2001: 19%
December 2001: 26%
March 2002: 17% 

Major Command: U.S. Marine Forces Pacific; 
June 2000: 16%; 
September 2000: 18%; 
December 2000: 26%; 
March 2001: 12%; 
June 2001: 16%; 
September 2001: 16%; 
December 2001: 25%; 
March 2002: 16%. 

Major Command: U.S. Atlantic Fleet; 
June 2000: 18%
September 2000: 21%
December 2000: 20%
March 2001: 15%
June 2001: 14%
September 2001: 19%
December 2001: 17%
March 2002: 14% 

Major Command: U.S. Pacific Fleet; 
June 2000: 17%; 
September 2000: 18%; 
December 2000: 17%; 
March 2001: 12%; 
June 2001: 13%; 
September 2001: 15%; 
December 2001: 16%; 
March 2002: 12%. 

Major Command: Bureau of Naval Personnel; 
June 2000: 15%; 
September 2000: 14%; 
December 2000: 15%; 
March 2001: 10%; 
June 2001: 12%; 
September 2001: 12%; 
December 2001: 14%; 
March 2002: 11%, 

Major Command: Naval Special Warfare Command; 
June 2000: 14%; 
September 2000: 16%; 
December 2000: 17%; 
March 2001: 11%[B]; 
June 2001: 12%; 
September 2001: 11%; 
December 2001: 13%; 
March 2002: 9%. 

Major Command: Bureau of Medicine and Surgery; 
8%
June 2000: 11%
September 2000: 13%
December 2000: 16%
March 2001: 9%
June 2001: 9%
September 2001: 13%
December 2001: 12%
March 2002: 8% 

Major Command: Chief of Naval Education and Training; 
June 2000: 9%; 
September 2000: 12%; 
December 2000: 14%; 
March 2001: 10%; 
June 2001: 9%; 
September 2001: 14%; 
December 2001: 12%; 
March 2002: 7%. 

Major Command: Chief of Naval Operations; 
June 2000: 6%; 
September 2000: 8%; 
December 2000: 11%; 
March 2001: 5%; 
June 2001: 5%; 
September 2001: 7%; 
December 2001: 7%; 
March 2002: 4%. 

Major Command: Naval Sea Systems Command; 
June 2000: 6%; 
September 2000: 7%; 
December 2000: 8%; 
March 2001: 4%; 
June 2001: 5%; 
September 2001: 6%; 
December 2001: 4%; 
March 2002: 3%. 

Major Command: Office of the Undersecretary of the Navy; 
June 2000: 5%; 
September 2000: 6%; 
December 2000: 7%; 
March 2001: 3%; 
June 2001: 3%; 
September 2001: 5%; 
December 2001: 3%; 
March 2002: 2%. 

Major Command: Space and Naval Warfare Systems Command; 
June 2000: 4%; 
September 2000: 4%; 
December 2000: 6%; 
March 2001: 3%; 
June 2001: 4%; 
September 2001: 4%; 
December 2001: 2%; 
March 2002: 2%. 

Major Command: Naval Air Systems Command; 
June 2000: 6%; 
September 2000: 7%; 
December 2000: 9%; 
March 2001: 4%; 
June 2001: 4%; 
September 2001: 5%; 
December 2001: 4%; 
March 2002: 2%. 

Major Command: Naval Facilities Engineering Command; 
June 2000: 5%; 
September 2000: 5%; 
December 2000: 7%; 
March 2001: 3%; 
June 2001: 4%; 
September 2001: 5%; 
December 2001: 3%; 
March 2002: 2%. 

Major Command: All other commands combined; 
June 2000: 9%; 
September 2000: 10%; 
December 2000: 14%; 
March 2001: 7%; 
June 2001: 8%; 
September 2001: 9%; 
December 2001: 11%; 
March 2002: 7%. 

Major Command: Navy Wide; 
June 2000: 11%; 
September 2000: 13%; 
December 2000: 18%; 
March 2001: 10%; 
June 2001: 10%; 
September 2001: 12%; 
December 2001: 15%; 
March 2002: 11%. 

Source: GAO calculation based on information provided by Bank of 
America. 

[A] The delinquency rates shown represent the total amount delinquent 
(amounts not paid within 61 days of the travel card monthly statement 
closing date) as a percentage of total amounts owed by the command’s 
travel cardholders at a point in time. 

[B] The negative delinquency rate was caused by the correction of a 
$2.3 million posting error by Bank of America. The rate adjusted to 
remove the effect of the error is 10 percent. 

[End of table] 

[End of section] 

Appendix IV: Navy Personnel Grade, Rank, and Associated Basic Pay 
Rates: 

Tables 15, 16, and 17 show the grade, rank (where relevant), and the
associated basic pay rates for 2001 for Navy’s and Marine Corps’ 
military personnel and civilians. The basic 2001 pay rates shown 
exclude other considerations such as locality pay and any allowances 
for housing or cost of living. 

Table 15: Navy Military Grades, Ranks, and Associated Average Basic Pay 
Rates for Fiscal Year 2001: 

Military grade, Enlisted personnel: E-1 to E-3; 
Military rank: Seaman recruit to seaman; 
2001 Pay: $11,976 to $14,973. 

Military grade, Enlisted personnel: E-4 to E-6; 
Military rank: Petty officer 3rd class to 1st class; 
2001 Pay: $17,931 to $26,860. 

Military grade, Enlisted personnel: E-7 to E-9; 
Military rank: Chief petty officer to master chief petty officer; 
2001 Pay: $31,739 to $45,514. 

Military grade, Officers[A]: WO-2 to WO-4; 
Military rank: Warrant officer; 
2001 Pay: $37,722 to $53,514. 

Military grade, Officers[A]: O-1 to O-3; 
Military rank: Ensign to lieutenant; 
2001 Pay: $27,398 to $44,649. 

Military grade, Officers[A]: O-4 to O-6; 
Military rank: Lieutenant commander to captain; 
2001 Pay: $54,476 to $83,982. 

Military grade, Officers[A]: O-7 to O-10; 
Military rank: Admiral; 
2001 Pay: $98,257 to $127,695. 

Source: U.S. Navy. 

[A] Officers’ ranks include warrant officers (denoted by WO) and 
commissioned officers (denoted by O). 

[End of table] 

Table 16: Marine Corp Military Grades, Ranks, and Associated Basic Pay 
Rates for Fiscal Year 2001: 

Military grade, Enlisted personnel: E-1 to E-3; 
Military rank: Private to lance corporal; 
2001 pay: $11,871 to $15,093. 

Military grade, Enlisted personnel: E-4 to E-6; 
Military rank: Corporal to staff sergeant; 
2001 pay: $17,675 to $26,018. 

Military grade, Enlisted personnel: E-7 to E-9; 
Military rank: Gunnery sergeant to sergeant major or master gunnery 
sergeant; 
2001 pay: $31,533 to $46,646. 

Military grade, Officers[A]: WO-1 to WO-5; 
Warrant officer; 
2001 pay: $32,098 to $59,587. 

Military grade, Officers[A]: O-1 to O-3; 
Military rank: 2nd Lieutenant to captain; 
2001 pay: $25,653 to $45,120. 

Military grade, Officers[A]: O-4 to O-6; 
Military rank: Major, lieutenant colonel, colonel; 
2001 pay: $56,951 to $85,628. 

Military grade, Officers[A]: O-7 to O-10; 
General; 
2001 pay: $98,484 to $130,200. 

Source: U.S. Navy. 

[A] Officer’s rank includes warrant officers (denoted by WO) and 
commissioned officers (denoted by O). 

[End of table] 

Table 17: Civilian Grades and Associated Basic Pay Rates for Calendar 
Year 2001: 

Civilian grade, General Schedule employees: GS-1 to GS-3; 
2001 pay: $14,244 to $22,712. 

Civilian grade, General Schedule employees: GS-4 to GS-5; 
2001 pay: $19,616 to $28,535. 

Civilian grade, General Schedule employees: GS-6 to GS-8; 
2001 pay: $24,463 to $39,143. 

Civilian grade, General Schedule employees: GS-9 to GS-12; 
2001 pay: $33,254 to $62,686. 

Civilian grade, General Schedule employees: GS-13 to GS-15; 
2001 pay: $57,345 to $103,623. 

Civilian grade, Senior Executive Service: ES-01 to ES-06; 
2001 pay: $109,100 to $125,700. 

Source: Office of Personnel Management. 

[End of table] 

[End of section] 

Appendix V: Comments from the Department of Defense: 

Under Secretary Of Defense: 
Comptroller: 
1100 Defense Pentagon: 
Washington, DC 20301-1100: 

December 5, 2002: 

Mr. Gregory D. Kutz: 
Director: 
Financial Management and Assurance: 
U.S. General Accounting Office: 
Washington, DC 20548 

Dear Mr. Kutz: 

This is the Department of Defense (DoD) response to the General 
Accounting Office (GAO) draft report, "Travel Cards: Control Weaknesses 
Leave Navy Vulnerable to Fraud and Abuse," dated September 1, 2002, 
(GAO Code 192064/GAO-03-147). 

The Department reviewed the draft report and recognizes the intent of 
the recommendations. The Department takes travel card abuse and misuse 
very seriously. The DoD Task Force, which I established, developed a 
full range of reforms. The Department has implemented many of these 
reforms and others are in the process. For example, in September and 
October 2002, approximately 330,000 inactive travel card accounts were 
cancelled. The Department also implemented salary-offset procedures and 
consequently has recovered most of the delinquent debts from the 
cardholders' payroll checks. 

We are also taking actions to strengthen and enforce internal controls 
and increase the tools available to managers for enforcing those 
controls. These include employing data mining technologies to detect 
fraudulent or abusive charge card transactions. We are also increasing 
management emphasis and personal accountability, enhancing the 
capability of the workforce to accomplish assigned charge card 
responsibilities to include training and recommending minimum skills 
required for performing essential charge card management tools. 

Regarding the specific report on the Navy's Travel Card program, the 
Department concurs with four recommendations and partially concurs with 
GAO's other two recommendations. As stated previously, many actions 
have already been taken or will soon be taken to implement a number of 
recommendations. The enclosure includes detailed comments on the
recommendations contained in the report. 

The Department appreciates the opportunity to comment on the draft 
report. My staff point of contact is Ms. Jacqueline Jenkins. She may be 
reached by email: jenkinsj2@osd.pentagon.mil or by telephone at (703) 
697-8282. 

Sincerely, 

Signed by: 

Dov S. Zakheim: 

Enclosure: 

GAO Draft Report, GAO-03-147/Code 192064: 

"Travel Cards: Control Weaknesses Leave Navy Vulnerable To Fraud And 
Abuse," 
November 1, 2002: 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommended that the Secretary of the Navy 
establish policies and procedures governing the issuance of individual 
travel cards to military and civilian employees including the 
following: 

* Provide individuals with no prior credit histories with "restricted" 
travel cards with low credit and ATM limits. 

* Develop procedures to periodically evaluate frequency of card usage 
to identify accounts of infrequent travelers. 

* Cancel accounts for current infrequent travelers as noted in the 
Charge Card Task Force report in order to minimize exposure to fraud 
and abuse. 

* Evaluate the feasibility of activating and deactivating all cards, 
regardless of whether they are standard or restricted cards, so that 
cards are available for use only during the period authorized by the 
cardholders' travel orders. At a minimum, this policy should focus on 
controlling travel card use by "high-risk" enlisted military personnel 
in E-1 to E-6 grades. 

* Develop comprehensive, consistent Navy-wide initial training and 
periodic refresher training for travel cardholders, focused on the 
purpose of the program and appropriate uses of the card. The training 
should emphasize the prohibition on personal use of the card, including 
for gambling, personal travel, and adult entertainment. Such training 
should also address the policies and procedures of the travel order, 
voucher, and payment processes. For entry-level personnel, the training 
should also include information on basic personal financial management 
techniques to help avoid financial problems that could affect an 
individual's ability to pay his or her travel card bill. 

DoD Response: Concur. The Department of the Navy (DON) has either 
implemented or will soon take action to implement most of the 
recommended actions. 

* The Department concurs with the recommendation to provide individuals 
with no prior credit histories with "restricted" travel cards with low 
credit and ATM limits, as is typically the current practice. However, 
the DON's position is that some applicants with no prior credit history 
may need a standard card or a card with higher than "restricted" limits 
to accomplish their mission. The DON will work with the card contractor 
and the Department of Defense in implementing the provisions contained 
in the Fiscal Year 2003 Department of Defense Appropriations Act 
(Public Law 107-248) which requires the Secretary of Defense to 
evaluate the credit worthiness of individual travel card applicants. 

* In accordance with the procedures outlined in the Under Secretary of 
Defense (Comptroller), July 19, 2002, guidance, the DON will conduct 
semiannual reviews of card usage and close the accounts of infrequent 
travelers. 

* In accordance with the recommendations of the Charge Card Task Force, 
96,000 Navy and Marine Corps infrequent traveler accounts were 
cancelled as of September 2002. 

* The DON established an internal delinquency metric in April 2002. Any 
command not meeting the metric must deactivate cards for all personnel, 
regardless of grade, that are not scheduled for official travel. 
Additionally, cards cannot be activated until 10 days before official 
travel is scheduled to begin, and cards must be immediately deactivated 
at the conclusion of the travel. Also, one of the recommendations from 
the DoD Charge Card Task Force Final Report was to evaluate whether 
additional travel card control mechanisms can be incorporated into the 
Defense Travel System. The feasibility of automatic activation and 
deactivation of travel charge cards to correspond with travel order 
approval in the Defense Travel System is a part of the evaluation. 

* The Department of the Navy is currently developing a comprehensive 
computer-based training (CBT) program. The CBT is designed to explain 
the requirements of the travel card program for cardholders, Agency 
Program Coordinators (APCs), supervisors, and commanding officers. 
Specifically, the CBT will address prohibitions for personal use as 
well as the policies and procedures for processing individual travel 
orders, vouchers, and reimbursements. Also, in August 2002, the DON 
prepared and distributed a brochure to cardholders with policy 
guidelines. Additionally, in October 2002, a video tele-training 
program was initiated that provided training for cardholders, APCs, 
supervisors, and commanding officers at various locations. Training 
topics included delinquency management, recognizing card misuse, and 
using the EAGLS reporting tools. Subject training will be available 
throughout fiscal year 2003. The DON also provides all Navy military 
recruits, between their basic and advanced training sessions, a 
personal financial management training course. This 2-day course covers 
topics that include banking and financial management services, 
checkbook management, the essentials of credit, financial planning and 
deployment, and official government travel. 

Recommendation 2: The GAO recommended that the Secretary of the Navy 
establish the following specific policies and procedures to strengthen 
controls and disciplinary actions for improper use of the travel card: 

* Establish guidance regarding the knowledge, skills, and abilities 
required to carry out APC responsibilities effectively. 

* Establish guidance on APC span of control responsibilities so that 
such responsibilities are properly aligned with time available to 
ensure effective performance. Determine whether certain APC positions 
should be staffed on a full-time basis rather than as collateral 
duties. 

* Establish Navy-wide procedures to provide assurance that APCs receive 
training on their APC responsibilities. The training should include how 
to use EAGLS transaction reports and other available data to monitor 
cardholder use of the travel card - for example, reviewing account 
transactional histories to ascertain whether transactions are incurred 
during periods of authorized travel and appear to be appropriate travel 
expenses and from approved MCCs. 

* Establish guidance requiring APCs to review EAGLS reports to identify 
cardholders who have written NSF checks for payment of their account 
balances, and refer these employees for counseling or disciplinary 
action. 

* Investigate and, if warranted, take appropriate disciplinary actions 
against the cardholders that wrote three or more NSF checks to Bank of 
America. 

* Establish Navy procedures to develop a data mining program to further 
facilitate APCs' ability to identify potentially inappropriate 
transactions for further review. 

* Establish Navy-wide procedures requiring that supervisors and 
commanders notify APCs of actions taken with respect to delinquent 
cardholders. 

* Establish a Navy requirement for cognizant APCs to retain records 
documenting cardholder's fraudulent or abusive usage of the travel 
card. 

* Establish appropriate, consistent Navy-wide procedures as a guide for 
taking disciplinary actions with respect to fraudulent and abusive 
activity and delinquency related to the travel card. 

* Review records of individual whose accounts have been charged off or 
placed in salary offset to determine whether they have been referred to 
the DON CAF for a security review. 

* Strengthen procedures used to process employees discharging from the 
Service to ensure that all accounts are deactivated or closed, and 
repayment of any outstanding debts is arranged. 

* Perform periodic review of exit procedures to determine that accounts 
of departed cardholders are deactivated or closed in a timely manner. 

* Develop procedures to identify active cards of separated cardholders, 
including comparing cardholder and payroll data. 

* Review, in conjunction with Bank of America, individuals with APC-
level access to EAGLS to limit such access to only those with current 
APC duties. 

* Develop a management plan to ensure that audits of the Navy travel 
card program are conducted on a regular basis, and the results reported 
to senior management. 

DoD Response: Partially concur. The DON has either implemented or will 
soon take action to implement most of the recommended actions. However, 
the Department has concerns with the recommendation to establish Navy-
wide procedures requiring that supervisors and commanding officers 
notify the APCs of actions taken with respect to delinquent 
cardholders. 

* The Office of the Under Secretary of Defense (Comptroller), the 
Travel Card Program Management Office, and the Component Program 
Managers will be tasked to develop the necessary revisions to the 
"DoDFMR" by March 31, 2003, to establish guidance regarding the 
knowledge, skills, and abilities required to carry out APC 
responsibilities. Also, both the Navy and the Marine Corps have issued 
internal instructions that more clearly define the responsibilities of 
the APC position and provide commanders with guidelines on the 
appointment of APCs. 

* The Office of the Under Secretary of Defense (Comptroller), the 
Travel Card Program Management Office, and the Component Program 
Managers will be tasked to develop the necessary revisions to the 
"DoDFMR" by March 31, 2003, to establish guidelines on APC span of 
control responsibilities. Also, the DON has highlighted the importance 
of the government travel card program to senior management within the 
Department. Consequently, this increased focus on the travel card 
program has resulted in a reassessment by commands and activities on 
the level of personnel and the time they require to manage subject 
program effectively. This reassessment will be an ongoing effort as 
attention continues to be focused on the program. 

* In May and November 2002, the Navy held APC symposiums. The 
symposiums consisted of an overview of the travel card program, 
including the regulations and policies governing the program, and 
information regarding various tools available to allow APCs to 
effectively manage the travel card program. The November 2002 symposium 
included sessions specifically covering the EAGLS reporting tool and 
the use of the EAGLS reports. 

* The DON will issue guidance requiring that APCs review EAGLS reports 
to identify cardholders who write NSF checks, and that they provide 
subject information to the individual's supervisor/commander for 
appropriate action. 

* The Naval Criminal Investigative Service is currently reviewing a 
list provided by the General Accounting Office of personnel who wrote 
three or more NSF checks since the inception of the program with Bank 
of America. 

* In June 2002, the Navy began a pilot program to identify potential 
misuse by monitoring unusual activity. Accounts identified for 
potential misuse are immediately deactivated until APCs or the 
cardholders are contacted to confirm the transactions. The process 
identifies known key card risk factors such as high cash usage, excess 
or specific retail card usage, and large dollar-value transactions. To 
further automate this process, the Navy has procured the same software 
used by the GAO to conduct such data mining effort and is currently 
negotiating with the card contractor to obtain transaction-level 
information. 

* Partially concur with the recommendation to establish Navy-wide 
procedures requiring that supervisors and commanding officers notify 
APCs of actions taken with respect to delinquent cardholders. The DON's 
position is that providing this type of sensitive information to APCs 
is not appropriate. The DON considers it to be more appropriate that 
actions taken with respect to delinquent cardholders be reported up the 
chain of command. The DON will decide at what level and at what 
frequency subject reporting should occur. 

* The "DoDFMR," Volume 9, Chapter 3, requires APCs to retain 
documentation of all delinquency notifications sent to a delinquent 
cardholder's supervisor. The DON, in conjunction with DoD, will issue 
guidance requiring cognizant APCs to also retain records documenting 
fraud and abuse. 

* The Fiscal Year 2003 Department of Defense Appropriations Act (Public 
Law 107-248) requires that the Secretary of Defense establish 
guidelines and procedures for disciplinary actions to be taken against 
cardholders for improper, fraudulent, or abusive use of government 
charge cards. The DON will work with the cognizant DoD staff with 
respect to this provision. 

* The DON will work with the DON Central Adjudication Facility to 
determine the number of accounts referred to them for review. 

* In April 2002, the DON directed that APCs must be included as part of 
the check-in and check-out process. Upon change of duty stations, the 
DON policy requires the losing activity to deactivate the travel cards 
of all departing personnel. 

* The DON will direct commands to perform a periodic review to ensure 
that accounts of departed cardholders are deactivated or closed in a 
timely manner. 

* The DoD periodically receives information from the Defense Manpower 
Data Center identifying employees that are separated, retired, or 
deceased. The DON will distribute this information to APCs to compare 
records and close accounts, as required. 

* The DON is in the process of reviewing current APC listings and will 
delete access for individuals who no longer perform APC duties. 

* The DON will develop a plan to ensure that audits of the Navy travel 
card program are conducted on a regular basis and that the results are 
reported to senior management. 

Recommendation 3: The GAO recommended that commanders at each unit 
identify causes of the high error rate related to travel voucher review 
and provide refresher training to ensure that voucher examiners and 
auditors are informed and can accurately apply travel regulations and 
updates. 

DoD Response: Partially concur. The DON has requested the Navy Audit 
Service to conduct a review of the Department's end-to-end travel 
process and make recommendations to improve accountability and 
efficiency. Upon completion of subject review, the DON will distribute 
the appropriate guidance to all major commands. 

Recommendation 4: The GAO recommended that the Commander of Puget Sound 
Naval Shipyard issue procedures to clearly assign the responsibilities 
for reviewing the accuracy of the travel vouchers. 

DoD Response: Concur. In accordance with the "DoDFMR," Volume 9, 
Chapter 3, the Puget Sound Naval Shipyard's Central Travel Office (CTO) 
has been assigned responsibility for review of travel vouchers for 
completeness, accuracy, and validity. To enhance the performance of 
this function, the CTO staff has been attending formal Joint Travel 
Regulation training during fiscal years 2002 and 2003. It is 
anticipated that the entire staff will have completed subject training 
by spring 2003. In the interim, Personnel Support Detachment Bremerton 
has agreed to conduct secondary reviews of travel vouchers before 
disbursement until the occurrences or errors have diminished. 

Recommendation 5: The GAO recommended that the Commander of Puget Sound 
Naval Shipyard conduct periodic review to assess the effectiveness of 
the new procedures in reducing the frequency and amount of voucher 
errors. 

DoD Response: Concur. The Puget Sound Naval Shipyard's CTO, with the 
assistance of their Command Evaluation and Review Office, will conduct 
random sampling of completed travel vouchers packages every 6 months to 
determine improvement in the percentage of (both frequency and amount) 
voucher errors. 

Recommendation 6: The GAO recommended that the Under Secretary of 
Defense (Comptroller) assess the recommendations and, where applicable, 
incorporate them into or supplement the DoD Charge Card Task Force 
recommendations to improve travel card policies and procedures 
throughout DoD. 

DoD Response: Concur. The Department concurs with the recommendation 
and has already taken action in a number of areas consistent with the 
GAO's recommendations for the Department of the Navy. Specifically, the 
Department has taken the following actions: 

* The Under Secretary of Defense (Comptroller) directed the 
cancellation of charge cards that had not been used within the prior 12 
months. That action resulted in the reduction of approximately 330,000 
cards in September and October 2002. The Department is currently 
conducting another review of accounts and has agreed with the Bank of 
America to regular, periodic review of such accounts. 

* The Under Secretary of Defense (Comptroller) approved a request from 
the Department of the Navy to allow the definition of infrequent 
traveler to be raised to four or less trips per year as opposed to two 
or fewer, as determined appropriate by the Navy. 

* One of the DoD Charge Card Task Force recommendations was to review 
the travel voucher settlement processes. The Navy and the Air Force 
Audit Agencies and the DFAS Internal Review Office have been requested 
to review the settlement processes in place for each Military Service 
and provide recommendations. Note: The DFAS processes travel settlement 
vouchers for the Army and other DoD agencies. 

* The Defense Manpower Data Center is beginning to provide the DoD 
Travel Card Program Management Office with monthly comparisons of 
separated, deceased, and retired members processed through the 
personnel systems with active Bank of America travel card accounts. 
Subject information will be forwarded to each of the Military Services 
for dissemination to the appropriate APCs. While subject information is 
not current, it will help reduce the risk of continued use of travel 
cards after separation, retirement, and/or death. Automatic 
deactivation of travel cards as individuals are removed from the 
Defense Travel System is also being evaluated. 

* The Department has requested that the Bank of the America assist in 
identifying charges made on merchant category codes that are blocked. 
Bank of America has provided transaction data, previously provided to 
the GAO, in order to allow the Office of the DoD Inspector General to 
begin preliminary data mining work on the individual travel cards. The 
Department also requested the assistance of VISA in developing a 
separate merchant category code for establishments that provide adult 
entertainment along with food and beverages. Feedback thus far has been 
that establishing a separate code for subject establishments is 
unlikely. The Department is continuing to work with both Bank of 
America and VISA to try to identify methods of prevention or early 
detection of misuse of the travel card. 

[End of section] 

Footnotes: 

[1] U.S. General Accounting Office, Travel Cards: Control Weaknesses 
Leave Navy Vulnerable to Fraud and Abuse, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-03-148T] (Washington, D.C.: Oct. 
8, 2002). 

[2] U.S. General Accounting Office, Travel Cards: Control Weaknesses 
Leave Army Vulnerable to Potential Fraud and Abuse, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-03-169] (Washington, D.C.: Oct. 
11, 2002). 

[3] We defined potentially fraudulent activity as any scheme, or 
pattern of activity, related to the use of a travel card in apparent 
violation of federal or state criminal code. For purposes of this 
report, we considered as potentially fraudulent cases where cardholders 
wrote three or more nonsufficient fund checks or checks on closed 
accounts to pay their Bank of America bills. We considered abusive 
travel card activity to include (1) personal use of the card—i.e., any 
use other than for official government travel—regardless of whether the
cardholder paid the bill and (2) cases in which cardholders were 
reimbursed for official travel and then did not pay Bank of America, 
and thus benefited personally. Some of the travel card activity that we 
categorized as abusive would be potentially fraudulent if it can be 
established that the cardholders violated any element of federal or 
state criminal code. In both types of activities in which the 
cardholders did not pay the bills, we considered abuses to include 
cardholders whose accounts were eventually charged off by Bank of 
America or referred to a payment plan by salary offset or other fixed 
pay agreement. 

[4] Of the 27 major Navy commands, 13 had outstanding travel card 
balances of $1 million or more as of September 30, 2001. We further 
considered other factors such as past due and charged-off accounts and 
inclusion of a Marine Corps unit for adequate representation in 
narrowing these 13 commands to the 3 we selected for further audit 
testing. 

[5] Throughout this report, we calculated delinquency rates using the 
proportion of dollars of accounts delinquent to the total dollars of 
accounts outstanding according to industry standards set by the Federal 
Financial Institutions Examination Council. 

[6] The civilian agencies included in our analysis are the 23 executive 
branch agencies (other than DOD) covered by the Chief Financial 
Officers Act, as amended by the Government Management Reform Act. 

[7] Recoveries represent amounts recovered through collection actions, 
which include salary offsets on accounts previously charged off. 

[8] App. IV provides a description of each of these military grades and 
their associated military rankings and pay, along with corresponding 
civilian grade and pay data. 

[9] Cash advance fees are also referred to as ATM fees. ATMs allow 
cardholders to withdraw cash with a travel card. For each cash advance 
withdrawal, cardholders are charged either a set amount or a percentage 
of the amount of the withdrawal. 

[10] Net sales consists of all purchases and other charges less any 
credits, such as returns, other than payments to the accounts. Other 
charges include ATM use, traveler’s checks, and any other fees. 

[11] DOD’s salary offset program includes individuals’ salaries paid by 
DOD through its active duty, reserve, and civilian pay systems, and 
retirement benefits paid through its military retirement pay system. 

[12] Sec. 2(d), Public Law 105-264, 112 Stat. 2350 (5 U.S.C. 5701 
note). 

[13] Cardholder debts to Bank of America are not subject to the Debt 
Collection Improvement Act of 1996, which is limited to the collection 
of certain debts owed to the federal government. 

[14] 5 U.S.C. section 8346. 

[15] 5 U.S.C. section 8470. 

[16] 41 C.F.R. section 301-54.2. 

[17] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-169]. 

[18] Bank fraud is defined by 18 U.S.C. 1344 as any execution of, or 
attempt to execute, a scheme or artifice to defraud a financial 
institution or to obtain any of the moneys, funds, credits, assets, 
securities, or other assets owned by, or under the custody or control 
of, a financial institution, by means of false or fraudulent pretenses, 
representations, or promises. 

[19] UCMJ is a federal law enacted by the Congress. UCMJ articles 77-
134 are known as “punitive offenses,” that is, specific offenses which, 
if violated, can result in punishment by court-martial. 

[20] Of the over 250 cardholders who wrote three or more NSF checks, 
100 had accounts that were eventually charged off or put in salary 
offset. 

[21] Subsequent to his promotion, the cardholder did not report to 
duty. His command is taking action to declare him a deserter. He is 
also a subject of law enforcement agencies’ investigations. 

[22] MCCs are established by the banking industry for commercial and 
consumer reporting purposes. Currently, about 800 category codes are 
used to identify the nature of the merchants’ businesses or trades, 
such as airlines, hotels, ATMs, jewelry stores, casinos, gentlemen’s 
clubs, and theatres. 

[23] Club cash is used to tip dancers, waitresses, and bartenders, but 
cannot be exchanged for currency. 

[24] Typically, the ATM limit for a 1-month cycle is set at $500 for a 
standard card and $200 for a restricted card. 

[25] We considered personal use to include (1) any transaction charged 
to the government travel card that was not supported by a valid travel 
order and (2) any transaction for which the Navy was unable to provide 
supporting documentation. The following are the personal use estimates 
for the three case study locations: Camp Lejeune, U.S. Marine Forces 
Atlantic, 26.6 percent; Patuxent River, Air Systems Command, 10.8 
percent; and Puget Sound Naval Shipyard, Sea Systems Command, 6.6 
percent. 

[26] Secretary of the Navy Instruction 5510.30A, Department of the Navy 
Personnel Security Program, dated March 10, 1999, Chapter 10, Appendix 
F, Personnel Security Standards. 

[27] During fiscal year 2002, the Navy’s eBusiness Operations Office 
issued Navy-specific guidance for the management of the travel card 
program. 

[28] Department of Defense Office of Inspector General, Acquisition: 
Summary of DOD Travel Card Program Audit Coverage, D-2002-065 
(Washington, D.C.: Mar. 18, 2002). 

[29] The statutory provision does not define the term creditworthy. 
However, the conferees on the DOD appropriations act expressed their 
view that the statutory prohibition would permit "an individual with no 
credit history to be issued a restricted-use charge...card." 

[30] APC responsibilities vary depending on the APC’s level in the 
Navy’s organizational hierarchy from headquarters down through the 
Navy’s organizational chain of command to the individual Navy unit 
level. That is, individuals with APC responsibilities at the Navy unit 
level have direct responsibility for monitoring cardholder account 
activity whereas individuals at higher levels in the Navy’s 
organizational hierarchy may have responsibility for overseeing the 
activities of one or more APCs as well as direct responsibility for 
monitoring the account activity of a number of cardholders. 

[31] DFAS is responsible for disbursing payments to the travelers after 
voucher data have been entered, reviewed, and audited by the voucher 
processing offices at Navy installations. 

[32] The Department of Defense contracted with NationsBank of Delaware, 
N.A., which subsequently merged into the Bank of America, N.A., under a 
Tailored Task Order under the GSA Master Contract Award for the travel 
card program. The period of performance under the task order was 
November 30, 1998, through November 29, 2000, with three 1-year 
options. The task order also allowed for five additional 1-year options 
under the GSA master contract renewal provisions. 

[33] The act also requires agencies to pay cardholders a late payment 
fee if they do not reimburse cardholders within the 30-day period 
allowed. Specifically, Federal Travel Regulations prescribed by the 
Administrator of General Services require agencies to either (1) 
calculate late payment fees using the prevailing Prompt Payment 
Interest Rate beginning the 31st day after submission of a proper 
travel claim and ending on the date on which payment is made or (2) 
reimburse the traveler a flat fee of not less than the prompt pay 
amount, based on an agencywide average of travel claim payments. In 
addition to the fee required in the items above, the agency must also 
pay the traveler an amount equivalent to any late payment charge that 
the card contractor would have been able to charge the traveler had the 
traveler not paid the bill. 41 C.F.R. Section 301-52.20. 

[34] Starting January 2002, the standard and restricted credit limits 
were reduced to $5,000 and $2,000, respectively, per instructions 
issued by the Navy’s eBusiness Operations Office. 

[35] Travel and Transportation Reform Act of 1998 (Public Law 105-264, 
Oct. 19, 1998) includes requirements that federal employees use federal 
travel charge cards for all payments of expenses of official government 
travel, requires the government to reimburse employees who have 
submitted proper vouchers within 30 days of submission of the vouchers, 
and allows for the offset of pay for employees with undisputed travel 
card charge delinquencies in an amount up to 15 percent of the amount 
of disposable pay of the employee for a pay period. 

[36] Federal Travel Regulation, 41 (C.F.R.) chapters 300-304, issued by 
the Administrator of General Services, governs travel and 
transportation allowances and relocation allowances for federal 
civilian employees. 

[37] U.S. General Accounting Office, Standards for Internal Control in 
the Federal Government, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AIMD-00-21.3.1] (Washington, D.C.: November 1999). This 
document was prepared to fulfill our statutory requirement under 31 
U.S.C. 3512 (c), (d), the Federal Managers’ Financial Integrity Act, to 
issue standards that provide the overall framework for
establishing and maintaining internal control and for identifying and 
addressing major performance and management challenges and areas at 
greatest risk of fraud waste, abuse, and mismanagement. 

[38] U.S. General Accounting Office, Guide to Evaluating and Testing 
Controls Over Sensitive Payments, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/AFMD-8.1.2] (Washington, D.C.: May 1993), provides a 
framework for evaluating and testing the effectiveness of internal 
controls that have been established in various sensitive payment areas. 

[39] The populations from which we selected our samples included some 
transactions that were not supported by travel orders or vouchers, such 
as personal charges made by a cardholder. We excluded such transactions 
from our assessment of the effectiveness of controls over the travel 
order, voucher, and payment processes. However, we included such 
transactions in order to project the percentage of personal use 
transactions. 

[End of section] 

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