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entitled 'State's Centrally Billed Foreign Affairs Travel: Internal
Control Breakdowns and Ineffective Oversight Lost Taxpayers Tens of
Millions of Dollars' which was released on April 10, 2006.
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Report to the Committee on Homeland Security and Governmental Affairs,
U.S. Senate:
March 2006:
State's Centrally Billed Foreign Affairs Travel:
Internal Control Breakdowns and Ineffective Oversight Lost Taxpayers
Tens of Millions of Dollars:
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-298]:
GAO Highlights:
Highlights of GAO-06-298, a report to the Committee on Homeland
Security and Governmental Affairs, U.S. Senate:
Why GAO Did This Study:
The relative size of the Department of State’s (State) travel program
and continuing concerns about fraud, waste, and abuse in government
travel card programs led to this request to audit State’s centrally
billed travel accounts. GAO was asked to evaluate the effectiveness of
internal controls over (1) the authorization and justification of
premium-class tickets charged to the centrally billed account and (2)
monitoring of unused tickets, reconciling monthly statements, and
maximizing performance rebates.
What GAO Found:
Breakdowns in key internal controls, a weak control environment, and
ineffective oversight of State’s centrally billed travel accounts
resulted in taxpayers paying tens of millions of dollars for
unauthorized and improper premium-class travel and unused airline
tickets. State’s over 260 centrally billed accounts are used by State
and other foreign affairs agencies to purchase transportation services,
such as airline and train tickets. GAO found that between April 2003
and September 2004 State’s centrally billed accounts were used to
purchase over 32,000 premium-class tickets costing almost $140 million.
Premium-class travel—primarily business-class airline
tickets—represented about 19 percent of the tickets issued but about 49
percent of the $286 million spent on airline tickets with State’s
centrally billed account travel cards. GAO determined that this trend
continued for fiscal year 2005. GAO found that 67 percent of this
premium-class travel was not properly authorized, justified, or both.
Because premium-class tickets typically cost substantially more than
coach tickets, improper premium-class travel represents a waste of tax
dollars. The examples below illustrate premium-class travel by senior
State executives that was improperly authorized by annual blanket
authorizations. Most of these blanket premium-class travel
authorizations were signed by subordinates who told us they couldn’t
challenge the use of premium-class travel by senior executives.
Examples of Improper Authorization by Subordinates of Executive Premium-
Class Travel:
Traveler: 1;
Grade: Presidential appointee;
Number of premium-class tickets: 45
Cost of premium-class-tickets: $213,000.
Traveler: 2;
Grade: Senior Executive Service;
Number of premium-class tickets: 26
Cost of premium-class-tickets: $104,000.
Traveler: 3;
Grade: Presidential appointee;
Number of premium-class tickets: 24
Cost of premium-class-tickets: $93,600.
Source: GAO.
[End of table]
Ineffective oversight and control breakdowns also contributed to
problems with monitoring unused tickets, reconciling monthly
statements, and maximizing performance rebates. Although federal
agencies are authorized to recover payments made to airlines for
tickets that they ordered but did not use, State failed to do so and
paid for about $6 million for airline tickets that were not used or
processed for refund. State was unaware of this problem before our
review because it neither monitored travelers’ adherence to travel
regulations nor systematically identified and processed all unused
tickets. State also failed to reconcile or dispute over $420,000 of
unauthorized charges before paying its monthly bank invoice and instead
deducted the amounts from its bill. Because these amounts were not
properly disputed under the contract terms, State underpaid its monthly
bills and was thus frequently delinquent. Handling questionable charges
in this ad hoc manner sharply reduced State’s eligible rebates.
Overall, State earned only $700,000 out of a possible $2.8 million in
rebates that could have been earned if it had properly disputed
unauthorized charges and paid the bill in accordance with the contract.
What GAO Recommends:
To improve controls over premium-class travel, systematically monitor
unused airline tickets, and provide assurance of accurate and timely
payment of the centrally billed accounts to maximize rebates, GAO is
making 18 recommendations to State, including that it
* develop a management plan requiring audits of State’s premium–class
travel,
* modify international travel management center contracts to require
identification and processing of unused electronic tickets,
* establish procedures to either pay or dispute transactions on the
Citibank invoice, and
* urge other users of State’s centrally billed travel accounts to
comply with existing travel requirements.
State concurred with all 18 recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-06-298.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Gregory Kutz at (202) 512-
7455 or kutzg@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Ineffective Controls over Authorization and Justification of Premium-
Class Travel Led to Wasted Taxpayer Dollars:
Lack of Oversight and Controls Led to Other Breakdowns:
Conclusion:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Evaluating the Effectiveness of Controls over Premium-Class Travel:
Data Reliability Assessment:
Appendix II: Comments from the Department of State:
Appendix III: GAO Contacts and Staff Acknowledgments:
Tables:
Table 1: Examples of Premium-Class Travel Not Authorized or Properly
Justified:
Table 2: Examples of Waste Related to Unused Tickets:
Table 3: State and Other Foreign Affairs Agencies' Premium-Class Travel
Populations Subjected to Sampling:
Table 4: Premium-Class Statistical Sample Results:
Figures:
Figure 1: Flowchart of the Centrally Billed Account Travel Card
Process:
Figure 2: Premium-Class Tickets Purchased for State and Other Foreign
Affairs Personnel Charged to State's Centrally Billed Accounts, April
2003 through September 2004:
Figure 3: Examples of Premium-Class Travel by State and Other Foreign
Affairs Executives from Washington, D.C.:
Figure 4: Flowchart of Control Breakdowns in the Unused Ticket Process:
Letter March 10, 2006:
The Honorable Susan M. Collins:
Chairman:
The Honorable Joseph I. Lieberman:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
This report responds to your request that we audit controls over the
travel paid for with the Department of State's (State) over 260
centrally billed travel accounts, which includes travel related to a
number of foreign affairs agencies (e.g., State and other federal
agencies located at United States' diplomatic missions abroad). State's
centrally billed travel process is used predominantly by State
employees; however, other government travelers who also use State's
centrally billed accounts reimburse State for their travel expenses.
While State uses purchase orders and Government Travel Requests (GTR)
to pay for some airline tickets at overseas posts, as requested, our
analysis excluded all travel transactions that were not procured
through State's over 260 centrally billed travel accounts.[Footnote 1]
State leads our government in conducting American diplomacy; its
mission is based on the Secretary of State's role as the President's
principal foreign policy adviser. State's mission is to create a more
secure, democratic, and prosperous world for the benefit of the
American people and the international community. This mission is
carried out through six regional bureaus, each of which is responsible
for a specific geographic region of the world. State operates more than
260 embassies, consulates, and other posts worldwide and has over
57,000 employees --including Foreign Service, civil service, and
Foreign Service nationals. Additionally, State's posts support other
U.S. government agencies, such as the Departments of Commerce, Defense
(DOD), and Homeland Security, which also use State's centrally billed
accounts when overseas. In general, other agencies overseas authorize
their own travel and State processes the payments based on their
authorizations. In carrying out this mission, State manages the second
largest centrally billed travel card program in the federal government,
after DOD. About 70 percent of State's and other foreign affairs
agencies' travel is international or at least one flight segment in a
trip had an origin or destination outside the continental United
States. Comparatively, State and other foreign affairs agencies spent
more on premium-class travel than did DOD, both in terms of total
dollars spent and as a percentage of total airline travel.[Footnote 2]
In light of the relative size of State's program, and the concerns
about fraud, waste, and abuse in government travel card programs, you
requested that we audit premium-class travel and other centrally billed
travel account activities. Federal travel regulations define premium-
class travel as any class of accommodation above coach class, that is,
first or business class.
The centrally billed travel accounts are used by State bureaus,
overseas posts, and other foreign affairs agencies to purchase
transportation services such as airline and train tickets, while the
individually billed accounts are used by individual travelers for
lodging, rental cars, and other travel expenses. For fiscal years 2003
and 2004, State incurred over $400 million in expenses on its centrally
billed and individually billed travel accounts, with over $360 million
charged to its centrally billed accounts.
Because State disburses funds directly to Citibank under a
governmentwide travel card contract for charges made to the centrally
billed accounts, the use of these accounts for improper[Footnote 3]
transportation, especially the use of the more expensive premium-class
travel, results in direct increased cost to the government.
Governmentwide, General Services Administration's (GSA) Federal Travel
Regulation, and sections of the U.S. Department of State's Foreign
Affairs Handbook (FAH) and the U.S. Department of State's Foreign
Affairs Manual (FAM), require that travelers use coach-class
accommodations for official domestic and international air travel,
except when a traveler is specifically authorized to use premium class.
The travel regulations also state that travelers on official government
travel must exercise the same standard of care in incurring expenses
that a prudent person would exercise when traveling on personal
business.
As you requested, the objective of our audit was to determine the
effectiveness of State's internal controls over its centrally billed
travel card program and determine whether fraudulent, improper, and
abusive travel expenses exist. Specifically, we evaluated the
effectiveness of internal controls over (1) the authorization and
justification process for premium-class tickets charged to State's
centrally billed travel accounts and (2) State's monitoring of unused
tickets, reconciling monthly statements, and maximizing performance
rebates.
To meet our objectives, we (1) reviewed applicable laws, regulations,
and practices governing travel, including the use of centrally billed
travel accounts; (2) interviewed State officials on its travel policy
and procedures, including the use of centrally billed travel and under
what circumstances premium-class travel is authorized; (3) extracted
premium-class and other transactions from Citibank databases of charges
made to State's centrally billed accounts for fiscal years 2003 and
2004; (4) tested a statistical sample of premium-class transactions, 5)
used data mining to identify additional instances of improper premium-
class travel based on the frequency and dollar amount of premium-class
travel, including premium-class travel by senior executives; (6)
compared data on unused tickets provided by airlines to data provided
by Citibank; and (7) conducted other audit work, including visits to
two overseas locations to evaluate the design and implementation of key
control procedures and activities. We performed our audit work from
September 2004 through November 2005 in accordance with U.S. generally
accepted government auditing standards. We performed our investigative
work in accordance with standards prescribed by the President's Council
on Integrity and Efficiency. A detailed discussion of our scope and
methodology is presented in appendix I.
Results in Brief:
Breakdowns in key internal controls, a weak control environment, and
ineffective oversight of State's centrally billed travel accounts
resulted in taxpayers paying tens of millions of dollars annually for
unauthorized and improper premium-class travel and unused airline
tickets.[Footnote 4] Additionally, State failed to properly reconcile
or dispute over $420,000 in unauthorized charges, which in addition to
raising concerns about potential fraud, resulted in State failing to
earn over $2 million in rebates intended to reduce the cost of
government travel. These problems occurred because State (1) did not
have management controls in place to effectively oversee and monitor
its centrally billed accounts and the extent of premium-class travel
and (2) treats premium-class travel accommodations as a benefit for
working for the department.
We determined that breakdowns in key controls led to an estimated 67
percent[Footnote 5] of premium-class travel by State and other foreign
affairs personnel during most of fiscal years 2003 and 2004 not being
properly authorized or justified. Because a premium-class ticket
frequently costs two to three times the amount of a coach ticket,
taxpayers paid tens of millions of dollars for premium-class tickets
that were not properly authorized or justified. For example, our
statistical sample included a family of four that flew from Washington,
D.C., to Moscow for post-assignment travel. The business-class tickets
cost $6,712 ($1,678 each) and the flight lasted about 12 hours, which
does not meet the requirements of the premium-class flight duration.
The cost of coach-class tickets--the form of travel required by travel
regulations--would have been $1,784 ($446 each), or $4,928 less than
the amount actually spent. Further, State did not have complete and
accurate data on the extent of premium-class travel and performed
little or no monitoring of this travel.
State also made management decisions on premium-class travel that
contributed to increased costs to taxpayers without performing a cost-
benefit analysis. For example, we found that some of State's top
executives, including some under secretaries and assistant secretaries,
often used premium-class travel regardless of the length of the flight.
We found that State spent over $1 million dollars on premium-class
flights for 17 senior executives during most of fiscal years 2003 and
2004. Our analysis indicated that most of these flights were domestic
or to destinations in Western Europe or South America and did not last
more than the 14 hours required by federal and state regulations to
justify use of premium-class travel. Further, many of the executives
used blanket travel orders signed by subordinates to justify purchasing
premium-class travel. A blanket authorization is effective for all
travel during a certain time period. For some executives, annual
blanket premium-class authorizations were completed at the beginning of
the fiscal year and covered any travel during that fiscal year. A
blanket authorization is not an appropriate vehicle for authorizing
premium-class travel because federal and state travel regulations
require that all premium-class travel be authorized on a trip-by-trip
basis. Also, we continue to consider authorization of premium-class
travel by employees subordinate to the traveler to be a weak internal
control due to both the additional cost and the potential for abuse
associated with premium-class travel. As we have reported in the past,
travel authorized by subordinates is in effect self authorization,
which constitutes a lack of controls over executive premium-class
travel.
Senior State officials also told us that the department offered premium-
class travel as a benefit to its other employees for flights lasting
over 14 hours, including permanent change of station travel. According
to these officials, this decision was made to improve morale and was
arrived at without performing a cost and benefit analysis. Although
federal and State regulations allow premium-class travel if the flight
is over 14 hours without a rest stop, agencies--such as DOD-
-attempt to avoid the significant additional cost associated with these
flights by encouraging employees to take a rest stop en route to their
final destination, generally saving thousands of dollars per trip. As a
result of State's policy, we found numerous examples in our statistical
sample in which State and other foreign affairs agencies authorized
premium-class travel but did not take into consideration less expensive
forms of travel as an alternative.
In addition, we found examples where State's diplomatic courier service
used premium-class travel under a blanket authorization without
specific justification. Because we did not have authority to open and
inspect diplomatic pouches, we were unable to validate the
classification designations on the packages. Thus, we did not evaluate
whether couriers were necessary or appropriate or if there were any
security issues associated with courier service procedures. However, we
believe the department could potentially save considerable taxpayer
dollars if it better managed courier use of premium travel. By
regulation,[Footnote 6] State is required to ensure the secure movement
of classified U.S. government documents and material across
international borders.[Footnote 7] State's regulations call for
diplomatic couriers to personally accompany classified diplomatic
pouches. State's practice is to have couriers use premium-class
accommodations to personally escort cargo carried in diplomatic
pouches. Some courier transactions appeared in our statistical sample
of premium travel and data mining of fiscal years 2003 and 2004
transactions and we found instances among these of premium-class travel
that were not properly authorized, justified, or both. While the
courier service used agency mission requirements to justify premium-
class travel by the couriers, we found courier transactions where
premium-class accommodations were used even when the courier was not
escorting diplomatic pouches and when no other justification for
premium-class accommodations were specified. When couriers are not
escorting diplomatic pouches, they must follow the same travel
regulations as all other State and other foreign affairs employees. We
also found that State's Courier Service has begun to institute cost-
saving measures for couriers that, if expanded, could save substantial
taxpayer dollars. These measures include the expanded use of cargo
carriers (e.g., FedEx), which do not require the couriers to purchase
passenger tickets when they accompany packages in the cargo area and
therefore reduce freight costs.
Ineffective oversight and breakdowns in controls also led to problems
with State's other centrally billed travel activities. For example,
although federal agencies are entitled to recover payments made to
airlines for tickets that they ordered but did not use, State and other
foreign affairs agencies paid for about $6 million in airline tickets
that were not used and not processed for refund. State officials were
unaware of this problem before our audit because State did not monitor
employees' adherence to travel regulations and did not have a
systematic process in place for travel management centers to identify
and process unused tickets. For example, we found that State purchased
two identical tickets costing over $16,000 for the same business and
first-class travel between Addis Ababa, Ethiopia, and Albuquerque, New
Mexico, and one set of tickets valued at over $8,000 was wasted and
never used. State also failed to reconcile or dispute over $420,000 of
unauthorized and potentially fraudulent charges before paying its
travel card account. Instead of disputing these charges with Citibank,
State simply deducted the amounts from its credit card bill. However,
because these amounts were not properly disputed, State underpaid its
monthly bills and was thus frequently delinquent under contract terms.
The unanticipated consequence of these delinquencies was a substantial
reduction in the amount of rebates that State would have been eligible
to receive. Overall, State earned $700,000 out of a possible $2.8
million in rebates that could have been earned if it had properly
disputed unauthorized charges and paid its bills in accordance with the
terms of the contract.
This report contains 18 recommendations to the Secretary of State aimed
at reducing improper premium-class travel and travel costs related to
State's centrally billed travel accounts. Our recommendations seek to
improve the internal controls over airline tickets purchased with
centrally billed accounts so that State has reasonable assurance that
premium-class travel is authorized, properly justified, and that
because of the additional cost, minimized to the extent possible. We
also recommend that State take a series of immediate steps to identify
and recover all unused and unrefunded tickets. Further, we recommend
that State properly dispute invalid transactions and pay its centrally
billed account on time. Finally, we recommend that State take actions
to achieve efficiencies in the courier service.
In written comments on a draft of this report, State concurred with all
18 of our recommendations and stated that it had taken actions or will
take actions to address them. However, in its comments, State said that
our report overstated the amount wasted on premium class travel, and
that we incorrectly implied that State carelessly implemented business
class regulations without adequately considering the increased cost of
premium class travel. We disagree. Our statistical sample clearly
demonstrated that a majority of State's premium class travel was
neither authorized nor justified. Because premium-class travel is
frequently two to three times more expensive than coach travel, this
improper travel resulted in tens of millions of dollars of wasted
taxpayer resources. Further, State could not provide any evidence that
it ever collected or analyzed information about the costs associated
with its premium-class travel practices. In addition, the travel
practices exemplified in this report clearly demonstrate that the tone
set by top State Department executives indicate that it treats premium-
class as an employee benefit regardless of cost and federal law and
regulation.
Background:
State derives its authority to grant leave and travel reimbursements to
its foreign service employees from the Foreign Service Act of 1980. To
implement provisions of the act, the department issued the FAM and the
FAH. Travel by State's civil service employees is generally governed by
the General Services Administration's (GSA) Federal Travel Regulation
(FTR), but in some cases is also governed by the FAM. State's general
policy is for its foreign and civil service employees to travel using
coach-class accommodations provided by common carriers. However,
regulations governing foreign service and civil service travel
authorize the use of premium-class travel under specific circumstances.
Both foreign service and civil service travel regulations require the
agency head or his or her designee to authorize first-class travel in
advance. These regulations also require the authorizing official at a
post abroad or the executive director of the funding bureau or office
domestically to authorize premium-class travel other than first class.
Further, in September 2004, the Assistant Secretary of State for
Administration sent a memorandum to all State executive directors
emphasizing "that it is wrong to authorize premium-class travel on a
blanket basis" and "that a separate justification for premium-class
travel is required for each trip." Federal and State travel regulations
authorize premium-class accommodation when at least one of the
following conditions exists:
* no space is available in coach-class accommodations,
* regularly scheduled flights provide only premium-class
accommodations,
* an employee with a disability or special need requires premium-class
accommodations,
* security issues or exceptional circumstances,
* travel lasts in excess of 14 hours without a rest stop,
* foreign-carrier coach-class air accommodations are inadequate,
* overall cost savings, such as when a premium-class ticket is less
expensive than a coach-class ticket or in consideration of other
economic factors,
* transportation costs are paid in full through agency acceptance of
payment from a nonfederal source, or:
* required because of agency mission (e.g., courier).
The regulations also allow for the traveler to upgrade to premium-class
accommodations, at the traveler's expense or by using frequent traveler
benefits, but the upgrade cannot be charged to the centrally billed
account.
State has the second largest centrally billed travel card program in
the federal government. During fiscal years 2003 and 2004, State used
155 different centrally billed accounts[Footnote 8]--143 international
and 12 domestic--to purchase more than $360 million in transportation
services, such as airline tickets, train tickets, and bus tickets, for
State and other foreign affairs agencies. Each bureau has its own
travel budget and is responsible for obligating its travel expenses.
The local travel-authorizing official or the executive director of the
funding office is responsible for determining the necessity of travel,
issuing the travel order, certifying the availability of funds, and
recording an obligation against a unit's appropriated funds.
State's travel management centers (TMC) make airline reservations,
issue airline tickets charged to the centrally billed account upon
receipt of a signed travel order, and perform a reconciliation between
the tickets it issued and tickets charged on the Citibank invoice. To
complete this reconciliation process, TMCs are responsible for
associating each charge with a specific travel order. The financial
management officer (FMO) at overseas posts and resource management's
Global Financial Operations in Charleston, South Carolina, for domestic
activity, are generally responsible for reviewing a TMC's monthly
reconciliation, making appropriate changes, and certifying or
authorizing Citibank's invoice for payment. Upon receipt of the TMC's
reconciliation, billed transaction report (BTR), and supporting files,
State pays Citibank for the tickets purchased on the centrally billed
account. State also pays travelers for nontransportation costs claimed
on their individual travel voucher. Figure 1 shows the design of the
processes used to issue an airline ticket on centrally billed accounts
and reimburse travelers for travel expenses. It also explains the roles
of different offices in providing reasonable assurance that airline
tickets charged to these cards are appropriate and meet a valid
government need.
Figure 1: Flowchart of the Centrally Billed Account Travel Card
Process:
[See PDF for image]
[End of figure]
Ineffective Controls over Authorization and Justification of Premium-
Class Travel Led to Wasted Taxpayer Dollars:
Premium-class travel accounted for almost half of travel expenditures
charged to State's over 260 centrally billed accounts during most of
fiscal years 2003 and 2004, including domestic and overseas operations,
and this trend continued for fiscal year 2005. On the basis of our
statistical sample, we estimate that 67 percent of premium-class travel
during April 2003 through September 2004 for State and other foreign
affairs personnel was improper--either not properly authorized or
properly justified because of breakdowns in key internal controls.
Examples of breakdowns in key controls include travelers flying premium-
class travel when the travel orders did not authorize premium- class
travel; subordinates authorizing their supervisors to take premium-
class flights; and travel orders authorizing premium-class travel using
criteria of a total flight time of more than 14 hours, even though the
actual flight time, including layovers, was less than 14 hours. Also,
State's diplomatic couriers used premium-class travel even when it was
not justified. In addition, we found that State's top executives,
including under secretaries and assistant secretaries, often used
premium-class travel regardless of the length of the flight. Further,
senior State officials told us that the department offered premium-
class travel as a benefit to its employees, as part of their human
capital initiative, for all flights lasting over 14 hours, which is
allowed by federal and State regulations but is costly to taxpayers.
However, State did not perform a cost-benefit analysis before offering
this benefit. In comparison, agencies--such as DOD--attempt to avoid
the significant additional cost associated with premium-class travel on
flights lasting more than 14 hours by encouraging employees to take a
rest stop en route to their final destination, saving hundreds,
sometimes thousands, of tax dollars per trip. Prior to 2002, State
policy prohibited the use of premium-class accommodations for permanent
change of station travel even when the duration of the travel exceeded
14 hours--a prohibition established by many other agencies with staff
stationed overseas. However in 2002, State eliminated that prohibition.
Extent of Premium-Class Travel Is Significant:
Between April 2003 and September 2004,[Footnote 9] State and other
foreign affairs agencies purchased over 32,000 airline tickets costing
about $140 million that contained at least one leg of premium-class
travel for State and other foreign affairs personnel using State's
centrally billed account travel cards. In addition, we determined that
premium-class travel continues to be significant for fiscal year
2005.[Footnote 10] As discussed later in this report, because State
does not obtain or maintain any information on premium-class travel, it
cannot monitor its proper use, identify trends, or determine alternate,
less expensive means of transportation. As shown in figure 2, premium-
class travel represents about 19 percent of the tickets issued, and
State's and other foreign affairs agencies' spending on premium-class
travel represented about 49 percent of the $286 million spent on
airfare charged to the centrally billed accounts during the period
April 2003 through September 2004.[Footnote 11] Our analysis excluded
all travel transactions at overseas posts that were not procured
through the centrally billed travel accounts because it was outside the
scope of our request. State told us that at some overseas posts
travelers purchase airline tickets using Government Travel Requests
(GTR) and purchase orders. Further, the information State provided for
some tickets purchased with GTRs did not distinguish between premium-
and coach-class tickets.
Figure 2: Premium-Class Tickets Purchased for State and Other Foreign
Affairs Personnel Charged to State's Centrally Billed Accounts, April
2003 through September 2004:
[See PDF for image]
[End of figure]
Key Internal Controls over Premium Travel Were Ineffective:
Breakdowns in key internal control activities led to significant
numbers of transactions lacking proper authorization and justification
for premium-class travel. On the basis of our sample of premium
transactions,[Footnote 12] an estimated 67 percent of premium-class
travel was not properly authorized, justified, or both. Specifically,
39 percent of the premium-class airline tickets charged to State's
centrally billed account from April 2003 through September 2004 were
not properly authorized. In addition, 28 percent of premium-class
transactions that were authorized were not justified in accordance with
either federal or State regulations. (See app. I for further details of
our statistical sampling test results.) Further, State did not maintain
accurate and complete data on the extent of premium-class travel and
thus had a lack of controls in place to oversee and manage this travel.
Each fiscal year State is required to report to GSA on first-class
travel taken by all State and other foreign affairs personnel. However,
we found 23 roundtrip first-class tickets valued at more than $85,000,
obtained for State or other foreign affairs agencies, that were not
reported by State to GSA as required in fiscal years 2003 and 2004.
Further, we saw no evidence of external or internal audits of State's
centrally billed travel program.[Footnote 13]
Proper Authorization Did Not Exist:
Requiring premium-class travel to be properly authorized is the first
step in preventing improper premium-class travel. Federal and State
regulations require premium-class travel to be specifically authorized.
State travel regulations specify that premium-class travel must be
authorized in advance of travel, unless extenuating circumstances or
emergencies make prior authorization impossible, in which case the
traveler is required to request written approval from the appropriate
authority as soon as possible after the travel. Using these
regulations, we found that transactions failed the authorization test
in the following two categories: (1) the documentation did not
specifically authorize premium-class travel or a blanket travel
authorization was used to authorize premium-class travel and (2) the
travel order authorizing premium-class travel was not signed.
Premium-class travel was not specifically authorized. On the basis of
our statistical sample, we estimated that the travel orders and other
supporting documentation for 13 percent of the premium-class
transactions did not specifically authorize the traveler to fly premium
class, and thus the travel management center should not have issued the
premium-class ticket. We estimated that an additional 17 percent of the
transactions were authorized by a blanket authorization, including all
diplomatic courier travel. A blanket authorization is not an
appropriate vehicle for authorizing premium-class travel because
federal and State travel regulations require that all premium-class
travel be authorized on a trip-by-trip basis. In September 2004, State
issued a memorandum to all executive directors reminding them about the
use of blanket orders, emphasizing that it is wrong to authorize
business-class travel on a blanket basis and also reminding the
executive directors that a trip-specific justification must be provided
for each business-class authorization.
Travel order was not signed. We estimated that 5 percent of premium-
class transactions did not have signed travel authorizations. Ensuring
that travel orders are signed, and signed by an appropriate official,
is a key control for preventing improper premium-class travel. If the
travel order is not signed, or not signed by the individual designated
to do so, State cannot guarantee that the substantially higher cost of
the premium-class tickets was properly reviewed to ensure it
represented an efficient use of government resources.
Documentation of Valid Justification for Premium-Class Travel Often Did
Not Exist:
Another internal control weakness identified in the statistical sample
was that the justification used for premium-class travel was not
provided, not accurate, or not complete enough to warrant the
additional cost to the government. To determine whether premium-class
travel was justified, we looked at whether there was documented
authorization and, if there was, whether the authorization for premium-
class travel was supported by a valid reason. Thirty-nine percent of
premium-class transactions were not authorized and, therefore, could
not have been justified. State asserts that even if business-class
authorization for some trips was not properly documented, the premium
travel was nevertheless justified so long as the trips were in excess
of 14 hours. However, without properly documented authorization, we
cannot assess the propriety of such travel notwithstanding the 14-hour
travel rule and therefore must conclude that it was unjustified premium-
class travel. In addition, 28 percent of premium-class transactions
were authorized but were not supported by valid justification.[Footnote
14] Federal and State travel regulations provide that travel in excess
of 14 hours, without a rest stop en route or a rest period on arrival
is justification for premium class. We found premium travel included
trips with such rest stops for flights lasting under 14 hours.
Table 1 contains specific examples of both unauthorized and unjustified
travel from both our statistical sample and data mining work. These
examples illustrate the improper use of premium-class travel and a
resulting increase in travel costs. More detailed information about
some of the cases follows the table.
Table 1: Examples of Premium-Class Travel Not Authorized or Properly
Justified:
Traveler: 1;
Source: Data mining;
Itinerary: Washington, D.C., to Honolulu, Hawaii, through Canada;
Class of ticket: Business;
Cost of premium ticket paid: $3,228;
Estimated cost of coach-fare ticket [A, B]: $790;
Reason for exception: Travel was authorized by a blanket authorization.
Traveler signed their own upgrade. Continuous travel without rest stops
was less than 14 hours. Transaction failed authorization and
justification.
Traveler: 2;
Source: Data mining;
Itinerary: Johannesburg, South Africa, to Asmara, Eritrea, through
Frankfurt, Germany;
Class of ticket: Business;
Cost of premium ticket paid: $8,353;
Estimated cost of coach-fare ticket [A, B]: $2,921;
Reason for exception: Traveler approved his own travel. Traveler flew
premium class and was reimbursed for lodging for a rest stop en route.
Transaction failed authorization and justification.
Traveler: 3;
Source: Data Mining;
Itinerary: Johannesburg, South Africa, to Asmara, Eritrea, through
Frankfurt, Germany;
Class of ticket: Business;
Cost of premium ticket paid: $8,353;
Estimated cost of coach-fare ticket [A, B]: $2,921;
Reason for exception: Traveler flew premium class and was reimbursed
for lodging at a rest stop in Frankfurt. Transaction failed
justification.
Traveler: 4;
Source: Data Mining;
Itinerary: Washington, D.C., to Honolulu, Hawaii, through San
Francisco;
Class of ticket: First class;
Cost of premium ticket paid: $4,155;
Estimated cost of coach-fare ticket [A, B]: $858;
Reason for exception: Traveler flew first class to Hawaii using a
travel order that allowed for travel to and within Europe. Travel was
less than 14 hours. Transaction failed authorization and justification.
Traveler: 5;
Source: Statistical Sample;
Itinerary: Washington, D.C., to Moscow, Russia;
Class of ticket: Business;
Cost of premium ticket paid: $6,712;
Estimated cost of coach-fare ticket [A, B]: $1,784;
Reason for exception: Family of four flew business class from
Washington, D.C., to Moscow. Trip was less than 14 hours. Transaction
failed justification for premium travel.
Source: GAO analysis of premium-class travel transactions and
supporting documentation.
[A] Source of estimated coach fares is GSA contract fare or
expedia.com.
[B] Fares do not include all applicable taxes and airport fees.
[End of table]
* Traveler #1 flew from Washington, D.C., to Honolulu, Hawaii. The
total cost of the trip was $3,228. In comparison, the unrestricted
government fare from Washington, D.C., to Honolulu was $790. According
to State regulation, travelers using premium-class travel are not
entitled to an overnight rest stop en route. Furthermore, the travel
was authorized by a blanket premium-travel authorization signed by a
subordinate of the traveler and a separate trip authorization was not
included to specifically authorize this trip, as required. The travel
authorization did not provide specific justification for business-class
travel and the travel was not more than 14 hours. Therefore, the
transaction failed authorization and justification.
* Travelers #2 and #3 traveled from Johannesburg to Asmara through
Frankfurt, at a cost of about $8,353 each, a total of $16,706. Although
they traveled business class for the entire trip, they were reimbursed
for a hotel room during the layover in Frankfurt on the return visit,
at a cost of about $171 each. According to State regulation, travelers
using premium-class travel are not entitled to a government-
funded[Footnote 15] rest stop en route. If the travelers had flown
coach for this round trip and taken a rest stop en route, the airfare
would have cost about $2,921 and State could have saved about $11,000
for the two tickets. One of these travelers approved the travel
authorizations for both himself and the other traveler.
* Traveler #4 flew first class from Washington, D.C., to Hawaii on a
blanket travel order that only authorized travel within Europe.
Although the travel was less than 14 hours, State provided no
justification for first class, and State did not report the first-class
travel to GSA. We found that State issued a first-class airline ticket
to Hawaii using a blanket travel authorization that authorized premium-
class accommodations. State issued the ticket to an unauthorized
destination-Hawaii-because the blanket travel order authorized travel
to Europe and State's travel officials did not review the blanket
authorization to ensure that the travel authorization was current,
valid, and the trip was to an authorized destination. Because State did
not follow its own policies for authorization and review of travel, the
government paid $4,155 for an unauthorized trip.
Management Decisions to Offer Premium Travel as a Benefit:
State's management allowed top State and other foreign affairs
executives to use premium-class travel by approving blanket travel
orders, similar to a blank check. State also allowed premium-class
travel as a benefit-without considering less expensive alternatives-to
other employees for flights lasting over 14 hours and for permanent
change of station travel, costing taxpayers tens of millions of
dollars. Further, State's practice is for diplomatic couriers to use
premium-class travel accommodations to escort diplomatic pouches.
Executive Premium-Class Travelers:
State's top executives, including under secretaries and assistant
secretaries, often used premium-class travel regardless of the length
of the flight. Our data mining of frequent premium-class travelers
showed that many of these travelers were senior foreign affairs
executives. On the basis of this information, we expanded our data
mining to include trips taken by selected presidential appointees and
SES-level foreign affairs staff to determine if their travel was
authorized and justified according to federal and State regulations. In
addition to the federal and State regulations, we also applied the
criteria set forth in our internal control standards[Footnote 16] and
sensitive payments guidelines[Footnote 17] in evaluating the proper
authorization of premium-class travel. For example, State travel
regulations and policies do not restrict subordinates from authorizing
their supervisors' premium-class travel, a practice which our internal
control standards consider to be flawed. Therefore, a premium-class
transaction that was approved by a subordinate would fail the control
test based on our internal control standards. State and other foreign
affairs agencies paid over $1 million for 269 premium-class tickets for
flights taken by 17 foreign affairs executives during April 2003
through September 2004. We found 65 tickets containing business-and
first-class segments costing about $300,000 that were under 14 hours.
Most of these flights were to destinations within the United States,
South America, and Western Europe. Further, over $860,000 in premium-
class trips taken by executives were obtained using blanket
authorizations. For each premium-class trip, State regulation requires
specific authorization to fly premium class. In most cases, the blanket
travel orders authorized premium-class travel for an entire year and
were signed by subordinates. State officials told us that because the
blanket authorization allowed premium class, the executives obtained
premium-class tickets even when the trip was under 14 hours. The
subordinate authorizers told us they could not challenge an under
secretary or an assistant secretary. Examples of premium-class trips
associated with improper accommodation and their additional cost to
taxpayers are included in figure 3 to illustrate the issues associated
with executive premium-class travel found through our data mining.
Figure 3: Examples of Premium-Class Travel by State and Other Foreign
Affairs Executives from Washington, D.C.
[See PDF for image]
Note: GSA fares exclude applicable taxes and fees.
[End of figure]
Other Premium-Class Travelers:
State also made a management decision to offer premium-class travel to
its employees as a benefit, resulting in increased costs to taxpayers.
Although State officials were aware that offering employees rest stops
on longer flights was often less expensive than premium-class travel,
they offered the more expensive premium-class travel to employees for
all flights lasting over 14 hours, which increased costs. For example,
one individual in our statistical sample flew premium-class roundtrip
from Washington, D.C., to Tel Aviv at a cost of over $6,000. Although
the trip lasted over 14 hours, as an alternative to paying the premium-
class rates, State could have flown this employee coach and paid the
cost of an overnight rest stop in London, for a total cost of about
$2,300 (about $1,600 for the GSA contract airfare and $700 in lodging
and per diem expenses). Overall, this option could have saved taxpayers
over $3,700. State officials explained that they made these decisions
about premium-class travel to improve morale and retain highly
qualified foreign-service personnel. State officials also believed
that, among other factors, their decisions about premium-class travel
for trips in excess of 14 hours have led to increased morale, as
reflected in "The Best Places to Work" survey. However, State could not
provide any empirical evidence that showed a direct correlation that
offering premium-class travel increased its scores on the survey or
increased retention of foreign-service personnel, and could not provide
evidence that travel was a metric in the "Best Places to Work" survey.
In contrast, agencies, such as DOD, attempt to avoid the significant
additional cost associated with premium-class travel on flights lasting
more than 14 hours by encouraging employees to take a rest stop en
route to their final destination, saving hundreds, sometimes thousands,
of tax dollars per trip. Finally, our testing showed that all State
employees, not just those in the foreign service that are governed by
State regulations, were authorized to use premium-class, without
constraint, when the trip was over 14 hours.
State also decided to offer premium-class travel to foreign service
employees for permanent change of station moves for all flights that
exceeded 14 hours, in accordance with federal and State regulations.
However, State's decision resulted in increased costs to taxpayers.
Permanent change of station and similar moves accounted for about $17
million (12 percent) of State's and other foreign affairs agencies'
premium-class travel for April 2003 through September 2004. Prior to
2002, State policy prohibited the use of premium-class accommodations
for permanent change of station travel, even when the duration of the
travel exceeded 14 hours--a prohibition established by many other
agencies with staff stationed overseas, including DOD. However, in
2002, State eliminated that prohibition at a significant cost to
taxpayers. We found numerous examples in our statistical sample in
which premium-class travel was properly authorized, and as such these
transactions were among the 33 percent of transactions that were
considered to be properly authorized and justified. However, it is
important to note that because of State's decision to treat premium-
class travel as a benefit, State did not consider having the travelers
take alternative, less expensive forms of travel.
Premium-Class Travel by Diplomatic Couriers18:
We found instances where State's diplomatic couriers lacked proper
[Footnote 18] authorization, justification, or both when flying premium
class; therefore, we believe State could potentially save considerable
taxpayer dollars if it more aggressively managed the travel of its
couriers. For example, when couriers are not on a mission to escort
diplomatic pouches or they are escorting only cabin-carried diplomatic
pouches, they must follow the same travel regulations explained earlier
as all State and other foreign affairs employees.[Footnote 19]
We tested diplomatic courier transactions in our statistical sample of
premium-class transactions and performed data mining of fiscal year
2003 and 2004 transactions. In total, we tested over 20 diplomatic
courier premium-class transactions. We found control breakdowns similar
to those described above with blanket authorization and justification
of courier premium-class travel. Blanket travel orders were used to
authorize premium-class courier travel for all courier transactions
that we tested but, as stated, blanket orders do not specifically
authorize premium travel as required by State regulations. Although the
Courier Service used mission security requirements to justify premium-
class travel by its couriers, we found examples of premium-class travel
when couriers were returning empty-handed, commonly referred to as
"deadheading." In response to these findings, Courier Service officials
acknowledged that the use of premium class is not justified when
couriers return empty-handed unless the 14-hour rule applies. Courier
Service officials also told us that couriers may not know when they
will be returning empty-handed until they arrive at an airport and are
told that the post did not complete the expected outgoing pouch. By
that time, they may not be able to downgrade their return ticket to
economy class because a foreign airline is unwilling to do so, or time
does not permit them to return to the gate to change their ticket.
However, the Courier Service did not indicate on the documentation that
it provided to us any attempts to downgrade their tickets in a
deadheading or any other situation where premium-class travel was not
justified. Further, the Courier Service Deputy Director told us that
because there are still some problems in this area, they routinely
check courier trip reports to identify and address any noncompliance.
We found that State's Courier Service has begun to institute cost-
saving measures that, if expanded, could save taxpayer dollars. These
measures include the expanded use of cargo carriers (e.g., FedEx),
which do not require the couriers to purchase passenger tickets and
charge lower freight costs than the commercial airlines. Our analysis
of a FedEx study performed for the Courier Service showed that
substantial air cargo savings and benefits could be achieved through
direct cargo flights with multiple stops along a designated route.
Although the Courier Service initiated the use of cargo carriers in
late 2004, expanding this approach to the extent practical could
achieve substantial savings. However, to achieve the additional
savings, the Courier Service would need to overcome foreign mission
resistance to meeting cargo aircraft outside of business hours.
According to Courier Service officials, foreign mission personnel have
been unwilling to meet air cargo shipments that arrive outside normal
business hours and at cargo airports outside city limits. According to
State, Mexico City has recently indicated a willingness to support
cargo flight arrivals at Toluca airport. Courier Service officials also
told us that while all agencies receiving diplomatic pouches should
share responsibility for meeting and taking custody of diplomatic pouch
shipments, the burden has generally fallen on State employees.
Lack of Oversight and Controls Led to Other Breakdowns:
Ineffective oversight and breakdowns in controls also led to problems
with State's other centrally billed travel activities. For example,
although federal agencies are entitled to recover payments made to
airlines for tickets that they ordered but did not use, State and other
foreign affairs agencies paid for about $6 million in airline tickets
that were not used and not processed for refund. We found paper and
electronic unused tickets for both domestic and international flights.
State was unaware of this problem before our audit because it did not
monitor employees' adherence to travel regulations and did not have a
systematic process in place for TMCs to identify and process unused
tickets. State also failed to reconcile or dispute over $420,000 of
unauthorized and potentially fraudulent charges before paying its
account. Instead of disputing these charges with Citibank, State simply
deducted the amounts from its credit card bill. This action had the
unanticipated consequence of substantially reducing the amount of
rebates that State would have been eligible to receive. Thus, State
earned only $700,000 out of a possible $2.8 million in rebates that
could have been earned if State disputed unauthorized charges and paid
the bill in accordance with the terms of the contract with Citibank.
Ineffective Controls and Monitoring Led to Numerous Unused Tickets:
We asked for data on unused tickets purchased on State's centrally
billed accounts from the top six domestic airlines--United,
Continental, American, Delta, Northwest, and U.S. Airways. All airlines
except U.S. Airways directly provided us electronic data on unused
tickets. Data provided by the five airlines and verified against
Citibank's data showed that over 2,700 airline tickets with a face
value of about $6 million purchased with State's centrally billed
accounts were unused and not refunded. The airline tickets State
purchased, for State and other foreign affairs personnel, through the
centrally billed accounts are generally acquired under the terms of the
air transportation services contract that GSA negotiates with U.S.
airlines. Airline tickets purchased under this contract have no advance
purchase requirements, have no minimum or maximum stay requirements,
are fully refundable, and do not incur penalties for changes or
cancellations. Under this contract, federal agencies are entitled to
recover payments made to airlines for tickets that agencies acquired
but did not use.[Footnote 20] While generally there is a 6-year statute
of limitation on the government's ability to file an action for
financial damages based on a contractual right,[Footnote 21] the
government also has up to 10 years to offset future payments for
amounts it is owed.[Footnote 22]
State Did Not Monitor Employee Adherence to Travel Regulations:
During fiscal years 2003 and 2004, State did not implement controls to
monitor State's and other foreign affairs employees' adherence to
travel regulations requiring notification of TMC or the appropriate
State officials about unused tickets. Federal and State travel
regulations require a traveler who purchased a ticket using the
centrally billed account either to return any unused tickets purchased
to the travel management center that furnished the airline ticket or to
turn in unused tickets immediately upon arrival at their post to the
administrative officer or, upon arrival in Washington, D.C., to the
executive officer of the appropriate managing bureau or office. This
notification of an unused ticket initiates a process to submit requests
to the airlines for refunds.
Figure 4 illustrates where control breakdowns can occur if travelers do
not adhere to State requirements. As shown, once a ticket is charged to
the centrally billed account and given to the traveler, State has no
systematic controls to determine independently if the ticket was used-
-or remains unused--unless notified by the traveler. If the traveler
does not report an unused ticket, the ticket would not be refunded
unless TMC monitored the status of airline tickets issued
electronically and applied for the refunds. Figure 4 shows that the
failure of the traveler to notify the appropriate official of an unused
paper ticket would result in the ticket being unused and not refunded.
Although bank data indicate that State received some credits for
airline tickets purchased, State did not maintain data in such a manner
as to allow it to identify the extent of unused tickets and to
determine whether credits were received.
Figure 4: Flowchart of Control Breakdowns in the Unused Ticket Process:
[See PDF for image]
[End of figure]
State Did Not Have a Process for Travel Management Centers to Identify
All Unused Tickets:
State did not have a systematic process in place to monitor whether
TMCs were consistently identifying and filing for refunds on unused
tickets. For instance, State contractually required the domestic TMC to
identify and process all unused electronic tickets. In exchange, the
TMC received a fee for each refund received for an unused ticket.
However, State did not implement procedures to determine whether unused
tickets were being identified and credits were being received. Instead,
State officials took the TMC's monthly report indicating only the total
dollar amount of refunds submitted to the airlines as evidence of
contractual compliance. Unless State implements control procedures to
verify whether TMCs were identifying and filing for refunds on the
unused tickets consistently, State cannot provide reasonable assurance
that all requests for refunds resulted in a credit to the government.
Even when a TMC had procedures in place to identify and process unused
electronic tickets, State was still unable to identify unused paper
tickets. For example, by fiscal years 2003 and 2004, State's domestic
TMC and TMCs at both of the overseas locations we visited had the
capability to identify or search the databases of the airlines that
participate in electronic ticketing or to receive notification from the
airlines of unused tickets, and subsequently obtain refunds. However,
even though the TMCs can identify electronic tickets, they cannot
independently identify paper tickets, which are typically used for
international travel.[Footnote 23] State has not implemented a
systematic process to verify whether a significant portion of airline
tickets are unused, such as matching tickets issued by TMC with travel
vouchers submitted by travelers upon completion of their trip. Without
such a process State will not have reasonable assurance that tickets
purchased through the centrally billed accounts are used or refunded.
In addition to the $6 million dollars of unused tickets or trip
segments we identified using the airline data, we estimated that, based
on the statistical sample, 3 percent of premium-class airline tickets
were unused and not refunded. This 3 percent estimate is for premium-
class tickets only and excludes coach accommodations.
Table 2 contains specific examples of tickets that the airlines
identified as unused that we tested as a part of our statistical sample
of premium class transactions and data mining selections. Since these
tickets were not used, they resulted in waste and increased costs to
taxpayers.
Table 2: Examples of Waste Related to Unused Tickets:
Traveler: 1;
Source: Statistical sample;
Itinerary: Albuquerque, NM, to Ethiopia and return;
Class of ticket(s): First and business;
Price paid: $8,838;
Explanation for unused tickets: Traveler completed travel using a
second ticket issued for the same trip.
Traveler: 2;
Source: Statistical sample;
Itinerary: Washington, DC, to Nigeria;
Class of ticket(s): Business;
Price paid: $5,503;
Explanation for unused tickets: Traveler went to Senegal instead of
Nigeria using a different ticket.
Traveler: 3;
Source: Statistical sample;
Itinerary: Buenos Aires, Argentina, to Lima, Peru;
Class of ticket(s): Business;
Price paid: $1,327;
Explanation for unused tickets: Traveler used an identical coach-class
ticket.
Traveler: 4;
Source: Data mining;
Itinerary: Miami, FL, to Mexico;
Class of ticket(s): Business;
Price paid: $2,254;
Explanation for unused tickets: Traveler went to Chile instead of
Mexico using a different ticket.
Source: GAO analysis.
[End of table]
State Did Not Dispute Unauthorized Transactions and Lost Performance
Rebates:
State did not dispute over 320 unauthorized transactions, totaling over
$420,000, associated with its two primary domestic centrally billed
accounts during fiscal year 2003 and fiscal year 2004. TMCs reconcile
transactions on the monthly credit card invoice to the tickets issued
by the TMC and recorded in the airline reservation system. Disputes are
typically filed for transactions that neither the TMC nor State
identified as having issued or authorized. Tickets that do not match
could occur for many reasons, such as an airline charging the ticket to
the wrong credit card account, an individual fraudulently obtaining an
airline ticket, or the merchant or credit card vendor failing to
provide enough information to allow the transaction to match. State did
not have processes or procedures in place to file disputes for
transactions that failed to reconcile between the bank invoice and the
computer reservation system. We provided State a list of 219 travelers'
names[Footnote 24] associated with the over 320 unauthorized
transactions to verify that they were State employees or otherwise
authorized by State or other foreign affairs agencies to travel.
According to State, 38 of the 219 travelers were individuals for whom
State had no record of ever working for State as an employee,
contractor, or being authorized to travel as an invited guest. Thus,
these transactions could be potentially fraudulent charges. As for the
remaining 181 travelers, State informed us that while the airline
tickets purchased were for individuals who are either current or former
State employees, contractors, or invited guests, State has no evidence
that the trips had been authorized. Thus, these trips also could
represent potentially fraudulent charges.
As a result of not disputing unauthorized charges and not paying its
bill in accordance with the contract, State faced the unanticipated
consequence of substantially reducing the amount of rebates that it
would have been eligible to receive. For example, if State had
effectively managed the domestic accounts and disputed these charges,
State could have earned over $1 million in rebates. Instead, State
earned only about $174,000 in performance rebates for its domestic
accounts. In contrast, at two overseas posts that we visited, State was
properly disputing transactions. However, as previously noted, State
still did not effectively manage its centrally billed accounts
departmentwide and, consequently, earned only $700,000 out of a
possible $2.8 million in performance rebates from Citibank.
The contract that State entered into with Citibank to issue centrally
billed account travel cards enables State to earn performance rebates
based on how quickly State pays the monthly bill. To earn the
performance rebate, State must pay the bill within 30 calendar days
from the statement date. State earns the maximum performance rebate if
it pays the centrally billed account--less any disputed charges--on the
statement date; for unpaid bills, the amount of the rebate decreases
each day thereafter. If State pays the centrally billed account more
than 30 days after the statement date, State does not earn a
performance rebate.
Throughout the audit period, State generally submitted payment for its
domestic centrally billed accounts within the 30 day window; however,
State frequently failed to pay the entire amount of the bill, leaving
potentially unauthorized charges unpaid, but not properly disputed.
During fiscal years 2003 and 2004, State did not dispute any of the
previously mentioned over 320 unauthorized charges applied to its
domestic centrally billed accounts, and instead simply deducted the
amounts due from its credit card bill. If State had disputed these
charges, Citibank would have given State a 60-day grace period to
investigate whether the charges were appropriate and the disputed
amounts would not have to be paid until the investigation was
completed. An average person cannot simply determine which charges on
their credit card bill they are going to pay but must notify the bank
of any unauthorized charges. Since State did not dispute the charges,
it was still liable for the amounts associated with these charges and
simply deducting them from the credit card bill did not relieve State
of its responsibility for these charges. Consequently, State was not
only paying for potentially fraudulent charges, but it also lost the
performance rebates it could have earned by promptly paying its monthly
centrally billed account bill.
Conclusion:
The State department serves a critical role for the federal government
and in that role State and other foreign affairs employees are required
to travel extensively, often internationally. However, travel
regulations state that employees on official government travel must
follow published requirements and exercise the same standard of care in
incurring expenses that a prudent person would exercise when traveling
on personal business. Our work shows that travelers using State's over
260 centrally billed travel accounts often do not meet that standard,
which has resulted in millions of dollars of unnecessary costs to
taxpayers. With the serious fiscal challenges facing the federal
government, agencies need to do everything they can to operate as
efficiently as possible. Improved management and oversight of the State
department's centrally billed travel program would save taxpayers tens
of millions of dollars annually.
Recommendations for Executive Action:
We are making the following 18 recommendations to improve internal
control over the authorization and justification of premium-class
travel and to strengthen the control environment as part of an overall
effort to reduce improper premium-class travel and unnecessary or
inappropriate State costs. Because of the substantial cost and
sensitive nature of premium-class travel, we recommend that the
Secretary of State direct the appropriate officials to implement
specific internal control activities over the use of premium travel and
establish policies and procedures to incorporate federal and State
regulations as well as guidance specified in our Standards for Internal
Control and our Guide for Evaluating and Testing Controls Over
Sensitive Payments. While a wide range of activities can contribute to
a system that provides reasonable assurance that premium-class travel
is authorized and justified, at a minimum, the internal control
activities should include the following:
* Develop procedures to identify the extent of premium-class travel,
including all business-class travel, and monitor for trends and
potential misuse.
* Develop procedures to identify all first-class fares so that State
can prepare and submit complete and accurate first-class travel reports
to GSA.
* Require State to develop a management plan requiring that audits of
State's issuance of premium-class travel are conducted regularly, and
the results of these audits are reported to senior management. Audits
of premium-class travel should include reviews of whether travel
management centers adhere to all governmentwide and State regulations
for issuing premium-class travel.
* Periodically provide notices to travelers and supervisors/managers
that specifically identify the limitations on premium-class travel, the
limited situations in which premium-class travel may be authorized, and
how the additional cost of premium-class travel can be avoided.
* Require that premium-class travel be approved by individuals who are
at least of the same grade as the travelers and specifically prohibit
the travelers themselves or their subordinates from approving requests
for premium-class travel.
* Prohibit the use of blanket authorization for premium-class travel,
including management decisions offering premium-class travel as a
benefit to executives and other employees.
* Encourage State department personnel traveling as a result of a
permanent change of station to take a rest stop en route to their final
destination to avoid the significant additional cost associated with
premium-class flights and thus save the taxpayer thousands of dollars
per trip.
* Urge other users of State's centrally billed travel accounts to take
parallel steps to comply with existing travel requirements.
To promote the economy and efficiency of Courier Service operations, we
recommend that the Secretary of State direct the Courier Service to
take the following actions:
* Expand the use of cargo carriers, such as FedEx, to the extent
practicable.
* Direct foreign missions to assure that organizations using diplomatic
courier services share responsibility for meeting and accepting air
cargo shipments of diplomatic pouches.
* Clarify written policy to clearly state that diplomatic couriers must
use economy class accommodations when in a "dead-head" capacity unless
relevant exceptions (e.g., 14-hour rule) exist, and enforce the
requirement.
To recover outstanding claims on unused tickets, we recommend that the
Secretary of State initiate the following actions:
* Immediately submit claims to the airlines to recover the $6 million
in fully and partially unused tickets identified by the airlines and
discussed in this report.
* Work with the five airlines identified in this report and other
airlines from which State purchased tickets with centrally billed
accounts to determine the feasibility of recovering other fully and
partially unused tickets, the value of the unused portions of those
tickets, and initiate actions to obtain refunds.
To enable State to systematically identify future unused airline
tickets purchased through the centrally billed accounts, and improve
internal controls over the processing of unused airline tickets for
refunds, we recommend that the Secretary of State direct the
appropriate personnel within services and agencies to take the
following actions:
* Evaluate the feasibility of implementing procedures to reconcile
airline tickets acquired using the centrally billed accounts to travel
vouchers in the current travel system.
* Enforce employees' adherence to existing travel regulations requiring
notification of unused tickets.
* Modify existing travel management center contracts to include a
requirement that the international travel management centers establish
a capability to systematically identify unused electronic tickets in
their computer reservation systems and file for refunds on the tickets
identified as unused.
* Routinely compare unused tickets processed by the travel management
centers to the credits on the Citibank invoice.
To provide assurance of accurate and timely payments of the centrally
billed accounts and to maximize rebates, we recommend that the
Secretary of State establish procedures to ensure that all transactions
on the Citibank invoice are either paid in accordance with the contract
or properly disputed.
Agency Comments and Our Evaluation:
In written comments on a draft of this report, State concurred with all
18 of our recommendations and said that it is firmly committed to
aggressive stewardship of the taxpayers' resources entrusted to the
department. However, State also commented that our report overstates
the problem, fails to identify improper travel conducted for other than
official government travel, identifies only a few instances of
unjustified travel, and implies incorrectly that State carelessly
implemented business-class regulations without regard to the increased
cost. We disagree.
We do not agree with State's position that we overstate the nature and
extent of its control breakdowns and ineffective oversight. State and
other foreign affairs travelers charged almost $140 million on premium-
class travel from April 2003 through September 2004. On the basis of
our statistical sample, 67 percent of premium-class travel was not
properly authorized, justified, or both. This failure rate and the
associated dollars spent on premium class travel shows that taxpayers
lost tens of millions of dollars on improper travel. For example, State
issued premium-class tickets to a family of four traveling from
Washington to Moscow for a permanent change of duty station. Although
this trip was well under the required 14 hours to justify premium-class
travel, State purchased the premium class accommodations for almost
four times the cost of coach seats. In addition to the waste
exemplified here and elsewhere in our report, taxpayers lost millions
more because State failed to recover payments made to airlines for
tickets issued but never used and failed to reconcile and dispute other
charges properly. For example, State paid for a premium-class ticket
for roundtrip travel between New Mexico and Ethiopia that was neither
used nor refunded. These specific examples and our overall analysis
clearly show how ineffective oversight--not just procedural problems--
resulted in substantial waste of taxpayers' dollars.
As our report clearly explains, we did not specifically question
whether travel charged to State's centrally billed travel accounts were
necessary. Therefore, we purposely did not identify improper travel
conducted for other than official government travel and thus our report
makes no conclusions on this matter.
State's position that our findings of improper travel are simply the
result of "procedural problems" and that "only a few instances" of
travel were conducted outside of the regulations are inconsistent with
the facts. In this regard, over half of the transactions we tested--not
just a few instances--were not simply the result of procedural problems
(e.g., not properly authorized), they were unjustified because the
travel was conducted outside of the regulations. Over half of the
travelers improperly flew premium-class on trips lasting shorter than
14 hours or flew business class and also took a rest stop, which is to
be used in lieu of using premium-class accommodations to economize
travel. For example, one State traveler flew premium-class between
points in Europe on a trip lasting well short of 14 hours and also took
an unjustified rest stop, which further added lodging and subsistence
expenses to the total cost of travel. Another traveler flying short of
14 hours on a premium-class ticket enjoyed 3 nights of rest upon her
return. These and other examples of unjustified travel underscore
problems beyond what State says are simply "deficient procedural
protocols" and demonstrate how State's ineffective oversight of premium-
class travel resulted in substantial losses to taxpayers.
Finally, State takes exception with our characterization that it
treated premium-class travel as an employee benefit. This position,
however, is in stark contrast to the representations State made
throughout our review. For example, although State prohibits blanket
authorizations for premium-class travel, many of State's top executives
consistently flew on blanket travel orders improperly authorizing
premium class from Washington to numerous domestic and other
destinations that were well below the 14 hours required to justify such
travel. For example, one senior State executive completed 45 premium-
class trips costing $213,000, many of which were under 14 hours, using
a blanket travel order. These executive travelers set a tone at the top
that premium-class travel was in fact a benefit to the traveler and not
something that should be minimized or used sparingly. In addition,
during our review, State said that it indeed offered premium-class
travel as a benefit to its employees and that such travel contributed
to their improved employee feedback provided to "The Best Places to
Work" survey. However, State could not provide evidence that travel was
a metric in that survey. Moreover, regardless of the increased cost
associated with such moves, State began in 2002 and continues today to
offer premium-class travel for permanent change of station moves as a
benefit to its employees and their families. We believe these examples,
especially the top State executives who gave themselves the benefit of
flying premium class when federal law and regulations did not allow
such travel, demonstrate that the tone at the top of the department
indicates that premium-class travel is in fact a benefit, without
specific regard to cost. State's comments are reprinted in appendix II.
As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute it until 30 days from its date.
At that time, we will send copies to interested congressional
committees; the Secretary of State, the Director and Deputy Director of
the Diplomatic Courier Service, and the Director of the Office of
Management and Budget. We will make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at [Hyperlink, http://www.gao.gov].
Please contact me at (202) 512-7455 or [Hyperlink, kutzg@gao.gov] if
you or your staffs have any questions concerning this report. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. Key contributors are
listed in appendix III.
Signed by:
Gregory D. Kutz:
Managing Director:
Forensic Audits and Special Investigations:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
This report responds to your request that we audit and investigate
internal controls over State's centrally billed travel accounts, which
include travel related to the Department of State, other U.S.
government agencies principally engaged in activities abroad, and other
domestic departments and agencies with international operations. The
objectives of our audit were to determine the effectiveness of the
Department of State's internal controls over its centrally billed
travel card program and determine whether fraudulent, improper, and
abusive travel expenses exist. Specifically we evaluated the
effectiveness of State's internal controls over (1) the authorization
and justification of premium-class tickets charged to State's centrally
billed travel accounts and (2) monitoring unused tickets, reconciling
monthly statements, and maximizing performance rebates.
To assess the effectiveness of internal controls over State's use of
the centrally billed accounts, we obtained an understanding of the
travel process, including premium-class travel authorization, unused
ticket identification, and overall travel card management and
oversight, by interviewing State officials from Resource Management,
Travel and Transportation Management Division; Diplomatic Security,
Overseas Building Operations; Educational and Cultural Affairs; U.S.
Consulate, Frankfurt, Germany and U.S. Embassy, Pretoria. We also
interviewed key officials from the American Express, Carlson Wagonlit,
and Concorde travel management centers. We reviewed General Services
Administration's (GSA) Federal Travel Regulations (FTR) and State's
Foreign Affairs Manual (FAM) and Foreign Affairs Handbook (FAH). We
reviewed State's internal department notices and other travel-related
guidance. Finally, we conducted "walk-throughs" of the domestic and
overseas travel processes.
Evaluating the Effectiveness of Controls over Premium-Class Travel:
We audited controls over the authorization and issuance of premium-
class travel during fiscal years 2003 and 2004. State's credit card
vendor, Citibank, could not provide the first 6 months of fiscal year
2003 (October 2002-March 2003) level III data due to limitations in its
archiving capabilities. The level III data indicate whether a
transaction is premium or coach. Therefore, we used 18 months of data
from April 2003 through September 2004 to select a probability sample
of premium-class transactions and also used this same time period for
our data mining and analysis of premium-class transactions. Our
assessment covered the following:
* The extent to which State used the centrally billed accounts to
obtain premium-class travel was determined.
* Testing a statistical sample of premium-class transactions to assess
the implementation of key management controls and processes for
authorizing and issuing premium-class travel, including approval by an
authorized official and justification in accordance with regulations.
We also used data mining to identify other selected transactions
throughout the premium-class travel transactions to determine if
indications of improper transactions existed.
* State's management policy towards the use of premium-class travel was
determined.
Magnitude of Premium-Class Travel:
To assess the magnitude of premium-class travel by State and other
foreign affairs agencies, we obtained from Citibank a database of
fiscal years 2003, 2004, and 2005 travel transactions charged to
State's centrally billed and individually billed travel card accounts.
The databases contained transaction-specific information, including
ticket fares, codes used to price the tickets--fare basis codes--ticket
numbers, names of passengers, and numbers of segments in each ticket.
We reconciled these data files to control totals provided by Citibank
and to data reported by GSA on State's centrally billed account
activities. We queried the database of positive debit transactions
(charges) for fare codes that corresponded to the issuance of first-and
business-class travel, identifying all airline transactions that
contained at least one leg in which State and other foreign affairs
agencies paid for premium-class travel accommodations.
We further limited the first-and business-class transactions to those
costing more than $750 because many premium-class tickets on intra-
European flights cost less than $750 and the corresponding coach-class
tickets were not appreciably less. By eliminating from our population
first-and business-class transactions costing less than $750, we
avoided the possibility of identifying a large number of transactions
in which the difference in cost was not significant enough to raise
concerns of the effectiveness of the internal controls. The total
number of transactions excluded was 1,067, costing approximately
$532,000. While we excluded premium-class transactions costing less
than $750, we (1) did not exclude all intra-European flights and (2)
potentially excluded unauthorized premium-class flights. Limitations of
the database prevented a more precise methodology of excluding lower-
cost first-and business-class tickets.
Statistical Sampling and Data Mining:
Table 3 summarizes the population[Footnote 25] of State and other
foreign affairs agencies' airline travel transactions containing at
least one premium-class leg charged to State's centrally billed
accounts from April 2003 through September 2004 and the subpopulation
subjected to testing.
Table 3: State and Other Foreign Affairs Agencies' Premium-Class Travel
Populations Subjected to Sampling:
Dollars in thousands.
Total population of premium-class transactions: Transactions: 30,268;
Total population of premium-class transactions: Dollars: $133,000;
Excluded transactions (premium class costing less than $750):
Transactions: 2,799;
Excluded transactions (premium class costing less than $750): Dollars:
$11,700;
Population subject to sampling (premium class costing at least $750):
Transactions: 27,469;
Population subject to sampling (premium class costing at least $750):
Dollars: $121,300;
Transactions tested: Transactions: 107;
Transactions tested: Dollars: $467.
Source: GAO analysis of Citibank data.
[End of table]
To assess the implementation of key controls over the authorization and
issuance of premium-class travel, we tested a probability sample of
premium-class transactions. In general, the population from which we
selected our transactions for testing was the set of positive debit
transactions totaling $750 or more for both first-and business-class
travel that were charged to State's centrally billed accounts during
April 2003 through September 2004. Because our objective was to test
controls over travel card expenses, we excluded credits and
miscellaneous debits (such as fees) that would not have been for ticket
purchases from the populations tested.
We further limited the population of first-and business-class
transactions to those without a matching credit. By eliminating
transactions with matching credits, we avoided selecting a large number
of transactions in which the potential additional cost of the premium-
class ticket was mitigated by a credit refund so as not to raise
concerns about the effectiveness of the internal controls. The total
number of transactions excluded was 2,799, totaling approximately $11.7
million. While we excluded premium-class transactions with a matching
credit, we did not exclude all transactions with a matching credit
because sometimes the data did not always identify the fare basis codes
to allow us to determine if the travel was premium or coach.
To test the implementation of key control activities over the issuance
of premium-class travel transactions, we selected a probability sample
of transactions. Specifically, we selected 107 premium-class
transactions totaling about $467,000. For each transaction sampled, we
requested that State provide us the travel order, travel voucher,
travel itinerary, and other related supporting documentation. We used
that information to test whether documentation existed that
demonstrated that State had adhered to key internal controls over
authorizing and justifying premium-class tickets. On the basis of the
information State provided, we determined whether a valid official
approved the premium-class travel and whether the premium-class travel
was justified in accordance with State regulations. We also applied
criteria set forth in our internal control standards and sensitive
payments guidelines in evaluating the proper authorization of premium-
class travel. For example, while State travel regulations and policies
do not address subordinates authorizing their supervisors' premium-
class travel, our internal control standards consider such a policy to
be flawed; therefore, a premium-class transaction that was approved by
a subordinate would fail the control test. The results of the samples
of these control attributes can be projected to the population of
transactions at State and other foreign affairs agencies as a whole,
but not to individual bureaus or posts.
With our probability sample, each transaction in the population had a
nonzero probability of being included, and that probability could be
computed for any transaction. Each sample element was subsequently
weighted in the analysis to account statistically for all the
transactions in the population, including those that were not selected.
Because we followed a probability procedure based on random selections,
our sample is only one of a large number of samples that we might have
drawn. Since each sample could have provided different estimates, we
express our confidence in the precision of our particular sample's
estimates as 95-percent confidence intervals (e.g., plus or minus 10
percentage points.) These are intervals that would contain the actual
population value for 95-percent of the samples we could have drawn. As
a result, we are 95-percent confident that each of the confidence
intervals in this report will include the true values in the study
population. All percentage estimates from the sample of premium-class
air travel have sampling errors (confidence interval widths) of plus or
minus 10 percentage points or less. Table 4 summarizes the premium-
class statistical sample results.
Table 4: Premium-Class Statistical Sample Results:
Authorization: Controls: Travel order provided? Failed;
Estimated percentage of transactions with this particular failure: 4.
Authorization: Controls: Travel order provided? Passed;
Authorization: Travel order signed? Failed;
Estimated percentage of transactions with this particular failure: 5.
Authorization: Controls: Travel order provided? Passed;
Authorization: Travel order signed? Passed;
Authorization: Premium travel specifically authorized? Failed;
Estimated percentage of transactions with this particular failure: 13.
Authorization: Controls: Travel order provided? Passed;
Authorization: Travel order signed? Passed;
Authorization: Premium travel specifically authorized? Passed;
Authorization: Premium travel not authorized by blanket travel order?
Failed;
Estimated percentage of transactions with this particular failure: 17.
Authorization: Controls: Travel order provided? Passed;
Authorization: Travel order signed? Passed;
Authorization: Premium travel specifically authorized? Passed;
Authorization: Premium travel not authorized by blanket travel order?
Passed;
Justification Control: Trip more than 14 hours without a rest stop?
Failed;
Estimated percentage of transactions with this particular failure: 28.
Source: GAO analysis of Citibank data.
Note: Each test is dependent on the result of the prior test(s). For
example, if no travel order was provided the transaction failed and no
other tests were conducted to determine whether the travel order was
signed. The justification test was dependent on the outcome of the
authorization test(s). Therefore, since 42 of 107 transactions (39
percent) failed the authorization test, we tested 65 total transactions
specifically to determine whether there was justification for premium-
class travel.
[End of table]
In addition to our statistical sample, we selected other transactions
identified by our data mining efforts for review. Our data mining
identified individuals who frequently flew using first-or business-
class accommodations. For data mining transactions, we also requested
that State provide us the travel order, travel voucher, travel
itinerary, and any other supporting documentation that could provide
evidence that the premium-class travel was properly authorized and
justified in accordance with State policies. If the documentation
provided indicated that the transactions were proper and valid, we did
not pursue the matter further. However, if the documentation was not
provided, or if it indicated further issues related to the
transactions, we obtained and reviewed additional documentation about
these transactions.
High-Level Officials:
Our initial data mining efforts identified executives that frequently
flew first and business class. On the basis of our findings, we
expanded our selection of high-level officials to include most of
State's top executives, including presidential appointees and senior
executives. We evaluated these transactions in the same manner as
described above.
Diplomatic Couriers:
Based on the statistical sample of premium class transactions, we
estimate that 6 percent of the transactions in the sample population
represent travel by diplomatic couriers. We also identified courier
transactions by data mining for travelers that frequently flew first
and business class. We found six courier transactions in our
statistical sample and an additional 16 transactions identified during
data mining for proper authorization and justification. We reviewed
pertinent laws, federal regulations, and State department policies and
procedures and interviewed current and former Diplomatic Courier
Service staff. We also conducted an on-site inspection of classified
pouch procedures at the Logistics Operations Center and observed the
FedEx process for inventory, pouching, and packaging of classified
materials for shipment to London, Paris, and Frankfurt. We did not have
authorization to open, inspect, and verify that classified pouches
contained only classified materials. Also, we did not observe and
assess courier procedures at foreign airports related to accessing the
tarmac to take custody of outgoing and incoming diplomatic pouch
materials. During the course of our work, we interviewed Department of
State Inspector General, Diplomatic Courier Service, and Administrative
Logistics Management officials and Department of Homeland Security
officials responsible for customs and border protection.
Evaluating the Effectiveness of Controls over Other Centrally Billed
Account Activities:
We also audited the controls over other centrally billed account
activities, including the identification and processing of unused
tickets and disputing of unauthorized transactions, during fiscal years
2003 and 2004. Our assessment covered:
* the magnitude of centrally purchased tickets that were not used and
not processed for a refund, and:
* the extent of unauthorized transactions that were not disputed and of
the rebates lost, as a result.
To assess the internal controls over these other CBA activities, we
first applied the fundamental concepts and standards set forth in our
Standards for Internal Control in the Federal Government[Footnote 26]
to the practices followed by these units to manage unused tickets and
to dispute transactions that did not match or that the reconciliation
process determined were unresolved. Because we determined that controls
over unused tickets were ineffective, we did not assess these controls.
Magnitude of Unused Tickets:
To assess the magnitude of tickets charged to the centrally billed
accounts, which were unused and not refunded, we requested that the six
airlines that State and other foreign affairs agencies used most
frequently provide us with data relating to tickets State and other
foreign affairs agencies purchased during fiscal years 2003 and 2004
that were unused and not refunded. These six airlines--American, Delta,
Northwest, Continental, United, and U.S. Airways--together accounted
for about 80 percent of the value of total airline tickets State and
other foreign affairs agencies purchased. To obtain assurance that the
tickets the airlines reported as unused represented only airline
tickets charged to State centrally billed accounts, we compared data
provided by the airlines to transaction data provided by Citibank.
Because State does not track whether tickets purchased with centrally
billed accounts were used, we were unable to confirm that the
population of unused tickets that the airlines provided was complete in
that it included all State and other foreign affairs agencies' tickets
that were unused and not refunded.
While American, Delta, Northwest, and United provided data that allowed
us to identify the centrally purchased tickets that were fully unused
and not refunded and partially used and not refunded, Continental could
only provide data on fully unused and not refunded tickets and U.S.
Airways did not provide any data. Because none of the airlines provided
data sufficient for calculating the exact unused value (residual
value), we were limited to reporting the amount charged to the
centrally billed accounts related to both fully unused and partially
unused tickets.
Extent of Unauthorized Transactions Not Disputed:
To determine the extent of airline tickets that did not reconcile
between the tickets issued by State's travel management center and the
Citibank invoice of tickets purchased on the centrally billed account,
we (1) obtained unresolved transaction reports for State's largest
domestically managed centrally billed accounts and (2) verified that
the transactions were charged to a State centrally billed account using
the Citibank transaction data.
Magnitude of Rebates Lost:
To identify the potential rebates lost[Footnote 27] on State's
centrally billed accounts, we requested that Citibank provide (1) the
total amount of rebates earned by State on its centrally billed account
program for fiscal year 2003 and fiscal year 2004, (2) the volume of
transactions used by Citibank to compute the rebate amounts, and (3)
the rebate pricing schedule Citibank used to determine the amount of
rebates. Using the volume of transactions and the rebate pricing
schedule provided by Citibank, we calculated the highest potential
rebate that State could have earned on the centrally billed account
program. We then compared the potential rebate amounts to the actual
rebates earned.
Data Reliability Assessment:
We assessed the reliability of the Citibank centrally billed account
data by (1) performing various testing of required data elements, (2)
reviewing existing information about the data and system that produced
them, and (3) interviewing Citibank officials knowledgeable about the
data. In addition, we verified that totals from the databases agreed
with the centrally billed account activity reported by GSA. We
determined that data were sufficiently reliable for the purposes of our
report.
To assess the reliability of the unused ticket data provided to us by
American, Continental, Delta, Northwest, and United Airlines, we (1)
consulted airline officials knowledgeable about the data and (2)
performed testing on specific data elements. In addition, we validated
that the tickets reported as unused by each airline represented tickets
centrally purchased by State by comparing each airline's data to the
Citibank centrally billed account. We also reviewed the 2003 and 2004
Notes to the Consolidated Financial Statements for each airline to
verify that amounts related to unused tickets were included as a
liability. We concluded that the data were sufficiently reliable for
the purposes of this report.
[End of section]
Appendix II: Comments from the Department of State:
United States Department of State:
Washington, D.C. 20520:
Ms. Jacquelyn Williams-Bridgers:
Managing Director:
International Affairs and Trade:
Government Accountability Office:
441 G Street, N.W.
Washington, D.C. 20548-0001:
FEB 7 2006:
Dear Ms. Williams-Bridgers:
We appreciate the opportunity to review your draft report, "STATE'S
CENTRALLY BILLED FOREIGN AFFAIRS TRAVEL: Internal Control Breakdowns
and Ineffective Oversight Lost Taxpayers Tens of Millions of Dollars,"
GAO Job Code 192145.
The enclosed Department of State comments are provided for
incorporation with this letter as an appendix to the final report.
If you have any questions concerning this response, please contact
Howard Renman, Director, Office of Global Financial Services, Bureau of
Resource Management, at (703) 875-5607.
Sincerely,
Signed by:
Sid Kaplan (Acting):
cc: GAO - John Kelly:
M - Henrietta Fore:
State/OIG - Mark Duda:
Department of State Comments on GAO Draft Report STATE'S CENTRALLY
BILLED FOREIGN AFFAIRS TRAVEL: Internal Control Breakdowns and
Ineffective Oversight Lost Taxpayers Tens of Millions of Dollars (GAO-
06-298, GAO Code 192145):
Thank you for the opportunity to respond to the report "State's
Centrally Billed Foreign Affairs Travel, Internal Control Breakdowns
and Ineffective Oversight Lost Taxpayers Tens of Millions of Dollars ".
We note that GAO's study covers travel of all foreign affairs agencies,
and not just the Department of State ("the Department"). While we
believe this report overstates the nature and extent of the problem, we
are addressing the deficiencies noted by taking corrective action based
on all of GAO's 18 recommendations. However, the Department believes a
number of key assertions in the report, including the title, are
misleading.
The Premium Travel Was Justified:
Although deficiencies in documentation for premium class travel were
noted in the draft report, there is no basis to conclude that the
travel in question was not otherwise proper under existing criteria,
nor did these procedural problems result in the loss of "tens of
millions of dollars." A lack of proper documentation indicates
procedural problems and those are being remedied by the Department. But
GAO did not find any instances of travel that was improperly conducted
for other than official government purposes, and only a few instances
in which the travel was conducted outside of the regulations for
premium class travel, which we are investigating and will remedy. These
salient points should be highlighted to underscore that deficient
procedural protocols are at the root of the problem - and these will be
fixed - not a case of individuals obtaining "benefits" otherwise not
permitted by law, regulation or policy.
Premium Travel Not a "Benefit"
The draft report also contains several inaccurate assertions concerning
Department travel regulations governing travel in excess of 14 hours.
GAO states throughout the draft report that the Department offers
premium class travel to all employees as a "benefit". This statement
connotes that we carelessly implemented business class regulations
without regard to the increased cost. All Department employees, not
just those in the Foreign Service, are authorized to use premium class
travel in accordance with applicable regulations. For further
clarification, we do not provide business class for all flights in
excess of 14 hours. For flights over 14 hours, we provide business
class for temporary duty travelers, permanent change of station
travelers, and travelers evacuated for medical reasons. The regulations
also give employees the option to fly economy class with a rest stop
instead of flying business class. The Department's policies and
approved regulations in force at the time made approval by the
authorizing official, whether domestic or overseas, sufficient in these
cases.
The Department of State is firmly committed to aggressive stewardship
of the taxpayers resources with which we are entrusted. Notwithstanding
our concerns about some aspects of the GAO study as stated above, we
acknowledge, and are resolute in our commitment to remedy, the
deficiencies GAO noted in the 18 recommendations made in the study, as
detailed below.
Recommendation 1: The Secretary of State should direct the appropriate
officials to develop procedures to identify the extent of premium class
travel, including all business class travel, and monitor for trends and
potential misuse.
Response:
We concur. The Department is implementing a strengthened travel
oversight program to ensure travel policies are being followed
consistently. In September 2005, the Department established a business
class travel report, similar to the General Services Administration
(GSA)-mandated annual first class travel report. To monitor our
business usage for trends and to guard against potential misuse, the
monthly business class travel report is being made available to
oversight offices such as the Department's Office of the Inspector
General, as well as to bureau executive offices and the Executive
Secretariat.
Recommendation 2: The Secretary of State should direct the appropriate
officials to develop procedures to identify all first class fares so
that State can prepare and submit complete and accurate first class
travel reports to GSA.
Response:
We concur. The Bureau of Administration will continue to submit the
annual first class travel reports to GSA, and will work with GSA,
Citibank, and the Department's Travel Management Centers (TMCs) in
Washington and overseas to develop procedures for more complete and
comprehensive reports on first class travel.
Recommendation 3: The Secretary of State should direct the appropriate
officials to require the Department to develop a management plan
requiring that audits of State's issuance of premium class travel are
conducted regularly, and results of such audits are reported to senior
management. Audits of premium class travel should include reviews of
whether travel management centers adhere to all government-wide and
State regulations for issuing premium class travel.
Response:
We concur. Senior management now reviews on a monthly basis reports
based on reviews of a sampling of premium class tickets issued and the
associated documentation. In addition, the evaluation and testing of
controls over premium class travel have been incorporated into the
Department's Improper Payments Information Act (IPIA) Program. The
results of these reviews are included as part of our annual Performance
and Accountability Report. In addition, the Department's Office of the
Inspector General will review premium class travel during inspections
of both domestic and overseas operations.
Recommendation 4: The Secretary of State should direct the appropriate
officials to periodically provide notices to travelers and supervisors/
managers that specifically. identify the limitations on premium class
travel, the limited situations in which premium class travel may be
authorized, and how the additional cost of premium class travel can be
avoided.
Response:
We concur. The Bureau of Administration will begin (February 2006)
issuing quarterly notices to Department employees and overseas posts
addressing the issues noted in the recommendations. In addition, the
Department began in December 2005 a series of special training classes
for employees responsible for arranging travel for their offices. To
date, six classes have been held; two in December 2005 and four in
January 2006. Additionally, we hosted a Town Hall meeting in January
that provided a forum for questions and answers on travel policy. These
sessions will become a regular feature of the Department's travel
oversight program. Also, training programs at the Foreign Service
Institute for General Services Officers, Financial Management Officers,
and Senior Officers will be revised to place further emphasis on the
importance of these measures.
The Department created and is using a new form that travelers and
authorizing officers must complete to substantiate the justification
and approval for business class travel for each trip. In the quarterly
notices, the Department will emphasize the requirement for these forms
to be used. Furthermore, the Department has requested that GSA amend
the contracts with the Travel Management Centers to require that the
approval form with proper approval be submitted to the TMC prior to
issuance of business class tickets and that the TMC maintain the forms
for the prescribed records retention period.
Recommendation 5: The Secretary of State should direct the appropriate
officials to require that premium class travel be approved by
individuals who are at least of the same grade as the travelers and
specifically prohibit the travelers themselves or their subordinates
from approving requests for premium class travel.
Response:
The Department is in the process of revising the Foreign Affairs Manual
(FAM) policy and will provide notice to senior officials and to other
employees that premium class travel must be approved by the employee's
supervisor or an appropriate official outside of the chain of command.
For executive level travel, this means that Assistant Secretary premium
class travel must be approved by their Under Secretary, that
Ambassadorial or Charge premium class travel be approved by the
regional bureau Executive Director and that Under Secretary premium
class travel be approved by the Executive Secretary.
Recommendation 6: The Secretary of State should direct the appropriate
officials to prohibit the use of blanket authorization for premium
class travel, including management decisions offering premium class
travel as a benefit to executives and other employees.
Response:
The Department already prohibits blanket authorizations for premium
class travel. In September 2004, the Assistant Secretary for
Administration instructed bureaus by memo of the requirement for trip-
specific authorizations for business class travel. We are in the
process of revising the Department's regulations to more explicitly
prohibit use of blanket authorizations for premium class travel and to
emphasize the requirement for trip-specific authorization. The
Department will reiterate the policy by Department Notice and telegram
under the signature of a senior Department official.
Recommendation 7: The Secretary of State should direct the appropriate
officials to encourage State Department personnel traveling as a result
of a permanent change of station to take a rest stop en route to their
final destination to avoid the significant additional cost associated
with premium class flights and thus save the tax payer thousands of
dollars per trip.
Response:
We concur. Where cost and mission effective, the Department will
encourage employees traveling as a result of permanent change of
station to use a rest stop rather than utilizing premium class travel.
Recommendation 8: The Secretary of State should direct the appropriate
officials to inform other users of State's centrally billed travel
accounts to take parallel steps to comply with existing travel
requirements.
Response:
We concur. The Under Secretary for Management will inform other
agencies to take parallel steps to comply with existing travel
requirements.
Recommendation 9: The Secretary of State should direct the Courier
Service to expand the use of cargo carriers, such as FedEx, to the
extent practicable.
Response:
We concur. The Courier Service is firmly committed to raising
operational efficiency and reducing costs using tools and ideas
pioneered by our private sector partners, including the use of cargo
carriers such as FedEx and UPS. To date, trunk-line cargo routes to
Europe and Asia have been implemented, saving approximately $255,000
per annum on the heavily used Washington to Frankfurt sector. Separate
trips to Paris and London were eliminated with the multiple-stop
routing. The Asian routing to Seoul and Bangkok saves 50% on airfares
alone and combines three separate trips. Plans are in progress to add
sectors to Mexico City, Tel Aviv, and Athens, and the Department will
aggressively analyze additional business practice changes.
Recommendation 10: The Secretary of State should direct the Courier
Service to direct foreign missions to assure that organizations using
diplomatic courier services share responsibility for meeting and
accepting air cargo shipments of diplomatic pouches.
Response:
We concur. In effect since 1994, the Department's policy (12 FAM 150.1)
states "Courier escort duties are the responsibility of all agencies at
post that use the classified pouch channel." An ALDAC will be issued
directing posts to implement the Department's policy for the fair
sharing of classified pouch courier escort duties.
Recommendation 11: The Secretary of State should direct the Courier
Service to clarify written policy to clearly state that diplomatic
couriers must use economy class accommodations when in a "dead-head"
capacity unless relevant exceptions e.g., 14 hour rule) exist, and
enforce the requirement.
Response:
We concur. The Bureau of Diplomatic Security will provide a written
policy which clearly states that diplomatic couriers must use economy
class accommodations when in a "deadhead" capacity, unless relevant
exceptions apply, and enforce the requirement. The policy will direct
that each courier trip report, where deadhead travel occurs, document
that economy class was used or explain when a relevant exception
applied. Supervisory officers will monitor reporting to ensure that the
requirement is followed.
Recommendation 12: The Secretary of State should immediately submit
claims to the airlines to recover the $6 million in fully and partially
unused tickets identified by the airlines and included in this report.
Response:
We concur. The Bureau of Administration and Bureau of Resource
Management are working with the airlines, travel offices, Posts, and
travelers to submit claims to recover the value of unused tickets
identified by the airlines as a result of the GAO audit.
Recommendation 13: The Secretary of State should work with the five
airlines identified in this report and other airlines from which State
purchased tickets with centrally billed accounts to identify the
feasibility of determining the recoverability of other fully d
partially unused tickets purchased with State centrally billed
accounts, determine the value of the unused portions of those tickets,
and initiate actions to obtain refunds.
Response:
We concur. The Bureau of Administration and Bureau of Resource
Management are working with the five airlines and other airlines from
which State purchased tickets with centrally billed accounts to
identify any tickets (or portions of tickets) that were not used for
travel, to determine the value of the unused portions of those tickets,
and to initiate actions to obtain refunds. The Department will request
that in future contracts GSA require airlines to provide federal
agencies with unused ticket data upon request.
Recommendation 14: The Secretary of State should direct the appropriate
personnel within services and agencies to evaluate the feasibility of
implementing procedures to reconcile airline tickets acquired using the
centrally billed accounts to travel vouchers in the current travel
system.
Response:
We concur. The Bureau of Resource Management will produce from the
Department's Central Financial Management System several reports that
will be distributed beginning in January 2006 to bureau Executive
Directors in order to strengthen domestic office accountability for
unused tickets of travel those domestic offices approve. These reports,
which will also be reviewed by the Deputy Assistant Secretary for
Administration (Logistics Management), are (1) a report of tickets
issued during the current month, (2) a report of travel orders where
the ticket obligation has had more than one charge against the
centrally billed account (CBA), and (3) a report of travel orders where
the travel end date is at least 45 days past, no travel voucher has
been filed, but the ticket obligation has incurred a charge against the
CBA.
Recommendation 15: The Secretary of State should direct the appropriate
personnel within services and agencies to enforce employees' adherence
to existing travel regulations requiring notification of unused
tickets.
Response:
We concur. As noted in recommendation # 14, the Department will use new
reports to assist individual bureau authorizing offices responsible for
ensuring the appropriate disposition of unused tickets to reconcile
outstanding travel vouchers. Further, the Department will issue
periodic notices, including reminders on earnings and leave statements
of Department employees, on reporting unused tickets and will add
language to the employee's certification statement on travel vouchers
confirming that any unused or partially unused tickets have been
returned for refund as a part of the travel vouchering process.
Recommendation 16: The Secretary of State should direct the appropriate
personnel within services and agencies to modify existing ravel
management center contracts to include a requirement that the
international travel management centers establish a capability to
systematically identify unused electronic-tickets in their computer
reservation systems and file for refunds on the tickets identified as
unused.
Response:
We concur. The Bureau of Administration has requested that GSA modify
existing overseas TMC contracts to (1) include a requirement that the
TMC identify and report to the travel office all unused electronic-
tickets based on specified criteria before the unused electronic-ticket
data is removed from the computer reservation system and (2) routinely
process refunds for tickets identified as unused and submit all
requests for refunds that have been processed to the travel office.
By notice and telegram, the Bureau of Administration will advise
authorizing officers domestically and overseas that the TMCs are
responsible for consistently identifying unused tickets and processing
these tickets for refunds. The Bureau of Resource Management will be
responsible for tracking the refund of unused tickets domestically, and
financial management officers will be responsible overseas.
Recommendation 17: The Secretary of State should direct the appropriate
personnel within services and agencies to routinely compare unused
tickets processed by the travel management centers to the credits on
the Citibank invoice.
Response:
We concur. The Department's 14 FAM 517.2 requires that unused tickets
be turned-in at the conclusion of travel for reconciliation of the
account. In an effort to improve this aspect of our operations, the
Department will, through the methods previously described, more
strictly monitor compliance with this requirement and will periodically
remind travelers of the Department policies and regulations regarding
the disposition of unused tickets. The Department's existing
disciplinary policies will be used, as and when appropriate, for
failures to comply with this requirement. As part of revised standard
operating procedures, the financial management offices will routinely
compare credits on TMC reports, Citibank invoices and unused tickets
provided at the end of travel to reconcile outstanding travel balances.
Recommendation 18: The Secretary of State should establish procedures
to ensure that all transactions on the Citibank invoice are either paid
in accordance with the contract or properly disputed.
Response:
We concur. The Department has substantially improved the domestic
centrally billed travel account reconciliation and disputes process.
Since September 2005 we have utilized a new travel management provider,
Carlson Wagonlit, and have implemented a documented and agreed-upon
joint disputes process. Permanent responsibility for performing the
review and dispute function now rests in the RM/GFS/F Office of Claims.
For travel services provided by Carlson, we receive the data to file
disputes in a timely fashion and are current on filing them with
Citibank. Since the September 2005 start of contract performance by
Carlson Wagonlit, we have had 30 unmatched transactions that we
disputed with Citibank. Twenty-eight of the disputes turned out to be
erroneous charges that resulted in credits to our centrally billed
account. The other two were matched and paid when more information was
provided by the airlines in response to our dispute. We will continue
to aggressively work on this process.
[End of section]
Appendix III: GAO Contacts and Staff Acknowledgments:
GAO Contacts:
Cindy Brown Barnes (202) 512-9345, [Hyperlink, brownbarnesc@gao.gov];
John V. Kelly (202) 512-6926, [Hyperlink, kellyj@gao.gov];
Michael C. Zola (202) 512-3867, [Hyperlink, zolam@gao.gov]:
Staff Acknowledgments:
Key contributors to this report include Cindy Barnes, Felicia Brooks,
Norman Burrell, Beverly Burke, Jennifer Costello, Francine DelVecchio,
Abe Dymond, Aaron Holling, Jason Kelly, John V. Kelly, Andrea Levine,
Barbara Lewis, Jenny Li, Katherine Peterson, Mark Ramage, John Ryan,
Sidney H. Schwartz, and Michael C. Zola.
(192145):
FOOTNOTES
[1] State issues individually billed travel card accounts (IBA) to its
civil service and foreign service employees. These accounts are
primarily intended to pay for other travel-related expenses, such as
lodging and rental cars.
[2] Recognizing that DOD and State have different missions, DOD's
premium-class travel represented 1 percent of total DOD airline
transactions and 5 percent of total dollars spent on airline travel
charged to the centrally billed accounts for fiscal years 2001 and
2002.
[3] For this report, we define improper premium-class transactions as
those for which travelers did not have specific authorization to use
premium-class accommodations or those transactions that were properly
authorized but did not provide specific justification for premium-class
travel that was consistent with State regulation or policy. We also
considered transactions improper if premium-class travel was authorized
under State policies or procedures that were inconsistent with the
Federal Travel Regulation or the guidance provided in our Standards for
Internal Control in the Federal Government (GAO/AIMD-00-21.3.1) and our
Guide for Evaluating and Testing Controls Over Sensitive Payments (GAO/
AFMD-8.1.2).
[4] Our audit did not specifically question whether travel charged to
State's centrally billed travel accounts was necessary; however, where
State failed to produce evidence supporting the authorization or
justification for the travel, we accurately refer to those travel
instances as potentially fraudulent. Without evidence to the contrary,
potential for fraud exists.
[5] All percentage estimates from this sample of premium-class
transactions have 95 percent confidence intervals of within plus or
minus 10 percentage points of the estimate itself, unless otherwise
noted.
[6] U.S. Department of State Foreign Affairs Manual (FAM),Vol. 5 and
Vol. 12, implementation of the Omnibus Diplomatic Security and
Antiterrorism Act of 1986.
[7] This report does not focus on the need for couriers or security
issues surrounding their use.
[8] Although State had over 260 centrally billed accounts during fiscal
years 2003 and 2004, State actively used 155 of the accounts during
this same period.
[9] State's credit card vendor, Citibank, could not provide the first 6
months of fiscal year 2003 (October 2002-March 2003) data due to
limitations in its archiving capabilities.
[10] For fiscal year 2005, on the basis of our analysis of the
information available, we determined that over 17 percent of the
tickets issued (17,000 out of 95,000 tickets, ) and over 40 percent of
the dollars expended ($80 million out of $196 million) were premium-
class tickets.
[11] Figure 2 includes travel related to State, other U.S. government
agencies principally engaged in activities abroad, and other domestic
departments and agencies with international operations. State uses the
other foreign affairs agency funds to pay for travel paid for using
State's centrally billed accounts.
[12] Our testing excluded all premium-class transactions costing less
than $750 because certain intra-European flights only offer business-
class tickets and therefore are an acceptable means of airline travel;
however, both federal and State regulations require the traveler to
certify this fact on their voucher.
[13] We asked State management if there had been any audits or reviews
of the centrally billed account program, whether internal or external.
State officials told us that they did not see the centrally billed
account program as risky and therefore did not conduct reviews of the
program. Further, according to the Assistant Special Agent-In-Charge at
State's Office of Inspector General (OIG), there had been no travel
card investigations during fiscal years 2002, 2003, and 2004.
[14] An estimated 51 percent of the transactions would have failed
justification regardless of the authorization status.
[15] Although the rest stop was not overnight, the travelers arrived in
Frankfurt early in the day and obtained lodging at government expense
to rest while waiting for an evening flight from Frankfurt to
Johannesburg.
[16] GAO/AIMD-00-21.3.1.
[17] GAO/AFMD-8.1.2.
[18] As mentioned, we did not evaluate whether couriers were necessary
or appropriate or if there were any security issues associated with
courier service procedures.
[19] By regulation, State is required to ensure the secure movement of
classified U.S. government documents and material across international
borders. The Courier Service mission is to provide secure
transportation of classified documents and materials for the federal
government. State's practice is for its diplomatic couriers to use
premium-class travel accommodations to personally escort diplomatic
pouches containing classified U.S. government documents and material
across international borders.
[20] 31 U.S.C. § 3726(h).
[21] 28 U.S.C. § 2415(a).
[22] 31 U.S.C. § 3716(e).
[23] We found that about 70 percent of State's foreign affairs travel
is international or includes at least one flight segment with an origin
or destination outside the continental United States.
[24] We are investigating these transactions to determine if they are
fraudulent.
[25] The total population subject to sampling does not include about
1,650 transactions totaling $6.9 million that we identified in data
provided by Citibank subsequent to sampling.
[26] GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[27] According to State, "Citibank pays the Department a performance or
payment productivity rebate based on calculated "net turndays" for
payments. The rebates are not driven directly from the actual payment
date, but are calculated using accounts receivable average balances
divided by average daily charge volumes. The specific calculations use
a derived Average Accounts Receivable, which is the sum of daily
accounts receivable (outstanding) balances at the end of a cycle
divided by the number of days in the cycle month and a Net Charge
Volume. Net Charge Volume represents all cycle purchases and other
charges, less credits, divided by billing cycle days. The Average
Accounts Receivable is then divided by the Average Net Charge Volume
which yields the "turndays" factor used to derive the actual refund
percentage from a pre-established table. Lower turndays yield higher
rebate percentages and increases in turndays reduce the rebate
percentage. The effect of undisputed items is that in subsequent
billing cycles the Average Accounts Receivable number is higher,
yielding a higher calculated turnday computation and lower rebate."
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