Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential Fraud and Abuse
GAO-03-169
Published: Oct 11, 2002. Publicly Released: Oct 18, 2002.
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Highlights
The Army's individually billed travel card program is different from the purchase card program in that the cardholder is directly responsible for all charges incurred on his or her travel card account, and the monthly bill is sent to the cardholder for payment. The cardholder is responsible for submitting a properly documented voucher and is reimbursed by the Army for all valid expenses related to official government travel. The intent of the travel card program was to improve convenience for the traveler and to reduced the government's costs of administering travel. GAO found substantial delinquencies and charge-offs of Army travel-card accounts during fiscal year 2001, and delinquencies continued into the first half of fiscal year 2002. GAO's analysis shows a correlation between delinquency problems and the travel cardholder's age and pay grade. GAO found that the Army's delinquency and charge-off problems are primarily associated with young, low- to mid-level enlisted military personnel. In addition, a weak internal control environment compounded by instances of delays in processing travel reimbursements to Army military and civilian personnel contributed to the high delinquency rates. The Army and the Department of Defense have taken action to address and focus command- and installation-level attention on management of delinquent travel card accounts. However, these actions are primarily focused on treating the symptoms or "back-end" problems rather than the "front-end" or preventive controls. GAO's work identified numerous instances of potentially fraudulent and abusive activity related to the travel card. During fiscal year 2001, 1,200 of the over 4,200 Army account holders who had written at least one nonsufficient funds (NSF) check to pay their travel card bill had their accounts charged off. In the same period, more than 200 cardholders whose accounts were eventually charged off may have also committed bank fraud by writing three or more NSF checks to the Bank of America. GAO's audit found that weaknesses in the Army's overall control environment, including a number of specific controls that were either flawed in their design or in their implementation, are the root source of the Army's inability to prevent or effectively detect the numerous instances of potentially fraudulent and abusive travel card related activity previously detected.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| To reduce the Department of Defense's (DOD) travel card delinquency and charge-off rates, particularly the Army's, which are higher than those of any other executive branch agency, Congress may wish to consider authorizing the Secretary of Defense to require using employee's travel allowances to pay the travel card issuer directly for charges incurred using the travel card. GAO believes that this action would provide DOD the ability to require the use of the split disbursement payment process for all of its employees. | Section 1007 of the National Defense Authorization Act for Fiscal Year 2003 (P.L. 107-314) authorized the Secretary of Defense to require split disbursement, under which the travel costs charged on the card are remitted directly to the card issuer by DOD and any remainder is paid to the card holder. In doing this, Congress enabled more timely payment of travel cards, increasing purchase card rebates, reducing fees, and eliminating substantial resources spent pursuing and collecting past due accounts. In August 2003, DOD implemented interim implementing guidance and, in March 2005, revised the DOD FMR requiring mandatory use of split disbursement. Army updated its guidance consistent with the DOD FMR change. Under the revised guidance, travelers are responsible for ensuring that the total outstanding charges on the travel card are designated for split disbursement on the travel claim and the approving official is responsible for ensuring that the travelers are properly designating their total outstanding charges for split disbursement. Further, under this revised guidance, approving officials are now required to return travel vouchers submitted by cardholders that do not properly reflect split disbursement for correction. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of the Army | The Secretary of the Army should establish policies and procedures governing the issuance of individual travel cards to military and civilian employees, including evaluating the feasibility of extended use of credit checks for all travel card applicants. |
In accordance with DOD's amended to the FMR, in March 2005, the Army issued guidance requiring the credit card contractor perform a credit check on each new travel card applicant. Under this amended guidance, each new applicant is to receive either a standard card, restricted card, or may not be eligible for a card depending on their credit score obtained by the credit check. Applicants who refuse to permit a credit check may be asked to self certify to their creditworthiness to obtain a restricted travel card. Applicants, who are denied a government travel card based on a poor credit score, or inability to meet self-certification requirements, will be exempt from mandatory use of the individually billed account travel card.
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| Department of the Army | The Secretary of the Army should establish policies and procedures governing the issuance of individual travel cards to military and civilian employees, including for credit check results currently obtained and additional future credit checks, using the results to make decisions on travel card applicants. Decisions on whether to issue a travel card should consider prior credit problems (e.g., bankruptcy; convictions for writing bad checks; and defaulted credit cards, home mortgages, and automobile loans). |
The Department of Defense Financial Management Regulation, amended in March 2005, requires the credit card contractor to perform a credit check on each new card applicant. In March 2006, the Deputy Assistant Secretary of the Army issued a memorandum updating Army travel card policies and procedures to correspond with the March 2005 DOD FMR amendments. Under this new guidance, decisions on whether to issue a card, and what type of credit card applicants receive, will consider prior credit problems, including any bankruptcies, convictions for writing bad checks, or defaults.
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| Department of the Army | The Secretary of the Army should establish policies and procedures governing the issuance of individual travel cards to military and civilian employees, including providing individuals with prior credit problems who are denied travel cards with alternative means of travel funding. |
In March 2005, DOD instituted changes to the Financial Management Regulation (FMR) requiring the credit card contractor perform a credit check on each new card applicant. Applicants will receive either a standard card, restricted card, or may not be eligible for a card depending on their credit score. Applicants who refuse to permit a credit check may be asked to self certify to their creditworthiness to obtain a restricted travel card. Applicants, who are denied a government travel card due to their credit score, or inability to meet self-certification requirements, will be exempt from mandatory use of the individually billed account travel card. When an exemption is granted, the traveler may use 1) personal funds, including cash or a personal charge card, 2) travel advances, or government transportation requests, or 3) debit or stored value cards not obtained through the Smartpay Program.
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| Department of the Army | The Secretary of the Army should establish policies and procedures governing the issuance of individual travel cards to military and civilian employees, including providing individuals with no prior credit histories with "restricted" travel cards with low credit and automated teller machine transaction limits. |
In March 2005, DOD issued an amendment to the FMR clarifying guidance on the issuance of travel cards. The Army issued implementing guidance in March 2006. Under this revised guidance, the credit card contractor is to issue a restricted travel card to an applicant who has a low credit score or no score at all. Furthermore, individuals who refuse a credit check and sign a self-certification statement as to their credit-worthiness are to be issued a restricted card. The restricted card is inactive at issuance and must be activated by the APC for a specific travel event. The credit limit on a restricted card may be raised temporarily to meet the requirements of a specific mission.
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| Department of the Army | The Secretary of the Army should establish policies and procedures governing the issuance of individual travel cards to military and civilian employees, including developing procedures to periodically evaluate card usage and close accounts of infrequent travelers, which will minimize exposure to fraud and abuse. |
The Army implemented procedures requiring semi-annual reviews of listings showing travel cards that were not used in the last 12 months. As of June 30th 2003, the Army cancelled 172,000 unused or infrequently used travel card accounts. In addition, DOD amended its Financial Management Regulation to require agency program coordinators to periodically review travel card accounts and cancel unused accounts.
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| Department of the Army | The Secretary of the Army should establish policies and procedures governing the issuance of individual travel cards to military and civilian employees, including canceling accounts for current infrequent travelers as noted in the Charge Card Task Force report. |
DOD amended its Financial Management Regulation (FMR) in March 2005 to require periodic reviews of travel card usage to identify cards for potential closure. Army issued implementing guidance in March 2006. In accordance with this revised guidance, cards for infrequent travelers (defined as one who travels no more then 2 times per year) are to be closed with an option to reopen the accounts without a new application if the need for travel arises.
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| Department of the Army | The Secretary of the Army should establish policies and procedures governing the issuance of individual travel cards to military and civilian employees, including evaluating the feasibility of establishing a policy to activate and deactivate cards on predetermined start and end dates, which are tied to the cardholders' authorized travel orders. At a minimum, this policy should focus on controlling travel card use for the "high-risk" enlisted military personnel in the E-1 to E-6 grades. |
In March 2005, Department of Defense (DOD) implemented changes to the DOD Financial Management Regulations to require that for cardholders with low or no credit scores, credit card contractors are authorized to activate restricted travel cards on an "as needed" basis. Army issued corresponding implementing guidance in March 2006.
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| Department of the Army | The Secretary of the Army should establish policies and procedures governing the issuance of individual travel cards to military and civilian employees, including developing comprehensive, consistent Army-wide initial training and periodic refresher training for travel cardholders, focused on the purpose of the program and appropriate uses of the card. The training should emphasize the prohibitions on personal use of the card, including gambling, personal travel, and adult entertainment. Such training should also address the policies and procedures of the travel order, voucher, and payment processes. For entry-level personnel, the training should also include information on basic personal financial management techniques to help avoid financial problems that could affect an individual's ability to pay his or her travel card bill. |
DOD amended its Financial Management Regulation (FMR) in March 2005, to include reiterating its policy that travel cards are for official travel related expenses and provided examples of potential misuse of the travel card. Specific examples provided included ATM withdrawals when not related to official travel, household expenses, and intentional failure to pay undisputed charges in a timely manner. The Army also issued comprehensive travel card policies and procedures in March 2006. This guidance sets out training requirements for cardholders to reinforce these policies on the purpose of the program, appropriate card uses and procedural requirements.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including establishing Army guidance on who should be given agency program coordinator (APC) responsibilities that considers (1) the knowledge, skills, and abilities required to carry out these responsibilities effectively, (2) the time required to carry out APC responsibilities on a day-to-day basis effectively, and (3) the length of time an individual should be required to stay in the APC position in light of time required to become proficient in the use of the tools relied on to monitor card usage effectively. Army should evaluate whether the APC position should be full-time. |
DOD issued an amendment to its Financial Management Regulation (FMR) in March 2005, and Army issued corresponding guidance in March 2006. This guidance calls for commanders and supervisors to consider the volume of workload associated with the APC responsibilities to determine the number of staff necessary to fulfill the associated workload. Also taken into account is the frequency of travel and historic delinquency rate of the organization. The guidance provides that APCs are to have analytical skills, computer skills, and the access necessary to utilize the reports provided on the card provider's electronic system. It also provides that APCs should have the access and the ability to relate sensitive information to the chain of command for determination of appropriate action.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including, to avoid high agency program coordinator (APC) turnover, evaluating the feasibility of maximizing the use of civilian rather than military employees to serve in the role of APC. |
In March 2005, the Department of Defense (DOD) updated the DOD Financial Management Regulation with provisions that address the appointment considerations for APCs. The FMR directs commanders and supervisors to consider assignment of APC duties to civilian personnel where practical to avoid the loss of knowledge of program responsibilities in high turnover military positions. In March 2006, the Army revised its policies and procedures for the Army Travel Card Program that emphasizes the need for adherence with the DOD FMR.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including establishing guidance on high agency program coordinator span of control responsibilities so that such responsibilities are properly aligned with time available to ensure effective performance. |
The FMR, as amended in March 2005, calls for commanders and supervisors to consider assigning APC duties to civilian personnel to avoid the loss of knowledge of program responsibilities in high turnover military positions. Also, Commanders are to take into account the volume of workload associated with the APC responsibilities along with other factors, such as the frequency of travel and historic delinquency rate of the organization in deciding staffing levels necessary for fulfilling APC duties. In March 2006, the Deputy Assistant Secretary of the Army issued a memorandum updating Army travel card policies and procedures and specifically cited that its policies and procedures are to be used in conjunction with DOD FMR.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including establishing procedures to provide assurance that agency program coordinators receive training on their agency program coordinator responsibilities, including how to use Electronic Account Government Ledger System transaction reports and other available data to monitor cardholder use of the travel card--for example, reviewing account transactional histories to ascertain whether transactions are incurred during periods of authorized travel and appear to be appropriate travel expenses and from approved merchant category codes. |
DOD amended its Financial Management Regulation (FMR) in March 2005, and the Army issued implementing guidance in March 2006 to require APCs receive appropriate training on how to review management reports available in EAGLS for inappropriate merchant category codes and for expenses incurred during periods of non-travel.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including training agency program coordinators to review Electronic Account Government Ledger System reports to identify cardholders who have written NSF checks (checks written on nonsufficient funds) for payment of their account balances, and refer the employees for disciplinary action. |
In December 2005, DOD amended its Financial Management Regulation (FMR) to include clarification on procedures to identify and take appropriate disciplinary action against cardholders who have written non-sufficient funds checks for payment of their travel account balances. The Army issued corresponding guidance in March 2006. Under this revised guidance, APCS are to receive training on identifying individuals who wrote non-sufficient funds checks, particularly those individuals who wrote more than 2 in a 12-month period. The guidance also provides direction on appropriate disciplinary actions in this area.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including reviewing, in conjunction with Bank of America, individuals with APC-level access to EAGLS to limit such access to only those with current APC duties. |
Bank of America security officials reviewed employee access and deactivated access for 655 employees that they determined should not have had any level of access. Further, Bank of America has since initiated periodic reviews to ensure that it maintains appropriate levels of employee access.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including establishing Army procedures detailing how APCs should carry out their responsibility to monitor card usage for all cardholders assigned to them. Included in the procedures should be development of a data mining program enabling APCs to scan a large number of transactions, and target potentially inappropriate transactions for further review. |
The Deputy Assistant Secretary of the Army issued a memorandum, March 9, 2006, providing guidance on how APCs are to review transactions for improper card use. In particular they are directed to review at least 10 percent of their cardholder accounts with activity on a monthly basis. Further, APCs are to analyze standard reports available in the Electronic Account Government Ledger System (EAGLS). In addition, on a periodic basis, the Army Program Manager is to identify suspect or questionable transactions, identified by travel card data mining reports, and forward the data to Major Command APCs. These APCs are directed to forward the file to the appropriate APC to determine the validity of the charge and, if invalid, report actions taken by the commander/supervisor. Within 14 days, the reply of the findings/actions is to be reported, through the MACOM APC, to the Army Travel Charge Card Program Manager. These changes are in accord with and substantially address GAO's recommendation.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including establishing a requirement for assessing performance of travel monitoring and other APC duties as a rating factor on all APCs' performance evaluations. |
Army has not established policies and procedures to include performance of APC duties as a rating factor in assessing APCs annual performance. Recommendation closed not implemented.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including establishing an Army requirement for cognizant APCs to retain records documenting any cardholder's fraudulent or abusive usage of the travel card and require this information to be provided to the gaining APC when the cardholder is transferred. |
Army revised their travel card policies in March 2006. According to the revised policy, the Army Travel Charge Card Program Manager is to maintain documentation of findings and actions taken against cardholders with "suspect" activity. Upon transfer of a cardholder within DOD, the APC is to transfer the account to the gaining command within 30 days of the cardholder's departure. According to the policy, the account status (past due, delinquent, salary offset) does not influence the transfer process.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including establishing appropriate, consistent Army-wide policy as a guide for taking disciplinary actions with respect to fraudulent and abusive activity and delinquency related to the travel card. |
In March 2005, DOD published a table that provides examples of types of travel card abuse or misuse and some potential remedies for the offenses. For example, the table shows that for an offense of "unauthorized use of or failure to appropriately control use of Government Charge Card", as a first offense, the individual would receive from as little as a letter of counseling to removal, a second offense would incur 14 days suspension to removal, and a third offense 30 days suspension to removal. DOD states that any disciplinary action demands the exercise of responsible judgment and encourages consideration of the nature and seriousness of the offense, its relation to the employee's duties, position, and responsibilities, and whether the offense was intentional, technical, or inadvertent. In March 2006, the Deputy Assistant Secretary of the Army published memoranda that updated existing Army policy to be used in conjunction with the DOD FMR.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including referring any travel cardholders with secret or higher level security clearances for whom financial problems related to the travel card are detected to Army CAF for investigation as to whether the individuals should continue to be entrusted with secret or higher clearances. |
In the March 2006 memo on Army travel card policies and procedures, the Army requires that commanders ensure that supervisors take appropriate action with respect to security clearances for cardholders who misuse their cards or are delinquent in paying their card account balances. The memo requires that APCs notify supervisors of delinquency and apparent card misuse by cardholders. The Army memo also refers to DOD guidance, which requires supervisors to refer such cases to their organization's security office for further referral of the matter to the Central Clearance Facility for a determination on whether removal of the security clearance is warranted.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including assigning responsibility and accountability over cardholders transferring between Army units or locations, including cardholders currently in "orphan" status. Any accounts not assigned to an APC should be immediately canceled. |
The Army issued memoranda in March 2006 that updated Army travel card policies and procedures. The guidance states that APCs must transfer accounts of cardholders who are reassigned within DOD to the gaining organization within 30 days of the cardholder's departure. In case the action cannot be completed, APCs and the command are instructed to forward the request for transfer to the Army Travel Charge Card Program Manager. APCs must also close the travel card accounts of cardholders who separate or terminate from the service, or are incarcerated, retire, or die. The DOD FMR, as amended in March 2005, specifies that the losing APC is responsible for monitoring the accounts. The FMR requires that the APC review lists of accounts that indicate individuals have separated, retired, or are deceased to ensure those accounts are closed. The FMR also requires individuals to out-process with the APCs.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including strengthening procedures for any employee discharging from service so that all cards are obtained from the cardholders, accounts are closed, and repayment of any outstanding debts is arranged. |
DOD amended its Financial Management Regulation (FMR) in March 2005 to provide that APCs are to review lists of accounts that indicate individuals who have separated, retired, or are deceased and to take necessary action to ensure those accounts are closed. The APC is to terminate the travel card upon a cardholder's dismissal, retirement, or separation from the Department. On January 20, 2006, DOD updated its "Government Charge Card Guidebook for Establishing and Managing Purchase, Travel, and Fuel Card Programs" referencing to a provision in the DOD Authorization Act for FY 2003 that allows DOD to apply salary offsets against DOD military and civilian pay and against all former DOD military and civilian personnel receiving retirement pay, decreasing the risk that outstanding debts will go unpaid. The Army issued guidance in March 2006, instructing APCs to proactively close accounts of individuals who are separating, terminating, or retiring as far in advance as possible so that existing balances are paid prior to departure.
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| Department of the Army | The Secretary of the Army should establish specific policies and procedures to strengthen controls and disciplinary actions for improper use of the travel card, including developing procedures to identify active cards of departed cardholders, including comparing cardholder and payroll data. |
DOD amended its Financial Management Regulation in March 2005, directing that APC review lists provided by the credit card contractor to actively identify cards for potential closure. Specifically, APCs are to close any accounts not used in a 12-month period (with an option to reopen the accounts without a new application if the need for travel arises within a limited time frame). APCs are also directed to review lists of accounts that indicate individuals have separated, retired, or are deceased, to ensure those accounts are closed. The Army issued corresponding guidance in 2006.
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| Defense Finance and Accounting Service | To resolve severe voucher process problems specific to one of the units GAO audited, the Secretary of the Army, in partnership with the Director, Defense Finance Accounting Service, should revise the travel voucher and payment process by developing a process to monitor and track travel reimbursements that exceed the 30-day requirement so that individuals not paid within the statutory period are paid late fees in accordance with the law. |
After discussions with the Army, DFAS revised its procedures for travel voucher processing and payment. The procedures are contained in the TTM03-04 issued in April 2003 and became effective May 1, 2003. The procedures developed a process to monitor and track travel reimbursements by requiring Travel Chiefs to post a date for travel clerks to use in determining if interest is potentially due on a voucher. If the reviewer's signature is dated before the date posted daily by the travel Chief, the voucher is considered for interest computation. Next, the designated travel technicians compute and process claims on which interest is due.
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| Department of the Army | To resolve severe voucher process problems specific to one of the units GAO audited, the Secretary of the Army, in partnership with the Director, Defense Finance Accounting Service, should revise the travel voucher and payment process by developing a process to monitor and track travel reimbursements that exceed the 30-day requirement so that individuals not paid within the statutory period are paid late fees in accordance with the law. |
After discussions with the Army, DFAS revised its procedures for travel voucher processing and payment. The procedures are contained in the TTM03-04 issued in April 2003 and became effective May 1, 2003. The procedures developed a process to monitor and track travel reimbursements by requiring Travel Chiefs to post a date for travel clerks to use in determining if interest is potentially due on a voucher. If the reviewer's signature is dated before the date posted daily by the travel Chief, the voucher is considered for interest computation. Next, the designated travel technicians compute and process claims on which interest is due.
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Topics
Army personnelCreditCredit salesFraudInternal controlsProgram abusesU.S. ArmyTravel cardsMilitary forcesCredit cards