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Report to Congressional Requesters: 

June 2004: 

DOD TRAVEL CARDS: 

Control Weaknesses Resulted in Millions of Dollars of Improper 
Payments: 

GAO-04-576: 

GAO Highlights: 

Highlights of GAO-04-576, a report to congressional requesters 

Why GAO Did This Study: 

Ineffective management and oversight of the Department of Defense’s 
(DOD) premium class travel and unused airline tickets led to concerns 
about DOD’s overall management of the centrally billed accounts. GAO 
was asked to determine whether (1) DOD improperly reimbursed travelers 
for airline tickets DOD paid for using centrally billed accounts, (2) 
internal controls were effective in preventing issuance of unauthorized 
airline tickets, and (3) other control weaknesses led to compromised 
and fraudulently used centrally billed accounts. 

What GAO Found: 

A weak control environment and breakdowns in key controls over 
centrally billed accounts resulted in DOD paying travelers for airline 
tickets they did not purchase, issuing and paying for unauthorized 
airline tickets, and paying for goods and services obtained with 
compromised centrally billed accounts. Based on mining of limited 
fiscal year 2001 and 2002 data provided by the Army, Navy, and Marine 
Corps, GAO identified about 27,000 transactions totaling more than $8 
million in which DOD potentially reimbursed travelers for airline 
tickets paid for by DOD—not the travelers. Requesting reimbursement for 
items that the traveler knowingly did not pay for may be a crime that 
could result in imprisonment or a monetary fine, or both. GAO’s 
subsequent tests of a nonrepresentative selection of 124 individuals 
who submitted 204 of these 27,000 transactions confirmed that DOD 
improperly paid 91 individuals almost $98,000 for 123 airline tickets 
DOD purchased with centrally billed accounts. Only 4 travelers 
voluntarily reimbursed DOD prior to GAO initiating the audit, even 
though typically, more than a year had passed since the improper 
payments. Several travelers submitted multiple claims for airline 
tickets they did not purchase, which could indicate intent to defraud 
the government. In 2003, the Air Force Audit Agency reported that this 
same problem existed at the Air Force and estimated that, if not 
corrected, this problem will cost the Air Force more than $6 million 
over 6 years.

Examples of Potentially Fraudulent Travel Claims: 

[See PDF for image]

[End of table]

GAO also determined that key internal controls did not provide DOD 
reasonable assurance that (1) airline tickets purchased and paid for 
with the centrally billed accounts were based on valid travel orders 
and (2) centrally billed account numbers were adequately protected 
against unauthorized use. To demonstrate weaknesses in DOD’s system of 
internal controls, GAO submitted a fictitious travel order to a 
commercial travel office to obtain an airline ticket from Washington, 
D.C., to Atlanta, Ga. DOD issued GAO the airline ticket, established an 
obligation, and paid for the ticket without detecting the fictitious 
nature of the request. GAO also found instances where a lack of 
physical safeguards resulted in the centrally billed account numbers 
being stolen and used for personal gain. One DOD traveler stole a 
centrally billed account number to purchase over 70 airline tickets 
totaling more than $60,000, which he sold at a discounted rate to 
coworkers and their family members for personal travel. Because DOD 
disputed those fraudulent charges, DOD did not pay for those tickets. 
However, not all DOD units dispute unauthorized charges. As a result, 
DOD is vulnerable to paying for fraudulent charges on compromised 
centrally billed accounts. 

What GAO Recommends: 

To prevent DOD from paying for airline tickets twice, GAO continues to 
recommend that DOD evaluate the feasibility of requiring DOD personnel 
to use individually billed travel cards to purchase airline tickets. 
GAO makes 11 new recommendations to improve DOD management of centrally 
billed accounts including the following: 

* determine the feasibility of establishing control procedures to 
validate the authenticity of travel orders prior to issuing airline 
tickets purchased with the centrally billed accounts; 
* implement physical safeguards over centrally billed account numbers; 
and
* recover payments made to travelers who were improperly reimbursed 
for airline tickets that DOD paid for with centrally billed accounts. 

DOD concurred with all 11 recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-576.

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

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

DOD Made Improper Payments for Potentially Fraudulent Travel Claims: 

Key Internal Controls over Issuance and Payment of Airline Tickets Are 
Inadequate: 

Centrally Billed Accounts Were Compromised and Used to Purchase Airline 
Tickets for Personal Use: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Acknowledgments: 

Tables: 

Table 1: Improper and Potentially Fraudulent Travel Claims Identified by 
GAO: 

Table 2: Improper Payments Recovered by DFAS: 

Table 3: Results of Statistical Sampling Tests of Proper Issuance of 
Airline Tickets: 

Table 4: Results of Statistical Sampling Tests of Proper Payment of 
Airline Tickets: 

Table 5: Airline Ticket Transactions that CTOs Identified as 
Unauthorized and DOD Either Did Not Dispute or Did Not Track Their 
Resolution: 

Table 6: Estimated Failure Rates for Control Tests for Fiscal Year 2001 
and 2002 Airline Ticket Transactions: 

Figures: 

Figure 1: Flowchart of the Payment of Centrally Billed Accounts and 
Individual Travel Vouchers: 

Figure 2: Boarding Pass for Airline Ticket Charged to a Centrally 
Billed Account for Fictitious Traveler: 

Letter June 9, 2004: 

The Honorable Susan M. Collins: 
Chairman: 
Committee on Governmental Affairs: 
United States Senate: 

The Honorable Norm Coleman: 
Chairman: 
The Honorable Carl Levin: 
Ranking Minority Member: 
Permanent Subcommittee on Investigations: 
Committee on Governmental Affairs: 
United States Senate: 

The Honorable Charles E. Grassley: 
Chairman: 
Committee on Finance: 
United States Senate: 

The Honorable Janice Schakowsky: 
House of Representatives: 

This report is the last in our series of reports on the Department of 
Defense's (DOD) management of its various credit card programs. In 
fiscal years 2002 and 2003, we issued a series of testimonies[Footnote 
1] and reports[Footnote 2] addressing problems that the Army, Navy, and 
Air Force had in managing individually billed travel card accounts. 
These testimonies and reports showed high delinquency rates and 
significant potential fraud and abuse related to DOD's travel card 
program. Due to these concerns, you asked us to audit controls over the 
other major form of payment used by DOD for travel expenses--centrally 
billed accounts. In response to your request, we first reported in 
October 2003[Footnote 3] that internal control weaknesses over DOD's 
centrally billed accounts have led to millions of dollars of improper 
premium class travel and increased costs to taxpayers. In our second 
report on control weaknesses over the centrally billed accounts, issued 
in March 2004,[Footnote 4] we further identified millions of dollars in 
airline tickets DOD purchased that were unused and not refunded. These 
two reports provided examples of why DOD financial management is on our 
list of high-risk areas,[Footnote 5] areas that are highly vulnerable 
to fraud, waste, and abuse.

In light of these internal control problems, you asked us to perform 
additional work on controls over the centrally billed 
accounts.[Footnote 6] Specifically, you asked us to determine for 
fiscal years 2001 and 2002 whether (1) DOD improperly reimbursed 
travelers for the cost of airline tickets paid using centrally billed 
accounts, (2) internal controls were effective to prevent the 
commercial travel office (CTO) from issuing unauthorized airline 
tickets on the basis of invalid travel orders, and (3) other control 
weaknesses led to compromised and fraudulently used centrally billed 
accounts.

To achieve these objectives, we compared airline ticket purchases 
reported by the Bank of America--DOD's credit card bank--to limited 
data provided by the Army, Navy, and Marine Corps on travel vouchers 
that were filed during fiscal years 2001 and 2002. The purpose of the 
comparison was to identify instances where voucher data indicated that 
DOD made improper payments to travelers for airline tickets that DOD--
not the traveler--had purchased using DOD's centrally billed accounts. 
We used only Army, Navy, and Marine Corps travel voucher data because 
the Air Force voucher data was not structured in a way that enabled us 
to analyze the type of expenses claimed on a travel voucher. After 
identifying a pool of about 27,000 improper payments, we tested a 
nonrepresentative selection of 124 Army, Navy, and Marine Corps 
travelers who submitted 204 travel vouchers during fiscal years 2001 
and 2002.

We also evaluated the effectiveness of controls over airline ticket 
issuance at one Air Force, one Army, one Marine Corps, one Navy, and 
one Defense Finance and Accounting Service (DFAS) location. We selected 
these units because they were among the largest dollar volume locations 
for airline tickets purchased with centrally billed accounts during 
fiscal years 2001 and 2002. For these units, we tested a statistical 
sample of airline tickets to evaluate whether the design and 
implementation of internal control procedures were effective in 
preventing airline tickets from being issued, and paid for, on the 
basis of invalid travel orders--that is, travel orders that were not 
signed by the properly designated authorizing official. Our statistical 
sample test results can be projected as a whole to the five locations 
at which we selected airline tickets to review. They cannot be 
projected to each location separately, to the individual service, or to 
DOD as a whole. To illustrate the vulnerability of the weaknesses in 
internal controls over airline ticket issuance, we prepared a 
fictitious travel order and submitted it to a CTO to test whether we 
could obtain an airline ticket and whether DOD would create an 
obligation and pay for the ticket. We also performed data mining to 
determine whether DOD's centrally billed accounts were compromised and 
used fraudulently for personal gain. However, our work was not designed 
to identify, and we cannot determine, the extent of potentially 
fraudulent and abusive activity. Appendix I provides further details on 
our scope and methodology.

We requested comments from the Secretary of Defense or his designee on 
a draft of this report. We reprinted those comments in appendix II. We 
conducted our audit work from June 2003 through May 2004 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.

Results in Brief: 

A weak control environment and breakdowns in key controls over the 
centrally billed accounts resulted in DOD paying travelers for airline 
tickets they did not purchase, issuing and paying for unauthorized 
airline tickets, and paying for personal goods and services obtained 
with compromised centrally billed accounts. While we cannot project the 
extent of this problem due to limitations in the data that DOD could 
provide us, these weaknesses have led to potential fraud, waste, and 
abuse in substantial amounts that could total millions of dollars.

Our work identified numerous instances where DOD travelers submitted--
and DOD reimbursed--improper and potentially fraudulent claims for 
airline tickets that DOD, and not the travelers, paid for using 
centrally billed accounts. During fiscal years 2001 and 2002, DOD made 
potentially improper reimbursements on about 27,000 travel claims 
totaling more than $8 million to DOD travelers for airline tickets they 
did not purchase. We identified the $8 million based on data mining of 
limited fiscal year 2001 and 2002 data provided by the Army, Navy, and 
Marine Corps. Further, the Air Force Audit Agency estimated that this 
problem, if not fixed, will cost the Air Force more than $6 million 
over the next 6 years.

Our tests on a nonrepresentative selection of 124 travelers who 
submitted 204 of the 27,000 travel claims confirmed that DOD made 
improper payments to 91 travelers for 123 airline tickets totaling 
almost $98,000. The improper payments were made to 77 travelers who 
were paid about $85,000 for airline tickets that DOD had purchased with 
the centrally billed accounts. Another 14 payments costing $13,000 were 
improper because DOD paid for two airline tickets for the same travel-
-that is, DOD used the centrally billed account to purchase an airline 
ticket and the traveler purchased another airline ticket for the same 
travel, and was reimbursed by DOD. In these cases, some airline tickets 
remained unused and not refunded, a problem we addressed in a previous 
report.[Footnote 7] The remaining 32 travelers did not receive improper 
payments.

Four of the travelers who received the improper payments reimbursed DOD 
for the erroneous payments prior to DOD or GAO notifying them about the 
improper payments. One traveler, a GS-13 employee, received improper 
payments after submitting 12 vouchers in a 27-month period requesting 
reimbursements for airline tickets totaling about $7,000 that DOD had 
purchased using a centrally billed account. A further review of that 
traveler's records showed that DOD had informed the traveler on six 
occasions that the airline tickets were purchased with a centrally 
billed account and should not be claimed as a reimbursable expense on 
the voucher. However, the traveler ignored these repeated warnings and 
continued to request reimbursements and was improperly paid $3,600 for 
six airline tickets DOD purchased with a centrally billed account. We 
determined that inadequate reviews of travel vouchers, lack of 
reconciliation between centrally billed account charges and travel 
claims, and at some locations, differences in policies as to when a 
ticket should be charged to the centrally billed account, enabled 
travelers to submit potentially fraudulent claims and receive improper 
payments.

We also determined that weaknesses in the design and implementation of 
key internal controls intended to prevent DOD from issuing and paying 
for unauthorized airline tickets contributed to the improper payments. 
Specifically, our analysis of the design of DOD's centrally billed 
account controls determined that these controls do not provide 
reasonable assurance that airline tickets are issued only on the basis 
of valid travel orders or that DOD only pays for airline tickets that 
have been approved by someone who has been authorized to do so. Our 
assessment of the weaknesses in the design of the internal controls was 
confirmed by the results of our statistical sample of airline ticket 
transactions at five DOD locations that we tested. At those locations, 
we determined that existing control procedures did not provide 
reasonable assurance that DOD would detect unauthorized airline tickets 
charged to centrally billed accounts, or prevent payment for airline 
tickets that were not properly authorized. Consequently, it was not 
surprising that DOD ticket issuance controls did not detect a 
fictitious travel order we submitted to request an airline ticket, and 
DOD voucher payment controls did not prevent DOD from paying for an 
airline ticket that was obtained using the fictitious travel order.

DOD also lacked adequate physical controls over the centrally billed 
account numbers, which are Bank of America credit card accounts that 
can be used to purchase items from merchants who take phone or Internet 
orders. Specifically, a number of locations we visited printed the full 
centrally billed account numbers on the travelers' itineraries, or left 
them in insecure locations. DOD's failure to maintain adequate controls 
over the centrally billed account numbers has contributed to these 
accounts being compromised and used to fraudulently purchase airline 
tickets. A military service member, for example, used the centrally 
billed account number that was included on travel itineraries to 
purchase over 70 tickets totaling more than $60,000, which he sold at a 
discounted rate to coworkers and their family members. As a result of 
the investigation, the seaman admitted culpability, lost all pay, and 
received a dishonorable discharge and 5 years confinement. Because DOD 
disputed these charges, which the CTOs identified as unauthorized in 
the reconciliation process intended to identify airline tickets that 
the CTO did not order, DOD received refunds from the Bank of America 
for these fraudulently obtained airline tickets. However, officials at 
a number of locations we visited did not dispute unauthorized airline 
tickets that were identified by the CTOs. By not disputing the 
unauthorized charges identified by the CTO, DOD had no assurance that 
the amount it paid Bank of America did not contain fraudulent charges 
that were the result of compromised accounts.

As we have previously reported,[Footnote 8] improved controls and 
management of individually billed accounts would provide DOD with 
options to reduce the financial exposure resulting from the weaknesses 
in the controls over DOD's centrally billed accounts. Specifically, 
using a well-controlled individually billed account program to pay for 
airline tickets would transfer responsibility for all charges to the 
individual cardholder, thus limiting the government's financial 
exposure. However, DOD would still need to improve controls over its 
centrally billed account structure as not all DOD travelers would have 
access to an individually billed account, such as new employees and 
infrequent travelers.

This report includes 11 recommendations for DOD to reduce the risks 
associated with using the centrally billed accounts to purchase airline 
tickets. The recommendations include DOD taking a series of immediate 
steps to improve controls over centrally billed accounts so that, in 
the future, it can prevent or detect improper payments to travelers for 
airline tickets not paid for by the traveler. We also recommend that 
DOD implement internal controls to verify that travel orders are valid 
before tickets are issued. Finally, we recommended that DOD safeguard 
centrally billed accounts from being compromised and used fraudulently. 
In written comments on a draft of this report, DOD concurred with our 
11 recommendations and stated that it had taken actions or will take 
actions to address them.

Background: 

The DOD centrally billed travel card program is part of a 
governmentwide travel card program started in 1983 with the express 
purpose of increasing convenience to the traveler and lowering the 
government's cost of travel by reducing the need for cash advances to 
the traveler, and the associated administrative costs. The travel card 
program includes both the individually billed accounts--accounts held 
and paid by the individual cardholders--and the centrally billed 
accounts. In general, individual cardholders use the individually 
billed accounts to charge nontransportation travel-related expenses, 
while most DOD services and units used the centrally billed accounts to 
purchase transportation services, such as airline and train tickets, 
and to pay expenses incurred for group travel.[Footnote 9]

During fiscal years 2001 and 2002, DOD travelers charged more than $7.1 
billion in expenses to the travel card program, with about $2.8 billion 
related to the use of the centrally billed accounts. Unlike the actual 
credit cards issued to individuals and some unit credit cards, there 
are no actual credit cards for the centrally billed accounts used to 
purchase transportation services. Instead, Bank of America issues 
account numbers to the government travel office (GTO) for use by the 
CTO--under contract with each DOD service or service location to 
provide travel services to military and other DOD personnel--to enable 
transportation charges on these accounts.

Responsibility for making travel arrangements and paying the expenses 
associated with travel is shared between the DOD local components, 
contractors, and DFAS--the DOD component responsible for making nearly 
all of DOD's payments. The local travel-authorizing official or the 
resource manager at the DOD component 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 
appropriation. The CTO makes airline reservations, issues airline 
tickets and charges the centrally billed account upon receipt of a 
signed travel order, and performs reconciliation between tickets it 
issued and tickets charged on the Bank of America invoice. The CTO is 
responsible, in the reconciliation process, for identifying each charge 
as being associated with a specific travel order. Within each DOD 
component, the GTO is generally responsible for reviewing the CTO's 
reconciliation, making the appropriate changes, certifying or 
authorizing the Bank of America's invoice for payment, and filing 
disputes with Bank of America for charges that the CTO did not record 
as having issued. After the CTO and GTO perform their monthly 
reconciliation, the charges are sent to DFAS for payment. Figure 1 
shows the design of the processes used to issue an airline ticket on a 
centrally billed account and reimburse travelers for travel expenses, 
and 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 Payment of Centrally Billed Accounts and 
Individual Travel Vouchers: 

[See PDF for image]

[End of figure]

Prior to paying the Bank of America invoice, DFAS is responsible for 
verifying fund availability for each airline ticket presented on the 
invoice. This process, known as prevalidation, involves DFAS checking 
each airline charge against the services' accounting systems to 
determine that the travel had been approved, and an obligation had been 
recorded, before approving the corresponding charge for payment. If an 
obligation exists for the travel order but the amount is not adequate 
to cover the charge, DFAS is allowed to increase the obligation up to 
$2,500 to pay for the ticket charge if DFAS is in possession of a valid 
obligating document. If an obligation has not been recorded in the 
services' accounting systems, but a valid obligation document exists, 
DFAS can also create an automatic obligation up to $2,500 to pay for 
the ticket charge. If an obligation needs to be created or increased by 
more than $2,500, DFAS is required to notify the unit and allow the 
unit 10 calendar days to record the obligation before DFAS is allowed 
to create the obligation on the unit's behalf.[Footnote 10]

At the conclusion of travel, the traveler is responsible for preparing 
his or her DD Form 1351-2, a travel voucher form, within 5 working days 
after completion of travel to claim reimbursement for official travel. 
Travelers are to enter all reimbursable expenses on their travel 
vouchers, and attach all receipts for lodging expenses and for all 
other expenses over $75. Even if someone else prepares the voucher, the 
traveler is responsible for the truth and accuracy of the information. 
According to DOD's Financial Management Regulation, when the travelers 
sign the form (and this signature authority must never be delegated), 
they attest that the statements are true and complete, and that they 
are aware of their liability for filing a false claim. The travel 
voucher the traveler signs contains a bolded penalty statement that 
provides, "there are severe criminal and civil penalties for knowingly 
submitting a false, fictitious, or fraudulent claim (U.S. Code, Title 
18, Sections 287 and 1001 and Title 31, Section 3729)." 

The authorizing or approving officials review the travel claim for 
appropriateness, then forward the travel claim to the voucher-
processing unit, which might be located at the unit or at DFAS. The 
voucher-processing unit determines what payments the traveler is 
entitled to receive and computes the amounts, which are then certified 
for payment. DFAS then pays the vouchers, generally through an 
electronic fund transfer directly to the traveler's bank account.

DOD Made Improper Payments for Potentially Fraudulent Travel Claims: 

We found numerous instances during fiscal years 2001 and 2002 where DOD 
travelers submitted travel vouchers and were improperly reimbursed for 
airline tickets they did not purchase. DOD's failure to detect or 
prevent these improper payments was the result of weaknesses in the 
design of key internal controls, as well as breakdowns in key existing 
controls. The weaknesses included inadequate travel voucher review, 
lack of reconciliation between centrally billed account charges--and 
payments for those charges--and travel claims, and differences in 
policies as to when an airline ticket should be charged to an 
individually billed account as opposed to a centrally billed account. 
These weaknesses were exacerbated by a monitoring system that primarily 
focused on making payments within prescribed time frames, rather than 
on making proper and accurate payments.

Improper and Potentially Fraudulent Travel Claims: 

Whoever, in any matter within the jurisdiction of the executive, 
legislative, or judicial branch of the Government of the United States, 
knowingly and willfully (1) falsifies, conceals, or covers up by any 
trick, scheme, or device a material fact; (2) makes any materially 
false, fictitious, or fraudulent statement or representation; or (3) 
makes or uses any false writing or document knowing the same to contain 
any materially false, fictitious, or fraudulent statement or entry; 
shall be fined under this title or imprisoned not more than 5 years, or 
both. (taken from U.S. Code, Title 18, Section 1001, Statements or 
Entries Generally).

Our data mining of airline ticket data from Bank of America centrally 
billed account files and about half of DOD's fiscal year 2001 and 2002 
travel vouchers identified about 27,000 travel claims totaling over $8 
million for which DOD made potentially improper reimbursements to 
travelers for airline tickets that DOD purchased with the centrally 
billed accounts. Because the travelers had not purchased most of the 
airline tickets we tested, the travelers should not have requested 
reimbursements, nor should DOD have paid the travelers for the cost of 
those tickets. Requesting reimbursement for items that the traveler did 
not pay for may violate the False Claims Act and be punishable by 
imprisonment or a monetary fine, or both.

From the 27,000 potential improper travel claims, we tested a 
nonrepresentative selection of 124 travelers to whom DOD made 204 
travel claim reimbursements that may have contained improper payments. 
As will be discussed further, the tests we performed on the 
nonrepresentative selection of 124 travelers confirmed that DOD 
improperly paid 91 travelers for 123 airline tickets. As will be 
discussed in detail later, the 123 improper payments included 109 
payments that were made to 77 travelers who were paid for airline 
tickets they did not purchase, and 14 payments in which DOD purchased 
two airline tickets for the same travel. Thirteen of the 77 travelers 
we identified submitted multiple travel vouchers requesting 
reimbursements for the cost of airline tickets that they did not 
purchase, which might indicate intent to defraud the government. The 
remaining improper payments were also potentially fraudulent if the 
traveler intentionally filed false claims or kept the improper payments 
after they realized that the payment was improper. The other 64 
travelers received improper reimbursement for a single ticket. One 
traveler admitted to us that he knew DOD had improperly reimbursed him 
for two airline tickets that DOD purchased for his travel in April 2002 
and June 2002, but did not notify DOD because he was waiting for DOD to 
request him to refund the improper payments. Most travelers we 
interviewed told us that they were not aware that the government had 
paid them hundreds, and sometimes thousands, of dollars for expenses 
that they claimed but did not incur. In many instances, the airline 
ticket receipt or invoice used to support the travelers' claims 
contained the 16-digit centrally billed account number, indicating that 
the airline tickets were paid for using the centrally billed accounts. 
Table 1 shows eight illustrative examples of the 77 travelers who we 
identified in this review as submitting improper and potentially 
fraudulent travel claims.

Table 1: Improper and Potentially Fraudulent Travel Claims Identified 
by GAO: 

Case: 1; 
Rank/grade: GS-15; 
Number/value of improper payments: 13 for $9,700; 
Dates of Travel: August 2001 to May 2002; 
Nature of the case: Within a 9-month period, the traveler claimed, and 
DOD paid, 13 airline tickets that DOD purchased with a centrally billed 
account. Traveler represented that he did not know that he received 
almost $10,000 more in reimbursement than he paid in travel expenses; 
Disposition of the case: After GAO notified DOD of this traveler, the 
Navy Medical Inspector General substantiated that the traveler made 
seven false claims for airline tickets. The Navy Audit Service is 
conducting further review of the traveler.

Case: 2; 
Rank/grade: GS-13; 
Number/value of improper payments: 6 for $3,600; 
Dates of Travel: March 2001 to June 2003; 
Nature of the case: Within a 27-month period, the traveler submitted 12 
vouchers claiming about $6,800 in airline tickets DOD purchased with 
the centrally billed accounts. Despite DFAS notification that it was 
refusing payments on five of the first six claims it received, the 
traveler submitted six additional claims. In addition, the traveler 
rented luxury vehicles, and used his individually billed travel card 
to purchase airline tickets for family members at the discounted 
government rate and make various other unauthorized charges; 
Disposition of the case: After GAO notified DOD of this traveler, the 
traveler received collection notices in late fiscal year 2003 demanding 
the traveler repay three of the six improper payments totaling more 
than $2,100. Because DFAS did not complete a full audit of all the 
traveler's vouchers, DFAS did not find the three other claims. DFAS 
had started payroll deduction to collect for the three improper 
payments DFAS had identified.

Case: 3; 
Rank/grade: GS-14; 
Number/value of improper payments: 5 for $3,400; 
Dates of Travel: May 2001 to July 2002; 
Nature of the case: Traveler represented that the improper payments 
were an oversight because he also charged airline tickets to his 
individually billed accounts and that he did not notice the improper 
payments that were deposited to his account; 
Disposition of the case: DFAS responded to our referral by sending 
five collection notices to the traveler in October 2003. The traveler 
repaid DOD $3,600 in November 2003.

Case: 4; 
Rank/grade: O-5; 
Number/value of improper payments: 5 for $1,600; 
Dates of Travel: December 2001 to May 2002; 
Nature of the case: Some of the traveler's airline tickets were charged 
to the centrally billed accounts and others to the traveler's 
individually billed account. The traveler represented that she did not 
notice the improper payments; 
Disposition of the case: DFAS sent collection notices as a result of 
our audit in October 2003. The traveler had repaid DOD $1,600 as of 
November 2003.

Case: 5; 
Rank/grade: E-9; 
Number/value of improper payments: 2 for $1,400; 
Dates of Travel: April 2002 to June 2002; 
Nature of the case: The traveler represented that he submitted claims 
for the airline tickets because he thought that the airfare was charged 
to his individually billed account. However, after the traveler found 
out that he received the improper payments, he did not notify DOD; 
Disposition of the case: DFAS sent collection notices in September 
2003 as a result of our audit. Traveler repaid DOD $1,400 in October 
2003.

Case: 6; 
Rank/grade: GS-15; 
Number/value of improper payments: 1 for $3,700; 
Dates of Travel: January 2002; 
Nature of the case: Traveler represented that airfares are typically 
charged to his individually billed account, and that it was an 
oversight that he did not notice that the government had deposited into 
his checking account an additional $3,700 for an airline ticket that 
was purchased by the government--not the traveler; 
Disposition of the case: DFAS sent collection notices in September 
2003 as a result of our audit. Traveler repaid DOD $3,700 in October 
2003.

Case: 7; 
Rank/grade: O-6; 
Number/value of improper payments: 1/$800; 
Dates of Travel: February 2002; 
Nature of the case: Traveler represented that he was told that the 
airfare would be billed to his individual government travel card 
because it was short notice travel. Traveler represented that he did 
not notice the improper payment; 
Disposition of the case: DFAS sent the traveler a collection notice in 
September 2003 in response to our audit. The traveler repaid DOD $800 
in February 2004.

Case: 8; 
Rank/grade: GS-15; 
Number/value of improper payments: 1 for $600; 
Dates of Travel: May 2002; 
Nature of the case: The traveler represented that he did not notice the 
improper payments because most of his airline tickets were charged to 
the individually billed account; 
Disposition of the case: DFAS sent the traveler a collection notice in 
September 2003 in response to our audit. The traveler repaid the DOD 
$600 in October 2003. 

Source: GAO analysis of Bank of America and limited voucher data, and 
review of supporting documentation.

[End of table]

The 8 travelers identified in table 1 did not notify DFAS after they 
had received improper payments, and only 4 of the 77 travelers that we 
determined had received improper payments voluntarily refunded the 
improper payments. The following provides detailed information on three 
of the cases identified in table 1.

* Traveler number 1 was a GS-15 who submitted travel vouchers claiming 
reimbursements for 13 tickets totaling almost $10,000 between August 
2001 and May 2002. The traveler told us that he did not notice that he 
was paid for expenses he did not incur, even though in one instance, 
DFAS overpaid the traveler more than $3,500 for one round-trip ticket 
from Washington, D.C., to Singapore. The traveler explained he did not 
notice the improper payments because he typically maintained a high 
balance in his bank account, and his wife paid all the bills. In 
November 2003, after we requested information from the Navy related to 
the traveler, the Navy Office of Medical Inspector General started an 
investigation. The Inspector General concluded that the traveler 
violated DOD travel regulations in wrongfully claiming air 
transportation expenses. The investigation found that the traveler was 
liable for seven improper reimbursements totaling about $7,300. The 
Navy Audit Service has expanded its review of the traveler for the 
additional improper payments that we identified. We referred this case 
to DOD's Office of the Inspector General so that it can take any action 
it deems appropriate, including referral of the matter to the relevant 
U.S. Attorney for further consideration.

* Traveler number 2 is a GS-13 acquisition specialist who, between 
April 2001 and July 2003, submitted 12 claims totaling $6,800 for 
airline tickets that were charged to the centrally billed accounts; 
that is, airline tickets he did not purchase. DFAS denied payments on 
five claims that were submitted for travel in fiscal years 2001 and 
early fiscal year 2002, and notified the traveler in writing that 
payment was denied because he did not personally incur the airfare 
expense. However, the traveler submitted seven additional vouchers in 
late fiscal year 2002 and in fiscal year 2003 requesting payments for 
airline tickets he did not purchase. Although one more voucher was 
denied, overall, the traveler received six improper payments totaling 
more than $3,600. Despite being repeatedly informed that his airfare 
was not a reimbursable expense, the traveler indicated that the $3,600 
in improper payments were honest mistakes, and he believed that these 
tickets were charged to his individually billed account, and should be 
claimed on the vouchers.

In addition, the traveler took other questionable actions related to 
his travel. These actions included renting luxury vehicles, such as a 
Lincoln Navigator and Mercedes Benz, while on official travel--without 
specific authorization to rent a luxury vehicle--and using his 
individually billed account to obtain government-rate tickets for his 
family members, as the examples illustrate.

* The traveler scribbled his own name as the approving official for the 
voucher to disguise the fact that he was approving his own voucher. DOD 
policy requires that each travel voucher be reviewed for accuracy and 
approved by the supervisor. The signature of the approving official 
certifies that the vouchers are accurate, and that the expenses are to 
be paid.

* While on official travel the traveler rented luxury vehicles without 
special authorization documenting the need for why he needed a luxury 
vehicle. For example, while on travel for 2 days in Atlanta in July 
2003, the traveler rented a Lincoln Navigator for more than $300.

* In August 2003, the traveler used his individually billed account--a 
government credit card--to purchase government-rate tickets for two 
family members to travel from Richmond, Va., to Frankfurt, Germany, 
while the traveler was on official government travel for 9 days at that 
location. By using the government credit card, the traveler was able to 
obtain unrestricted coach class tickets for $546 per person, compared 
to an unrestricted coach class fare available to the public of more 
than $2,800 per person. On that 9-day trip, the government paid more 
than $1,000 for his rental car. Further review of the supporting 
documentation submitted with his travel voucher indicated that the 
traveler rented a luxury class car--Mercedes Benz--for use while at his 
travel destination.

* Although the traveler informed us that he was aware the individually 
billed credit card assigned him was reserved for official government 
use only, he used the card on several occasions to make purchases at 
gas stations and restaurants when he was not on travel status and to 
charge a recurring monthly rental fee of $30 for a musical instrument.

As a result of our audit, in July and September 2003, the traveler 
received collection vouchers demanding the traveler reimburse DOD more 
than $2,100 for the overpayments on three vouchers. As of November 
2003, DFAS had started collection payroll deductions to collect the 
$2,100 in improper payments. However, because DFAS did not audit all 
the vouchers of this traveler, DFAS did not know that this traveler had 
requested other improper and potentially fraudulent claims. Because of 
the potential fraud, we have also referred this case to the DOD Office 
of the Inspector General.

* Traveler number 6 was a GS-15 who in February 2002 submitted a travel 
voucher requesting reimbursement for an airline ticket that DOD, and 
not the traveler, purchased using the centrally billed account. The 
ticket was an international ticket costing more than $3,700 for travel 
from Huntsville, Ala., to Tel Aviv, Israel. The traveler asserted that 
he did not notice the more than $3,700 overpayment in his bank account 
until he received a collection notice from DFAS in September 2003. The 
traveler stated that he assumed all his airline tickets were purchased 
with his individually billed account. We found that the policy at the 
duty station where the traveler was assigned required that all airline 
tickets purchased for travel within the continental United States be 
purchased using the individually billed accounts, while international 
travel was paid for using the centrally billed account. We found that 
this policy may have contributed to at least three other improper 
payments for airfare related to international travel at this duty 
station. Because of the potential fraud, we referred this case to the 
DOD Office of the Inspector General.

Amount of Improper and Potentially Fraudulent Travel Claims Is Likely 
Millions of Dollars: 

During fiscal years 2001 and 2002, DOD spent almost $10.8 billion on 
travel and transportation expenses for DOD military and civilian 
personnel.[Footnote 11] Significant limitations related to DOD travel 
and transportation data files prevented us from accurately estimating 
the total number and dollar value of the improper payments DOD made for 
airfare paid with a centrally billed account. It is likely that these 
false claims are millions of dollars annually. The Army, Navy, and 
Marine Corps provided us with files totaling about $4.5 billion that 
contained their fiscal year 2001 and 2002 travel voucher information, 
representing about half of the voucher payments DOD would have made 
during this 2-year period. These files identified the dates of travel 
and type of travel expenses that were incurred and contained separate 
fields for the traveler's per diem expenses and transportation 
expenses. By comparing the Bank of America centrally billed account 
files containing the ticket price, passenger names, and travel dates, 
to the travel voucher files, we were able to data mine for instances 
where DOD purchased an airline ticket with the centrally billed 
accounts and the traveler may have been improperly reimbursed for the 
cost of the airline tickets. Our analyses of the Army's, Navy's, and 
Marine Corps' fiscal years 2001 and 2002 travel and transportation 
expenses identified about 27,000 travel claims containing airline 
tickets valued at more than $8 million during that 2-year period that 
were potentially improper. Similarly, the Air Force Audit Agency had 
reported that if not corrected, improper payments would cost the Air 
Force $6.5 million over 6 years.

To determine whether DOD improperly paid travelers for the airline 
tickets purchased with centrally billed accounts, we tested a 
nonrepresentative selection of 124 travelers who submitted 204 travel 
claims that may have contained improper payments totaling about 
$154,000. The 124 travelers were chosen based primarily on the amount 
and frequency of the potential improper payments. We tested a 
nonrepresentative selection of travelers because we could not obtain 
assurance that the data files provided by the Army, Navy, and Marine 
Corps were complete and reliable. Further, the Air Force travel voucher 
data did not contain detailed information to enable us to perform 
improper payment analysis. Due to these data limitations, we were 
unable to test a statistically valid sample of improper payments. 
Consequently, we could not project the magnitude of the improper 
payments.

As shown in table 2, our tests, which consisted of comparing what the 
travelers claimed on the travel vouchers to charges made to the 
centrally billed accounts, confirmed that DOD made improper payments to 
91 travelers for 123 travel claims containing airline tickets totaling 
almost $98,000. The 123 improper payments included 109 payments 
totaling almost $85,000 that were made to 77 travelers who were paid 
for airline tickets they did not purchase, and 14 payments totaling 
about $13,000 to 14 travelers in which DOD paid the traveler and the 
airline for two airline tickets purchased for the same travel. These 
instances could occur if, for example, the airline did not have a 
record that the ticket was issued on the centrally billed account when 
the traveler arrived at the airport, resulting in the traveler having 
to purchase another ticket. Emergency circumstances, such as weather 
problems, have also resulted in travelers purchasing another airline 
ticket even when a ticket was already purchased on the centrally billed 
account. Because DOD purchased two tickets for the same travel, the 
centrally billed ticket was typically unused and not refunded. The 
remaining 32 travelers did not submit improper or potentially 
fraudulent claims.

Table 2: Improper Payments Recovered by DFAS: 

Total improper payments[A]; 
Number of Travelers: 91; 
Number of Payments: 123; 
Total value of payments: $97,800.

Total improper payments[A]: Repayments prior to GAO audit; 
Number of Travelers: (15); 
Number of Payments: (17); 
Total value of payments: ($14,600).

Total improper payments[A]: Repayments initiated by GAO audit; 
Number of Travelers: (46); 
Number of Payments: (63); 
Total value of payments: ($42,700).

Total recoveries of improper payments[B]; 
Number of Travelers: 61; 
Number of Payments: 80; 
Total value of payments: $57,300.

Outstanding improper payments; 
Number of Travelers: 30; 
Number of Payments: 43; 
Total value of payments: $40,500. 

Source: GAO analysis of DOD documentation.

[A] The 123 in improper payments include 14 payments--made to 14 
travelers--costing about $13,000 where DOD paid for two airline tickets 
for the same travel--that is, DOD used the centrally billed account to 
purchase an airline ticket and the traveler purchased another airline 
ticket for the same travel, and was reimbursed by DOD.

[End of table]

Our testing also determined that 15 of the 77 travelers had refunded 
DOD almost $15,000 for 17 improper payments prior to our audit. Only 
four travelers notified DFAS--and made restitution--on the improper 
payments prior to our audit even though typically more than a year had 
passed since the improper payment. Eleven other travelers made 
restitution after DFAS detected the overpayments based on postpayment 
audits DFAS performed--that is, audits it conducted after payments had 
been made. In addition, on the basis of findings from our audit, DOD 
collected almost $43,000 from 46 travelers for 63 additional improper 
airfare payments. As shown in table 2, DOD is in the process of 
recovering 43 improper payments totaling more than $40,000 that we 
identified. We referred the 27,000 potentially improper payments to DOD 
for further review.

Further evidence exists that DOD improperly reimbursed travelers for 
the cost of a substantial number of airline tickets purchased with 
centrally billed accounts in the portion of DOD's travel and 
transportation expenses that we did not analyze, either because the 
data were not provided, or the data were not in the format to allow 
analysis. For example, the Air Force did not provide data in a format 
that would help us identify instances in which the Air Force reimbursed 
travelers for the cost of an airline ticket purchased with a centrally 
billed account. Our work indicated that the Air Force did not have a 
uniform policy as to whether a ticket should be charged to the 
centrally billed accounts as opposed to the individually billed 
accounts. This could create confusion and expose the Air Force to an 
even higher risk than the other services, which provided us with usable 
voucher data of improper payments. While the other military services 
typically use the centrally billed accounts to purchase airline 
tickets, Air Force officials told us that the Air Force uses both types 
of accounts to purchase airline tickets. Further, work performed by the 
Air Force Audit Agency[Footnote 12] in 2003 on a sample of travel 
vouchers filed at 40 Air Force locations found that the Air Force 
inappropriately reimbursed travelers for 142 airline tickets totaling 
almost $82,000 that were purchased with the centrally billed accounts. 
The Air Force Audit Agency projected that, "This condition, if not 
corrected, will result in the Air Force inappropriately reimbursing 
individuals at least $6.5 million" over the next 6 years. Although the 
millions of dollars of improper payments account for a very small 
percentage of DOD travel overall, they nevertheless represented wasted 
resources in a time of increasing fiscal constraint.

Improper Payments Resulted from Inadequate Review of Travel Vouchers, 
Lack of Adequate Reconciliations, and Inconsistent Policies Over the 
Use of Centrally Billed Accounts: 

Transactions and other significant events need to be clearly documented 
and the documentation should be readily available for examination. 
Agency internal control should be flexible to allow agencies to tailor 
control activities to fit their special needs. GAO's Standards for 
Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, 
November 1999).

We determined that weaknesses in both the design and execution of DOD's 
system of internal controls permitted DOD to make these improper 
payments. We found that DOD relies on the approving official's review 
of travel vouchers as the key control to prevent travelers from 
claiming unauthorized expenses--such as airline tickets purchased with 
a centrally billed account--on a travel voucher. However, we determined 
that many approving officials did not conduct adequate reviews of the 
travel vouchers and the supporting documentation before authorizing the 
vouchers for payment. Many of the airline receipts submitted as 
supporting documentation for improper claims clearly showed that the 
airline ticket was purchased using the centrally billed accounts. In 
these instances, if the approving officials had conducted careful 
review of the travel vouchers and supporting documentation, the 
official would have noted that the traveler was not entitled to the 
travel reimbursement. Further, the reviewing officials should have been 
knowledgeable about local and component policy that called for the use 
of centrally billed accounts to purchase the airline tickets that were 
claimed as a reimbursable expense on the vouchers.

In addition, DOD travel and transportation systems do not contain edit 
checks (system controls) to help detect false claims and prevent 
improper payments when the first line of defense--the approving 
official's review of the travel voucher--does not detect the false 
claims. Specifically, DOD's current travel order, ticket issuance, and 
travel voucher systems are not integrated, and DOD has not implemented 
other control procedures to compare key data in the different systems 
to help detect false claims overlooked in the travel voucher review 
process. Further, DFAS officials informed us that post audit reviews, 
which are designed to detect erroneous voucher payments, were not 
conducted by all of the disbursing centers for the payments being 
audited. Thus, DOD has not established, or effectively implemented, 
compensating controls to detect improper payments in instances where 
the approving officials fail to detect false claims made on a travel 
voucher. If DOD had designed such a system, DOD would be able to detect 
instances where the traveler submitted a claim for an airline ticket 
purchased using a centrally billed account. These weaknesses in the 
design of internal controls prevented DOD from detecting claims for 
reimbursement that travelers should not have claimed.

The failure of DOD systems to detect and prevent improper payments is 
exacerbated by the fact that the primary performance measure DOD uses 
to monitor the effectiveness of the centrally billed account program is 
whether DFAS pays the Bank of America invoices within 30 days of their 
receipt. According to DOD officials, DOD has not established a 
performance measure to monitor the accuracy of payments. For example, 
DOD does not have a measure to determine whether centrally billed 
account payments--and the related payments for airline tickets claimed 
on the travel vouchers--are accurate.

DOD officials informed us that the Defense Travel System (DTS), which 
is currently under development, will include a capability to routinely 
match travel vouchers to tickets issued through the centrally billed 
accounts. In 1995, DOD established the DTS program management office to 
develop DTS as a DOD-wide travel and transportation system that would 
replace the more than 30 travel systems currently operating within the 
department. DTS was originally scheduled to be fully operational in 
2002, and it was to provide an integrated process of preparing travel 
orders and making travel arrangements, including airline reservations, 
and filing and paying travel vouchers. However, according to a 2002 DOD 
Office of Inspector General report,[Footnote 13] DTS has experienced 
cost increases and schedule delays. According to the program management 
office, DTS should be implemented for about 80 percent of DOD personnel 
by 2006.

Key Internal Controls over Issuance and Payment of Airline Tickets Are 
Inadequate: 

We found weaknesses in key internal control activities designed to 
provide DOD reasonable assurance during fiscal years 2001 and 2002 that 
(1) airline tickets were issued on the basis of valid travel orders and 
(2) payments were made only for authorized airline tickets. 
Specifically, DOD did not provide the CTOs with the tools to determine 
that the travel orders used as a basis for charging airline tickets to 
the centrally billed accounts were valid--that is, the individuals who 
signed the travel orders had the authority to do so. In addition, the 
design of internal controls was not effective in providing assurance 
that DOD only paid the Bank of America for tickets that were issued on 
the basis of valid travel orders. Our statistical sampling at five DOD 
locations confirmed that, lacking effective design of internal 
controls, these five locations as a whole could not provide assurance 
that only authorized airline tickets were charged to the centrally 
billed accounts. Our concerns with these weaknesses in internal 
controls led us to perform additional work to determine if these 
control weaknesses could be exploited. The additional work demonstrated 
that someone with knowledge of the DOD travel system could fraudulently 
obtain an airline ticket, and have DOD pay for that ticket, with a 
centrally billed account.

DOD Units Issued Airline Tickets Using Centrally Billed Accounts 
without Verifying Validity of Travel Orders: 

Transactions and other significant events should be authorized and 
executed only by persons acting within the scope of their authority. 
This is the means to provide assurance that only valid transactions to 
commit resources are initiated and entered into. GAO's Standards for 
Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, 
November 1999).

We found that DOD did not design internal controls to provide assurance 
that airline tickets were issued only on the basis of valid travel 
orders. Specifically, DOD did not have a policy to provide the CTOs 
with the tools necessary to determine whether the individuals who 
signed the travel orders authorizing the CTOs to charge the airline 
tickets on the centrally billed accounts had the authority to do so. 
According to DOD's travel regulations, a travel order is valid only 
after it has been authorized--signed--by an individual, such as a 
supervisor or resource advisor, who had been delegated the authority to 
authorize or approve travel. Requiring airline tickets purchased with 
centrally billed accounts to be issued based on valid travel orders is 
the first step in preventing DOD from purchasing airline tickets that 
are not for official government business. However, the CTOs at the 
locations we visited informed us that DOD had not provided them with a 
list of approving officials, or these officials' signature cards, to 
aid in determining the validity of the travel orders. Consequently, the 
CTOs could not provide assurance that the airline tickets they charged 
to the centrally billed accounts were authorized.

Despite the weakness in design, we performed statistical tests of 96 
transactions selected from five DOD locations to determine the extent 
to which airline tickets charged to the centrally billed accounts 
during fiscal years 2001 and 2002 were issued on the basis of valid 
travel orders. Our statistical sample was selected from the population 
of airline ticket transactions charged to the centrally billed accounts 
at one Air Force, one Army, one Navy, one Marine Corps, and one Defense 
Finance and Accounting Service location (for further details on the 
methodology used to select the units to be tested, see app. I). As 
shown in table 3, we estimated that the five DOD locations as a whole 
could not provide assurance that 82 percent of the airline tickets 
charged to the centrally billed accounts were issued on the basis of 
valid travel orders.

Table 3: Results of Statistical Sampling Tests of Proper Issuance of 
Airline Tickets: 

Control test: Travel order not provided; 
Estimated percentage failure rate [A]: 3.

Control test: Travel order was not signed; 
Estimated percentage failure rate [A]: 9.

Control test: Travel order provided and signed, but no delegation of 
authority was available to support that the travel order was signed by 
an official with the authority to do so; 
Estimated percentage failure rate [A]: 70.

Control test: Airline ticket not properly issued; 
Estimated percentage failure rate [A]: 82.

Source: GAO analysis of DOD airline ticket transactions and supporting 
documentation.

[A] These are estimates for the population based on our statistical 
sample. Information about the confidence intervals for our sample 
estimates is presented in appendix I.

[End of table]

DOD financial regulations require that individuals be delegated in 
writing the authority to authorize travel. However, as shown in table 
3, the primary reason why the five locations as a whole did not have 
reasonable assurance that the airline tickets purchased with the 
centrally billed accounts were for valid government travel was that, 
although the orders were provided and were signed, the locations could 
not provide evidence that the individual who approved the travel orders 
had been delegated the authority to do so. Additionally, we estimate 
that we did not have reasonable assurance that 3 percent of airline 
ticket transactions were not properly issued because DOD could not 
provide us a copy of the travel order authorizing the travel. We also 
estimate that we did not have reasonable assurance that another 9 
percent of airline ticket transactions were not properly issued because 
the travel order authorizing the issuance of the airline ticket, 
although provided, was not signed.

The results in table 3 can only be projected to the five locations as a 
whole, and cannot be projected to the entire population of airline 
tickets charged to the centrally billed accounts. See appendix I for 
further discussion of the results of our testing. As mentioned, DOD did 
not design control procedures to validate travel order authenticity 
before issuing tickets on the centrally billed accounts. The fact that 
our tests at these locations could not confirm that tickets charged to 
the centrally billed accounts were supported by travel orders signed by 
individuals with delegated authority to do so further buttressed our 
concern that the lack of internal controls might expose DOD to 
increased risk of fraud and abuse.

At least two options exist for DOD to determine that an authorized 
individual signed the travel order before issuing a ticket using the 
centrally billed accounts. One method involves using an electronic 
travel authorization system to restrict travel approval to individuals 
who are authorized to do so, and prevent travel orders from being 
approved by individuals who are not. DOD has told us that the Defense 
Travel System, now under development, has these controls; however, as 
previously discussed, the system will not be fully operational until 
fiscal year 2006. In the interim, some DOD locations we visited had 
implemented electronic travel authorization systems to generate travel 
orders. However, they did not always have security controls in place to 
provide assurance that access to these systems was restricted to 
individuals who had delegation of authority to approve travel orders. 
For example, a system administrator of one of the systems used by the 
Marine Corps Reserves to issue travel orders informed us that he 
sometimes gave approval authority to individuals who requested access 
through phone calls or e-mail. Without a rigorous process for 
determining that only individuals who have the proper delegation of 
authority receive access, the organization did not have assurance that 
only authorized individuals have access to travel authorization 
capability.

Another method of validating the authenticity of a travel order would 
be to provide the CTOs copies of, or access to, the delegation of 
authority to approve travel orders. The CTO could use this list to 
verify that the approving official had the authority to authorize the 
travel. Some CTO officials informed us that it would not be practical 
to validate every travel order prior to issuing the airline tickets 
because of the number of tickets they issue every day. However, without 
such capabilities, the CTOs could not determine whether the individual 
who authorizes the CTO to expend federal funds by charging the airline 
tickets to the centrally billed accounts had the authority to do so.

Obligation Controls Are Not Effective: 

Even if, as discussed previously, DOD had not designed controls to 
verify the validity of travel orders before airline tickets are charged 
to the centrally billed accounts, DOD could have designed effective 
compensating controls to provide reasonable assurance that it only paid 
for airline tickets that were issued based on valid travel orders. Such 
a compensating control would require that DOD determine the validity of 
travel orders used as a basis to charge airline tickets to the 
centrally billed accounts prior to paying the Bank of America. However, 
we estimated that the five locations we tested statistically did not 
have effective compensating controls to obtain reasonable assurance 
that the tickets paid for with a centrally billed account were for 
authorized travel.

To provide reasonable assurance that DOD only pays for expenses that 
have been properly authorized, the Department of Defense appropriations 
act for fiscal year 1995[Footnote 14] required DOD to develop a plan to 
match disbursements to corresponding obligations before making 
payments. Matching payments with corresponding obligations provides 
assurance that funds are spent in accordance with the purposes and 
limitations set by Congress, and that fraudulent disbursements or 
erroneous payments are detected prior to payments. The process of 
determining whether an obligation exists prior to payments is referred 
to as prevalidation. DFAS prevalidates airline tickets charged to 
centrally billed accounts by verifying that an obligation for the 
travel order that authorized the airline tickets on the Bank of 
America's invoice had been created in a DOD component's accounting 
system.[Footnote 15] By verifying that an obligation exists before 
making payment, the prevalidation process identifies instances where 
obligations have not been established. DOD officials overseeing the 
centrally billed credit card program informed us that they rely on 
prevalidation to be a compensating control because, as mentioned 
previously, the CTOs do not validate the travel order before charging a 
ticket to the centrally billed account. If implemented properly, 
prevalidation would provide DOD reasonable assurance that each airline 
ticket charged to the centrally billed accounts was authorized by a 
valid travel order. An effective way of implementing prevalidation is 
for DOD to determine, prior to paying the Bank of America invoice, 
whether transactions that fail prevalidation fail because of a clerical 
or other error, or whether the travel order was not valid.

However, the method in which DOD implemented prevalidation decreased 
its effectiveness in identifying unauthorized and potentially 
fraudulent airline tickets and preventing payments for these tickets. 
Specifically, DOD did not require that research be conducted on airline 
ticket transactions that failed prevalidation. Although some DOD units, 
such as a number of Navy units, require that DFAS return all airline 
ticket transactions that failed the prevalidation test to the units 
that created the travel order so that an obligation can be recorded, 
this is not a DOD-wide practice. DOD's Financial Management Regulation 
allows DFAS to record a new obligation, or increase an existing 
obligation, up to $2,500 for transactions that failed prevalidation if 
DFAS possesses a valid obligating document. The Financial Management 
Regulation defines a valid obligating document to include a travel 
order. However, as discussed previously, the CTOs do not determine the 
validity of these travel orders, and our testing demonstrated that in 
about 82 percent of sampled airline ticket transactions there was not 
evidence available indicating that the approving official had the 
authority to authorize the travel. Thus, if a traveler provides the CTO 
a travel order, DFAS does not perform additional work to determine the 
validity of the travel order. Consequently, DFAS does not have 
reasonable assurance that the obligation it created based on the travel 
order the CTO provided was approved by someone who has the authority to 
authorize the travel.

Being aware of this flaw in the design of the prevalidation process, we 
tested a statistical sample of 96 airline tickets issued at the five 
locations to determine whether, in the absence of well-designed 
controls, an obligation existed at the time of prevalidation to confirm 
that the travel order was a valid order. On the basis of the results of 
our statistical sampling, we estimate that there is not reasonable 
assurance in about 48 percent of the airline ticket transactions that 
an obligation existed at the five locations prior to when the airline 
tickets were prevalidated for payment.

Table 4: Results of Statistical Sampling Tests of Proper Payment of 
Airline Tickets: 

Control test: Obligation data not provided; 
Estimated percentage failure rate [A]: 30.

Control test: Obligation data provided, but obligation did not exist at 
the time of prevalidation; 
Estimated percentage failure rate [A]: 18.

Control test: Airline tickets not properly paid; 
Estimated percentage failure rate [A]: 48.

Source: GAO analysis of DOD airline ticket airline ticket transactions 
and supporting documentation.

[A] These are estimates for the population based on our statistical 
sample. Information about the confidence intervals for our sample 
estimates is presented in appendix I.

[End of table]

As shown in table 4, we estimate that in 30 percent of airline ticket 
transactions, the five locations--primarily the Army and Air Force--
were not able to provide evidence supporting when the obligations were 
recorded. Additionally, in an estimated 18 percent of airline ticket 
transactions, while the date of the recording of the obligation was 
provided, the obligation was established after the Bank of America 
invoice was prevalidated. In our statistical sample, we repeatedly 
requested the military services to provide this evidence over a 6-month 
period. The results in table 4 can be projected only to the five 
locations as a whole. They cannot be projected to the entire population 
of airline tickets charged to the centrally billed accounts, or to each 
of the five sites individually.

Lack of Controls Enabled GAO to Obtain an Airline Tickets Using a 
Fictitious Travel Order: 

DOD's failure to verify the validity of travel orders before it issued 
airline tickets, and that it created obligations to pay for these 
tickets, increased our concerns that DOD would issue, and pay for, 
airline tickets on the basis of invalid travel orders. To determine 
whether these weaknesses could be exploited, we performed additional 
work to determine whether our concerns were warranted, or whether DOD 
could detect instances where invalid travel orders were used to obtain 
airline tickets. To test our concerns, in February 2004, we completed a 
DOD travel order using fictitious names for the traveler and approving 
official and had a GAO employee sign the travel order as the approving 
official using the fictitious name. We then called a CTO assigned to 
one of the five locations where we performed statistical sample testing 
and requested the CTO to purchase a round trip airline ticket from 
Washington, D.C., to Atlanta, Ga. and faxed the fictitious travel order 
to the CTO. After receipt of the fictitious travel order, the CTO 
issued the airline ticket and charged it to a centrally billed account. 
The CTO then notified us that the ticket was issued and on the day of 
the scheduled flight, we went to the airline's ticket counter at the 
airport to pick up a boarding pass (see figure 2).

Figure 2: Boarding Pass for Airline Ticket Charged to a Centrally 
Billed Account for Fictitious Traveler: 

[See PDF for image]

[End of figure]

Finally, we determined whether DFAS would establish an obligation to 
pay for the airline ticket we obtained using the fictitious travel 
order. We obtained and reviewed the documentation used to reconcile the 
Bank of America invoice containing the airline ticket. This 
documentation indicated that neither the CTO nor the GTO was aware that 
the travel order that the CTO used as the basis to charge the airline 
ticket to the centrally billed account was fictitious. We then obtained 
and reviewed the documentation used to pay the Bank of America invoice 
containing the airline ticket in question. That review showed that DFAS 
recorded an obligation for the fictitious travel order and paid for the 
airline ticket. The ease with which this could be done and the 
ineffective controls buttressed our concerns that DOD does not have an 
adequately designed or effectively implemented internal control 
structure over travel tickets funded through the centrally billed 
accounts.

Centrally Billed Accounts Were Compromised and Used to Purchase Airline 
Tickets for Personal Use: 

An agency must establish physical controls to secure and safeguard 
vulnerable assets. Examples include security for and limited access to 
assets such as cash, securities, inventories, and equipment, which 
might be vulnerable to risk of loss or unauthorized use. Access to 
resources and records should be limited to authorized individuals, and 
accountability for their custody and use should be assigned and 
maintained. GAO's Standards for Internal Control in the Federal 
Government (GAO/AIMD-00-21.3.1, November 1999).

During fiscal years 2001 and 2002, some centrally billed accounts were 
compromised and used fraudulently to purchase airline tickets. 
Fraudulent use of the accounts occurred because many DOD units did not 
restrict access to the centrally billed account numbers to authorized 
personnel. Although the accounts were compromised, in many instances, 
the government incurred no losses because (1) the CTO reconciliation 
process identified these tickets as being unauthorized and (2) the GTOs 
disputed and received credit for the unauthorized airline tickets that 
the CTOs had identified. Timely and consistent filing of disputes is an 
effective way of detecting fraudulent activities resulting from 
compromised accounts. However, we found that 5 of 11 DOD units we 
visited did not file disputes with Bank of America on unauthorized 
airline ticket transactions throughout fiscal years 2001 and 2002. We 
found that of the reconciliation: 

packages[Footnote 16] associated with the 96 statistical sample 
transactions we tested the 5 DOD locations where we performed 
statistical sampling did not file disputes for more than 60 airline 
ticket transactions totaling more than $27,000. Without disputing or 
researching these apparent unauthorized airline ticket transactions, 
DOD cannot determine the proper disposition of airline ticket 
transactions that CTOs identified as unauthorized.

Fraudulent Airline Ticket Transactions Resulting from Compromised 
Accounts: 

DOD's centrally billed accounts require safeguarding because stolen 
account numbers can be repeatedly used to fraudulently purchase goods 
and services. We found that DOD did not adequately safeguard these 
account numbers from unauthorized access, resulting in instances where 
the accounts were compromised and used fraudulently to purchase airline 
tickets. We determined that the centrally billed accounts were 
compromised, and that unauthorized use had occurred, when individuals 
who did not work for the CTO--and therefore did not have the authority 
to charge airline tickets to the centrally billed accounts--used these 
accounts to purchase airline tickets and other services for personal 
use. The following examples illustrate this improper use.

* Between August 2001 and March 2002, a Navy seaman used the centrally 
billed account numbers assigned to two Navy GTOs to purchase over 70 
unauthorized tickets totaling more than $60,000. More than 70 tickets 
were detected by the GTO during its reconciliation process, and 
referred to the Naval Criminal Investigative Service after a GTO 
official suspected that the account had been compromised. The Naval 
Criminal Investigative Service (NCIS), which conducted an 
investigation, believed the seaman obtained the centrally billed 
accounts printed on his itinerary, called the airlines, and purchased 
the tickets by giving them the centrally billed account numbers. Some 
of the airline tickets were obtained for the seaman's personal travel, 
but in many instances, the tickets were sold at a discounted rate to 
other Navy personnel and their family members. As a result of the 
investigation, the seaman admitted culpability, lost all pay, received 
a dishonorable discharge, and 5 years confinement. The government did 
not incur losses because the Bank of America reimbursed the government 
for the fraudulent charges.

* Between July 2000 and October 2000, a Marine Corps member (E-4) used 
the centrally billed account number printed on his itinerary to 
fraudulently purchase 11 airline tickets and a hotel accommodation 
totaling $3,360. These airline tickets and hotel accommodation were 
obtained from priceline.com and expedia.com for this person and three 
other individuals. The charges were discovered by the CTO and referred 
to the NCIS by the GTO. According to NCIS, the traveler initially 
denied culpability to fraudulently using the centrally billed accounts 
to acquire the airline tickets and hotel accommodation, but later 
disclosed the names of two coconspirators. The traveler received 
nonjudicial punishment of garnishing a half-month of his salary and a 
one-grade reduction to lance corporal. The government did not incur 
losses because the Bank of America reimbursed the government for the 
fraudulent charges.

A major contributing factor to these instances was that many DOD units 
did not adequately protect centrally billed account numbers. Of the 11 
CTOs we visited to observe control procedures and conduct statistical 
sampling, 8 printed the centrally billed accounts credit card number 
used to purchase the airline ticket on the trip itinerary that was 
given to each traveler along with the airline ticket. In these 
instances, the CTOs could have safeguarded these accounts by limiting 
the accounts' identity to the last four digits or simply not printing 
the account number on the travelers' copy of the itinerary. In fiscal 
year 2003, some CTOs improved their safeguards of the centrally billed 
account numbers by printing only the last four digits of the credit 
account number. However, not all CTOs have implemented this safeguard. 
We also found that copies of these itineraries were maintained at CTO 
offices that were accessible to any traveler who required assistance 
with travel reservations. Further, at the Pentagon, the GTO stored the 
reconciliation packages in boxes with the centrally billed account 
numbers prominently written on the outside of the boxes in an office 
that was not secured. Failure to safeguard centrally billed account 
numbers creates unnecessary risks that expose the government to 
fraudulent activities.

Some Locations Did Not Dispute Potentially Fraudulent Airline Ticket 
Transactions: 

In the above cases, DOD discovered the fraudulent activities and 
averted losses to the government because the disputes had been promptly 
filed once the airline tickets were identified as unauthorized charges. 
For example, in the first case we discussed in the previous section, 
the GTO official disputed the 70 unauthorized airline tickets on the 
monthly invoices in which they appeared, and the government did not pay 
for the unauthorized airline tickets. In addition, because of the 
pattern that existed concerning how those tickets were ordered, the 
individual who perpetuated the fraud was identified and disciplined. If 
the GTO did not file disputes, the GTO would not have documented the 
series of events that led to the detection of the fraudulent 
activities. However, we found that a number of locations we visited did 
not research or file disputes with Bank of America for airline tickets 
that the commercial travel offices identified as unauthorized charges. 
Failure to file disputes meant that the GTO could not determine whether 
the airline ticket transactions were fraudulent, and in essence, the 
GTO waived opportunities to avoid paying invalid charges.

Our observations, inquiries, and statistical testing determined that 
DOD does not always dispute unauthorized charges. At two offices, GTO 
officials told us that they did not know how to dispute unauthorized 
charges. For example, a Marine Corps official at Henderson Hall 
informed us that he did not know about the dispute process at the time 
he took over responsibility for reviewing for unauthorized airline 
ticket transactions. Similarly, the GTO official responsible for 
reviewing CTO reconciliation at the DFAS office where we conducted 
statistical sampling informed us that she never received training in 
the dispute process, and that in fact, she did not know what a dispute 
form looked like, and did not know where to get one.

Five of the 11 locations that we visited did not dispute unauthorized 
airline ticket transactions identified by CTOs throughout fiscal years 
2001 and 2002. Two locations that did not file disputes--the Marine 
Corps Reserves unit in New Orleans and DFAS office in Indianapolis--
were locations where we conducted statistical sampling. In addition, 
three other locations where we performed general control testing did 
not file disputes for unauthorized airline ticket transactions 
throughout fiscal years 2001 and 2002. The locations that filed 
disputes could not provide evidence that they did it consistently. For 
example, while GTO officials at the Navy Reserve unit in New Orleans 
informed us that they filed disputes for all unauthorized airline 
ticket transactions, these officials were not able to locate dispute 
forms for a number of the centrally billed accounts they managed. 
Similarly, the U.S. Army Service Center at the Pentagon could not 
provide documentation showing why disputes were not filed for some 
unauthorized airline ticket transactions.

In addition, our review of DOD's reconciliation packages associated 
with the 96 statistical sample airline transactions found that DOD did 
not consistently or effectively disputed transactions related to 22 
reconciliation packages. In particular, our review showed that DOD did 
not file, did not have documentation that it filed, or did not track 
the final disposition of more than 60 airline transactions that the 
CTOs identified as unauthorized. Table 5 lists some airline 
transactions charged to the centrally billed accounts that the CTOs 
identified as unauthorized and for which the GTOs did not dispute or 
track to their final disposition.

Table 5: Airline Ticket Transactions that CTOs Identified as 
Unauthorized and DOD Either Did Not Dispute or Did Not Track Their 
Resolution: 

Location: U.S. Army Service Center; 
Itinerary: Unknown - not in Bank of America database; 
Amount: $4,130.

Location: Navy Reserves, New Orleans; 
Itinerary: Colorado Springs to Honolulu to Colorado Springs; 
Amount: 3,500.

Location: Navy Reserves, New Orleans; 
Itinerary: Riverton, Wyoming to Kansas City, Missouri and return; 
Amount: 1,220. 

Source: A comparison between CTO reconciliation packages and Bank of 
America invoices.

[End of table]

Without tracking the status of disputed airline transactions and 
determining the final disposition of disputed airline ticket 
transactions, DOD had no assurance that provisional credits[Footnote 
17] that the Bank of America provided when the GTO disputes an 
unauthorized charge would not be reversed if the airline claimed that 
the airline ticket was a valid charge. DOD officials told us that they 
did not track disputed airline ticket transactions because the Bank of 
America does not assign a common reference number to each disputed 
airline ticket transaction and use that reference number for all 
subsequent correspondence with DOD related to that disputed 
transaction. Rather, DOD officials stated that because of the volume of 
disputed airline ticket transactions that exist and the fact that Bank 
of America assigns a new reference number every time it corresponds 
with DOD on a disputed transaction, they cannot follow the ultimate 
disposition of a disputed transaction.

Reviewing unauthorized airline ticket transactions, filing disputes for 
unauthorized charges, and tracking the ultimate disposition of those 
disputed airline ticket transactions are key steps in detecting 
fraudulent charges and protecting taxpayer resources. Although some 
discrepancies can ultimately be traced to tickets actually purchased by 
DOD, other discrepancies occurred because the centrally billed accounts 
were compromised and used fraudulently. As the cases we discussed show, 
filing disputes was an effective means to identify unauthorized charges 
and ultimately avoid paying for tickets that travelers had obtained 
using compromised centrally billed accounts. Consequently, without 
researching and/or filing disputes for unauthorized charges, DOD cannot 
reduce its financial risk associated with unauthorized charges.

Improvements in DOD's Management of Travel Card Programs Provide DOD 
with Alternatives in Purchasing Airline Tickets: 

During fiscal years 2002 and 2003, we issued a series of 
testimonies[Footnote 18] and reports[Footnote 19] that focused on 
problems that the Army, Navy, and Air Force had in managing the 
individually billed travel card accounts. These testimonies and reports 
showed high delinquency rates and significant potential fraud and abuse 
related to DOD's individually billed travel card program. However, we 
recently issued a report[Footnote 20] that recognized improvements that 
DOD has made in the management of the individually billed accounts. 
These improvements point to the possibility of using this program as 
the principal means of acquiring tickets, thereby reducing the 
government's risk of losses arising from the use of centrally billed 
accounts.

In response to our testimonies and reports on the individually billed 
accounts, Congress took actions in the fiscal year 2003 appropriations 
and authorization acts[Footnote 21] and the fiscal year 2004 
authorization act[Footnote 22] requiring (1) the establishment of 
guidelines and procedures for disciplinary actions to be taken against 
cardholders for improper, fraudulent, or abusive use of government 
travel cards; (2) the denial of government travel cards to individuals 
who are not creditworthy; (3) split disbursements[Footnote 23] for 
travel cardholders; and (4) offset of delinquent travel card debt 
against the pay or retirement benefits of DOD civilian and military 
employees and retirees.

In response, DOD has implemented many of the legislatively mandated 
improvements--most notably the implementation of split disbursements 
and salary offsets and the reduction in the number of individuals with 
access to the travel cards. According to Bank of America, the 
delinquency rates we noted in our prior reports at the Army, Navy, and 
Air Force have decreased. For example, the delinquency rate at the Navy 
had decreased from an average monthly delinquency of about 11 percent 
during fiscal year 2002 to an average monthly delinquency rate of less 
than 7 percent in fiscal year 2003. Similarly, during that same period 
the Army's average monthly delinquency rate decreased from about 14 
percent to an average monthly delinquency rate of about 9 percent. 
Although these rates are still substantially above the Army's and 
Navy's goal of 4.5 percent, the proper implementation of split 
disbursements should continue to reduce these delinquency rates.

As previously presented in our report on unused airline tickets, the 
use of a well-controlled individually billed account program as the 
principal mechanism for acquiring airline tickets will help limit the 
government's financial exposure. However, the use of the individually 
billed accounts to acquire airline tickets would only minimize, not 
eliminate, the necessity of implementing internal controls over the 
centrally billed account program. DOD would still need to maintain a 
centrally billed account structure to purchase airline tickets for 
travelers who have been denied individually billed accounts, infrequent 
travelers whose individually billed credit cards have been canceled, 
and new employees who have not yet acquired individually billed 
accounts.

In addition, DOD has taken actions to improve management of its 
centrally billed account travel program based on the results of our 
premium class travel and unused airline ticket reports. Specifically, 
DOD commissioned a task force to establish policies and procedures 
intended to help prevent improper use of premium class travel. The 
March 16, 2004, report by the premium class task force contained 
corrective actions in the areas of policy and controls of travel 
authorization, ticket issuance, and internal control and oversight to 
address our findings. According to the report, many of the task force's 
recommendations have been implemented. In the area of unused tickets, 
DOD has issued claim letters to five airlines demanding repayment of 
the over $21 million in unused tickets.

Conclusion: 

DOD did not design effective controls, or effectively implement key 
existing controls, over the centrally billed component of the travel 
card program to adequately protect DOD from unauthorized use. We found 
that DOD's monitoring system for the centrally billed accounts 
primarily focused on making payments on time--not making timely and 
accurate payments. In this report, we identified that DOD paid for the 
same airline tickets twice, purchased airline tickets without adequate 
knowledge concerning the validity of the request, and did not safeguard 
account numbers from unauthorized use. Earlier this year, we also 
reported that DOD did not have adequate controls over the authorization 
of premium class travel, and allowed millions of dollars to be wasted 
on airline tickets that were unused and not refunded. These examples 
demonstrate why DOD financial management is one of our "high-risk" 
areas, and why DOD is highly vulnerable to fraud, waste, and abuse. DOD 
has, however, recognized the control weaknesses we have identified in 
this and previous reports, and has taken actions to address some of 
these weaknesses. Specifically, DOD has demanded that many of those 
travelers we identified as receiving improper payment reimburse the 
government for payments to which they were not entitled, started to 
better safeguard centrally billed account numbers, and taken action to 
resolve other control weakness we identified. DOD must build on these 
improvement initiatives and implement internal controls that can 
provide reasonable assurance to both DOD senior management and the 
taxpayers that the billions of dollars in travel expenses paid for with 
centrally billed accounts is spent prudently.

Recommendations for Executive Action: 

To improve the management of DOD's centrally billed travel card 
program, we reaffirm a previous recommendation we made for executive 
action. Specifically, to detect improper claims for tickets travelers 
did not purchase, and prevent DOD from making improper payments on 
these invalid claims, we continue to recommend that the Secretary of 
Defense consider the feasibility of using DOD individually billed 
accounts as the primary means of obtaining airline tickets for DOD 
military and civilian personnel. As we previously recommended, DOD 
should use centrally billed accounts to purchase airline tickets for 
military and civilian personnel who do not have a DOD individually 
billed account travel card or who have significant restrictions on 
their individually billed accounts.

In addition, to improve the management of DOD's centrally billed travel 
card program, we are making the following 11 new recommendations.

To obtain reasonable assurance that DOD military and civilian personnel 
do not improperly request reimbursement for airline tickets purchased 
with centrally billed accounts and reinforce the seriousness of filing 
false claims against the government, we recommend that the Secretary of 
Defense direct the Secretaries of the Army, Navy, and Air Force, as 
well as the heads of all DOD agencies, to implement the following four 
recommendations: 

* Periodically issue guidance to military and civilian personnel 
reminding them that the cost of airfare expenses purchased with a 
centrally billed account should not be claimed as a reimbursable 
expense on travel vouchers, and of the potential penalties for doing 
so.

* Direct the CTOs to mark all airline tickets purchased with a 
centrally billed account as "non-reimbursable." 

* Periodically issue guidance to officials responsible for processing 
travel vouchers instructing them on how to determine if an airline 
ticket was purchased with a centrally billed account or an individually 
billed account.

* Consider taking disciplinary action against employees who submit or 
allow the submission of falsely stated travel vouchers, and, if 
warranted, refer the matter to the U.S. Attorney for further 
consideration.

To recover previous improper payments and identify further improper 
payments, we recommend that the Secretary of Defense direct the 
Secretaries of the Army, Navy, and Air Force, as well as the heads of 
all DOD agencies, to implement the following two actions: 

* Send collection letters requesting reimbursements to all travelers 
identified as having been paid for airline tickets they did not 
purchase, and follow up to ensure that they reimburse the government 
for the improper payments.

* Review the 27,000 instances of potential improper payments that we 
referred to in this report and determine whether DOD improperly paid 
those travelers for airline tickets purchased with the centrally billed 
account. If DOD made improper payments, take actions necessary to 
recover the costs of the airline tickets.

To provide DOD with reasonable assurance that airline tickets purchased 
with a DOD centrally billed account are for properly authorized 
official DOD business, we recommend that the Secretary of Defense 
direct the Secretaries of the Army, Navy, and Air Force, as well as the 
heads of all DOD agencies, to implement the following three 
recommendations: 

* Determine the feasibility of establishing control procedures to 
validate the authenticity of travel orders prior to issuing airline 
tickets purchased with a centrally billed account. Examples of how to 
validate the authenticity of travel orders include the following: 

* An electronic travel authorization process that limits approval of 
travel orders to designated officials. This could be accomplished by 
implementing the Defense Travel System across DOD, provided that DTS 
contains functionality to enable only designated authorizing officials 
to approve travel orders.

* A paper travel authorization process that is augmented by a system 
that provides the CTO with the capability to determine that the 
individual who approved a travel order can authorize the traveler to 
travel.

* Instruct the CTO that it can use a centrally billed account to 
purchase airline tickets only if the CTO can obtain reasonable 
assurance that the travel order was properly authorized. If the CTO 
cannot obtain such reasonable assurance, the CTO should direct the 
traveler to purchase the ticket with his or her DOD individually billed 
account travel card.

* Consider the feasibility of prohibiting DFAS from establishing an 
obligation for airline tickets purchased with centrally billed accounts 
that failed DFAS' prevalidation process without obtaining positive 
confirmation that an obligation should be established from the unit 
that authorized the travel.

To prevent DOD's centrally billed account numbers from being 
compromised and help detect instances where they were, we recommend 
that the Secretary of Defense direct the Secretaries of the Army, Navy, 
and Air Force, as well as the heads of all DOD agencies, to implement 
the following two recommendations: 

* Direct CTOs to stop printing the centrally billed account number in 
its entirety on travel itineraries and any other documents that are 
accessible by individuals who do not need to know the account number.

* Establish procedures to ensure that all airline ticket transactions 
identified as discrepancies by the CTOs are properly disputed, 
including performing any necessary follow-up actions to ensure that DOD 
receives appropriate credits.

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, which are reprinted in 
appendix II, DOD concurred with all 11 of our recommendations and 
stated that it had taken actions or will take actions to address these 
recommendations. On the basis of DOD's comment that most tickets are 
issued electronically, we modified our recommendation concerning 
marking airline tickets as "non-reimbursable" to instead mark 
itineraries for which the tickets were purchased with centrally billed 
accounts as "non-reimbursable." With respect to actions already taken, 
DOD has collected, or is in the process of collecting, reimbursements 
from travelers identified as having been reimbursed for airline tickets 
they did not purchase. With respect to actions under way, DOD is 
renegotiating contracts with the commercial travel offices to include a 
statement on the travelers' itineraries to indicate whether an airline 
ticket was purchased using the centrally billed account or the 
individually billed account and to stop printing the entire centrally 
billed account numbers on the travelers' itineraries.

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 the Secretary of Defense; the 
Under Secretary of Defense, Comptroller; the Secretary of the Army; the 
Secretary of the Navy; the Secretary of the Air Force; the Director of 
DFAS, and interested congressional committees. We will make copies 
available to others upon request. In addition, the report will be 
available at no charge on the GAO Web site at 
[Hyperlink, http://www.gao.gov]. 

Please contact Gregory D. Kutz at (202) 512-9505 or [Hyperlink, 
kutzg@gao.gov], John J. Ryan at (202) 512-9587 or [Hyperlink, 
ryanj@gao.gov], John V. Kelly at (202) 512-6926 or [Hyperlink, 
kellyj@gao.gov], or Tuyet-Quan Thai at (206) 287-4889 or [Hyperlink, 
thait@gao.gov] if you or your staffs have any questions concerning this 
report. Major contributors to this report are acknowledged in appendix 
III.

Signed by: 

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

Signed by: 

Robert J. Cramer, 
Director Office of Special Investigations: 

[End of section]

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Pursuant to a joint request by the Chairman and Ranking Minority Member 
of the Permanent Subcommittee on Investigations, Committee on 
Governmental Affairs, United States Senate; the Chairman of the Senate 
Committee on Finance; and Representative Schakowsky, we audited the 
controls over the Department of Defense's (DOD) centrally billed 
accounts. Our assessment covered the following: 

* whether DOD improperly reimbursed travelers for the cost of airline 
tickets paid using centrally billed accounts,

* whether internal controls were effective to prevent the CTO from 
issuing unauthorized airline tickets on the basis of invalid travel 
orders, and: 

* whether other control weaknesses led to the centrally billed accounts 
being compromised and fraudulently used.

Determine Whether DOD Improperly Reimbursed Travelers for Tickets DOD 
Purchased Using the Centrally Billed Accounts: 

To determine whether DOD improperly reimbursed travelers for airline 
tickets that DOD--not the travelers--paid for using the centrally 
billed accounts, we reviewed prior audit reports from DOD's Office of 
Inspector General and DOD's various audit agencies and interviewed DFAS 
officials. We also obtained from Bank of America databases of fiscal 
years 2001 and 2002 airline ticket transactions charged to DOD's 
centrally billed travel card accounts. The databases contained 
transaction-specific information, including ticket fare, ticket 
number, name of passenger, date and destination of travel, and number 
of travel segments in each ticket. We also requested that the services 
provide us with databases containing travel voucher data in sufficient 
detail, broken down by the type of expense, such as per diem, 
transportation expense, and other miscellaneous expense. To identify 
the pool of potential improper payments we compared the transportation 
expense data obtained from the services' voucher data to the Bank of 
America's data on airline tickets purchased using the centrally billed 
accounts to identify instances where DOD might have made improper 
reimbursements to the travelers for airline tickets they did not 
purchase. Then to confirm whether the payments were improper we tested 
a nonrepresentative selection of 124 travelers from the Army, Marine 
Corps, and Navy who submitted 204 travel vouchers. The 124 travelers 
were selected primarily based on the amount of the potential improper 
payments and the frequency with which the travelers submitted potential 
improper payments.

We were not able to select a statistical sample of potential duplicate 
payments because of the limitations in the data DOD provided us. These 
limitations also prevented us from identifying all potential improper 
payments or to estimate their magnitude. Specifically, although the 
Army, Navy, and Marine Corps provided us with travel voucher data, 
weaknesses in DOD's financial management systems mean that these 
services cannot provide assurance that the travel voucher data they 
provided us contain complete data on fiscal years 2001 and 2002 
vouchers. Further, we were not able to obtain assurance that the 
services accurately coded all airfare payments claimed on the travel 
vouchers as transportation expenses and not as other miscellaneous 
expenses. Finally, the Air Force did not provide us with data in the 
format we requested. Consequently, we were unable to analyze Air Force 
data.

Evaluate Effectiveness of Internal Controls Over Airline Ticket 
Issuance: 

To assess whether internal controls were effective to prevent the CTO 
from issuing unauthorized airline tickets on the basis of invalid 
travel orders, we obtained an understanding of the travel process by 
reviewing DOD's financial and travel regulations. We visited two Army 
units, three Navy units, three Air Force units, and two Marine Corps 
units to confirm our understanding of the travel process. We also 
interviewed DOD officials at the GTOs and representatives of the CTOs 
to obtain an understanding of the process used to issue tickets, 
perform reconciliation between Bank of America invoices and CTO's 
records, file disputes, and make payments to Bank of America for the 
centrally billed account invoices.

We tested a statistical sample of 96 airline ticket transactions to 
determine whether (1) the CTO issued airline tickets only on the basis 
of valid travel orders and (2) DOD paid for airline tickets on the 
basis of valid travel orders. The population from which we selected our 
airline ticket transactions for testing was the set of airline ticket 
transactions charged to the centrally billed accounts at five locations 
during fiscal years 2001 and 2002. The five locations comprise one Air 
Force, one Army, one Marine Corps, one Navy, and one DFAS location. The 
locations were selected based on the number and amount of airline 
tickets charged to the centrally billed account activities. Because our 
objective was to test controls over airline ticket purchases, we 
excluded credits and miscellaneous debits (such as fees) from the 
population of airline ticket transactions.

For each transaction sampled, we requested that DOD provide us with the 
travel order, travel voucher, travel itinerary, delegation of authority 
to approve travel order, obligation document, reconciliation package, 
and other related supporting documentation. Based on the information 
DOD provided, we assessed whether the travel order was signed by the 
properly designated official before an airline ticket was issued on the 
travel order, and whether an obligation was created for the airline 
ticket in the services' accounting system before the Bank of America 
invoice was prevalidated. For those transactions for which DOD was 
unable to provide us with supporting documentation to demonstrate that 
the travel order was approved by a properly designated authorizing 
official, or that an obligation existed, we considered the transaction 
to have failed the proper issuance or proper payment test, 
respectively. The results of the samples of these control attributes 
can be projected to the population of airline ticket transactions at 
these five locations, but not to individual services or locations, or 
to DOD as a whole.

With this statistically valid 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 airline ticket transactions in the population, including those 
that were not selected. Because we followed a probability procedure 
based on random selections, our sample was 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 7 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 airline transactions charged to the 
centrally billed accounts have sampling errors (confidence interval 
widths) of plus or minus 10 percentage points or less. Table 6 
summarizes the results of our testing.

Table 6: Estimated Failure Rates for Control Tests for Fiscal Year 2001 
and 2002 Airline Ticket Transactions: 

Key purchase card control: Travel order provided and signed by a 
properly authorized approving official; 
Point estimate[A]: 82%.

Key purchase card control: Obligation data provided and obligation 
existed for airline tickets prior to prevalidation of Bank of America 
invoice; 
Point estimate[A]: 48%.

Source: GAO analysis of DOD documentation.

[A] These are point estimates for the populations based on our 
statistical sample.

[End of table]

Because of the potential impact of a weak internal control process, we 
conducted additional investigative work to determine the significance 
of those control weaknesses. Specifically, we designed a test to 
determine if someone who did not work for DOD could obtain an airline 
ticket from a CTO using on a fictitious travel order and without 
entering a DOD facility. We also wanted to test whether DOD would 
authorize payment for an airline ticket requested in this manner. To 
perform this test, we completed a DOD travel order using fictitious 
names for the traveler and approving official. We then called a DOD CTO 
from a telephone not associated with a government facility requesting a 
round trip airline ticket from Washington, D.C., to Atlanta, Ga., and 
faxed the CTO the travel order we generated. Several days before our 
scheduled travel the CTO notified us that the ticket had been issued. 
On the day of the scheduled flight, we went to the airline's ticket 
counter at the airport to pick up a boarding pass. We then obtained and 
reviewed the CTO's reconciliation for the Bank of America invoice 
containing the ticket and DFAS payment records to determine whether an 
obligation was recorded. We also monitored the centrally billed account 
to determine whether a credit was issued for the unused portion of the 
airline ticket we requested.

Other Control Weaknesses: 

To assess whether other control weaknesses contributed to the centrally 
billed accounts being compromised and fraudulently used, we obtained an 
understanding of the safeguards over the centrally billed accounts and 
the process used to dispute airline ticket transactions that the CTOs 
identified as being unauthorized at the 11 locations we visited. We 
data mined centrally billed accounts data provided by Bank of America 
for airline ticket transactions that could be potentially fraudulent. 
We asked DOD to provide us with supporting documentation and 
explanations on the potentially fraudulent airline ticket transactions. 
We also reviewed the reconciliation packages associated with the 96 
statistical sample transactions we tested to determine whether DOD 
properly filed disputes for airline ticket transactions the CTOs 
identified as being unauthorized.

We briefed DOD managers, including DOD officials in the Office of the 
Under Secretary of Defense (Comptroller), DFAS, and the Office of the 
Inspector General; Army officials in the Office of Deputy Chief of 
Staff for Logistics; Navy officials in the Office of the Assistant 
Secretary of the Navy for Financial Management and Comptroller; Air 
Force officials in the Office of the Deputy Chief of Staff for 
Installations and Logistics; and Marine Corps officials in the Office 
of Deputy Chief of Staff for Installations and Logistics concerning the 
results of our work. On April 19, 2004, we requested comments on a 
draft of this report from the Secretary of Defense or his designee. We 
conducted our audit work from June 2003 through May 2004 in accordance 
with U.S. generally accepted government auditing standards.

[End of section]

Appendix II: Comments from the Department of Defense: 

UNDER SECRETARY OF DEFENSE 
1100 DEFENSE PENTAGON 
WASHINGTON, DC 20301-1100:

COMPTROLLER:

Mr. Gregory D. Kutz: 
Director:

Financial Management and Assurance: 
U.S. General Accounting Office 
Washington, DC 20548:

Dear Mr. Kutz:

This is the Department of Defense (DoD) response to the General 
Accounting Office (GAO) Draft Report, "DoD Travel Cards: Control 
Weaknesses Resulted in Millions of Dollars of Improper Payments," dated 
April 19, 2004, (GAO Code 192119/GAO-04-576). The DoD concurs with the 
11 recommendations in the draft report and is already taking action to 
correct the noted deficiencies.

The Department appreciates the opportunity to comment on the draft 
report. My staff point of contact is Ms. Barbara Rice. She may be 
reached by email at barbara.rice@osd.mil or by telephone at (703) 697-
3192.

Sincerely,

Signed by: 

Lawrence J. Lanzillotta, 
Acting:

Enclosure: As stated:

GAO DRAFT REPORT DATED APRIL 19, 2004 GAO-04-576 (GAO CODE 192119):

"DOD TRAVEL CARDS: CONTROL WEAKNESSES RESULTED IN MILLIONS OF DOLLARS 
OF IMPROPER PAYMENTS":

DEPARTMENT OF DEFENSE COMMENTS TO THE GAO RECOMMENDATIONS:

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to periodically issue guidance to military 
and civilian personnel reminding them that the cost of airfare expenses 
purchased with a centrally billed account should not be claimed as a 
reimbursable expense on travel vouchers, and of the potential penalties 
for doing so.

(p. 36/GAO Draft Report):

DOD RESPONSE: Concur. The Comptroller will issue guidance to the 
Secretaries of the Army, Navy, and Air Force as well as heads of all 
DoD agencies to remind their military and civilian personnel to not 
claim centrally billed account (CBA) purchases on travel vouchers and 
to return unused airline tickets to their activities. A system 
modification to the Defense Travel System (DTS) has been generated to 
notify the traveler that the cost of air and rail tickets is not 
reimbursable to the individual if the tickets were paid for using the 
CBA. Expected completion date is May 31, 2004.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to direct the CTOs to mark all airline 
tickets purchased with a centrally billed account as "non-
reimbursable." (p. 37/Draft Report):

DOD RESPONSE: Partially concur. The DoD believes that marking all 
airline tickets purchased with a centrally billed account as 'non-
reimbursable' is not feasible. The ticketing by the CTO occurs at the 
beginning or midway in the travel process. The reminder of 'non-
reimbursement' should be accomplished prior to submission of the 
traveler's settlement. In today's environment, the majority of airline 
tickets are e-tickets vice paper tickets. On occasions where a paper 
ticket is issued, the traveler's ticket is exchanged for a boarding 
pass. Additionally, the CTOs can not exercise control over what data 
and information the airline-specific reservation system imprints on a 
paper ticket. A memorandum from the Acting Under Secretary of Defense 
(Acquisition, Technology, and Logistics) (USD (AT&L)) will be 
distributed by May 31, 2004, to the Secretaries of the Army, Navy, and 
Air Force as well as the heads of DoD agencies to require CTOs to 
include a statement on travelers' itineraries to indicate whether the 
ticket was purchased using a CBA or individually billed account (IBA). 
The target completion date is August 15, 2004, but it is possible that 
some CTO contract modifications could take longer. The contract 
modifications for CTOs servicing activities using DTS will be 
in two phases. The first phase of the contract modifications for CTOs 
servicing activities will be the DTS Small Business CTO solicitation. 
This is planned for award during the fourth quarter of fiscal year (FY) 
2004 with implementation beginning first quarter FY 2005. The second 
phase is the award of the DTS Worldwide solicitations and is planned to 
follow during second quarter of FY 2005.

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to periodically issue guidance to DFAS 
officials responsible for processing travel vouchers instructing them 
on how to determine if an airline ticket was purchased with a centrally 
billed account or an individually billed account. (p. 37/Draft Report):

DOD RESPONSE: Concur. The Defense Finance and Accounting Service (DFAS) 
processes travel vouchers for the majority of the Army and Defense 
Agencies and is evaluating options to identify airline tickets 
purchased on the CBA or an IBA. A collaborative approach is being 
evaluated for those Military Components where travel claims are 
approved and reimbursements are calculated by that Component. It is 
anticipated that the evaluation for all Components will be completed by 
October 31, 2004.

RECOMMENDATION 4: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to consider taking disciplinary action 
against employees who submit or allow the submission of falsely stated 
travel vouchers, and, if warranted, refer to the U.S. Attorney for 
further consideration. (p. 37/Draft Report):

DOD RESPONSE: Concur. Employees are already subject to appropriate 
disciplinary or administrative actions in cases of fraud against the 
Government. This includes referral for criminal prosecution either 
under the Uniform Code of Military Justice, in the case of military 
personnel, or to the appropriate United States Attorney for 
prosecution, in the case of civilian personnel. Commanders and 
supervisors are expected to be aware of these remedies in cases of 
fraud against the government committed by military personnel or 
civilian employees. It is also expected that commanders and supervisors 
would take appropriate disciplinary or administrative action in cases 
of demonstrable fraud. The Department will evaluate whether it is 
necessary to remind commanders and supervisors of the procedures that 
already exist to impose administrative or disciplinary action in cases 
of submission of fraudulent travel vouchers. Estimated completion date 
is September 30, 2004.

RECOMMENDATION 5: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to send collection letters requesting 
reimbursements to all travelers identified as having been paid for 
airline tickets they did not purchase, and follow-up to ensure that 
they reimburse the government for the improper payments. (p. 37/Draft 
Report):

DOD RESPONSE: Concur. The Defense Finance and Accounting Service 
(DFAS), Travel Card Program Management Office (TCPMO), in conjunction 
with the Military Components and Defense Agencies, is sending 
collection letters to travelers identified as having been reimbursed 
for airline tickets they did not purchase. The DFAS will continuously 
follow-up to ensure that the government is reimbursed for the improper 
payments.

RECOMMENDATION 6: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy and Air Force as well as the heads 
of all DoD agencies to review the 27,000 instances of potential 
improper payments that the GAO referred to in this report and determine 
whether DoD improperly paid those travelers for airline tickets 
purchased with the centrally billed account. If DoD made improper 
payments, the GAO recommended taking actions as necessary to recover 
the costs of the airline tickets. (p. 37/Draft Report):

DOD RESPONSE: Concur. The DFAS TCPMO has coordinated with the GAO to 
receive information concerning the 27,000 transactions and will 
disseminate it to the respective components/agencies for review and 
collection of improper payments. The estimated completion date is 
December 31, 2004.

RECOMMENDATION 7: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy and Air Force as well as the heads 
of all DoD agencies to determine the feasibility of establishing 
control procedures to validate the authenticity of travel orders prior 
to issuing airline tickets with a centrally billed account. (p. 38/
Draft Report):

DOD RESPONSE: Concur. The DTS is currently deployed and operational at 
over 2000 sites. Full operating capability is expected to be achieved 
in FY 2006. DTS provides automated certification that requires 
electronic authenticity of travel orders by specific approving 
officials. For those components not currently using DTS, a memorandum 
from the Acting USD (AT&L) will be distributed by May 31, 2004, to the 
Secretaries of the Army, Navy, and Air Force as well as the heads of 
DoD agencies to establish a collaborative effort to evaluate the 
feasibility of establishing control procedures to validate the 
authenticity of travel orders prior to issuing airline tickets with a 
centrally billed account. If non-DTS control procedures are deemed to 
be feasible, specific procedures will be identified, developed, and 
promulgated with a target completion date of August 15, 2004.

RECOMMENDATION 8: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to instruct the CTO that it can use a 
centrally billed account to purchase airline tickets only if the CTO 
can obtain reasonable assurance that the travel order was properly 
authorized. If the CTO cannot obtain such reasonable assurance, the GAO 
recommends the CTO direct the traveler to purchase the ticket with his 
or her DoD individually billed account travel card. (p. 38/Draft 
Report):

DOD RESPONSE: Concur. The DoD agrees that instructions should be 
provided to the CTOs to use CBAs only if reasonable assurance can be 
obtained that the travel order is properly authorized. The Department 
will evaluate the alternatives available for the CTOs to ensure travel 
orders are properly authorized and to the extent possible implement 
procedures until such time DTS is fully deployed. This will be 
undertaken in conjunction with the effort described in the response to 
Recommendation 7; therefore the estimated completion date to determine 
feasibility and to identify methods of assurance is August 15, 2004. 
The CTO contract modifications, if required, could take longer. Once 
DTS is fully deployed, it will generate authorizations that are 
digitally authenticated and are in full compliance of DoD policies and 
guidelines. The CTO will have complete assurance that these 
authorizations may be used for payment of travel services under a 
centrally billed account, or an individually billed account, as 
applicable. Full operating capability of DTS is expected to be achieved 
in FY 2006.

RECOMMENDATION 9: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to consider the feasibility of prohibiting 
DFAS from establishing an obligation for airline tickets purchased with 
centrally billed accounts that fail DFAS' prevalidation process without 
obtaining positive confirmation that an obligation should be 
established from the unit that authorized the travel. (p. 38/Draft 
Report):

DOD RESPONSE: Concur. The DFAS will study the feasibility of 
prohibiting the establishment of an obligation for airline tickets 
purchased with centrally billed accounts that failed DFAS' 
prevalidation process without obtaining positive confirmation that an 
obligation should be established from the unit that authorized the 
travel. This must be viewed in the scope of the Prompt Pay Act to 
ensure that increases in interest payments are not the unintended 
result. The estimated completion date is December 31, 2004.

RECOMMENDATION 10: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to direct CTOs to stop printing the centrally 
billed account number in its entirety on travel itineraries and any 
other documents that are accessible by individuals who do not need to 
know the account number. (p. 39/Draft Report):

DOD RESPONSE: Concur. Discussions and CTO contract modifications are 
underway to ensure that CTOs do not print centrally billed account 
numbers on travel itineraries or other documents. In addition, a 
memorandum from the Acting USD(AT&L) directing this will be distributed 
to the Secretaries of the Army, Navy, and Air Force, and to the heads 
of Defense agencies by May 31, 2004. Implementation dates will vary 
depending on difficulty of negotiating CTO contract modifications. The 
DTS Small Business CTO solicitation is planned for award during the 
fourth quarter of FY 2004 with implementation beginning first quarter 
FY 2005. The award of the DTS Worldwide solicitations are planned to 
follow during second quarter of FY 2005.

RECOMMENDATION 11: The GAO recommended that the Secretary of Defense 
direct the Secretaries of Army, Navy, and Air Force as well as the 
heads of all DoD agencies to establish procedures to ensure that all 
airline ticket transactions identified as discrepancies by the CTOs are 
properly disputed, including performing any necessary follow-up actions 
to assure that DoD receives appropriate credits. (p. 39/Draft Report):

DOD RESPONSE: Concur. A memorandum from the Acting (USD(AT&L) 
emphasizing the procedures to ensure that all airline ticket 
transactions identified as discrepancies by the CTOs are properly 
disputed and follow-up actions are performed will be distributed to the 
Secretaries of the Army, Navy, and Air Force, and to the heads of 
Defense agencies by May 31, 2004. The Department has notified employees 
through comments on their leave and earnings statement of their 
responsibilities to return unused airline tickets to their activities 
and will be publishing an update to the Department of Defense Financial 
Management Regulation (DoDFMR), Volume 9. The estimated completion date 
is September 30, 2004. Additionally, the DTS CBA reconciliation module 
includes the capability to match travel vouchers to tickets. This 
reconciliation module is currently being tested operationally at 
certain pilot sites, with an anticipated release for deployment in the 
fourth quarter of FY 2004. It should be noted that this capability is 
applicable only if DTS is used end-to-end (i.e. tickets are obtained 
through DTS and the DTS CBA reconciliation module is used to certify 
payment). The goal is for all DoD entities to be using this DTS 
capability by FY 2006. 

[End of section]

Appendix III: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

John V. Kelly, (202) 512-6926 
Quan Thai, (206) 287-4889: 

Acknowledgments: 

Staff making key contributions to this report were Beverly Burke, 
Matthew Brown, Francine DelVecchio, Aaron Holling, Jeffrey Jacobson, 
Barbara Lewis, Julie Matta, Kristen Plungas, John Ryan, and Sidney H. 
Schwartz.

(192119): 

FOOTNOTES

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

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

[3] U.S. General Accounting Office, Travel Cards: Internal Control 
Weaknesses at DOD Led to Improper Use of First and Business Class 
Travel, GAO-04-88 (Washington, D.C.: Oct. 24, 2003) and Travel Cards: 
Internal Control Weaknesses at DOD Led to Improper Use of First and 
Business Class Travel, GAO-04-229T (Washington, D.C.: Nov. 6, 2003).

[4] U.S. General Accounting Office, DOD Travel Cards: Control 
Weaknesses Led to Millions of Dollars Wasted on Unused Airline Tickets, 
GAO-04-398 (Washington, D.C.: Mar. 31, 2004).

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

[6] The centrally billed account program consists of two components: 
transportation cards and unit cards. Centrally billed account 
transportation cards are used to purchase transportation, such as 
airline and train tickets, and account for about 97 percent of the 
money spent with centrally billed accounts. Centrally billed account 
unit cards are used to pay for different types of travel expenses, 
including hotels and meals, and account for less than 3 percent of 
money spent with centrally billed accounts. Because DOD did not spend 
much money with unit cards, we did not specifically review the internal 
controls over the unit cards. 

[7] GAO-04-398.

[8] GAO-04-398.

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

[10] The amount and type of obligation that DFAS can create also 
depends on its agreement with each service.

[11] Of the roughly $10.8 billion in travel and transportation expenses 
incurred by DOD in fiscal years 2001 and 2002, about $2.8 billion were 
for charges to centrally billed accounts. The remaining $8.0 billion 
was for airline and other transportation expenses such as hotels, per 
diem, car rentals, and other miscellaneous expenses that many travelers 
would have charged to their individually billed accounts, or, if they 
did not have individually billed accounts, paid using other means. 

[12] Air Force Audit Agency, Centrally Billed Accounts for Travel, 
F2003-0003-FB1000 (Washington, D.C., Apr. 24, 2003).

[13] U.S. Department of Defense, Office of the Inspector General, 
Allegations to the Defense Hotline on the Management of the Defense 
Travel System, Report No. D-2002-124 (Arlington, Va.: July 1, 2002).

[14] Department of Defense Appropriations Act, 1995, Pub. L. No. 103-
335, §8137, 108 Stat. 2599, 2654 (Sept. 30, 1994).

[15] DOD's financial regulations require that DOD components record an 
obligation within 10 days of an obligation having been incurred. 

[16] Upon receipt of the Bank of America invoice, the CTO reconciles 
ticket charges on the invoice to records of tickets they issued. To 
test whether DOD filed disputes for all transactions that should be 
disputed, we reviewed the reconciliation packages associated with the 
96 statistical sample transactions. 

[17] Upon receipt of a disputed transaction, the Bank of America issues 
a provisional credit while it researches the merits of the dispute. 
Depending on the results of the research, the Bank of America reverses 
the provisional credit and either provides a refund or affirms the 
original charge.

[18] GAO-02-863T and GAO-03-148T.

[19] GAO-03-169, GAO-03-147, and GAO-03-298.

[20] U.S. General Accounting Office, DOD Travel Cards: Control 
Weaknesses Led to Millions of Dollars Wasted on Unused Airline Tickets, 
GAO-04-398 (Washington, D.C.: Mar. 31, 2004).

[21] Department of Defense Appropriations Act, 2003, Pub. L. No. 107-
248, 116 Stat. 1519 (2002), and the Bob Stump National Defense 
Authorization Act for Fiscal Year 2003, Pub. L. No. 107-314, 116 Stat. 
2458 (2002).

[22] National Defense Authorization Act for Fiscal Year 2004, Pub. L. 
No. 108-136, 117 Stat. 1392 (2003).

[23] Split disbursement is a process in which DOD pays the travel-card-
issuing bank directly for charges incurred on the travel card and 
claimed on the travel voucher. Additional money owed to the traveler is 
deposited directly into the traveler's bank account. Split 
disbursements are mandatory for all military and civilian personnel. 
See the National Defense Authorization Act for Fiscal Year 2004, Pub. 
L. No. 108-136, § 1009, 117 Stat. 1392, 1587 (2003), 10 U.S.C. § 2784a.

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