oversight

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

Published by the Government Accountability Office on 2003-11-06.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             United States General Accounting Office

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




For Release on Delivery
Expected at 2:00 p.m. EST
Thursday, November 6, 2003
                             TRAVEL CARDS
                             Internal Control
                             Weaknesses at DOD Led to
                             Improper Use of First and
                             Business Class Travel
                             Statement of Gregory D. Kutz

                             Director, Financial Management and Assurance



                             John J. Ryan

                             Assistant Director, Office of Special Investigations



                             John V. Kelly

                             Assistant Director, Financial Management and Assurance





GAO-04-229T

                             A

                                                November 6, 2003


                                                TRAVEL CARDS

                                                Internal Control Weaknesses at DOD Led
                                                to Improper Use of First and Business
Highlights of GAO-04-229T, a testimony
before the Permanent Subcommittee on            Class Travel
Investigations, Committee on
Governmental Affairs, United States
Senate




                                                Breakdowns in internal controls and a weak control environment resulted in
Long-standing financial                         a significant level of improper premium class travel and millions of dollars of
management problems, coupled                    unnecessary costs being incurred annually. Based on extensive analysis of
with ineffective oversight and                  records obtained from DOD’s credit card issuer—Bank of America, GAO
management of the Department of                 found that for fiscal years 2001 and 2002, DOD spent almost $124 million on
Defense’s (DOD) travel card
program, which GAO has
                                                about 68,000 premium class tickets that included at least one leg of premium
previously reported on, have led to             class service, primarily business class. To put the $124 million into
concerns about DOD’s use of first               perspective it exceeded the total travel expenses—including airfare, lodging,
and business class airfares. At the             and meals—spent by each of 12 major CFO agencies. The price difference
request of this Subcommittee,                   between a premium class ticket and a coach class ticket ranged from a few
Senator Grassley, and                           dollars to thousands of dollars.
Representative Schakowsky, GAO
performed work to identify                      Based on statistical sample testing, GAO estimated that 72 percent of DOD’s
problems in DOD’s controls over                 fiscal year 2001 and 2002 premium class travel was not properly authorized,
premium class travel. This                      and that 73 percent was not properly justified. GAO estimated that senior
testimony focuses on (1) the extent             civilian and military employees accounted for almost 50 percent of premium
of DOD premium class travel,
(2) the effectiveness of key internal
                                                class travel. Further, our data mining showed that 27 of the 28 most frequent
control activities and examples of              premium class travelers were senior DOD officials. The table below
improper premium class travel                   provides examples of unauthorized and/or unjustified premium class travel
resulting from internal control                 compared to what the travel would have cost using coach class tickets.
breakdowns, and (3) DOD ‘s                      Examples of Improper Premium Class Travel
control environment over premium                                 Cost of      Estimated
class travel.                                    Rank/grade     premium    cost of coach
                                                 of traveler  class trips     class trips Reason travel was improper
In a companion report being issued               GS-15           $35,000          $7,000 Traveler approved own first class travel based on
                                                                                           medical condition that was later determined to not
today, GAO made numerous                                                                   meet stringent first class criteria.
recommendations—that DOD                         Presidential     68,000          17,000 First and business class travel was authorized by a
concurred with—to strengthen key                 appointee                                 subordinate using a blanket order.
internal control activities and                  GS-14 and        21,000            2,500	 The travel order authorizing relocation costs for the
improve the overall control                      family                                    traveler and his family did not authorize premium
                                                                                           class travel.
environment.
                                                 GS-15             3,300              250 First class ticket not authorized by the Secretary of
                                                                                           Defense or designee as required.
                                                 GS-15             4,500              600 18 months after the trip, traveler’s supervisor (not a
                                                                                           medical authority) provided a note regarding a
                                                                                           medical need as the justification for business class.
                                                Source: GAO.



                                                Lack of oversight and a weak overall control environment characterized
                                                DOD’s management of premium class travel. DOD and the military services
                                                (1) did not have accurate and complete data on the extent of premium class
                                                travel, (2) issued inadequate policies on premium class travel that were
                                                inconsistent with government travel regulations and with each other, (3) did
                                                not issue guidance on how to document the authorization and justification of
www.gao.gov/cgi-bin/getrpt?GAO-04-229T.
                                                premium class travel, and (4) performed little or no monitoring of this travel.
                                                During the course of our audit, DOD began updating its travel regulations to
To view the full product, including the scope   more clearly articulate and to make more stringent the circumstances under 

and methodology, click on the link above. 

For more information, contact Gregory Kutz at
                                                which premium class travel can be authorized.

(202) 512-9095 or kutzg@gao.gov.
Mr. Chairman, Members of the Subcommittee, Senator Grassley, and
Representative Schakowsky:

Thank you for the opportunity to discuss the Department of Defense’s
(DOD) management of premium class travel acquired using centrally billed
accounts. Our related report,1 released today and developed at the request
of this Subcommittee, Senator Grassley, and Representative Schakowsky,
describes the problems we identified in DOD’s controls over premium class
travel. These problems are illustrative of DOD’s long-standing financial
management problems, which are pervasive, complex, and deeply rooted in
virtually all business operations throughout the department. Such
problems led us in 1995 to put DOD financial management on our list of
high-risk areas—those that are highly vulnerable to fraud, waste, and
abuse—a designation that continues today.2 Due to these vulnerabilities,
and our identification of fraud, waste, and abuse in a series of testimonies3
and reports4 we issued in fiscal years 2002 and 2003 on DOD’s individually
billed travel cards, you asked us to audit controls over the other major form
of payment used by DOD for travel expenses—centrally billed accounts.

The centrally billed accounts are used by most DOD services and units to
purchase transportation services such as airline and train tickets, facilitate
group travel, and procure other travel-related expenses,5 while the
individually billed accounts are used by individual travelers for lodging,

1
 U.S. General Accounting Office, Travel Cards: Internal Control Weaknesses at the DOD
Led to Improper Use of First and Business Class Travel, GAO-04-88 (Washington, D.C., Oct.
24, 2003).
2
 U.S. General Accounting Office, High-Risk Series: An Overview, GAO/HR-95-1
(Washington, D.C.: February 1995), and High-Risk Series: An Update, GAO-03-119
(Washington, D.C.: January 2003).
3
 U.S. General Accounting Office, Travel Cards: Control Weaknesses Leave Army
Vulnerable to Potential Fraud and Abuse, GAO-02-863T (Washington, D.C.: July 17, 2002),
and Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse, GAO-
03-148T (Washington, D.C.: Oct. 8, 2002).
4
 U.S. General Accounting Office, Travel Cards: Control Weaknesses Leave Army
Vulnerable to Potential Fraud and Abuse, GAO-03-169 (Washington, D.C.: Oct. 11, 2002),
Travel Cards: Control Weaknesses Leave Navy Vulnerable to Fraud and Abuse, GAO-03-
147 (Washington, D.C.: Dec. 23, 2002), and Travel Cards: Air Force Management Focus Has
Reduced Delinquencies, but Improvements in Controls Are Needed, GAO-03-298
(Washington, D.C.: Dec. 20, 2002).
5
 The Air Force is an exception to this general rule. The Air Force equally uses both centrally
billed and individual billed accounts for purchasing airline transportation.




Page 1                                                                          GAO-04-229T
           rental cars, and other travel expenses. For fiscal years 2001 and 2002, DOD
           travelers incurred $7.1 billion in expenses on the centrally billed and
           individually billed travel card accounts, with about $2.8 billion related to
           the use of centrally billed accounts.

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

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



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

           During those fiscal years, breakdowns in key internal controls activities at
           DOD resulted in a significant level of improper premium class travel. The
           two basic internal control activities we tested—proper authorization and
           proper justification—were ineffective. Based on our statistical sample, we
           estimated that 72 percent of all premium class tickets were not authorized



           Page 2                                                             GAO-04-229T
and 73 percent were not justified—and therefore improper. Because of the
weaknesses we identified in the control environment and the breakdown in
specific internal control activities, DOD did not detect these improper
transactions. As each premium class ticket cost the government up to
thousands of dollars more than a coach class ticket, unauthorized premium
class travel resulted in millions of dollars of unnecessary costs being
incurred annually.

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

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




Page 3                                                            GAO-04-229T
Extent of Premium   As shown in table 1, DOD spent nearly $124 million on airline tickets that
                    included at least one leg of premium class service during fiscal years 2001
Class Travel Is     and 2002. However, because DOD did not maintain centralized data on
Significant         premium class travel, we had to extract these data from Bank of America’s
                    databases of DOD centrally billed account travel, which included over 5.3
                    million transactions for airline tickets valued at over $2.4 billion. Due to
                    limitations in the information collected on individual transactions, we were
                    unable to determine the amount of premium class travel by military service
                    or the amount of premium class travel used for domestic versus overseas
                    flights.



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

                                                                              Number of        Dollar amounts
                                                                            transactions        (in thousands)
                    First class                                                      1,240               $2,898
                    Business class                                                 66,850              $120,947
                    Total premium travel                                           68,090              $123,845
                    Source: GAO analysis of Bank of America data.

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


                    DOD’s premium class air travel accounted for a very small percentage of
                    DOD travel overall6—about 1 percent of total DOD airline transactions and
                    5 percent of total DOD dollars spent on airline travel. However, to put the
                    $124 million that DOD spent on premium class travel in perspective, the
                    amount DOD spent on premium class-related travel during these 2 fiscal
                    years exceeded the total travel and transportation expenses—including
                    airfare, lodging, and meals—spent by each of 12 major agencies covered by
                    the Chief Financial Officers Act of 1990, including the Social Security
                    Administration; the Departments of Energy, Education, Housing and Urban
                    Development, and Labor; and the National Aeronautics and Space
                    Administration.

                    The difference between the price of a premium class ticket and a
                    comparable coach class ticket can range from negligible—particularly if


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




                    Page 4                                                                         GAO-04-229T
                   the traveler traveled within Europe—to thousands of dollars. In one
                   instance, a traveler’s first class flight between Washington, D.C., and Los
                   Angeles was 14 times, or about $3,000 more than, the price of a comparable
                   coach class flight at the government fare.

                   Higher-ranking civilian personnel and military officials accounted for a
                   large part of premium class travel. Based on our statistical sample, we
                   estimated that DOD civilian employees under the General Schedule (GS)
                   grade GS-13 to GS-15 (supervisors and managers), Senior Executive
                   Service (SES) (career senior executives), presidential appointees with
                   Senate confirmation, and DOD senior military officers O-4 and above
                   accounted for almost 50 percent of premium class travel. GAO’s Guide for
                   Evaluating and Testing Controls Over Sensitive Payments7 considers
                   travel by high-ranking officials, in particular senior-level executives, to be a
                   sensitive payment area because of its susceptibility to abuse or
                   noncompliance with laws and regulations.



Internal Control   Control activities occur at all levels and functions of an agency. They
                   include a wide range of diverse activities such as authorizations, reviews,
Activities Not     approvals, and the production of records and documentation. For first and
Effectively        business class travel, we tested control activities designed to provide
                   assurance that premium class travel transactions are (1) authorized and
Implemented        (2) justified in accordance to the Federal Travel Regulation (FTR), issued
                   by GSA to implement travel policies for federal civilian employees and
                   others authorized to travel at government expense, and DOD’s travel
                   regulations, including the Joint Federal Travel Regulations (JFTR), which
                   applies to uniformed service members, and the Joint Travel Regulations
                   (JTR), which applies to DOD civilian personnel who are subject to GSA’s
                   travel regulation. These regulations generally require that premium class
                   travel be specifically authorized in advance of travel and only under
                   specific circumstances. (See app. I for further details of GSA and DOD
                   premium class travel regulations.) For example, although FTR and DOD
                   travel regulations allow premium class travel when the scheduled flight
                   time is in excess of 14 hours, these regulations prohibit use of premium
                   class accommodation if the traveler has scheduled rest stops.




                   7
                   GAO/AFMD-8.1.2.




                   Page 5                                                              GAO-04-229T
In addition to the FTR and DOD regulations, we also applied the criteria set
forth in our internal control standards8 and sensitive payments guidelines9
in evaluating the proper authorization of premium class travel. For
example, while DOD travel regulations and policies do not address the
issue of subordinates authorizing their supervisors’ premium class travel,
our internal control standards consider such a policy to be flawed from an
independence viewpoint. Therefore, a premium class transaction that was
approved by a subordinate would fail the controls over authorization test.
Using these guidelines, we estimated, based on our statistical sample, that
an estimated 72 percent of the DOD centrally billed travel transactions
containing premium class travel for fiscal years 2001 and 2002 were not
properly authorized and that an estimated 73 percent were not properly
justified.



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

                                                                                                   Estimated
                                                                                              percentage failure
                                                                                              rate in key internal
Control test                                                                                        controls
Not properly authorized by a designated official at equal or                                                         72
higher rank/grade to the traveler
• Premium class travel was not specifically authorized on the                                         64
  travel order or other supporting documentation
• Travel order authorizing premium class travel was not signed                                         6
• Premium class travel was authorized by a subordinate                                                 2
Not properly justified                                                                                               73
Source: GAO analysis of DOD premium class travel transactions and supporting documentation.

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


As shown in table 2, an estimated 64 percent of premium class transactions
did not contain travel orders that specifically authorized the traveler to fly
premium class, and thus the commercial travel office—a travel agency—


8
GAO/AIMD-00-21.3.1.
9
GAO/AFMD-8.1.2.




Page 6                                                                                                 GAO-04-229T
should not have issued the premium class ticket. Another 6 percent of
premium class transactions were related to instances where the travel
order authorizing business class was not signed (left blank) or the travel
order authorizing first class was not signed by the service secretary or his
or her designee, as required by DOD regulations. If the travel order is not
signed, or not signed by the individual designated to do so, DOD has no
assurance that the substantially higher cost of the premium class tickets
was properly reviewed and represented an efficient use of government
resources. We also estimated that 2 percent of the premium class
transactions involved situations where a subordinate approved a superior’s
travel. Although these limited instances do not necessarily indicate the
existence of a significant systemic problem, allowing subordinates to
approve their supervisors’ premium class travel is synonymous with self-
approval and reduces scrutiny of premium class requests.

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

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




Page 7                                                            GAO-04-229T
                                           travel costs. For further details on the cases shown in table 3, as well as
                                           additional examples of unauthorized and/or unjustified transactions, please
                                           refer to the report that we released today on this subject.10



Table 3: Examples of Improper Use of Premium Class Travel

                                                               Cost of    Estimated
                                                              premium        cost of
                     Grade/                       Class of       ticket   coach fare
Traveler   Source    rank      Itinerary          ticket           paid       ticketa Reason for exception
1          Data      GS-14b    One-way from       First and    $20,943       $2,500c Travel order did not authorize use of
           mining              London to          business                           premium class travel. Traveler obtained
                               Honolulu for a                                        premium class tickets on the basis that these
                               family of four                                        tickets were issued to other permanent
                               for relocation                                        change of station (PCS) moves exceeding
                               purposes                                              14 hours in total travel time. Navy policy
                                                                                     excludes PCS move over 14 hours as a
                                                                                     condition under which premium class travel
                                                                                     can be authorized. Transaction failed
                                                                                     authorization and justification.
2          Statistical GS-13   San Diego to       Business       3,695         2,161 Travel order did not authorize business class
           sample              Busan, Korea,                                         travel. Transaction failed authorization and
                               and back                                              justification.
3          Statistical GS-13   San Francisco      Business       3,168          610c Travel order authorizing the traveler to fly
           sample              to Tokyo, and                                         business class on the basis that the flight
                               back                                                  exceeded 14 hours was not signed.
                                                                                     Transaction failed authorization and
                                                                                     justification.
4          Statistical GS-13   Tucson to          Business       8,308         4,966 Travel order contained authorization for
           sample              Bahrain and                                           traveler to fly business class on the basis
                               Bahrain to Los                                        that the flight lasted more than 14 hours.
                               Angeles                                               However, the traveler had a layover in
                                                                                     London on both the outbound and return
                                                                                     portions of the trip, which, per the FTR and
                                                                                     JTR, would have precluded the traveler from
                                                                                     traveling in premium class. Transaction
                                                                                     passed authorization but failed justification.
5          Statistical GS-15   Los Angles to First               3,253          238 First Class Ticket not authorized by the
           sample              Washington,                                          Secretary of Defense or designee as
                               D.C., and back                                       required.




                                           10
                                                GAO-04-88.




                                           Page 8                                                                       GAO-04-229T
(Continued From Previous Page)
                                                                                            Cost of      Estimated
                                                                                           premium          cost of
                                 Grade/                                    Class of           ticket     coach fare
Traveler        Source           rank            Itinerary                 ticket               paid         ticketa Reason for exception
6               Data             GS-15           Washington,               Business             4,525           570c	 Business class travel authorized but no
                mining                           D.C. to                                                              justification provided on the order. Over 18
                                                 Amsterdam,                                                           months after the trip occurred, the traveler’s
                                                 and back                                                             supervisor—not a physician—wrote a note
                                                                                                                      stating that he authorized premium class
                                                                                                                      based on a medical need. The traveler also
                                                                                                                      flew coach on a number of trips that lasted
                                                                                                                      longer than his flight from Washington D.C.
                                                                                                                      to Amsterdam. The traveler admitted that he
                                                                                                                      should not have traveled business class.
                                                                                                                      Transaction passed authorization but failed
                                                                                                                      justification.
7               Statistical Political            Washington,               Business             7,450         3,060c Business class travel authorized on basis
                sample      appointee            D.C. to                                                             that travel is mission essential, which is not a
                and data                         London, then                                                        DOD criterion for authorizing business class
                mining                           Paris to                                                            travel. Traveler was part of a group of 13
                                                 Moscow                                                              attending a conference in Moscow.
                                                                                                                     Transaction passed authorization but failed
                                                                                                                     justification.
Source: GAO analysis of premium class travel transactions and supporting documentation.
                                                                   a
                                                                       Source of estimated coach fares is GSA city pair or expedia.com.

                                                                   b
                                                                       GS designates General Schedule pay schedule.

                                                                   c
                                                                    Fares do not include all applicable taxes and airport fees.



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

                                                                   Some cases involving frequent travelers were questionable because the
                                                                   justification documentation was not adequate to determine whether the
                                                                   transaction met DOD’s criteria. We found that 12 of the 28 frequent
                                                                   premium class travelers justified their more expensive flights with a
                                                                   medical condition. However, we identified several anomalies in the



                                                                   Page 9                                                                                GAO-04-229T
                                           application of medical condition justification, as evidenced by travelers
                                           who used both coach and premium class accommodations during flights of
                                           similar duration and during the same time period. For example, frequent
                                           traveler 1 in table 4 took 14 premium and 31 coach class trips during fiscal
                                           years 2001 and 2002. Many of the coach class trips, for example, from
                                           Washington, D.C., to Honolulu or cities in California were similar in
                                           duration to premium class trips from Washington, D.C., to Frankfurt or
                                           Amsterdam. This may indicate that additional steps should be taken to
                                           verify the validity of the medical certification. During testing, an Army
                                           official at the Traffic Management Office informed us that his office
                                           forwards all medical certifications to the Surgeon General for an opinion
                                           before recommending to the Secretary of the Army that approval be
                                           granted for first class travel. For further details on the cases shown in table
                                           4, as well as additional examples of travelers who frequently used premium
                                           travel, please refer to the report that we released today.11



Table 4: Examples of Travelers Who Frequently Used Premium Travel

                      Number/
                        cost of Justification
           Grade/     premium provided for                   GAO’s concern with premium class               Response by traveler or
Traveler   rank     class trips premium travel               travel                                         traveler’s staff
1          GM-14    14/$88,000	 Doctor’s note claiming       Traveler took 45 flights—14 premium and        Traveler admitted to inconsistent
                                medical necessity did        31 coach class trips during fiscal years       application of medical necessity.
                                not indicate whether         2001 and 2002. Many coach class trips          Traveler considered extra room
                                premium class travel         were similar in duration to premium class      in business class to be more
                                was needed on all            trips.                                         comfortable for long flights.
                                flights or flights of
                                certain duration
2          PASa     17/$68,000	 First and business           1.  Blanket authorization was used to          The traveler's aide said that she
                                class travel justified           justify first and business class travel.   will get the Deputy Secretary's
                                through a blanket            2.	 Premium travel was authorized by a         approval for first class travel and
                                order based on a                 subordinate.                               only schedule the traveler for
                                medical condition            3. Traveler flew in coach class on some        first or business class when
                                                                 flights.                                   alternative seating is not
                                                             4. Medical certification not attached to       available.
                                                                 travel orders or vouchers, but a
                                                                 doctor’s note dated 9/11/2001 was
                                                                 provided a month after we
                                                                 requested additional documentation.




                                           11
                                                GAO-04-88.




                                           Page 10                                                                                 GAO-04-229T
(Continued From Previous Page)
                                    Number/
                                      cost of Justification
                Grade/              premium provided for                                  GAO’s concern with premium class              Response by traveler or
Traveler        rank              class trips premium travel                              travel                                        traveler’s staff
3               GS-15             11/$35,000 First class travel on                        Travel orders were not signed, but the        Traveler told us he was not
                                             domestic flights                             official authorizing first class travel was   aware that first class travel had
                                             justified through a                          the traveler himself. Further, first class    to be approved by the Under
                                             certification from                           travel was not authorized by the Under        Secretary of the Navy. Traveler
                                             medical authority                            Secretary of the Navy, as required by         is no longer authorized to fly first
                                                                                          Navy regulations.                             class based on medical
                                                                                                                                        condition.
4               SESb              10/$48,000	 Claimed mission                             1.   DOD travel regulations do not list       The traveler said that he did not
                                              essential, so that the                           mission essential as a basis to          make his flight arrangements.
                                              traveler would be                                justify premium class travel.            The traveler’s assistant had no
                                              ready for meetings                          2. 	 Some premium class flights were          explanation for why some
                                              upon arrival at                                  less than 14 hours.                      premium class trips were not
                                              destination                                 3. 	 Business class was taken on return       authorized, or why the specific
                                                                                               flights.                                 justification was not accurate.
                                                                                          4.	 Specific justification was not always     The traveler’s assistant said that
                                                                                               accurate, for example, justification     the traveler did not want to leave
                                                                                               for first class travel from              the day before to avoid the
                                                                                               Washington, D.C., to Tampa used to       additional cost of a business
                                                                                               support first class travel from          class flight.
                                                                                               Washington, D.C., to Atlanta.
Source: GAO analysis of premium class travel transactions and supporting documentation.
                                                                   a
                                                                    Presidential appointment with Senate confirmation.
                                                                   b
                                                                    Senior Executive Service appointment.




Weaknesses in Internal                                             GAO’s Standards for Internal Control12 states that a positive control
                                                                   environment is the foundation for all other standards. The importance of
Control Environment                                                the “tone at the top” or the role of management in establishing a strong
                                                                   control environment cannot be overstated. However, we found that prior
                                                                   to us initiating this audit, DOD had not taken actions to encourage a strong
                                                                   internal control environment over premium class travel. Specifically, DOD
                                                                   and the military services did not (1) maintain adequate and accurate
                                                                   premium class travel data, (2) issue adequate policies related to the
                                                                   approval of premium travel, (3) require consistent documentation to justify
                                                                   premium class travel, and (4) perform audits or evaluations of premium
                                                                   class travel and did not monitor training provided to travelers, authorizing
                                                                   officials, and commercial travel offices employees on governmentwide and
                                                                   DOD premium class travel regulations. During the course of our work,


                                                                   12
                                                                        GAO/AIMD-00-21.3.1.




                                                                   Page 11                                                                                     GAO-04-229T
                            DOD updated the JTR and JFTR in April 2003 to articulate more clearly and
                            to make more stringent the circumstances under which premium class
                            travel can be authorized.



DOD Did Not Maintain        The FTR requires DOD, along with all other executive and legislative
Centralized Management      branch agencies, to provide GSA annual reports listing all instances in
                            which the organization approved the use of first class transportation
Data on Premium Class
                            accommodations. We found that the Military Traffic Management
Travel                      Command (MTMC), responsible for tracking DOD’s first class travel,
                            understated DOD’s cost and frequency of first class travel reported to GSA.
                            According to DOD’s first class travel reports submitted to GSA for fiscal
                            years 2001 and 2002, DOD civilian and military personnel took less than
                            1,000 first class flight segments13 totaling less than $600,000. In contrast,
                            our analysis of the Bank of America airline transaction data indicates that
                            DOD purchased more than 1,240 tickets containing over 2,000 separate
                            segments with first class accommodations. Our analysis also found that
                            these first class tickets costs of about $2.9 million were almost 5 times the
                            amount DOD reported to GSA. We found that a number of cities were
                            omitted from DOD’s first class report. For example, while DOD data
                            indicated that no first class flights were taken into Washington, D.C., during
                            fiscal year 2001, Bank of America data identified 88 first class flights into
                            Washington D.C., during the same time period.

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



Control Environment Is      DOD travelers must follow a complicated array of premium class travel
Flawed by Inconsistencies   guidance. The applicability of specific regulations depends on whether the
                            traveler is civilian or military. For DOD civilians, GSA’s FTR governs travel
in Premium Class Travel
                            and transportation allowances. DOD’s JTR and individual DOD and
Guidance                    military service directives, orders, and instructions supplement the FTR.


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




                            Page 12                                                                           GAO-04-229T
For military personnel, DOD’s JFTR governs travel and transportation
allowances. Individual DOD and military service directives, orders, and
instructions supplement the JFTR. The executive branch policy on the use
of first class travel applicable to the FTR, JTR, and JFTR is found in OMB
Bulletin 93-11. When a subordinate organization issues an implementing
regulation or guidance, the subordinate organization may make the
regulations more stringent, but generally may not relax the rules
established by higher-level guidance.

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

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

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

•	 GSA’s FTR authorizes agencies to approve the use of first class or
   business class accommodations when required by an agency’s mission,
   but neither the JTR nor the JFTR adopt this authorization. In contrast,
   DOD’s policies on transportation and traffic management—DOD




Page 13                                                         GAO-04-229T
                             Directive 4500.9—states that the use of business class on domestic
                             travel14 may be authorized when necessitated by mission requirements.15

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



DOD Does Not Have a   Because premium travel is to be used only on an exception basis after all
Standard Format for   other alternatives have been exhausted, the documentation for
                      authorization and justification should be held to the highest standards to
Documenting Premium
                      provide reasonable assurance that in every case, the substantially higher
Class Travel          premium travel cost is warranted. The JTR and JFTR state that approval
                      for premium class travel should be obtained in advance of travel, except in
                      extenuating/emergency circumstances that make authorization impossible,
                      and specify the circumstances under which premium travel is to be
                      permitted. However, we found substantial inconsistencies in the
                      documentation trail indicating that appropriate officials approved premium
                      class travel based on inadequate documentation.

                      In contrast, other federal agencies have issued clear and consistent
                      guidelines related to the documentation of premium class travel. For
                      example, the Department of Agriculture approves the use of premium class
                      accommodations on a case-by-case basis and specifies that premium travel


                      14
                         DOD Directive 4500.56, DOD Policy on Use of Government Aircraft and Air Travel, last
                      updated April 19, 1999, states that all DOD travel outside the continental United States is
                      subject to the JTR and the JFTR.
                      15
                           DOD Directive 4500.9, Transportation and Traffic Management, ¶ 3.4.3.1.3, Dec. 29, 1993.
                      16
                         The Secretary of the Army policy, last updated in March 2003, adopts the FTR “rest period
                      upon arrival.” limitations, but did not define what is considered a “rest period.” The Navy’s
                      OPNAVINST 4650.15, issued in July 1998, prohibits a “rest period en route.” Air Force
                      Instruction 24-101 (March 2002) states that Air Force travelers might be authorized business
                      class accommodations if they are required to perform a full day (8 hours) of work
                      immediately upon arrival. Finally, the Marine Corps Order 4600.25C does not address this
                      matter.




                      Page 14                                                                         GAO-04-229T
                           be approved by the under secretary except when frequent travel benefits
                           are used. The justification must include the specific circumstances relating
                           to the criteria, such as a medical justification from a competent medical
                           authority, which must include a description of the employee’s disability,
                           medical condition, or special need; approximate duration of the medical
                           condition or special need; and a recommendation of a suitable means of
                           transportation based on medical condition or special need. The National
                           Institutes of Health (NIH) requires that the traveler, when requesting
                           premium class travel based on a medical condition, detail the nature of the
                           disability or special need on an authorization form for employees with
                           disabilities or other special needs. The authorization form must be signed
                           by both the employee and a competent medical authority. NIH’s policies
                           state that the medical statement should specifically address why it is
                           necessary to use upgraded accommodations. The form also limits the
                           authority to a period of 6 or 12 months from the initial date of approval
                           depending on the nature of the disability or special need. In the instance of
                           a permanent disability, NIH policy is that authorized use of premium class
                           accommodations is valid for up to 3 years, but that resubmission is
                           necessary to ensure that there continues to be a need for the premium class
                           travel.



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

                           The lack of oversight was further demonstrated by the fact that travelers,
                           supervisors/managers, and employees at the commercial travel offices
                           (CTO) responsible for issuing airline tickets to the travelers were not
                           adequately informed on governmentwide and DOD travel regulations
                           concerning when premium class travel is or is not to be authorized. Thus, it
                           was not surprising that some DOD travelers and authorizing officials were
                           under the mistaken impression that travel regulations entitled travelers to



                           Page 15                                                           GAO-04-229T
                               travel in business class when their flights exceed 14 hours. These
                               individuals were not aware that the FTR provides that, in order to qualify
                               for business class travel, travelers have to proceed directly to work upon
                               arriving at the duty location. DOD also did not verify whether CTO
                               employees receive training in DOD premium travel regulations. A
                               representative from one commercial travel office informed us that they
                               issue premium class travel if premium class was requested on the travel
                               order, even if justification for obtaining premium class travel was flawed—
                               for example, the flight was not at least 14 hours.



DOD Issued New                 During the course of our work, in April 2003, DOD updated the JTR17 and
Regulations to Better Define   JFTR18 to articulate more clearly and make more stringent the
                               circumstances under which premium class other than first class travel, that
When Premium Class Travel      is, business class, is authorized for DOD travelers on flights to and/or from
is Authorized                  points outside the continental United States when the scheduled flight time
                               exceeds 14 hours. The revised regulations prohibit the use of business
                               class travel when travelers are authorized a “rest period” or an overnight
                               stay upon arrival at their duty station, and state that business class
                               accommodations are not authorized on the return leg of travel.

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



Conclusions	                   The ineffective management and oversight of premium class travel
                               provides another example of why DOD financial management is one of our
                               “high-risk” areas, with the department highly vulnerable to fraud, waste,
                               and abuse. DOD does not have the management controls in place to
                               identify issues such as improper use of premium class travel. As a result,


                               17
                                    JTR Change 450, April 1, 2003.
                               18
                                    JFTR Change 196, April 1, 2003.




                               Page 16                                                           GAO-04-229T
                   millions of dollars of unnecessary costs are incurred annually. Because
                   premium class travel is substantially more costly than coach travel, it
                   should only be used when absolutely necessary, and the standards for
                   approval and justification must be appropriately high. During our audit,
                   DOD began taking steps to improve its policies and procedures for
                   premium class travel. DOD must build on these improvements and
                   establish strong controls over this sensitive area to ensure that its travel
                   dollars are spent in an economical and efficient manner.

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

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



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




                   Page 17                                                            GAO-04-229T
Appendix I

GSA and DOD Premium Class Travel
Regulations

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

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

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

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

             • exceptional security circumstances require such travel.




             Page 18                                                             GAO-04-229T
Appendix I

GSA and DOD Premium Class Travel 

Regulations





The JTR and JFTR allow the transportation officer,1 in conjunction with the
official who issued the travel order, to approve premium class travel other
than first class. In accordance with the FTR, DOD restricts premium class
travel to the following eight circumstances:

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

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

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

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

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

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

• transportation is paid in full by a nonfederal source; or




1
 The JFTR delegates to the services the authority to determine who may approve premium
other than first class travel. The service regulations call for the same authorizing official as
the JTR.




Page 19                                                                            GAO-04-229T
           Appendix I

           GSA and DOD Premium Class Travel 

           Regulations





           •	 travel is to or from a destination outside the continental United States,
              and the scheduled flight time (including stopovers) is in excess of 14
              hours. However, if premium class accommodations are authorized, a
              rest stop is prohibited.2

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




           2
            The April 2003 change to the JTR and JFTR states that premium class travel is authorized
           for DOD travelers on flights to and/or from points outside the continental United States
           when the scheduled flight time exceeds 14 hours. The revised regulations prohibit the use
           of business class travel when travelers are authorized a “rest period” or an overnight stay
           upon arrival at their duty station, and state that business class accommodations are not
           authorized on the return leg of travel.




(192112)   Page 20                                                                        GAO-04-229T
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