What GAO Found
United States Government Accountability Office
Why GAO Did This Study
Highlights
Accountability Integrity Reliability
March 2006
STATE’S CENTRALLY BILLED FOREIGN
AFFAIRS TRAVEL
Internal Control Breakdowns and
Ineffective Oversight Lost Taxpayers
Tens of Millions of Dollars
Highlights of
GAO-06-298, a report to the
Committee on Homeland Security and
Governmental Affairs, U.S. Senate
The relative size of the Department
of State’s (State) travel program
and continuing concerns about
fraud, waste, and abuse in
government travel card programs
led to this request to audit State’s
centrally billed travel accounts.
GAO was asked to evaluate the
effectiveness of internal controls
over (1) the authorization and
justification of premium-class
tickets charged to the centrally
billed account and (2) monitoring
of unused tickets, reconciling
monthly statements, and
maximizing performance rebates.
What GAO Recommends
To improve controls over premium-
class travel, systematically monitor
unused airline tickets, and provide
assurance of accurate and timely
payment of the centrally billed
accounts to maximize rebates,
GAO is making 18
recommendations to State,
including that it
•
develop a management plan
requiring audits of State’s
premium–class travel,
•
modify international travel
management center contracts
to require identification and
processing of unused
electronic tickets,
•
establish procedures to either
pay or dispute transactions on
the Citibank invoice, and
•
urge other users of State’s
centrally billed travel accounts
to comply with existing travel
requirements.
State concurred with all 18
recommendations.
Breakdowns in key internal controls, a weak control environment, and
ineffective oversight of State’s centrally billed travel accounts resulted in
taxpayers paying tens of millions of dollars for unauthorized and improper
premium-class travel and unused airline tickets. State’s over 260 centrally
billed accounts are used by State and other foreign affairs agencies to
purchase transportation services, such as airline and train tickets. GAO
found that between April 2003 and September 2004 State’s centrally billed
accounts were used to purchase over 32,000 premium-class tickets costing
almost $140 million. Premium-class travel—primarily business-class airline
tickets—represented about 19 percent of the tickets issued but about 49
percent of the $286 million spent on airline tickets with State’s centrally
billed account travel cards. GAO determined that this trend continued for
fiscal year 2005. GAO found that 67 percent of this premium-class travel was
not properly authorized, justified, or both. Because premium-class tickets
typically cost substantially more than coach tickets, improper premium-class
travel represents a waste of tax dollars. The examples below illustrate
premium-class travel by senior State executives that was improperly
authorized by annual blanket authorizations. Most of these blanket
premium-class travel authorizations were signed by subordinates who told
us they couldn’t challenge the use of premium-class travel by senior
executives.
Examples of Improper Authorization by Subordinates of Executive Premium-Class Travel
Traveler Grade
Number of premium-
class tickets
Cost of premium-
class-tickets
1 Presidential appointee 45 $213,000
2 Senior Executive Service 26 $104,000
3 Presidential appointee 24 $93,600
Source: GAO.
Ineffective oversight and control breakdowns also contributed to problems
with monitoring unused tickets, reconciling monthly statements, and
maximizing performance rebates. Although federal agencies are authorized
to recover payments made to airlines for tickets that they ordered but did
not use, State failed to do so and paid for about $6 million for airline tickets
that were not used or processed for refund. State was unaware of this
problem before our review because it neither monitored travelers’ adherence
to travel regulations nor systematically identified and processed all unused
tickets. State also failed to reconcile or dispute over $420,000 of
unauthorized charges before paying its monthly bank invoice and instead
deducted the amounts from its bill. Because these amounts were not
properly disputed under the contract terms, State underpaid its monthly bills
and was thus frequently delinquent. Handling questionable charges in this
ad hoc manner sharply reduced State’s eligible rebates. Overall, State
earned only $700,000 out of a possible $2.8 million in rebates that could have
been earned if it had properly disputed unauthorized charges and paid the
bill in accordance with the contract.
www.gao.gov/cgi-bin/getrpt?GAO-06-298.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Gregory Kutz at
(202) 512-7455 or kutzg@gao.gov.
Page i GAO-06-298 State Travel Cards
Contents
Letter 1
Results in Brief 3
Background 8
Ineffective Controls over Authorization and Justification of
Premium-Class Travel Led to Wasted Taxpayer Dollars 11
Lack of Oversight and Controls Led to Other Breakdowns 22
Conclusion 28
Recommendations for Executive Action 28
Agency Comments and Our Evaluation 31
Appendixes
Appendix I: Objectives, Scope, and Methodology 34
Evaluating the Effectiveness of Controls over Premium-Class
Travel 34
Data Reliability Assessment 41
Appendix II: Comments from the Department of State 43
Appendix III: GAO Contacts and Staff Acknowledgments 53
Tables
Table 1: Examples of Premium-Class Travel Not Authorized or
Properly Justified 16
Table 2: Examples of Waste Related to Unused Tickets 26
Table 3: State and Other Foreign Affairs Agencies’ Premium-Class
Travel Populations Subjected to Sampling 36
Table 4: Premium-Class Statistical Sample Results 38
Figures
Figure 1: Flowchart of the Centrally Billed Account Travel Card
Process 10
Figure 2: Premium-Class Tickets Purchased for State and Other
Foreign Affairs Personnel Charged to State’s Centrally
Billed Accounts, April 2003 through September 2004 13
Figure 3: Examples of Premium-Class Travel by State and Other
Foreign Affairs Executives from Washington, D.C. 19
Figure 4: Flowchart of Control Breakdowns in the Unused Ticket
Process 24
Page ii GAO-06-298 State Travel Cards
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Page 1 GAO-06-298 State Travel Cards
United States Government Accountability Office
Washington, D.C. 20548
Page 1 GAO-06-298 State Travel Cards
A
March 10, 2006 Letter
The Honorable Susan M. Collins
Chairman
The Honorable Joseph I. Lieberman
Ranking Member
Committee on Homeland Security and
Governmental Affairs
United States Senate
This report responds to your request that we audit controls over the travel
paid for with the Department of State’s (State) over 260 centrally billed
travel accounts, which includes travel related to a number of foreign affairs
agencies (e.g., State and other federal agencies located at United States’
diplomatic missions abroad). State’s centrally billed travel process is used
predominantly by State employees; however, other government travelers
who also use State’s centrally billed accounts reimburse State for their
travel expenses. While State uses purchase orders and Government Travel
Requests (GTR) to pay for some airline tickets at overseas posts, as
requested, our analysis excluded all travel transactions that were not
procured through State’s over 260 centrally billed travel accounts.
1
State leads our government in conducting American diplomacy; its mission
is based on the Secretary of State’s role as the President’s principal foreign
policy adviser. State’s mission is to create a more secure, democratic, and
prosperous world for the benefit of the American people and the
international community. This mission is carried out through six regional
bureaus, each of which is responsible for a specific geographic region of
the world. State operates more than 260 embassies, consulates, and other
posts worldwide and has over 57,000 employees -– including Foreign
Service, civil service, and Foreign Service nationals. Additionally, State’s
posts support other U.S. government agencies, such as the Departments of
Commerce, Defense (DOD), and Homeland Security, which also use State’s
centrally billed accounts when overseas. In general, other agencies
overseas authorize their own travel and State processes the payments
based on their authorizations. In carrying out this mission, State manages
the second largest centrally billed travel card program in the federal
1
State issues individually billed travel card accounts (IBA) to its civil service and foreign
service employees. These accounts are primarily intended to pay for other travel-related
expenses, such as lodging and rental cars.
Page 2 GAO-06-298 State Travel Cards
government, after DOD. About 70 percent of State’s and other foreign
affairs agencies’ travel is international or at least one flight segment in a
trip had an origin or destination outside the continental United States.
Comparatively, State and other foreign affairs agencies spent more on
premium-class travel than did DOD, both in terms of total dollars spent and
as a percentage of total airline travel.
2
In light of the relative size of State’s
program, and the concerns about fraud, waste, and abuse in government
travel card programs, you requested that we audit premium-class travel and
other centrally billed travel account activities. Federal travel regulations
define premium-class travel as any class of accommodation above coach
class, that is, first or business class.
The centrally billed travel accounts are used by State bureaus, overseas
posts, and other foreign affairs agencies to purchase transportation
services such as airline and train tickets, while the individually billed
accounts are used by individual travelers for lodging, rental cars, and other
travel expenses. For fiscal years 2003 and 2004, State incurred over
$400 million in expenses on its centrally billed and individually billed travel
accounts, with over $360 million charged to its centrally billed accounts.
Because State disburses funds directly to Citibank under a
governmentwide travel card contract for charges made to the centrally
billed accounts, the use of these accounts for improper
3
transportation,
especially the use of the more expensive premium-class travel, results in
direct increased cost to the government. Governmentwide, General
Services Administration’s (GSA) Federal Travel Regulation, and sections
of the U.S. Department of State’s Foreign Affairs Handbook (FAH) and the
U.S. Department of State’s Foreign Affairs Manual (FAM), require that
travelers use coach-class accommodations for official domestic and
international air travel, except when a traveler is specifically authorized to
2
Recognizing that DOD and State have different missions, DOD’s premium-class travel
represented 1 percent of total DOD airline transactions and 5 percent of total dollars spent
on airline travel charged to the centrally billed accounts for fiscal years 2001 and 2002.
3
For this report, we define improper premium-class transactions as those for which
travelers did not have specific authorization to use premium-class accommodations or those
transactions that were properly authorized but did not provide specific justification for
premium-class travel that was consistent with State regulation or policy. We also considered
transactions improper if premium-class travel was authorized under State policies or
procedures that were inconsistent with the Federal Travel Regulation or the guidance
provided in our Standards for Internal Control in the Federal Government (GAO/AIMD-00-
21.3.1) and our Guide for Evaluating and Testing Controls Over Sensitive Payments
(GAO/AFMD-8.1.2).
Page 3 GAO-06-298 State Travel Cards
use premium class. The travel regulations also state that travelers on
official government travel must exercise the same standard of care in
incurring expenses that a prudent person would exercise when traveling on
personal business.
As you requested, the objective of our audit was to determine the
effectiveness of State’s internal controls over its centrally billed travel card
program and determine whether fraudulent, improper, and abusive travel
expenses exist. Specifically, we evaluated the effectiveness of internal
controls over (1) the authorization and justification process for premium-
class tickets charged to State’s centrally billed travel accounts and
(2) State’s monitoring of unused tickets, reconciling monthly statements,
and maximizing performance rebates.
To meet our objectives, we (1) reviewed applicable laws, regulations, and
practices governing travel, including the use of centrally billed travel
accounts; (2) interviewed State officials on its travel policy and procedures,
including the use of centrally billed travel and under what circumstances
premium-class travel is authorized; (3) extracted premium-class and other
transactions from Citibank databases of charges made to State’s centrally
billed accounts for fiscal years 2003 and 2004; (4) tested a statistical sample
of premium-class transactions, 5) used data mining to identify additional
instances of improper premium-class travel based on the frequency and
dollar amount of premium-class travel, including premium-class travel by
senior executives; (6) compared data on unused tickets provided by
airlines to data provided by Citibank; and (7) conducted other audit work,
including visits to two overseas locations to evaluate the design and
implementation of key control procedures and activities. We performed our
audit work from September 2004 through November 2005 in accordance
with U.S. generally accepted government auditing standards. We performed
our investigative work in accordance with standards prescribed by the
President’s Council on Integrity and Efficiency. A detailed discussion of our
scope and methodology is presented in appendix I.
Results in Brief
Breakdowns in key internal controls, a weak control environment, and
ineffective oversight of State’s centrally billed travel accounts resulted in
taxpayers paying tens of millions of dollars annually for unauthorized and
Page 4 GAO-06-298 State Travel Cards
improper premium-class travel and unused airline tickets.
4
Additionally,
State failed to properly reconcile or dispute over $420,000 in unauthorized
charges, which in addition to raising concerns about potential fraud,
resulted in State failing to earn over $2 million in rebates intended to
reduce the cost of government travel. These problems occurred because
State (1) did not have management controls in place to effectively oversee
and monitor its centrally billed accounts and the extent of premium-class
travel and (2) treats premium-class travel accommodations as a benefit for
working for the department.
We determined that breakdowns in key controls led to an estimated
67 percent
5
of premium-class travel by State and other foreign affairs
personnel during most of fiscal years 2003 and 2004 not being properly
authorized or justified. Because a premium-class ticket frequently costs
two to three times the amount of a coach ticket, taxpayers paid tens of
millions of dollars for premium-class tickets that were not properly
authorized or justified. For example, our statistical sample included a
family of four that flew from Washington, D.C., to Moscow for post-
assignment travel. The business-class tickets cost $6,712 ($1,678 each) and
the flight lasted about 12 hours, which does not meet the requirements of
the premium-class flight duration. The cost of coach-class tickets—the
form of travel required by travel regulations—would have been $1,784
($446 each), or $4,928 less than the amount actually spent. Further, State
did not have complete and accurate data on the extent of premium-class
travel and performed little or no monitoring of this travel.
State also made management decisions on premium-class travel that
contributed to increased costs to taxpayers without performing a cost-
benefit analysis. For example, we found that some of State’s top
executives, including some under secretaries and assistant secretaries,
often used premium-class travel regardless of the length of the flight. We
found that State spent over $1 million dollars on premium-class flights for
17 senior executives during most of fiscal years 2003 and 2004. Our analysis
4
Our audit did not specifically question whether travel charged to State’s centrally billed
travel accounts was necessary; however, where State failed to produce evidence supporting
the authorization or justification for the travel, we accurately refer to those travel instances
as potentially fraudulent. Without evidence to the contrary, potential for fraud exists.
5
All percentage estimates from this sample of premium-class transactions have 95 percent
confidence intervals of within plus or minus 10 percentage points of the estimate itself,
unless otherwise noted.
Page 5 GAO-06-298 State Travel Cards
indicated that most of these flights were domestic or to destinations in
Western Europe or South America and did not last more than the 14 hours
required by federal and state regulations to justify use of premium-class
travel. Further, many of the executives used blanket travel orders signed by
subordinates to justify purchasing premium-class travel. A blanket
authorization is effective for all travel during a certain time period. For
some executives, annual blanket premium-class authorizations were
completed at the beginning of the fiscal year and covered any travel during
that fiscal year. A blanket authorization is not an appropriate vehicle for
authorizing premium-class travel because federal and state travel
regulations require that all premium-class travel be authorized on a trip-by-
trip basis. Also, we continue to consider authorization of premium-class
travel by employees subordinate to the traveler to be a weak internal
control due to both the additional cost and the potential for abuse
associated with premium-class travel. As we have reported in the past,
travel authorized by subordinates is in effect self authorization, which
constitutes a lack of controls over executive premium-class travel.
Senior State officials also told us that the department offered premium-
class travel as a benefit to its other employees for flights lasting over
14 hours, including permanent change of station travel. According to these
officials, this decision was made to improve morale and was arrived at
without performing a cost and benefit analysis. Although federal and State
regulations allow premium-class travel if the flight is over 14 hours without
a rest stop, agencies—such as DOD—attempt to avoid the significant
additional cost associated with these flights by encouraging employees to
take a rest stop en route to their final destination, generally saving
thousands of dollars per trip. As a result of State’s policy, we found
numerous examples in our statistical sample in which State and other
foreign affairs agencies authorized premium-class travel but did not take
into consideration less expensive forms of travel as an alternative.
In addition, we found examples where State’s diplomatic courier service
used premium-class travel under a blanket authorization without specific
justification. Because we did not have authority to open and inspect
diplomatic pouches, we were unable to validate the classification
designations on the packages. Thus, we did not evaluate whether couriers
were necessary or appropriate or if there were any security issues
associated with courier service procedures. However, we believe the
department could potentially save considerable taxpayer dollars if it better
Page 6 GAO-06-298 State Travel Cards
managed courier use of premium travel. By regulation,
6
State is required to
ensure the secure movement of classified U.S. government documents and
material across international borders.
7
State’s regulations call for
diplomatic couriers to personally accompany classified diplomatic
pouches. State’s practice is to have couriers use premium-class
accommodations to personally escort cargo carried in diplomatic pouches.
Some courier transactions appeared in our statistical sample of premium
travel and data mining of fiscal years 2003 and 2004 transactions and we
found instances among these of premium-class travel that were not
properly authorized, justified, or both. While the courier service used
agency mission requirements to justify premium-class travel by the
couriers, we found courier transactions where premium-class
accommodations were used even when the courier was not escorting
diplomatic pouches and when no other justification for premium-class
accommodations were specified. When couriers are not escorting
diplomatic pouches, they must follow the same travel regulations as all
other State and other foreign affairs employees. We also found that State’s
Courier Service has begun to institute cost-saving measures for couriers
that, if expanded, could save substantial taxpayer dollars. These measures
include the expanded use of cargo carriers (e.g., FedEx), which do not
require the couriers to purchase passenger tickets when they accompany
packages in the cargo area and therefore reduce freight costs.
Ineffective oversight and breakdowns in controls also led to problems with
State’s other centrally billed travel activities. For example, although federal
agencies are entitled to recover payments made to airlines for tickets that
they ordered but did not use, State and other foreign affairs agencies paid
for about $6 million in airline tickets that were not used and not processed
for refund. State officials were unaware of this problem before our audit
because State did not monitor employees’ adherence to travel regulations
and did not have a systematic process in place for travel management
centers to identify and process unused tickets. For example, we found that
State purchased two identical tickets costing over $16,000 for the same
business and first-class travel between Addis Ababa, Ethiopia, and
Albuquerque, New Mexico, and one set of tickets valued at over $8,000 was
wasted and never used. State also failed to reconcile or dispute over
6
U.S. Department of State Foreign Affairs Manual (FAM),Vol. 5 and Vol. 12,
implementation of the Omnibus Diplomatic Security and Antiterrorism Act of 1986.
7
This report does not focus on the need for couriers or security issues surrounding their
use.
Page 7 GAO-06-298 State Travel Cards
$420,000 of unauthorized and potentially fraudulent charges before paying
its travel card account. Instead of disputing these charges with Citibank,
State simply deducted the amounts from its credit card bill. However,
because these amounts were not properly disputed, State underpaid its
monthly bills and was thus frequently delinquent under contract terms. The
unanticipated consequence of these delinquencies was a substantial
reduction in the amount of rebates that State would have been eligible to
receive. Overall, State earned $700,000 out of a possible $2.8 million in
rebates that could have been earned if it had properly disputed
unauthorized charges and paid its bills in accordance with the terms of the
contract.
This report contains 18 recommendations to the Secretary of State aimed at
reducing improper premium-class travel and travel costs related to State’s
centrally billed travel accounts. Our recommendations seek to improve the
internal controls over airline tickets purchased with centrally billed
accounts so that State has reasonable assurance that premium-class travel
is authorized, properly justified, and that because of the additional cost,
minimized to the extent possible. We also recommend that State take a
series of immediate steps to identify and recover all unused and
unrefunded tickets. Further, we recommend that State properly dispute
invalid transactions and pay its centrally billed account on time. Finally, we
recommend that State take actions to achieve efficiencies in the courier
service.
In written comments on a draft of this report, State concurred with all 18 of
our recommendations and stated that it had taken actions or will take
actions to address them. However, in its comments, State said that our
report overstated the amount wasted on premium class travel, and that we
incorrectly implied that State carelessly implemented business class
regulations without adequately considering the increased cost of premium
class travel. We disagree. Our statistical sample clearly demonstrated that a
majority of State’s premium class travel was neither authorized nor
justified. Because premium-class travel is frequently two to three times
more expensive than coach travel, this improper travel resulted in tens of
millions of dollars of wasted taxpayer resources. Further, State could not
provide any evidence that it ever collected or analyzed information about
the costs associated with its premium-class travel practices. In addition,
the travel practices exemplified in this report clearly demonstrate that the
tone set by top State Department executives indicate that it treats
premium-class as an employee benefit regardless of cost and federal law
and regulation.
Page 8 GAO-06-298 State Travel Cards
Background
State derives its authority to grant leave and travel reimbursements to its
foreign service employees from the Foreign Service Act of 1980. To
implement provisions of the act, the department issued the FAM and the
FAH. Travel by State’s civil service employees is generally governed by the
General Services Administration’s (GSA) Federal Travel Regulation (FTR),
but in some cases is also governed by the FAM. State’s general policy is for
its foreign and civil service employees to travel using coach-class
accommodations provided by common carriers. However, regulations
governing foreign service and civil service travel authorize the use of
premium-class travel under specific circumstances. Both foreign service
and civil service travel regulations require the agency head or his or her
designee to authorize first-class travel in advance. These regulations also
require the authorizing official at a post abroad or the executive director of
the funding bureau or office domestically to authorize premium-class travel
other than first class. Further, in September 2004, the Assistant Secretary of
State for Administration sent a memorandum to all State executive
directors emphasizing “that it is wrong to authorize premium-class travel
on a blanket basis” and “that a separate justification for premium-class
travel is required for each trip.” Federal and State travel regulations
authorize premium-class accommodation when at least one of the
following conditions exists:
• no space is available in coach-class accommodations,
• regularly scheduled flights provide only premium-class
accommodations,
• an employee with a disability or special need requires premium-class
accommodations,
• security issues or exceptional circumstances,
• travel lasts in excess of 14 hours without a rest stop,
• foreign-carrier coach-class air accommodations are inadequate,
• overall cost savings, such as when a premium-class ticket is less
expensive than a coach-class ticket or in consideration of other
economic factors,
Page 9 GAO-06-298 State Travel Cards
• transportation costs are paid in full through agency acceptance of
payment from a nonfederal source, or
• required because of agency mission (e.g., courier).
The regulations also allow for the traveler to upgrade to premium-class
accommodations, at the traveler’s expense or by using frequent traveler
benefits, but the upgrade cannot be charged to the centrally billed account.
State has the second largest centrally billed travel card program in the
federal government. During fiscal years 2003 and 2004, State used 155
different centrally billed accounts
8
-–143 international and 12 domestic-–to
purchase more than $360 million in transportation services, such as airline
tickets, train tickets, and bus tickets, for State and other foreign affairs
agencies. Each bureau has its own travel budget and is responsible for
obligating its travel expenses. The local travel-authorizing official or the
executive director of the funding office is responsible for determining the
necessity of travel, issuing the travel order, certifying the availability of
funds, and recording an obligation against a unit’s appropriated funds.
State’s travel management centers (TMC) make airline reservations, issue
airline tickets charged to the centrally billed account upon receipt of a
signed travel order, and perform a reconciliation between the tickets it
issued and tickets charged on the Citibank invoice. To complete this
reconciliation process, TMCs are responsible for associating each charge
with a specific travel order. The financial management officer (FMO) at
overseas posts and resource management’s Global Financial Operations in
Charleston, South Carolina, for domestic activity, are generally responsible
for reviewing a TMC’s monthly reconciliation, making appropriate changes,
and certifying or authorizing Citibank’s invoice for payment. Upon receipt
of the TMC’s reconciliation, billed transaction report (BTR), and supporting
files, State pays Citibank for the tickets purchased on the centrally billed
account. State also pays travelers for nontransportation costs claimed on
their individual travel voucher. Figure 1 shows the design of the processes
used to issue an airline ticket on centrally billed accounts and reimburse
travelers for travel expenses. It also explains the roles of different offices in
providing reasonable assurance that airline tickets charged to these cards
are appropriate and meet a valid government need.
8
Although State had over 260 centrally billed accounts during fiscal years 2003 and 2004,
State actively used 155 of the accounts during this same period.
Page 10 GAO-06-298 State Travel Cards
Figure 1: Flowchart of the Centrally Billed Account Travel Card Process
Source: GAO.
Traveler
Traveler makes
reservation and
completes travel
request
Traveler
Traveler completes
travel and claims
reimbursement
Approving
official
Approving Official (A/O)
and financial officer
review travel request
and obligate funds
T.O.
T.O.
T.O.
State
Department
State receives a Billed
Transaction Report (BTR)
and an unresolved transaction
report that includes charges
requiring dispute
State
Department
State reconciles BTR
against obligations (prevalidates
that an obligation exists) and
uploads the information into
State’s accounting system
State
Department
State pays Citibank for
reconciled CBA charges
and pays traveler’s claim
for nontransportation
expenses
Travel Management
Center (TMC)
TMC views TO in Travel
Manager (TM) software
or as paper copy, checks
for approval and funding, and
compares TO origin/destination
and dates to itinerary
Travel Management
Center
TMC charges the centrally
billed account (CBA)
and issues airline ticket to
traveler. TMC maintains
a file of TO with
invoice/itinerary
Travel Management
Center
TMC reconciles CBA
invoice to its own record
of tickets issued
Citibank
Citibank processes CBA
charges, pays the airlines,
and sends the CBA invoice
to the TMC and the State
Department
Approving
official
Approving official(s)
review and approve
travel expenses on
voucher, and submit
voucher for payment
Traveler
Traveler obtains
travel order (TO), and
provides copies to Travel
Management Center
(TMC)
T.O.
Traveler, approving
official
Travel Management
Center, banks
State Department
Page 11 GAO-06-298 State Travel Cards
Ineffective Controls
over Authorization and
Justification of
Premium-Class Travel
Led to Wasted
Taxpayer Dollars
Premium-class travel accounted for almost half of travel expenditures
charged to State’s over 260 centrally billed accounts during most of fiscal
years 2003 and 2004, including domestic and overseas operations, and this
trend continued for fiscal year 2005. On the basis of our statistical sample,
we estimate that 67 percent of premium-class travel during April 2003
through September 2004 for State and other foreign affairs personnel was
improper--either not properly authorized or properly justified because of
breakdowns in key internal controls. Examples of breakdowns in key
controls include travelers flying premium-class travel when the travel
orders did not authorize premium-class travel; subordinates authorizing
their supervisors to take premium-class flights; and travel orders
authorizing premium-class travel using criteria of a total flight time of more
than 14 hours, even though the actual flight time, including layovers, was
less than 14 hours. Also, State’s diplomatic couriers used premium-class
travel even when it was not justified. In addition, we found that State’s top
executives, including under secretaries and assistant secretaries, often
used premium-class travel regardless of the length of the flight. Further,
senior State officials told us that the department offered premium-class
travel as a benefit to its employees, as part of their human capital initiative,
for all flights lasting over 14 hours, which is allowed by federal and State
regulations but is costly to taxpayers. However, State did not perform a
cost-benefit analysis before offering this benefit. In comparison, agencies—
such as DOD—attempt to avoid the significant additional cost associated
with premium-class travel on flights lasting more than 14 hours by
encouraging employees to take a rest stop en route to their final
destination, saving hundreds, sometimes thousands, of tax dollars per trip.
Prior to 2002, State policy prohibited the use of premium-class
accommodations for permanent change of station travel even when the
duration of the travel exceeded 14 hours—a prohibition established by
many other agencies with staff stationed overseas. However in 2002, State
eliminated that prohibition.
Extent of Premium-Class
Travel Is Significant
Between April 2003 and September 2004,
9
State and other foreign affairs
agencies purchased over 32,000 airline tickets costing about $140 million
that contained at least one leg of premium-class travel for State and other
foreign affairs personnel using State’s centrally billed account travel cards.
9
State’s credit card vendor, Citibank, could not provide the first 6 months of fiscal year 2003
(October 2002–March 2003) data due to limitations in its archiving capabilities.
Page 12 GAO-06-298 State Travel Cards
In addition, we determined that premium-class travel continues to be
significant for fiscal year 2005.
10
As discussed later in this report, because
State does not obtain or maintain any information on premium-class travel,
it cannot monitor its proper use, identify trends, or determine alternate,
less expensive means of transportation. As shown in figure 2, premium-
class travel represents about 19 percent of the tickets issued, and State’s
and other foreign affairs agencies’ spending on premium-class travel
represented about 49 percent of the $286 million spent on airfare charged
to the centrally billed accounts during the period April 2003 through
September 2004.
11
Our analysis excluded all travel transactions at overseas
posts that were not procured through the centrally billed travel accounts
because it was outside the scope of our request. State told us that at some
overseas posts travelers purchase airline tickets using Government Travel
Requests (GTR) and purchase orders. Further, the information State
provided for some tickets purchased with GTRs did not distinguish
between premium- and coach-class tickets.
10
For fiscal year 2005, on the basis of our analysis of the information available, we
determined that over 17 percent of the tickets issued (17,000 out of 95,000 tickets, ) and over
40 percent of the dollars expended ($80 million out of $196 million) were premium-class
tickets.
11
Figure 2 includes travel related to State, other U.S. government agencies principally
engaged in activities abroad, and other domestic departments and agencies with
international operations. State uses the other foreign affairs agency funds to pay for travel
paid for using State’s centrally billed accounts.
Page 13 GAO-06-298 State Travel Cards
Figure 2: Premium-Class Tickets Purchased for State and Other Foreign Affairs Personnel Charged to State’s Centrally Billed
Accounts, April 2003 through September 2004
Key Internal Controls over
Premium Travel Were
Ineffective
Breakdowns in key internal control activities led to significant numbers of
transactions lacking proper authorization and justification for premium-
class travel. On the basis of our sample of premium transactions,
12
an
estimated 67 percent of premium-class travel was not properly authorized,
justified, or both. Specifically, 39 percent of the premium-class airline
tickets charged to State’s centrally billed account from April 2003 through
September 2004 were not properly authorized. In addition, 28 percent of
premium-class transactions that were authorized were not justified in
accordance with either federal or State regulations. (See app. I for further
details of our statistical sampling test results.) Further, State did not
maintain accurate and complete data on the extent of premium-class travel
and thus had a lack of controls in place to oversee and manage this travel.
Each fiscal year State is required to report to GSA on first-class travel taken
by all State and other foreign affairs personnel. However, we found
23 roundtrip first-class tickets valued at more than $85,000, obtained for
State or other foreign affairs agencies, that were not reported by State to
19% -
81% -
49% -
51% -
32,000 tickets
Premium class
133,000 tickets
Other class
$140 million
Premium class
$146 million
Other class
Source: GAO analysis of Citibank data.
Percentage of tickets Percentage of dollars
Premium class
Other class
12
Our testing excluded all premium-class transactions costing less than $750 because certain
intra-European flights only offer business-class tickets and therefore are an acceptable
means of airline travel; however, both federal and State regulations require the traveler to
certify this fact on their voucher.
Page 14 GAO-06-298 State Travel Cards
GSA as required in fiscal years 2003 and 2004. Further, we saw no evidence
of external or internal audits of State’s centrally billed travel program.
13
Proper Authorization Did Not
Exist
Requiring premium-class travel to be properly authorized is the first step in
preventing improper premium-class travel. Federal and State regulations
require premium-class travel to be specifically authorized. State travel
regulations specify that premium-class travel must be authorized in
advance of travel, unless extenuating circumstances or emergencies make
prior authorization impossible, in which case the traveler is required to
request written approval from the appropriate authority as soon as possible
after the travel. Using these regulations, we found that transactions failed
the authorization test in the following two categories: (1) the
documentation did not specifically authorize premium-class travel or a
blanket travel authorization was used to authorize premium-class travel
and (2) the travel order authorizing premium-class travel was not signed.
Premium-class travel was not specifically authorized. On the basis of
our statistical sample, we estimated that the travel orders and other
supporting documentation for 13 percent of the premium-class
transactions did not specifically authorize the traveler to fly premium class,
and thus the travel management center should not have issued the
premium-class ticket. We estimated that an additional 17 percent of the
transactions were authorized by a blanket authorization, including all
diplomatic courier travel. A blanket authorization is not an appropriate
vehicle for authorizing premium-class travel because federal and State
travel regulations require that all premium-class travel be authorized on a
trip-by-trip basis. In September 2004, State issued a memorandum to all
executive directors reminding them about the use of blanket orders,
emphasizing that it is wrong to authorize business-class travel on a blanket
basis and also reminding the executive directors that a trip-specific
justification must be provided for each business-class authorization.
Travel order was not signed. We estimated that 5 percent of premium-
class transactions did not have signed travel authorizations. Ensuring that
travel orders are signed, and signed by an appropriate official, is a key
13
We asked State management if there had been any audits or reviews of the centrally billed
account program, whether internal or external. State officials told us that they did not see
the centrally billed account program as risky and therefore did not conduct reviews of the
program. Further, according to the Assistant Special Agent-In-Charge at State’s Office of
Inspector General (OIG), there had been no travel card investigations during fiscal years
2002, 2003, and 2004.
Page 15 GAO-06-298 State Travel Cards
control for preventing improper premium-class travel. If the travel order is
not signed, or not signed by the individual designated to do so, State cannot
guarantee that the substantially higher cost of the premium-class tickets
was properly reviewed to ensure it represented an efficient use of
government resources.
Documentation of Valid
Justification for Premium-Class
Travel Often Did Not Exist
Another internal control weakness identified in the statistical sample was
that the justification used for premium-class travel was not provided, not
accurate, or not complete enough to warrant the additional cost to the
government. To determine whether premium-class travel was justified, we
looked at whether there was documented authorization and, if there was,
whether the authorization for premium-class travel was supported by a
valid reason. Thirty-nine percent of premium-class transactions were not
authorized and, therefore, could not have been justified. State asserts that
even if business-class authorization for some trips was not properly
documented, the premium travel was nevertheless justified so long as the
trips were in excess of 14 hours. However, without properly documented
authorization, we cannot assess the propriety of such travel
notwithstanding the 14-hour travel rule and therefore must conclude that it
was unjustified premium-class travel. In addition, 28 percent of premium-
class transactions were authorized but were not supported by valid
justification.
14
Federal and State travel regulations provide that travel in
excess of 14 hours, without a rest stop en route or a rest period on arrival is
justification for premium class. We found premium travel included trips
with such rest stops for flights lasting under 14 hours.
Table 1 contains specific examples of both unauthorized and unjustified
travel from both our statistical sample and data mining work. These
examples illustrate the improper use of premium-class travel and a
resulting increase in travel costs. More detailed information about some of
the cases follows the table.
14
An estimated 51 percent of the transactions would have failed justification regardless of
the authorization status.
Page 16 GAO-06-298 State Travel Cards
Table 1: Examples of Premium-Class Travel Not Authorized or Properly Justified
Source: GAO analysis of premium-class travel transactions and supporting documentation.
a
Source of estimated coach fares is GSA contract fare or expedia.com.
b
Fares do not include all applicable taxes and airport fees.
• Traveler #1 flew from Washington, D.C., to Honolulu, Hawaii. The total
cost of the trip was $3,228. In comparison, the unrestricted government
fare from Washington, D.C., to Honolulu was $790. According to State
regulation, travelers using premium-class travel are not entitled to an
overnight rest stop en route. Furthermore, the travel was authorized by
a blanket premium-travel authorization signed by a subordinate of the
traveler and a separate trip authorization was not included to
specifically authorize this trip, as required. The travel authorization did
not provide specific justification for business-class travel and the travel
was not more than 14 hours. Therefore, the transaction failed
authorization and justification.
Traveler Source Itinerary
Class of
ticket
Cost of
premium
ticket paid
Estimated
cost of
coach-fare
ticket
a, b
Reason for exception
1 Data mining Washington, D.C., to
Honolulu, Hawaii,
through Canada
Business $3,228 $790 Travel was authorized by a blanket
authorization. Traveler signed their
own upgrade. Continuous travel
without rest stops was less than 14
hours. Transaction failed
authorization and justification.
2 Data mining Johannesburg, South
Africa, to Asmara,
Eritrea, through
Frankfurt, Germany
Business $8,353 $2,921 Traveler approved his own travel.
Traveler flew premium class and was
reimbursed for lodging for a rest stop
en route. Transaction failed
authorization and justification.
3 Data Mining Johannesburg, South
Africa, to Asmara,
Eritrea, through
Frankfurt, Germany
Business $8,353 $2,921 Traveler flew premium class and was
reimbursed for lodging at a rest stop
in Frankfurt. Transaction failed
justification.
4 Data Mining Washington, D.C., to
Honolulu, Hawaii,
through San
Francisco
First class $4,155 $858 Traveler flew first class to Hawaii
using a travel order that allowed for
travel to and within Europe. Travel
was less than 14 hours. Transaction
failed authorization and justification.
5 Statistical
Sample
Washington, D.C., to
Moscow, Russia
Business $6,712 $1,784 Family of four flew business class
from Washington, D.C., to Moscow.
Trip was less than 14 hours.
Transaction failed justification for
premium travel.
Page 17 GAO-06-298 State Travel Cards
• Travelers #2 and #3 traveled from Johannesburg to Asmara through
Frankfurt, at a cost of about $8,353 each, a total of $16,706. Although
they traveled business class for the entire trip, they were reimbursed for
a hotel room during the layover in Frankfurt on the return visit, at a cost
of about $171 each. According to State regulation, travelers using
premium-class travel are not entitled to a government-funded
15
rest stop
en route. If the travelers had flown coach for this round trip and taken a
rest stop en route, the airfare would have cost about $2,921 and State
could have saved about $11,000 for the two tickets. One of these
travelers approved the travel authorizations for both himself and the
other traveler.
• Traveler #4 flew first class from Washington, D.C., to Hawaii on a
blanket travel order that only authorized travel within Europe. Although
the travel was less than 14 hours, State provided no justification for first
class, and State did not report the first-class travel to GSA. We found
that State issued a first-class airline ticket to Hawaii using a blanket
travel authorization that authorized premium-class accommodations.
State issued the ticket to an unauthorized destination–Hawaii–because
the blanket travel order authorized travel to Europe and State’s travel
officials did not review the blanket authorization to ensure that the
travel authorization was current, valid, and the trip was to an authorized
destination. Because State did not follow its own policies for
authorization and review of travel, the government paid $4,155 for an
unauthorized trip.
Management Decisions to
Offer Premium Travel as a
Benefit
State’s management allowed top State and other foreign affairs executives
to use premium-class travel by approving blanket travel orders, similar to a
blank check. State also allowed premium-class travel as a benefit–without
considering less expensive alternatives–to other employees for flights
lasting over 14 hours and for permanent change of station travel, costing
taxpayers tens of millions of dollars. Further, State’s practice is for
diplomatic couriers to use premium-class travel accommodations to escort
diplomatic pouches.
15
Although the rest stop was not overnight, the travelers arrived in Frankfurt early in the
day and obtained lodging at government expense to rest while waiting for an evening flight
from Frankfurt to Johannesburg.
Page 18 GAO-06-298 State Travel Cards
Executive Premium-Class
Travelers
State’s top executives, including under secretaries and assistant
secretaries, often used premium-class travel regardless of the length of the
flight. Our data mining of frequent premium-class travelers showed that
many of these travelers were senior foreign affairs executives. On the basis
of this information, we expanded our data mining to include trips taken by
selected presidential appointees and SES-level foreign affairs staff to
determine if their travel was authorized and justified according to federal
and State regulations. In addition to the federal and State regulations, we
also applied the criteria set forth in our internal control standards
16
and
sensitive payments guidelines
17
in evaluating the proper authorization of
premium-class travel. For example, State travel regulations and policies do
not restrict subordinates from authorizing their supervisors’ premium-class
travel, a practice which our internal control standards consider to be
flawed. Therefore, a premium-class transaction that was approved by a
subordinate would fail the control test based on our internal control
standards. State and other foreign affairs agencies paid over $1 million for
269 premium-class tickets for flights taken by 17 foreign affairs executives
during April 2003 through September 2004. We found 65 tickets containing
business- and first-class segments costing about $300,000 that were under
14 hours. Most of these flights were to destinations within the United
States, South America, and Western Europe. Further, over $860,000 in
premium-class trips taken by executives were obtained using blanket
authorizations. For each premium-class trip, State regulation requires
specific authorization to fly premium class. In most cases, the blanket
travel orders authorized premium-class travel for an entire year and were
signed by subordinates. State officials told us that because the blanket
authorization allowed premium class, the executives obtained premium-
class tickets even when the trip was under 14 hours. The subordinate
authorizers told us they could not challenge an under secretary or an
assistant secretary. Examples of premium-class trips associated with
improper accommodation and their additional cost to taxpayers are
included in figure 3 to illustrate the issues associated with executive
premium-class travel found through our data mining.
16
GAO/AIMD-00-21.3.1.
17
GAO/AFMD-8.1.2.
Page 19 GAO-06-298 State Travel Cards
Figure 3: Examples of Premium-Class Travel by State and Other Foreign Affairs
Executives from Washington, D.C.
Note: GSA fares exclude applicable taxes and fees.
Other Premium-Class Travelers
State also made a management decision to offer premium-class travel to its
employees as a benefit, resulting in increased costs to taxpayers. Although
State officials were aware that offering employees rest stops on longer
flights was often less expensive than premium-class travel, they offered the
more expensive premium-class travel to employees for all flights lasting
over 14 hours, which increased costs. For example, one individual in our
statistical sample flew premium-class roundtrip from Washington, D.C., to
Tel Aviv at a cost of over $6,000. Although the trip lasted over 14 hours, as
an alternative to paying the premium-class rates, State could have flown
this employee coach and paid the cost of an overnight rest stop in London,
for a total cost of about $2,300 (about $1,600 for the GSA contract airfare
and $700 in lodging and per diem expenses). Overall, this option could have
saved taxpayers over $3,700. State officials explained that they made these
decisions about premium-class travel to improve morale and retain highly
qualified foreign-service personnel. State officials also believed that, among
other factors, their decisions about premium-class travel for trips in excess
of 14 hours have led to increased morale, as reflected in “The Best Places to
Work” survey. However, State could not provide any empirical evidence
Source: GAO.
Destination Amount paid GSA fare Potential savings ( = $1,000)
$7,495$780$8,275Zurich, Switzerland
$3,673$800$4,473Manchester, England
$3,308$684$3,992Monterey, California
$4,023$856$4,879Oslo, Norway
$4,826$756$5,582Vienna, Austria
$5,173$1,000$6,173Frankfurt, Germany
$5,178$1,150$6,328Brussels, Belgium
$5,203$630$5,833Amsterdam, Netherlands
$5,301$966$6,267Geneva, Switzerland
$6,565$650$7,215London, England
Page 20 GAO-06-298 State Travel Cards
that showed a direct correlation that offering premium-class travel
increased its scores on the survey or increased retention of foreign-service
personnel, and could not provide evidence that travel was a metric in the
“Best Places to Work” survey. In contrast, agencies, such as DOD, attempt
to avoid the significant additional cost associated with premium-class
travel on flights lasting more than 14 hours by encouraging employees to
take a rest stop en route to their final destination, saving hundreds,
sometimes thousands, of tax dollars per trip. Finally, our testing showed
that all State employees, not just those in the foreign service that are
governed by State regulations, were authorized to use premium-class,
without constraint, when the trip was over 14 hours.
State also decided to offer premium-class travel to foreign service
employees for permanent change of station moves for all flights that
exceeded 14 hours, in accordance with federal and State regulations.
However, State’s decision resulted in increased costs to taxpayers.
Permanent change of station and similar moves accounted for about
$17 million (12 percent) of State’s and other foreign affairs agencies’
premium-class travel for April 2003 through September 2004. Prior to 2002,
State policy prohibited the use of premium-class accommodations for
permanent change of station travel, even when the duration of the travel
exceeded 14 hours—a prohibition established by many other agencies with
staff stationed overseas, including DOD. However, in 2002, State eliminated
that prohibition at a significant cost to taxpayers. We found numerous
examples in our statistical sample in which premium-class travel was
properly authorized, and as such these transactions were among the 33
percent of transactions that were considered to be properly authorized and
justified. However, it is important to note that because of State’s decision to
treat premium-class travel as a benefit, State did not consider having the
travelers take alternative, less expensive forms of travel.
Premium-Class Travel by
Diplomatic Couriers
We found instances where State’s diplomatic couriers
18
lacked proper
18
authorization, justification, or both when flying premium class; therefore,
we believe State could potentially save considerable taxpayer dollars if it
more aggressively managed the travel of its couriers. For example, when
couriers are not on a mission to escort diplomatic pouches or they are
escorting only cabin-carried diplomatic pouches, they must follow the
18
As mentioned, we did not evaluate whether couriers were necessary or appropriate or if
there were any security issues associated with courier service procedures.
Page 21 GAO-06-298 State Travel Cards
same travel regulations explained earlier as all State and other foreign
affairs employees.
19
We tested diplomatic courier transactions in our statistical sample of
premium-class transactions and performed data mining of fiscal year 2003
and 2004 transactions. In total, we tested over 20 diplomatic courier
premium-class transactions. We found control breakdowns similar to those
described above with blanket authorization and justification of courier
premium-class travel. Blanket travel orders were used to authorize
premium-class courier travel for all courier transactions that we tested but,
as stated, blanket orders do not specifically authorize premium travel as
required by State regulations. Although the Courier Service used mission
security requirements to justify premium-class travel by its couriers, we
found examples of premium-class travel when couriers were returning
empty-handed, commonly referred to as “deadheading.” In response to
these findings, Courier Service officials acknowledged that the use of
premium class is not justified when couriers return empty-handed unless
the 14-hour rule applies. Courier Service officials also told us that couriers
may not know when they will be returning empty-handed until they arrive
at an airport and are told that the post did not complete the expected
outgoing pouch. By that time, they may not be able to downgrade their
return ticket to economy class because a foreign airline is unwilling to do
so, or time does not permit them to return to the gate to change their ticket.
However, the Courier Service did not indicate on the documentation that it
provided to us any attempts to downgrade their tickets in a deadheading or
any other situation where premium-class travel was not justified. Further,
the Courier Service Deputy Director told us that because there are still
some problems in this area, they routinely check courier trip reports to
identify and address any noncompliance.
We found that State’s Courier Service has begun to institute cost-saving
measures that, if expanded, could save taxpayer dollars. These measures
include the expanded use of cargo carriers (e.g., FedEx), which do not
require the couriers to purchase passenger tickets and charge lower freight
costs than the commercial airlines. Our analysis of a FedEx study
19
By regulation, State is required to ensure the secure movement of classified U.S.
government documents and material across international borders. The Courier Service
mission is to provide secure transportation of classified documents and materials for the
federal government. State’s practice is for its diplomatic couriers to use premium-class
travel accommodations to personally escort diplomatic pouches containing classified U.S.
government documents and material across international borders.
Page 22 GAO-06-298 State Travel Cards
performed for the Courier Service showed that substantial air cargo
savings and benefits could be achieved through direct cargo flights with
multiple stops along a designated route. Although the Courier Service
initiated the use of cargo carriers in late 2004, expanding this approach to
the extent practical could achieve substantial savings. However, to achieve
the additional savings, the Courier Service would need to overcome foreign
mission resistance to meeting cargo aircraft outside of business hours.
According to Courier Service officials, foreign mission personnel have been
unwilling to meet air cargo shipments that arrive outside normal business
hours and at cargo airports outside city limits. According to State, Mexico
City has recently indicated a willingness to support cargo flight arrivals at
Toluca airport. Courier Service officials also told us that while all agencies
receiving diplomatic pouches should share responsibility for meeting and
taking custody of diplomatic pouch shipments, the burden has generally
fallen on State employees.
Lack of Oversight and
Controls Led to Other
Breakdowns
Ineffective oversight and breakdowns in controls also led to problems with
State’s other centrally billed travel activities. For example, although federal
agencies are entitled to recover payments made to airlines for tickets that
they ordered but did not use, State and other foreign affairs agencies paid
for about $6 million in airline tickets that were not used and not processed
for refund. We found paper and electronic unused tickets for both domestic
and international flights. State was unaware of this problem before our
audit because it did not monitor employees’ adherence to travel regulations
and did not have a systematic process in place for TMCs to identify and
process unused tickets. State also failed to reconcile or dispute over
$420,000 of unauthorized and potentially fraudulent charges before paying
its account. Instead of disputing these charges with Citibank, State simply
deducted the amounts from its credit card bill. This action had the
unanticipated consequence of substantially reducing the amount of rebates
that State would have been eligible to receive. Thus, State earned only
$700,000 out of a possible $2.8 million in rebates that could have been
earned if State disputed unauthorized charges and paid the bill in
accordance with the terms of the contract with Citibank.
Ineffective Controls and
Monitoring Led to
Numerous Unused Tickets
We asked for data on unused tickets purchased on State’s centrally billed
accounts from the top six domestic airlines—United, Continental,
American, Delta, Northwest, and U.S. Airways. All airlines except U.S.
Airways directly provided us electronic data on unused tickets. Data
Page 23 GAO-06-298 State Travel Cards
provided by the five airlines and verified against Citibank’s data showed
that over 2,700 airline tickets with a face value of about $6 million
purchased with State’s centrally billed accounts were unused and not
refunded. The airline tickets State purchased, for State and other foreign
affairs personnel, through the centrally billed accounts are generally
acquired under the terms of the air transportation services contract that
GSA negotiates with U.S. airlines. Airline tickets purchased under this
contract have no advance purchase requirements, have no minimum or
maximum stay requirements, are fully refundable, and do not incur
penalties for changes or cancellations. Under this contract, federal
agencies are entitled to recover payments made to airlines for tickets that
agencies acquired but did not use.
20
While generally there is a 6-year
statute of limitation on the government’s ability to file an action for
financial damages based on a contractual right,
21
the government also has
up to 10 years to offset future payments for amounts it is owed.
22
State Did Not Monitor Employee
Adherence to Travel Regulations
During fiscal years 2003 and 2004, State did not implement controls to
monitor State’s and other foreign affairs employees’ adherence to travel
regulations requiring notification of TMC or the appropriate State officials
about unused tickets. Federal and State travel regulations require a traveler
who purchased a ticket using the centrally billed account either to return
any unused tickets purchased to the travel management center that
furnished the airline ticket or to turn in unused tickets immediately upon
arrival at their post to the administrative officer or, upon arrival in
Washington, D.C., to the executive officer of the appropriate managing
bureau or office. This notification of an unused ticket initiates a process to
submit requests to the airlines for refunds.
Figure 4 illustrates where control breakdowns can occur if travelers do not
adhere to State requirements. As shown, once a ticket is charged to the
centrally billed account and given to the traveler, State has no systematic
controls to determine independently if the ticket was used—or remains
unused—unless notified by the traveler. If the traveler does not report an
unused ticket, the ticket would not be refunded unless TMC monitored the
status of airline tickets issued electronically and applied for the refunds.
20
31 U.S.C. § 3726(h).
21
28 U.S.C. § 2415(a).
22
31 U.S.C. § 3716(e).
Page 24 GAO-06-298 State Travel Cards
Figure 4 shows that the failure of the traveler to notify the appropriate
official of an unused paper ticket would result in the ticket being unused
and not refunded. Although bank data indicate that State received some
credits for airline tickets purchased, State did not maintain data in such a
manner as to allow it to identify the extent of unused tickets and to
determine whether credits were received.
Figure 4: Flowchart of Control Breakdowns in the Unused Ticket Process
State Did Not Have a Process for
Travel Management Centers to
Identify All Unused Tickets
State did not have a systematic process in place to monitor whether TMCs
were consistently identifying and filing for refunds on unused tickets. For
instance, State contractually required the domestic TMC to identify and
process all unused electronic tickets. In exchange, the TMC received a fee
for each refund received for an unused ticket. However, State did not
Source: GAO.
Travel Management Center issues
tickets and charges
State Department’s centrally
billed accounts
Ticket is
used or
refunded
Was
ticket fully
used?
Did traveler
notify Travel
Management
Center?
Are unused
tickets
identified?
Is the
ticket
electronic?
Does Travel
Management
Center monitor
unused tickets?
Did Travel
Management
Center request
credit for
unused tickets?
Wasted resources, unused tickets not refunded
Ye s
Ye s No
Ye s
Ye s Ye s
Ye s
No
No
No No No
Page 25 GAO-06-298 State Travel Cards
implement procedures to determine whether unused tickets were being
identified and credits were being received. Instead, State officials took the
TMC’s monthly report indicating only the total dollar amount of refunds
submitted to the airlines as evidence of contractual compliance. Unless
State implements control procedures to verify whether TMCs were
identifying and filing for refunds on the unused tickets consistently, State
cannot provide reasonable assurance that all requests for refunds resulted
in a credit to the government.
Even when a TMC had procedures in place to identify and process unused
electronic tickets, State was still unable to identify unused paper tickets.
For example, by fiscal years 2003 and 2004, State’s domestic TMC and
TMCs at both of the overseas locations we visited had the capability to
identify or search the databases of the airlines that participate in electronic
ticketing or to receive notification from the airlines of unused tickets, and
subsequently obtain refunds. However, even though the TMCs can identify
electronic tickets, they cannot independently identify paper tickets, which
are typically used for international travel.
23
State has not implemented a
systematic process to verify whether a significant portion of airline tickets
are unused, such as matching tickets issued by TMC with travel vouchers
submitted by travelers upon completion of their trip. Without such a
process State will not have reasonable assurance that tickets purchased
through the centrally billed accounts are used or refunded.
In addition to the $6 million dollars of unused tickets or trip segments we
identified using the airline data, we estimated that, based on the statistical
sample, 3 percent of premium-class airline tickets were unused and not
refunded. This 3 percent estimate is for premium-class tickets only and
excludes coach accommodations.
Table 2 contains specific examples of tickets that the airlines identified as
unused that we tested as a part of our statistical sample of premium class
transactions and data mining selections. Since these tickets were not used,
they resulted in waste and increased costs to taxpayers.
23
We found that about 70 percent of State’s foreign affairs travel is international or includes
at least one flight segment with an origin or destination outside the continental United
States.
Page 26 GAO-06-298 State Travel Cards
Table 2: Examples of Waste Related to Unused Tickets
Source: GAO analysis.
State Did Not Dispute
Unauthorized Transactions
and Lost Performance
Rebates
State did not dispute over 320 unauthorized transactions, totaling over
$420,000, associated with its two primary domestic centrally billed
accounts during fiscal year 2003 and fiscal year 2004. TMCs reconcile
transactions on the monthly credit card invoice to the tickets issued by the
TMC and recorded in the airline reservation system. Disputes are typically
filed for transactions that neither the TMC nor State identified as having
issued or authorized. Tickets that do not match could occur for many
reasons, such as an airline charging the ticket to the wrong credit card
account, an individual fraudulently obtaining an airline ticket, or the
merchant or credit card vendor failing to provide enough information to
allow the transaction to match. State did not have processes or procedures
in place to file disputes for transactions that failed to reconcile between the
bank invoice and the computer reservation system. We provided State a list
of 219 travelers’ names
24
associated with the over 320 unauthorized
transactions to verify that they were State employees or otherwise
authorized by State or other foreign affairs agencies to travel. According to
State, 38 of the 219 travelers were individuals for whom State had no
record of ever working for State as an employee, contractor, or being
authorized to travel as an invited guest. Thus, these transactions could be
potentially fraudulent charges. As for the remaining 181 travelers, State
informed us that while the airline tickets purchased were for individuals
who are either current or former State employees, contractors, or invited
Traveler Source Itinerary
Class of
ticket(s)
Price paid Explanation for unused tickets
1 Statistical
sample
Albuquerque, NM, to
Ethiopia and return
First and
business
$8,838 Traveler completed travel using a second ticket
issued for the same trip.
2 Statistical
sample
Washington, DC, to
Nigeria
Business $5,503 Traveler went to Senegal instead of Nigeria using a
different ticket.
3 Statistical
sample
Buenos Aires,
Argentina, to Lima,
Peru
Business $1,327 Traveler used an identical coach-class ticket.
4 Data mining Miami, FL, to Mexico Business $2,254 Traveler went to Chile instead of Mexico using a
different ticket.
24
We are investigating these transactions to determine if they are fraudulent.
Page 27 GAO-06-298 State Travel Cards
guests, State has no evidence that the trips had been authorized. Thus,
these trips also could represent potentially fraudulent charges.
As a result of not disputing unauthorized charges and not paying its bill in
accordance with the contract, State faced the unanticipated consequence
of substantially reducing the amount of rebates that it would have been
eligible to receive. For example, if State had effectively managed the
domestic accounts and disputed these charges, State could have earned
over $1 million in rebates. Instead, State earned only about $174,000 in
performance rebates for its domestic accounts. In contrast, at two overseas
posts that we visited, State was properly disputing transactions. However,
as previously noted, State still did not effectively manage its centrally billed
accounts departmentwide and, consequently, earned only $700,000 out of a
possible $2.8 million in performance rebates from Citibank.
The contract that State entered into with Citibank to issue centrally billed
account travel cards enables State to earn performance rebates based on
how quickly State pays the monthly bill. To earn the performance rebate,
State must pay the bill within 30 calendar days from the statement date.
State earns the maximum performance rebate if it pays the centrally billed
account—less any disputed charges—on the statement date; for unpaid
bills, the amount of the rebate decreases each day thereafter. If State pays
the centrally billed account more than 30 days after the statement date,
State does not earn a performance rebate.
Throughout the audit period, State generally submitted payment for its
domestic centrally billed accounts within the 30 day window; however,
State frequently failed to pay the entire amount of the bill, leaving
potentially unauthorized charges unpaid, but not properly disputed. During
fiscal years 2003 and 2004, State did not dispute any of the previously
mentioned over 320 unauthorized charges applied to its domestic centrally
billed accounts, and instead simply deducted the amounts due from its
credit card bill. If State had disputed these charges, Citibank would have
given State a 60-day grace period to investigate whether the charges were
appropriate and the disputed amounts would not have to be paid until the
investigation was completed. An average person cannot simply determine
which charges on their credit card bill they are going to pay but must notify
the bank of any unauthorized charges. Since State did not dispute the
charges, it was still liable for the amounts associated with these charges
and simply deducting them from the credit card bill did not relieve State of
its responsibility for these charges. Consequently, State was not only
paying for potentially fraudulent charges, but it also lost the performance
Page 28 GAO-06-298 State Travel Cards
rebates it could have earned by promptly paying its monthly centrally billed
account bill.
Conclusion
The State department serves a critical role for the federal government and
in that role State and other foreign affairs employees are required to travel
extensively, often internationally. However, travel regulations state that
employees on official government travel must follow published
requirements and exercise the same standard of care in incurring expenses
that a prudent person would exercise when traveling on personal business.
Our work shows that travelers using State’s over 260 centrally billed travel
accounts often do not meet that standard, which has resulted in millions of
dollars of unnecessary costs to taxpayers. With the serious fiscal
challenges facing the federal government, agencies need to do everything
they can to operate as efficiently as possible. Improved management and
oversight of the State department’s centrally billed travel program would
save taxpayers tens of millions of dollars annually.
Recommendations for
Executive Action
We are making the following 18 recommendations to improve internal
control over the authorization and justification of premium-class travel and
to strengthen the control environment as part of an overall effort to reduce
improper premium-class travel and unnecessary or inappropriate State
costs. Because of the substantial cost and sensitive nature of premium-
class travel, we recommend that the Secretary of State direct the
appropriate officials to implement specific internal control activities over
the use of premium travel and establish policies and procedures to
incorporate federal and State regulations as well as guidance specified in
our Standards for Internal Control and our Guide for Evaluating and
Testing Controls Over Sensitive Payments. While a wide range of activities
can contribute to a system that provides reasonable assurance that
premium-class travel is authorized and justified, at a minimum, the internal
control activities should include the following:
• Develop procedures to identify the extent of premium-class travel,
including all business-class travel, and monitor for trends and potential
misuse.
• Develop procedures to identify all first-class fares so that State can
prepare and submit complete and accurate first-class travel reports to
GSA.
Page 29 GAO-06-298 State Travel Cards
• Require State to develop a management plan requiring that audits of
State’s issuance of premium-class travel are conducted regularly, and
the results of these audits are reported to senior management. Audits of
premium-class travel should include reviews of whether travel
management centers adhere to all governmentwide and State
regulations for issuing premium-class travel.
• Periodically provide notices to travelers and supervisors/managers that
specifically identify the limitations on premium-class travel, the limited
situations in which premium-class travel may be authorized, and how
the additional cost of premium-class travel can be avoided.
• Require that premium-class travel be approved by individuals who are at
least of the same grade as the travelers and specifically prohibit the
travelers themselves or their subordinates from approving requests for
premium-class travel.
• Prohibit the use of blanket authorization for premium-class travel,
including management decisions offering premium-class travel as a
benefit to executives and other employees.
• Encourage State department personnel traveling as a result of a
permanent change of station to take a rest stop en route to their final
destination to avoid the significant additional cost associated with
premium-class flights and thus save the taxpayer thousands of dollars
per trip.
• Urge other users of State’s centrally billed travel accounts to take
parallel steps to comply with existing travel requirements.
To promote the economy and efficiency of Courier Service operations, we
recommend that the Secretary of State direct the Courier Service to take
the following actions:
• Expand the use of cargo carriers, such as FedEx, to the extent
practicable.
• Direct foreign missions to assure that organizations using diplomatic
courier services share responsibility for meeting and accepting air cargo
shipments of diplomatic pouches.
Page 30 GAO-06-298 State Travel Cards
• Clarify written policy to clearly state that diplomatic couriers must use
economy class accommodations when in a “dead-head” capacity unless
relevant exceptions (e.g., 14-hour rule) exist, and enforce the
requirement.
To recover outstanding claims on unused tickets, we recommend that the
Secretary of State initiate the following actions:
• Immediately submit claims to the airlines to recover the $6 million in
fully and partially unused tickets identified by the airlines and discussed
in this report.
• Work with the five airlines identified in this report and other airlines
from which State purchased tickets with centrally billed accounts to
determine the feasibility of recovering other fully and partially unused
tickets, the value of the unused portions of those tickets, and initiate
actions to obtain refunds.
To enable State to systematically identify future unused airline tickets
purchased through the centrally billed accounts, and improve internal
controls over the processing of unused airline tickets for refunds, we
recommend that the Secretary of State direct the appropriate personnel
within services and agencies to take the following actions:
• Evaluate the feasibility of implementing procedures to reconcile airline
tickets acquired using the centrally billed accounts to travel vouchers in
the current travel system.
• Enforce employees’ adherence to existing travel regulations requiring
notification of unused tickets.
• Modify existing travel management center contracts to include a
requirement that the international travel management centers establish
a capability to systematically identify unused electronic tickets in their
computer reservation systems and file for refunds on the tickets
identified as unused.
• Routinely compare unused tickets processed by the travel management
centers to the credits on the Citibank invoice.
To provide assurance of accurate and timely payments of the centrally
billed accounts and to maximize rebates, we recommend that the Secretary
Page 31 GAO-06-298 State Travel Cards
of State establish procedures to ensure that all transactions on the Citibank
invoice are either paid in accordance with the contract or properly
disputed.
Agency Comments and
Our Evaluation
In written comments on a draft of this report, State concurred with all 18 of
our recommendations and said that it is firmly committed to aggressive
stewardship of the taxpayers’ resources entrusted to the department.
However, State also commented that our report overstates the problem,
fails to identify improper travel conducted for other than official
government travel, identifies only a few instances of unjustified travel, and
implies incorrectly that State carelessly implemented business-class
regulations without regard to the increased cost. We disagree.
We do not agree with State’s position that we overstate the nature and
extent of its control breakdowns and ineffective oversight. State and other
foreign affairs travelers charged almost $140 million on premium-class
travel from April 2003 through September 2004. On the basis of our
statistical sample, 67 percent of premium-class travel was not properly
authorized, justified, or both. This failure rate and the associated dollars
spent on premium class travel shows that taxpayers lost tens of millions of
dollars on improper travel. For example, State issued premium-class
tickets to a family of four traveling from Washington to Moscow for a
permanent change of duty station. Although this trip was well under the
required 14 hours to justify premium-class travel, State purchased the
premium class accommodations for almost four times the cost of coach
seats. In addition to the waste exemplified here and elsewhere in our
report, taxpayers lost millions more because State failed to recover
payments made to airlines for tickets issued but never used and failed to
reconcile and dispute other charges properly. For example, State paid for a
premium-class ticket for roundtrip travel between New Mexico and
Ethiopia that was neither used nor refunded. These specific examples and
our overall analysis clearly show how ineffective oversight—not just
procedural problems—resulted in substantial waste of taxpayers’ dollars.
As our report clearly explains, we did not specifically question whether
travel charged to State’s centrally billed travel accounts were necessary.
Therefore, we purposely did not identify improper travel conducted for
other than official government travel and thus our report makes no
conclusions on this matter.
Page 32 GAO-06-298 State Travel Cards
State’s position that our findings of improper travel are simply the result of
“procedural problems” and that “only a few instances” of travel were
conducted outside of the regulations are inconsistent with the facts. In this
regard, over half of the transactions we tested—not just a few instances—
were not simply the result of procedural problems (e.g., not properly
authorized), they were unjustified because the travel was conducted
outside of the regulations. Over half of the travelers improperly flew
premium-class on trips lasting shorter than 14 hours or flew business class
and also took a rest stop, which is to be used in lieu of using premium-class
accommodations to economize travel. For example, one State traveler flew
premium-class between points in Europe on a trip lasting well short of
14 hours and also took an unjustified rest stop, which further added lodging
and subsistence expenses to the total cost of travel. Another traveler flying
short of 14 hours on a premium-class ticket enjoyed 3 nights of rest upon
her return. These and other examples of unjustified travel underscore
problems beyond what State says are simply “deficient procedural
protocols” and demonstrate how State’s ineffective oversight of premium-
class travel resulted in substantial losses to taxpayers.
Finally, State takes exception with our characterization that it treated
premium-class travel as an employee benefit. This position, however, is in
stark contrast to the representations State made throughout our review.
For example, although State prohibits blanket authorizations for premium-
class travel, many of State’s top executives consistently flew on blanket
travel orders improperly authorizing premium class from Washington to
numerous domestic and other destinations that were well below the 14
hours required to justify such travel. For example, one senior State
executive completed 45 premium-class trips costing $213,000, many of
which were under 14 hours, using a blanket travel order. These executive
travelers set a tone at the top that premium-class travel was in fact a benefit
to the traveler and not something that should be minimized or used
sparingly. In addition, during our review, State said that it indeed offered
premium-class travel as a benefit to its employees and that such travel
contributed to their improved employee feedback provided to “The Best
Places to Work” survey. However, State could not provide evidence that
travel was a metric in that survey. Moreover, regardless of the increased
cost associated with such moves, State began in 2002 and continues today
to offer premium-class travel for permanent change of station moves as a
benefit to its employees and their families. We believe these examples,
especially the top State executives who gave themselves the benefit of
flying premium class when federal law and regulations did not allow such
travel, demonstrate that the tone at the top of the department indicates that
Page 33 GAO-06-298 State Travel Cards
premium-class travel is in fact a benefit, without specific regard to cost.
State’s comments are reprinted in appendix II.
As agreed with your offices, unless you announce the contents of this
report earlier, we will not distribute it until 30 days from its date. At that
time, we will send copies to interested congressional committees; the
Secretary of State, the Director and Deputy Director of the Diplomatic
Courier Service, and the Director of the Office of Management and Budget.
We will make copies available to others upon request. In addition, the
report will be available at no charge on the GAO Web site at
http://www.gao.gov.
Please contact me at (202) 512-7455 or [email protected] if you or your staffs
have any questions concerning this report. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. Key contributors are listed in appendix III.
Gregory D. Kutz
Managing Director
Forensic Audits and Special Investigations
Page 34 GAO-06-298 State Travel Cards
Appendix I
AppendixesObjectives, Scope, and Methodology Appendix I
This report responds to your request that we audit and investigate internal
controls over State’s centrally billed travel accounts, which include travel
related to the Department of State, other U.S. government agencies
principally engaged in activities abroad, and other domestic departments
and agencies with international operations. The objectives of our audit
were to determine the effectiveness of the Department of State’s internal
controls over its centrally billed travel card program and determine
whether fraudulent, improper, and abusive travel expenses exist.
Specifically we evaluated the effectiveness of State’s internal controls over
(1) the authorization and justification of premium-class tickets charged to
State’s centrally billed travel accounts and (2) monitoring unused tickets,
reconciling monthly statements, and maximizing performance rebates.
To assess the effectiveness of internal controls over State’s use of the
centrally billed accounts, we obtained an understanding of the travel
process, including premium-class travel authorization, unused ticket
identification, and overall travel card management and oversight, by
interviewing State officials from Resource Management, Travel and
Transportation Management Division; Diplomatic Security, Overseas
Building Operations; Educational and Cultural Affairs; U.S. Consulate,
Frankfurt, Germany and U.S. Embassy, Pretoria. We also interviewed key
officials from the American Express, Carlson Wagonlit, and Concorde
travel management centers. We reviewed General Services
Administration’s (GSA) Federal Travel Regulations (FTR) and State’s
Foreign Affairs Manual (FAM) and Foreign Affairs Handbook (FAH). We
reviewed State’s internal department notices and other travel-related
guidance. Finally, we conducted “walk-throughs” of the domestic and
overseas travel processes.
Evaluating the
Effectiveness of
Controls over
Premium-Class Travel
We audited controls over the authorization and issuance of premium-class
travel during fiscal years 2003 and 2004. State’s credit card vendor,
Citibank, could not provide the first 6 months of fiscal year 2003
(October 2002–March 2003) level III data due to limitations in its archiving
capabilities. The level III data indicate whether a transaction is premium or
coach. Therefore, we used 18 months of data from April 2003 through
September 2004 to select a probability sample of premium-class
transactions and also used this same time period for our data mining and
analysis of premium-class transactions. Our assessment covered the
following:
Appendix I
Objectives, Scope, and Methodology
Page 35 GAO-06-298 State Travel Cards
• The extent to which State used the centrally billed accounts to obtain
premium-class travel was determined.
• Testing a statistical sample of premium-class transactions to assess the
implementation of key management controls and processes for
authorizing and issuing premium-class travel, including approval by an
authorized official and justification in accordance with regulations. We
also used data mining to identify other selected transactions throughout
the premium-class travel transactions to determine if indications of
improper transactions existed.
• State’s management policy towards the use of premium-class travel was
determined.
Magnitude of Premium-
Class Travel
To assess the magnitude of premium-class travel by State and other foreign
affairs agencies, we obtained from Citibank a database of fiscal years 2003,
2004, and 2005 travel transactions charged to State’s centrally billed and
individually billed travel card accounts. The databases contained
transaction-specific information, including ticket fares, codes used to price
the tickets—fare basis codes—ticket numbers, names of passengers, and
numbers of segments in each ticket. We reconciled these data files to
control totals provided by Citibank and to data reported by GSA on State’s
centrally billed account activities. We queried the database of positive debit
transactions (charges) for fare codes that corresponded to the issuance of
first- and business-class travel, identifying all airline transactions that
contained at least one leg in which State and other foreign affairs agencies
paid for premium-class travel accommodations.
We further limited the first- and business-class transactions to those
costing more than $750 because many premium-class tickets on intra-
European flights cost less than $750 and the corresponding coach-class
tickets were not appreciably less. By eliminating from our population first-
and business-class transactions costing less than $750, we avoided the
possibility of identifying a large number of transactions in which the
difference in cost was not significant enough to raise concerns of the
effectiveness of the internal controls. The total number of transactions
excluded was 1,067, costing approximately $532,000. While we excluded
premium-class transactions costing less than $750, we (1) did not exclude
all intra-European flights and (2) potentially excluded unauthorized
premium-class flights. Limitations of the database prevented a more
Appendix I
Objectives, Scope, and Methodology
Page 36 GAO-06-298 State Travel Cards
precise methodology of excluding lower-cost first- and business-class
tickets.
Statistical Sampling and
Data Mining
Table 3 summarizes the population
1
of State and other foreign affairs
agencies’ airline travel transactions containing at least one premium-class
leg charged to State’s centrally billed accounts from April 2003 through
September 2004 and the subpopulation subjected to testing.
Table 3: State and Other Foreign Affairs Agencies’ Premium-Class Travel Populations Subjected to Sampling
Source: GAO analysis of Citibank data.
To assess the implementation of key controls over the authorization and
issuance of premium-class travel, we tested a probability sample of
premium-class transactions. In general, the population from which we
selected our transactions for testing was the set of positive debit
transactions totaling $750 or more for both first- and business-class travel
that were charged to State’s centrally billed accounts during April 2003
through September 2004. Because our objective was to test controls over
travel card expenses, we excluded credits and miscellaneous debits (such
as fees) that would not have been for ticket purchases from the populations
tested.
We further limited the population of first- and business-class transactions
to those without a matching credit. By eliminating transactions with
matching credits, we avoided selecting a large number of transactions in
which the potential additional cost of the premium-class ticket was
mitigated by a credit refund so as not to raise concerns about the
effectiveness of the internal controls. The total number of transactions
1
The total population subject to sampling does not include about 1,650 transactions totaling
$6.9 million that we identified in data provided by Citibank subsequent to sampling.
Dollars in thousands
Total population of
premium-class transactions
Excluded transactions
(premium class costing less
than $750)
Population subject to sampling
(premium class costing at least
$750)
Transactions tested
Transactions Dollars Transactions Dollars Transactions Dollars Transactions Dollars
30,268 $133,000 2,799 $11, 700 27,469 $121,300 107 $467
Appendix I
Objectives, Scope, and Methodology
Page 37 GAO-06-298 State Travel Cards
excluded was 2,799, totaling approximately $11.7 million. While we
excluded premium-class transactions with a matching credit, we did not
exclude all transactions with a matching credit because sometimes the data
did not always identify the fare basis codes to allow us to determine if the
travel was premium or coach.
To test the implementation of key control activities over the issuance of
premium-class travel transactions, we selected a probability sample of
transactions. Specifically, we selected 107 premium-class transactions
totaling about $467,000. For each transaction sampled, we requested that
State provide us the travel order, travel voucher, travel itinerary, and other
related supporting documentation. We used that information to test
whether documentation existed that demonstrated that State had adhered
to key internal controls over authorizing and justifying premium-class
tickets. On the basis of the information State provided, we determined
whether a valid official approved the premium-class travel and whether the
premium-class travel was justified in accordance with State regulations. We
also applied criteria set forth in our internal control standards and sensitive
payments guidelines in evaluating the proper authorization of premium-
class travel. For example, while State travel regulations and policies do not
address subordinates authorizing their supervisors’ premium-class travel,
our internal control standards consider such a policy to be flawed;
therefore, a premium-class transaction that was approved by a subordinate
would fail the control test. The results of the samples of these control
attributes can be projected to the population of transactions at State and
other foreign affairs agencies as a whole, but not to individual bureaus or
posts.
With our probability sample, each transaction in the population had a
nonzero probability of being included, and that probability could be
computed for any transaction. Each sample element was subsequently
weighted in the analysis to account statistically for all the transactions in
the population, including those that were not selected. Because we
followed a probability procedure based on random selections, our sample
is only one of a large number of samples that we might have drawn. Since
each sample could have provided different estimates, we express our
confidence in the precision of our particular sample’s estimates as 95-
percent confidence intervals (e.g., plus or minus 10 percentage points.)
These are intervals that would contain the actual population value for 95-
percent of the samples we could have drawn. As a result, we are 95-percent
confident that each of the confidence intervals in this report will include
the true values in the study population. All percentage estimates from the
Appendix I
Objectives, Scope, and Methodology
Page 38 GAO-06-298 State Travel Cards
sample of premium-class air travel have sampling errors (confidence
interval widths) of plus or minus 10 percentage points or less. Table 4
summarizes the premium-class statistical sample results.
Table 4: Premium-Class Statistical Sample Results
Source: GAO analysis of Citibank data.
Note: Each test is dependent on the result of the prior test(s). For example, if no travel order was
provided the transaction failed and no other tests were conducted to determine whether the travel
order was signed. The justification test was dependent on the outcome of the authorization test(s).
Therefore, since 42 of 107 transactions (39 percent) failed the authorization test, we tested 65 total
transactions specifically to determine whether there was justification for premium-class travel.
In addition to our statistical sample, we selected other transactions
identified by our data mining efforts for review. Our data mining identified
individuals who frequently flew using first- or business-class
accommodations. For data mining transactions, we also requested that
State provide us the travel order, travel voucher, travel itinerary, and any
other supporting documentation that could provide evidence that the
premium-class travel was properly authorized and justified in accordance
with State policies. If the documentation provided indicated that the
transactions were proper and valid, we did not pursue the matter further.
However, if the documentation was not provided, or if it indicated further
issues related to the transactions, we obtained and reviewed additional
documentation about these transactions.
High-Level Officials
Our initial data mining efforts identified executives that frequently flew
first and business class. On the basis of our findings, we expanded our
selection of high-level officials to include most of State’s top executives,
Authorization
Controls
Travel order
provided?
Travel order
signed?
Premium travel
specifically
authorized?
Premium travel not
authorized by
blanket travel
order?
Justification Control
Trip more than 14
hours without a rest
stop?
Estimated percentage
of transactions with
this particular failure
Failed 4
Passed Failed 5
Passed Passed Failed 13
Passed Passed Passed Failed 17
Passed Passed Passed Passed Failed 28
Appendix I
Objectives, Scope, and Methodology
Page 39 GAO-06-298 State Travel Cards
including presidential appointees and senior executives. We evaluated
these transactions in the same manner as described above.
Diplomatic Couriers
Based on the statistical sample of premium class transactions, we estimate
that 6 percent of the transactions in the sample population represent travel
by diplomatic couriers. We also identified courier transactions by data
mining for travelers that frequently flew first and business class. We found
six courier transactions in our statistical sample and an additional 16
transactions identified during data mining for proper authorization and
justification. We reviewed pertinent laws, federal regulations, and State
department policies and procedures and interviewed current and former
Diplomatic Courier Service staff. We also conducted an on-site inspection
of classified pouch procedures at the Logistics Operations Center and
observed the FedEx process for inventory, pouching, and packaging of
classified materials for shipment to London, Paris, and Frankfurt. We did
not have authorization to open, inspect, and verify that classified pouches
contained only classified materials. Also, we did not observe and assess
courier procedures at foreign airports related to accessing the tarmac to
take custody of outgoing and incoming diplomatic pouch materials. During
the course of our work, we interviewed Department of State Inspector
General, Diplomatic Courier Service, and Administrative Logistics
Management officials and Department of Homeland Security officials
responsible for customs and border protection.
Evaluating the Effectiveness
of Controls over Other
Centrally Billed Account
Activities
We also audited the controls over other centrally billed account activities,
including the identification and processing of unused tickets and disputing
of unauthorized transactions, during fiscal years 2003 and 2004. Our
assessment covered
• the magnitude of centrally purchased tickets that were not used and not
processed for a refund, and
• the extent of unauthorized transactions that were not disputed and of
the rebates lost, as a result.
To assess the internal controls over these other CBA activities, we first
applied the fundamental concepts and standards set forth in our Standards
Appendix I
Objectives, Scope, and Methodology
Page 40 GAO-06-298 State Travel Cards
for Internal Control in the Federal Government
2
to the practices followed
by these units to manage unused tickets and to dispute transactions that
did not match or that the reconciliation process determined were
unresolved. Because we determined that controls over unused tickets were
ineffective, we did not assess these controls.
Magnitude of Unused
Tickets
To assess the magnitude of tickets charged to the centrally billed accounts,
which were unused and not refunded, we requested that the six airlines
that State and other foreign affairs agencies used most frequently provide
us with data relating to tickets State and other foreign affairs agencies
purchased during fiscal years 2003 and 2004 that were unused and not
refunded. These six airlines—American, Delta, Northwest, Continental,
United, and U.S. Airways—together accounted for about 80 percent of the
value of total airline tickets State and other foreign affairs agencies
purchased. To obtain assurance that the tickets the airlines reported as
unused represented only airline tickets charged to State centrally billed
accounts, we compared data provided by the airlines to transaction data
provided by Citibank. Because State does not track whether tickets
purchased with centrally billed accounts were used, we were unable to
confirm that the population of unused tickets that the airlines provided was
complete in that it included all State and other foreign affairs agencies’
tickets that were unused and not refunded.
While American, Delta, Northwest, and United provided data that allowed
us to identify the centrally purchased tickets that were fully unused and not
refunded and partially used and not refunded, Continental could only
provide data on fully unused and not refunded tickets and U.S. Airways did
not provide any data. Because none of the airlines provided data sufficient
for calculating the exact unused value (residual value), we were limited to
reporting the amount charged to the centrally billed accounts related to
both fully unused and partially unused tickets.
Extent of Unauthorized
Transactions Not Disputed
To determine the extent of airline tickets that did not reconcile between the
tickets issued by State’s travel management center and the Citibank invoice
of tickets purchased on the centrally billed account, we (1) obtained
2
GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1
(Washington, D.C.: November 1999).
Appendix I
Objectives, Scope, and Methodology
Page 41 GAO-06-298 State Travel Cards
unresolved transaction reports for State’s largest domestically managed
centrally billed accounts and (2) verified that the transactions were
charged to a State centrally billed account using the Citibank transaction
data.
Magnitude of Rebates Lost
To identify the potential rebates lost
3
on State’s centrally billed accounts,
we requested that Citibank provide (1) the total amount of rebates earned
by State on its centrally billed account program for fiscal year 2003 and
fiscal year 2004, (2) the volume of transactions used by Citibank to
compute the rebate amounts, and (3) the rebate pricing schedule Citibank
used to determine the amount of rebates. Using the volume of transactions
and the rebate pricing schedule provided by Citibank, we calculated the
highest potential rebate that State could have earned on the centrally billed
account program. We then compared the potential rebate amounts to the
actual rebates earned.
Data Reliability
Assessment
We assessed the reliability of the Citibank centrally billed account data by
(1) performing various testing of required data elements, (2) reviewing
existing information about the data and system that produced them, and
(3) interviewing Citibank officials knowledgeable about the data. In
addition, we verified that totals from the databases agreed with the
centrally billed account activity reported by GSA. We determined that data
were sufficiently reliable for the purposes of our report.
To assess the reliability of the unused ticket data provided to us by
American, Continental, Delta, Northwest, and United Airlines, we
(1) consulted airline officials knowledgeable about the data and
3
According to State, “Citibank pays the Department a performance or payment productivity
rebate based on calculated “net turndays” for payments. The rebates are not driven directly
from the actual payment date, but are calculated using accounts receivable average
balances divided by average daily charge volumes. The specific calculations use a derived
Average Accounts Receivable, which is the sum of daily accounts receivable (outstanding)
balances at the end of a cycle divided by the number of days in the cycle month and a Net
Charge Volume. Net Charge Volume represents all cycle purchases and other charges, less
credits, divided by billing cycle days. The Average Accounts Receivable is then divided by
the Average Net Charge Volume which yields the “turndays” factor used to derive the actual
refund percentage from a pre-established table. Lower turndays yield higher rebate
percentages and increases in turndays reduce the rebate percentage. The effect of
undisputed items is that in subsequent billing cycles the Average Accounts Receivable
number is higher, yielding a higher calculated turnday computation and lower rebate.”
Appendix I
Objectives, Scope, and Methodology
Page 42 GAO-06-298 State Travel Cards
(2) performed testing on specific data elements. In addition, we validated
that the tickets reported as unused by each airline represented tickets
centrally purchased by State by comparing each airline’s data to the
Citibank centrally billed account. We also reviewed the 2003 and 2004
Notes to the Consolidated Financial Statements for each airline to verify
that amounts related to unused tickets were included as a liability. We
concluded that the data were sufficiently reliable for the purposes of this
report.
Page 43 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State Appendix II
Appendix II
Comments from the Department of State
Page 44 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State
Page 45 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State
Page 46 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State
Page 47 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State
Page 48 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State
Page 49 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State
Page 50 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State
Page 51 GAO-06-298 State Travel Cards
Appendix II
Comments from the Department of State
Page 52 GAO-06-298 State Travel Cards
Page 53 GAO-06-298 State Travel Cards
Appendix III
GAO Contacts and Staff Acknowledgments Appendix III
GAO Contacts
Cindy Brown Barnes (202) 512-9345, [email protected]
John V. Kelly (202) 512-6926, [email protected]
Michael C. Zola (202) 512-3867, [email protected]
Staff
Acknowledgments
Key contributors to this report include Cindy Barnes, Felicia Brooks,
Norman Burrell, Beverly Burke, Jennifer Costello, Francine DelVecchio,
Abe Dymond, Aaron Holling, Jason Kelly, John V. Kelly, Andrea Levine,
Barbara Lewis, Jenny Li, Katherine Peterson, Mark Ramage, John Ryan,
Sidney H. Schwartz, and Michael C. Zola.
(192145)
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