However, as shown in    figure 1, the Navy’s average delinquency rate was nearly identical to the  Army’s, which, as we have previously testified, is the highest delinquency  rate in the government. The Navy’s quarterly delinquency rate fluctuated  from 10 to 18 percent, and on average was about 6 percentage points  higher than that of federal civilian agencies. The high level of delinquencies and  charge-offs have also cost the Navy millions of dollars in lost rebates,  higher fees, and substantial resources spent pursuing and collecting past  due accounts. We found  that the Navy’s overall delinquency and charge-off problems are primarily  associated with young, low- and mid-level enlisted military personnel with  basic pay levels ranging from $12,000 to $27,000. During fiscal year 2001 and the  first 6 months of fiscal year 2002, over 5,100 Navy employees wrote at least  one nonsufficient fund (NSF), or “bounced” check, to Bank of America as  payment for their travel card bills. Of these, over 250 wrote 3 or more NSF  checks, a potentially fraudulent act. These 10 accounts were  subsequently charged-off or placed in salary offset or voluntary fixed  payment agreements with Bank of America. For the cases we reviewed, we found a significant correlation between  travel card fraud, abuse, and delinquencies and individuals with  substantial credit history problems. However, ineffective  controls over the notification process resulted in the APC not being aware  that this had occurred. However,  additional preventive solutions are necessary if DOD is to effectively  address these issues. For example, we plan to include recommendations that will address  actions needed in the areas of exempting individuals with histories of  financial problems from the requirement to use a travel card; providing  sufficient infrastructure to effectively manage and provide day-to-day  monitoring of travel card activity related to the program; deactivating  cards when employees are not on official travel; taking appropriate  disciplinary action against employees who commit fraud or abuse of the  travel card; ensuring that information on travel card fraud or abuse of  cardholders with secret or top-secret security clearances is provided to  appropriate security officials for consideration in whether such clearances  should be suspended or revoked; and moving towards mandating use of  the split disbursement payment process. To assess the overall control environment for the travel card program at  the Department of the Navy, we obtained an understanding of the travel  process, including travel card management and oversight, by interviewing  officials from the Office of the Undersecretary of Defense (Comptroller),  Department of the Navy, Defense Finance and Accounting Service (DFAS),  Bank of America, and the General Services Administration, and by  reviewing applicable policies and procedures and program guidance they  provided.
Why GAO Did This Study

This testimony discusses the Department of the Navy's internal controls over the government travel card program. The Navy's average delinquency rate of 12 percent over the last 2 years is nearly identical to the Army's, which has the highest delinquency rate in the Department of Defense, and 6 percentage points higher than that of federal civilian agencies. The Navy's overall delinquency and charge-off problems, which have cost the Navy millions in lost rebates and higher fees, are primarily associated with lower-paid, enlisted military personnel. In addition, lack of management emphasis and oversight has resulted in management failure to promptly detect and address instances of potentially fraudulent and abusive activities related to the travel card program. During fiscal year 2001 and the first 6 months of fiscal year 2002, over 250 Navy personnel might have committed bank fraud by writing three or more nonsufficient fund checks to Bank of America, while many others abused the travel card program by failing to pay Bank of America charges or using the card for inappropriate transactions such as for prostitution and gambling. However, because Navy management was often not aware of these activities, disciplinary actions were not consistently taken against these cardholders. GAO also found a significant relationship between travel card fraud, abuse, and delinquencies and individuals with substantial card history problems. Many cardholders whose accounts were charged off or put in salary offset had bankruptcies and accounts placed in collection prior to receiving the card. The Navy's practice of authorizing a travel card to be issued to virtually anyone who asked for it compounded an already existing problem by giving those with a history of bad financial management additional credit.

What GAO Found

Although GAO found that Navy management had taken some corrective actions to address delinquencies and misuse, additional preventive solutions are necessary if Navy is to effectively address these issues.