[Senate Hearing 108-326]
[From the U.S. Government Publishing Office]
S. Hrg. 108-326
DOD'S IMPROPER USE OF FIRST AND BUSINESS CLASS AIRLINE TRAVEL
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HEARING
before the
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
__________
NOVEMBER 6, 2003
__________
Printed for the use of the Committee on Governmental Affairs
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COMMITTEE ON GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Michael D. Bopp, Staff Director and Chief Counsel
Joyce Rechtschaffen, Minority Staff Director and Counsel
Amy B. Newhouse, Chief Clerk
------
PERMANENT COMMITTEE ON INVESTIGATIONS
NORM COLEMAN, Minnesota, Chairman
TED STEVENS, Alaska CARL LEVIN, Michigan
GEORGE V. VOINOVICH, Ohio DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama MARK PRYOR, Arkansas
Raymond V. Shepherd, III, Staff Director and Chief Counsel
Elise J. Bean, Minority Staff Director and Chief Counsel
Mary D. Robertson, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Coleman.............................................. 1
Senator Levin................................................ 13
WITNESSES
Thursday, November 6, 2003
Hon. Charles E. Grassley, a U.S. Senator from the State of Iowa.. 5
Hon. Janice D. Schakowsky, a Representative in Congress from the
State of Illinois.............................................. 10
Gregory D. Kutz, Director, Financial Management and Assurance,
accompanied by John V. Kelly, Assistant Director, Financial
Management and Assurance, and John J. Ryan, Assistant Director,
Office of Special Investigations, U.S. General Accounting
Office......................................................... 15
Hon. Charles S. Abell, Assistant Secretary of Defense (Force
Management Policy), accompanied by Lawrence J. Lanzillotta,
Principal Deputy Under Secretary (Comptroller), U.S. Department
of Defense..................................................... 26
Alphabetical List of Witnesses
Abell, Hon. Charles S.:
Testimony.................................................... 26
Prepared statement........................................... 70
Grassley, Hon. Charles E.:
Testimony.................................................... 5
Prepared statement........................................... 39
Kutz, Gregory D.:
Testimony.................................................... 15
Prepared statement........................................... 48
Schakowsky, Hon. Janice D.:
Testimony.................................................... 10
Prepared statement........................................... 44
EXHIBITS
1. GGAO Report to Congressional Requesters [The Honorable Charles
E. Grassley, Chairman, Senate Committee on Finance; The
Honorable Norm Coleman, Chairman, Senate Permanent Subcommittee
on Investigations, Committee on Governmental Affairs; and The
Honorable Janice Schakowsky, House of Representatives], TRAVEL
CARDS: Internal Control Weaknesses at DOD Led to Improper Use
of First and Business Class Travel, October 2003, GAO-04-88.... 72
2. GGAO Chart: Defense Premium Class Travel vs. Total Travel at
Selected Departments/Agencies.................................. 122
3. GGAO Chart: Examples of Price Differences Between Premium and
Coach Class Trips.............................................. 123
4. GResponses to supplemental questions for the record submitted
to Charles S. Abell, Principal Deputy Under Secretary of
Defense for Personnel and Readiness, U.S. Department of Defense
and Lawrence J. Lanzillotta, Principal Deputy Under Secretary
(Comptroller), U.S. Department of Defense...................... 124
5. Materials provided for the record by Lawrence J. Lanzillotta,
Principal Deputy Under Secretary (Comptroller), U.S. Department
of Defense, regarding the Business Management Modernization
Program........................................................ 129
DOD'S IMPROPER USE OF FIRST AND BUSINESS CLASS AIRLINE TRAVEL
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THURSDAY, NOVEMBER 6, 2003
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:02 p.m., in
Room SD-342, Dirksen Senate Office Building, Hon. Norm Coleman,
Chairman of the Subcommittee, presiding.
Present: Senators Coleman, Levin, and Pryor.
Staff Present: Raymond V. Shepherd, III, Staff Director and
Chief Counsel; Mary D. Robertson, Chief Clerk; Kristin Meyer,
Staff Assistant; Jay Jennings, Detailee, General Accounting
Office; Laura Stuber, Counsel to the Minority; Gita Uppal
(Senator Pryor); Patrick Hart (Senator Lieberman), and Brian
McLaughlin (Senator Durbin).
OPENING STATEMENT OF SENATOR COLEMAN
Senator Coleman. This hearing of the Permanent Subcommittee
on Investigations is called to order. Good afternoon and
welcome to today's hearing.
This afternoon, we are holding this hearing to address a
serious challenge to the credibility of the travel system and
controls at the Department of Defense. In particular, we will
focus on a system where the controls have failed, and this has
led to the loss of millions of taxpayer dollars. The current
system allows for abuse. It must be fixed. To paraphrase an old
adage, watch the millions and the billions take care of
themselves.
Our goal today is to ground the so-called high flyers,
those who abuse the system, and to ensure that DOD is committed
to implementing long-term solutions to this costly problem.
The fact is, many government employees are required by
virtue of their job to travel great distances, and oftentimes,
many employees are required to travel with great frequency. Our
policy should not be to require those who must travel as part
of their government job to do so in discomfort or extreme
inconvenience. However, our policy must certainly ought not to
be one that provides government employees with the type of
travel conditions that the public reasonably feels are
excessive in cost to the taxpayers.
I am pleased today to be joined by my colleague, the
esteemed Senator from Iowa, Senator Chuck Grassley, and also by
Congresswoman Janice Schakowsky. Welcome. We are very pleased
to have you at this hearing. Their work on travel and purchase
card abuses in the Federal Government has highlighted continued
abuses government-wide and has focused our attention on the
need to conduct continuing Congressional oversight on these
issues to ensure that they are corrected.
An investigation recently completed by the General
Accounting Office found that almost three-quarters of DOD's
first and business class airline travel was improper. This
accounts for tens of millions of taxpayer dollars
inappropriately spent by DOD. In fiscal years 2001 and 2002,
DOD spent almost $124 million on over 68,000 premium airline
tickets. Among DOD's 28 most frequent first and business class
flyers, GAO found problems with almost all of the
justifications for premium class travel. This lack of
accountability cannot be tolerated. Under government travel
regulations, government employees are also allowed to upgrade
their accommodations by using their frequent flyer miles or
paying the difference themselves.
Let me outline some of the most egregious and outrageous
abuses of the system. A DOD employee flew first class on a
round-trip ticket from Los Angeles to Washington, DC, for
$3,253, compliments of the Federal Government. A coach fare for
the same trip would have cost $238, a difference of $3,015.
Another employee flew business class on a round-trip ticket
from Washington, DC, to Taiwan for $4,319 when a coach fare
ticket for the same trip would have cost $1,450, a difference
of $2,869.
A family of four relocated from London and Honolulu and
flew first and business class nonstop at a cost to the
taxpayers of $20,943. Had they simply made the effort to reduce
costs and follow travel procedures, they would have saved the
taxpayers $18,443.
Other cases involved a traveler who took 14 trips at a cost
of $88,000 to taxpayers because he inappropriately claimed that
he needed to be upgraded to first class and business class
because of a medical condition.
In each of these and dozens of other cases, it appears that
travel orders were either not authorized or not justified and
premium-class tickets should not have been issued.
The passage of the Travel and Transportation Reform Act of
1998 brought with it the promise of millions of dollars in
Federal travel savings. These savings were to be realized
through Federal employees' use of Federal travel cards that
would reduce the government's administrative costs and provide
rebates to Federal agencies.
However, these anticipated savings will not simply
materialize because we have provided Federal employees with
credit cards. Realizing the full potential of these savings
requires that Federal agencies and departments provide clear
guidance and effective management oversight of their travel
programs.
The focus of today's hearing is DOD's use of premium class
travel accommodations that include first and business class
travel that was paid with a travel card from a centrally billed
account. Over the last 2 years, Congressional hearings and
reports by the General Accounting Office and the Inspector
General have highlighted continuing abuses, including
individuals' late or nonpayment of travel card debt and using
the card to purchase personal goods and services or obtain
improper cash advances. But today, we will focus the hearing on
the use of premium class travel accommodations.
The Department of Defense's Joint Federal Travel
Regulations for military personnel and Joint Travel Regulations
for civilian personnel do not prohibit the use of first and
business class airline accommodations, but they do require
authorization by an appropriate official and justification by
the traveler. Otherwise, DOD's regulations require the use of
coach class accommodations for domestic and international
travel.
Given the increased costs of premium class travel, DOD has
very specific restrictions on the use of first and business
class airline accommodations. DOD's travel regulations provide
three circumstances when an employee can be authorized to
travel first class and eight circumstances where an employee
can be authorized to travel business class. I will have my full
statement entered into the record where I walk through that.
Let me just make an observation. The DOD, I understand, has
clarified its regulations with regard to the use of premium
travel, and I want to commend them for their prompt attention
to these issues. But I want to reiterate our deep concern for
the abuses that we have noted.
As we begin this hearing, I want to reiterate my commitment
to use this Subcommittee to find solutions to problems in
government as well as use it as an opportunity to provide
positive, constructive oversight. Where we find fraud and
abuse, we must not only root it out, but we must fix it and
stop it from occurring again.
This afternoon, we will hear from representatives of the
General Accounting Office on their recently completed
investigation of DOD's use of premium travel that was paid from
a centrally billed account. We will also hear from DOD
concerning the actions it has taken or plans to take to ensure
full compliance with their travel regulations.
[The prepared statement of Senator Coleman follows:]
PREPARED OPENING STATEMENT OF SENATOR COLEMAN
Good afternoon and welcome to today's hearing.
This afternoon we are holding this hearing to address a serious
challenge to the credibility of the travel systems and controls at the
Department of Defense. In particular, we will focus on a system where
the controls have failed--and this has led to the loss of millions of
taxpayer dollars.
The current system allows for abuse. It must be fixed. To
paraphrase an old adage--``watch the millions and the billions take
care of themselves.''
Our goal today is to ground the high flyers who abuse the system
and to ensure DOD is committed to implementing long-term solutions to
this costly problem.
The fact is, many government employees are required, by virtue of
their job, to travel great distances--and often times, many employees
are required to travel with great frequency.
Our policy should not be to require those who must travel as a part
of their government job to do so in discomfort or extreme
inconvenience. However, our policy most certainly ought not to be one
that provides government employees with the type of travel conditions
that the public reasonably feels are excessive in cost to the taxpayer.
I am pleased to be joined today by my colleague, the esteemed
Senator from Iowa, Senator Chuck Grassley and also by Congresswoman
Janice Schakowsky.
Their work on travel and purchase card abuses in the Federal
Government has highlighted continuing abuses government-wide and has
focused our attention on the need to conduct continuing Congressional
oversight on these issues to ensure that they are corrected.
An investigation recently completed by the General Accounting
Office found that almost three-quarter of DOD's first and business
class airline travel was improper. This accounts for tens of millions
of taxpayer dollars inappropriately spent by DOD. In fiscal years 2001
and 2002, DOD spent almost $124 million on over 68,000 premium airline
tickets. Among DOD's 28 most frequent first and business class fliers,
GAO found problems with almost all of the justifications for premium
class travel. This lack of accountability cannot be tolerated.
Under government travel regulations, government employees are also
allowed to upgrade their accommodations by using their frequent flier
miles or paying the difference themselves.
Let me outline some of the most egregious and outrageous abuses of
the system:
A DOD employee flew first class on a round trip ticket
from Los Angeles to Washington, DC, for $3,253 compliments of the
Federal Government. A coach fare for the same trip would have cost
$238, a difference of $3,015.
Another employee flew business class on a round trip
ticket from Washington, DC to Taiwan for $4,319 when a coach fare for
the same trip would have cost $1,450, a difference of $2,869.
A family of four relocated from London to Honolulu and
flew first and business class non-stop at a cost to taxpayers of
$20,943--had they simply made the effort to reduce costs and follow
travel procedures, they would have saved taxpayers $18,443.
Other cases involved a traveler who took 14 trips at a
cost of $88,000 to taxpayers because he inappropriately claimed that he
needed to be upgraded to first-class and business class because of a
medical condition.
In each of these and dozens of other cases it appears the travel
orders were either not authorized or not justified and premium class
tickets should not have been issued.
The passage of the Travel and Transportation Reform Act of 1998
brought with it the promise of millions of dollars in Federal travel
savings. These savings were to be realized through Federal employees
mandatory use of Federal travel cards that would reduce the
government's administrative costs and provide rebates to Federal
agencies.
However, these anticipated savings will not simply materialize
because we have provided Federal employees with credit cards. Realizing
the full potential of these savings requires that Federal agencies and
departments provide clear guidance and effective management oversight
of their travel programs.
Over the last 2 years, Congressional hearings and reports by the
General Accounting Office and the Inspectors General have highlighted
continuing abuses including individuals' late or nonpayment of travel
card debt, and using the card to purchase personal goods and services
or obtain improper cash advances.
The focus of today's hearing is DOD's use of premium class travel
accommodations that include first and business class travel that was
paid with a travel card from a centrally billed account.
The Department of Defense's Joint Federal Travel Regulations, for
military personnel, and Joint Travel Regulations, for civilian
personnel, do not prohibit the use of first and business class airline
accommodations, but they do require authorization by an appropriate
official and justification by the traveler.
Otherwise, DOD's regulations require the use of coach class
accommodations for domestic and international travel. Given the
increased cost of premium class travel, DOD has very specific
restrictions on the use of first and business class airline
accommodations. DOD's travel regulations provide three circumstances
where an employee can be authorized to travel first class and eight
circumstances where an employee can be authorized to travel business
class.
For example, first class accommodations are permitted if no other
class is available, or if the traveler has a handicap or physical
impairment that requires the use of first class accommodations and the
condition is substantiated by a competent medical authority, or if
there are exceptional security circumstances.
These abuses occurred because effective management oversight was
nonexistent and DOD's travel guidance was inadequate or contradictory.
Many of the abuses we will hear about today can be traced to the
lack of management oversight and a lack of familiarity with DOD's
travel policies and regulations. For example, DOD's first class travel
records were incomplete and there were no records at all for business
class travel. Without complete records, DOD can hardly be expected to
conduct effective oversight.
Further, DOD has two sets of travel regulations that are augmented
by DOD directives and individual service policies. The layering and
multiplicity of policies and regulations have confused both travelers
and officials who approve their travel. I understand that DOD has
clarified its regulations with regard to the use of premium class
travel and I want to commend DOD for their prompt attention to these
issues.
As we begin this hearing, I want to reiterate my commitment to use
this Subcommittee to find solutions to problems in government--as well
as use it as an opportunity to provide positive, constructive
oversight.
Where we find fraud and abuse, we must not only root it out, but we
must fix it and stop it from occurring again.
This afternoon we will hear from representatives of the General
Accounting Office on their recently completed investigation of DOD's
use of premium travel that was paid from a centrally billed account. We
will also hear from DOD, concerning the actions it has taken or plans
to take to ensure full compliance with their travel regulations.
Our first witnesses will be Senator Charles Grassley and
Congresswoman Janice Schakowsky to whom we are indebted for their
tireless efforts to expose and correct travel and purchase card abuses.
Senator Coleman. Our first witnesses will be Senator
Charles Grassley and Congresswoman Janice Schakowsky, to whom
we are indebted for their tireless efforts to expose and
correct travel and purchase card abuses.
With that, I will turn to my colleague, Senator Grassley.
TESTIMONY OF HON. CHARLES E. GRASSLEY,\1\ A U.S. SENATOR FROM
THE STATE OF IOWA
Senator Grassley. Thank you, Mr. Chairman, and I am glad to
be here with Representative Schakowsky, as well. First of all,
thank you for that commitment you just made for the use of this
Subcommittee to follow through on some of these extravagant and
wasteful uses of taxpayers' money.
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\1\ The prepared statement of Senator Grassley appears in the
Appendix on page 39.
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I think that follows on with the work that Chairman Horn
did in the House over the last few years through the Government
Reform Subcommittee, and now that he has retired, I am thankful
that you are picking up the ball and running with it. By
agreeing to hold this hearing, you are helping shine the light,
the public spotlight, on the problem, and usually I find that
the glare of spotlight helps bureaucrats to see the need for
reform.
I think it is impossible to fully appreciate the dangers of
credit card explosion until you understand that internal
controls in the Pentagon are broken. Over the last 15 years, I
have worked hard to understand what broken controls really
mean. My concerns are reinforced by the continued stream of
audits issued by the GAO and the Inspector General. These
reports consistently show that sloppy bookkeeping and poor
internal controls leave the Department's financial resources
vulnerable to theft.
In 1997 and 1998, as Chairman of the Judiciary Subcommittee
on Administrative Oversight, I conducted my own review of
internal controls at Defense. I conducted an in-depth
examination of several hundred transactions and I issued a
report. I came away from that experience convinced that
stealing money at the Department of Defense was a piece of
cake. Fraudulent activity, if discovered, was detected by
chance and not as a result of internal controls that are very
necessary.
This whole experience taught me one very important lesson:
Good bookkeeping is the key to controlling money. If, on the
one hand, your books of account are in shambles, as the
Pentagon situation is, then it is easy to steal money. Money
needs to be controlled at the transaction level. Unfortunately,
that is exactly where the Department of Defense lost it. The
Department of Defense transactions are not recorded in the
books of account as they occur. Sometimes it takes days to make
an entry, sometimes months, sometimes years, and sometimes a
transaction never makes it into the books. That is why the
Department of Defense books don't balance and that is why the
Department of Defense cannot provide a satisfactory financial
statement as required by the Chief Financial Officers Act.
So, Mr. Chairman, these vulnerabilities are the reasons for
my concern about the credit card explosion. By providing direct
access to the cash, credit card transactions bypass standard
controls. They make it easier to steal money. That makes the
independent checkers the last and only line of defense. All the
evidence that we have seen so far tells me they are asleep at
the switch. A credit card explosion of this magnitude in a
zero-controlled environment is a recipe for disaster. It is
like leaving the doors to the bank vault wide open with no
guards on duty.
In the face of what I feared was an impending disaster 3
years ago, I asked the General Accounting Office to begin an
in-depth examination of Defense credit card transactions. The
GAO has issued at least six separate reports. The audit and
investigative work done by the General Accounting Office I
think is very first rate. The reports provide an unending
litany of horror stories. The abuse documented by the GAO was
disgraceful.
Since our first hearing on July 30, 2001, however, I feel
like there has been a modest improvement. I don't know if it is
accurate to say that the Department of Defense has turned the
corner, but things are better I am told. For starters, the bank
and the Department of Defense agreed in October 2001 to
initiate a salary offset program.
Another important development involves the new Department
of Defense Inspector General, Joe Schmitz. When we began our
review, the Department of Defense IG was AWOL on credit card
use. Under Joe Schmitz, that is changing. He has placed an Army
Colonel by the name of Bill Kelly in charge of an aggressive
data mining operation to help search transaction records and
identify suspicious purchases. Colonel Kelly's data mining
operation is helping apprehend criminals and sending them to
jail.
So this is a good beginning. Once the cardholders know and
understand that their transactions could be under surveillance,
the abuse will come to a halt.
Last year, Senator Byrd and I teamed up on a credit card
amendment on the Defense appropriations bill. Our amendment did
several things. It put a lid on the total number of cards at
1.5 million. It made credit checks mandatory. It required
disciplinary action for abuse and prohibited the use of credit
cards in places like Bottoms Up Lounge and gambling casinos.
Drawing on my experience and the experience of the GAO and
agency IGs, I recently introduced legislation that requires all
Federal agencies to put in place specific safeguards and
internal controls. Mr. Chairman, I believe that mandatory
credit reporting is critical to curbing abuse. The checkers and
overseers must also be minding the store to make sure that all
charges are legitimate.
That brings us to the subject of today's hearing, the
General Accounting Office's latest report on defense travel
card abuse. In the last 2 years, the General Accounting Office
reports that DOD employees charged $124 million on centrally-
billed travel card accounts to buy 68,000 premium class airline
tickets. The General Accounting Office estimates that 72
percent of the Department of Defense personnel who flew premium
class on the taxpayer's dime didn't even have proper
authorization to do it, much less a valid justification for why
they needed to fly premium class.
Premium class travel is considered permissible for those
personnel only in certain limited circumstances, for instance,
if it is necessary because of a traveler's disability, coach
class accommodations are not available, or the travel is to an
overseas destination and at least 14 hours long.
According to the government-wide and DOD regulations, a
traveler must get specific authorization to use premium class
travel, and a premium class ticket should not be issued unless
it is properly authorized. Unfortunately, the large majority of
the time, the tickets are issued and billed to the Department
of Defense travel card account with no questions asked.
So how was this allowed to happen? The General Accounting
Office found that DOD performed no monitoring or oversight
activities to make sure that premium class travel was
authorized according to regulation. In fact, the Department of
Defense does not even maintain a central accounting of premium
class travel so it did not even have the basic data necessary
for monitoring and oversight. In order to conduct this
oversight investigation, the General Accounting Office
collected data directly from the Bank of America and started
from scratch.
The General Accounting Office also found that higher-
ranking civilian and military officials accounted for a large
part of the premium class travel. In fact, the General
Accounting Office considers travel by high-ranking officials to
be a sensitive payment area because of its susceptibility for
abuse and non-compliance with the law. Apparently, some high-
ranking bureaucrats feel they are entitled to luxury air
travel. We have got people who are supposed to be public
servants stretching their legs with hot towels and a cocktail,
even if it costs the taxpayers thousands of dollars more.
The General Accounting Office discovered through data
mining that a GS-14 relocated his family of four from London to
Honolulu, flying first and business class at a cost of $20,943,
despite the fact that the travel order did not authorize
premium class travel. The General Accounting Office estimated
that a coach fare for the same trip would have cost $2,500, so
a waste of $18,000.
Using statistical sampling and data mining, GAO found other
examples--a GS-15 who flew first class without authorization,
costing $3,200, while a coach ticket was $238; an officer who
flew business class without authorization for $1,300 when it
could have cost $672; another GS-15 whose $4,500 business class
ticket was authorized but not properly justified, costing the
taxpayers $3,955 over a coach ticket.
The General Accounting Office also identified a number of
high-ranking officials who repeatedly used premium class travel
without proper authorization, including Presidential appointees
requiring Senate confirmation. One example that I find
particularly telling has to do with 15 trips made by Assistant
Secretary of Defense for International Security Policy J.D.
Crouch at a cost of $70,000. While some of these flights were
authorized, the justification given was that premium class
travel was mission essential so that he could be ready for
meetings upon arrival. However, Department of Defense
regulations do not list this as a proper basis for that type of
travel.
According to a summary on page 19 of the report, Mr.
Crouch's assistant told the General Accounting Office that he
flies premium class travel to minimize time away from the
office. Yet, his assistant could not demonstrate overall cost
savings by lost productivity. Mr. Crouch's assistant also
apparently told the General Accounting Office that even though
the flights did not exceed the 14 hours necessary to justify
that type of travel, Mr. Crouch should be able to fly premium
class because of the importance of his work.
Although these are the words of Mr. Crouch's assistant and
not Mr. Crouch himself, this attitude is disturbing and helps
to shed some light on the reason why improper premium class
travel is especially prevalent among high-ranking officials.
I don't mean to pick on him. He is not the only
Presidential appointee involved in this type of problem. Mr.
Stenbit, the Assistant Secretary of Defense for Command,
Control, Communications, and Intelligence is also described on
pages 20 and 21 of the report as having taken 17 premium class
flights at the cost of $68,000, as compared with the estimated
$17,000 had he flied coach. Mr. Stenbit's justification was
based on an unspecified medical condition but no documentation.
While the General Accounting Office review of the records
indicate that no effort was made to accommodate Mr. Stenbit's
needs in a coach seat for these 17 flights, he apparently flew
coach at other times. Also, his travel was approved by a
subordinate, which is essentially the same as not being
approved.
In this case, the aide who made the reservations stated
that she will seek approval of the Deputy Secretary in the
future for first class travel and only schedule Mr. Stenbit for
premium class travel when less-expensive alternatives are not
available.
These are just examples. Of 44,000 premium class travelers,
the General Accounting Office reviewed transactions by only 177
individuals, nine of whom were political appointees.
So, Mr. Chairman, leaders must lead by example. If the
highest-ranking officials don't feel they need to comply with
regulations, what kind of message does that send? No wonder no
one in the Department of Defense seemed to notice or care that
74 percent of the premium class travel was not authorized.
There is no leadership at the top.
Mr. Chairman, the General Accounting Office has made a
number of excellent recommendations to the Department of
Defense about how to get its house in order, but unless the
Department of Defense gets serious about internal controls and
enforcement of its own regulations, we will continue to find
this sort of waste. Every time we peel back another layer of
abuse, we find another just below it.
While the Department of Defense has started to fix some of
the problems revealed to date with purchase cards and travel
cards, I see no sign that the Department of Defense has made a
concerted effort to implement a positive control environment
throughout the Department. The Department of Defense shouldn't
wait for Chuck Grassley or Representative Schakowsky or
Chairman Coleman or the General Accounting Office to undercover
instances of waste, fraud, and abuse and tell them what needs
to be fixed.
Make no mistake about it, I intend to keep digging, but I
look forward to the day when I find nothing to report. Thank
you.
Senator Coleman. Thank you, Senator Grassley.
Senator Grassley, I know that you are involved in some
Conference Committees and some delicate negotiation. I am not
sure what your timing is. What I would like to do, if I can, is
just ask you one question and then turn to Congresswoman
Schakowsky. I understand that you may have to leave.
First, I do want to thank both of you for your dogged
determination in looking after taxpayer dollars and dealing
with these issues. You noted, Senator Grassley, that the GAO
has made a number of excellent recommendations to address this.
I believe that the bill that you have authored, S. 1744, the
Credit Card Abuse Prevention Act, covers many of these
recommendations. But in the review that we have done in
preparation for this hearing, we have noted that centrally
billed accounts are not presently included in the definition of
travel cards as it appears in the bill. Many of the abuses
today focus on centrally billed accounts, so I would simply ask
if you would be willing to work with this Subcommittee and work
with this Chairman and others on the Subcommittee to have a
more expansive definition so that we eventually cover some of
the abuses that we are talking about today.
Senator Grassley. The answer is absolutely yes with only
this explanation of why it wasn't included, and that is because
we are looking for another General Accounting Office report
before we went that far. But if you know what to do and exactly
what to do, or maybe by the time we get to that point it will
be out. The obvious answer is, yes. I want to do whatever it
takes, first, to get the bill out of committee, and second, to
solve this problem, and I find it very comfortable working with
the two of you and probably most everybody on this
Subcommittee.
Senator Coleman. Thank you very much, Senator Grassley.
Senator Levin, do you have any questions before Senator
Grassley leaves?
Senator Levin. Yes. I understand that Senator Grassley has
to leave. Let me just first of all commend him. I don't know of
any tougher, stronger watchdog in the Senate than Senator
Grassley. It has been a pleasure to work with him on a number
of issues. Its always a great pleasure to hear from him and his
persistence in going after waste, fraud, and abuse, wherever it
is, whatever the Administration is, whatever year it takes
place. He has been consistent and I admire him.
Senator Grassley. Thank you. Those are kind words. I
appreciate it.
Senator Coleman. Thank you, Senator Levin. Thank you,
Senator Grassley.
Congresswoman Schakowsky.
TESTIMONY OF HON. JANICE D. SCHAKOWSKY,\1\ A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Ms. Schakowsky. Thank you, Chairman Coleman and Senator
Levin. Before you leave, Senator, I want to thank you for your
leadership and I want to associate myself with all of your
remarks. We have worked together on a number of investigations.
I appreciate that and hope that we can continue to do so. So
thank you very much for your work.
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\1\ The prepared statement of Ms. Schakowsky appears in the
Appendix on page 44.
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Senator Grassley. Thank you.
Ms. Schakowsky. I really appreciate the opportunity to
testify before you today. I want to also acknowledge my former
colleague, Representative Steve Horn, with whom I worked on
issues of waste and abuse during the 107th Congress.
Congressman Horn was a strong advocate of rooting out waste
wherever it was found and it was a pleasure to work with him as
the Ranking Democrat on his Subcommittee.
I also want to thank the General Accounting Office and its
investigators who diligently perform an essential service for
U.S. taxpayers by bringing to light abuses like those we are
talking about today.
Before I talk about the specifics of today's report or the
history of how we got here, I want to put the issue of DOD's
financial mismanagement in a broader context. Of about $7
trillion in accounting entries at the Pentagon, at least 1.2
trillion--that is trillion with a ``T''--were not supported by
sufficient evidence to determine their validity. That is about
20 percent of all dollars at DOD and transactions.
DOD cannot locate hundreds of billions of dollars worth of
military equipment, including weapons systems. It lacks a
complete and reliable inventory of its environmental
liabilities. In the case of some equipment, Kevlar body armor
for our troops in Iraq, for example, DOD does not have enough
supplies, while inventory for other items exceed the Pentagon's
need by about $30 billion. DOD overpays contractors at the rate
of about $1 billion a year, and that only counts what is
eventually returned to the government. There may well be
another $1 billion in overpayments each year that aren't
caught.
If DOD were a private corporation, it would already be
bankrupt or the management of the Department would be fired or
under investigation.
To stop the culture of waste, fraud, and abuse at the
Defense Department, we need a fundamental change. Today's
report on premium class travel is just one part of a much
larger problem.
For years, the Federal Government has been unable to
balance its books and the single largest cause for this is
financial mismanagement at the Department of Defense. DOD has
an enormous budget. It accounts for about half of all the
discretionary spending, and despite its horrific record of
waste, fraud, and abuse, DOD's budget grows every year. Until
the Department of Defense can pass a financial audit and
balance its books, and all signs suggest that won't happen for
years, we won't be able to balance the books for the entire
Federal Government.
This is the sixth hearing I have attended on government
credit cards alone. Every time we ask the GAO to shed light on
any aspect of DOD's financial management, scandalous abuses are
uncovered. A couple of examples.
At the Naval Space Wars Research Laboratory, we found
serious abuse of government purchase cards. Employees were
buying Palm Pilots, Coach briefcases, Luis Vuitton bags for
themselves, all at government expense. There was little
accountability and the government paid all the bills. The
commander of the laboratory tried to defend these purchases.
Much of what had been purchased couldn't be found when GAO went
looking for it. It was the Navy's policy, we were told, not to
inventory items that were easily stolen.
At another installation, the cardholder was also the
approving official and paid the bills. At another installation,
the cardholder bought gift certificates for family members
using a government purchase card but was never held
accountable. Senator Grassley highlighted this case in one of
his many testimonies before the Government Efficiency
Subcommittee.
Working with Chairman Shays on the Government Reform
National Security Subcommittee, we found that the Defense
Department was selling chemical and biological protection suits
on the Internet for just $2 or $3. At the same time, the
Department was purchasing these suits for $300 apiece.
Recently, GAO testified that over the Internet, one could buy
all of the equipment needed to set up a lab to produce
biological weapons from the Defense Department. This equipment
was purchased in new or virtually new condition for pennies on
the dollar.
We looked at the travel card program and discovered that
agencies were losing hundreds of thousands of dollars in
rebates because military employees were defaulting on payments
owed to credit card companies. We saw no accountability. One
officer was promoted, despite the fact that he had defaulted on
thousands of dollars for which he was reimbursed by the
government.
Today, the GAO will testify to the abuse of yet another
system by DOD employees. Senior officials, some of them
Presidential appointees, are taking advantage of their position
and wasting taxpayer dollars, flying premium class in violation
of the rules. At the same time, enlisted military personnel
returning from Iraq during their brief 2-week break from the
war have had to pay their own transportation within the United
States. Were it not for the fact that Congress intervened,
those patriot soldiers would still have to pay their own way to
see loved ones before returning to combat in Iraq.
GAO found widespread abuses of premium class travel. Of the
almost $124 million the DOD spends on about 68,000 premium
class flights during fiscal years 2001 and 2002, 72 percent was
not properly authorized and 73 percent was not properly
justified. That is close to $90 million in misused taxpayer
dollars for close to 50,000 flights, and while $124 million is
not even a rounding error at DOD, that number is still greater
than the total travel and transportation expenses spent by 12
other major agencies combined, including Social Security
Administration, DOE, Education, NASA, HUD, and others.
As we have seen on other investigations, there was little
or no management oversight. DOD could not even count the number
of premium class flights, had no idea of the cost to the
government for these flights. As you listen to GAO's testimony,
you will hear again and again that DOD did not have adequate
internal controls.
I expect we will also hear today from the Defense
Department that they have put procedures in place to end the
abuse of premium class travel. We have heard that same thing
about the purchase cards and about other travel cards. When DOD
heard about our investigation into the chem bio suits, they
sent out a notice to stop those sales. When they learned of the
laboratory equipment problems, senior DOD officials tried to
get the GAO report classified. Then they told the remainder of
the companies to stop selling the laboratory instruments.
The problem at DOD is indeed much larger than today's
discussion. The problem is that the leadership of the
Department of Defense has acted to stop abuses only when it
becomes public, and then only addresses the specific case at
hand. The purchase card abuses were widespread when we did our
first investigation at the Space Warfare Laboratory. However,
the Department did nothing to address this widespread abuse
until our investigation began to uncover problems everywhere.
And there is no real reason to believe that any action
announced by DOD today is anything more than a band-aid.
To address this issue in a more fundamental way, I plan to
introduce legislation that will prevent the Defense Department
from receiving budget increases unless and until it can balance
its books. Congress will, of course, always give our troops
what they need. But if we want to force DOD to clean up its
act, Congress has to take serious and comprehensive action. If
not, we are going to spend years offering piecemeal solutions
and reading countless GAO reports with similar conclusions
while the entire Federal Government and taxpayers continue to
pay the price.
The irony is that these problems are occurring at the
Department of Defense, an institution that places a premium on
discipline, the chain of command, and accountability. That
makes the culture of waste, fraud, and abuse that seems to
permeate all aspects of DOD's fiscal operations all the more
intolerable. This has to stop. It is unfair to our soldiers and
certainly to our U.S. taxpayers.
It is not enough to punish only those who abuse the system.
Until we force DOD's managers to make the system-wide reforms
that will end this culture of waste, fraud, and abuse, I
believe that it will persist. I thank you both.
Senator Coleman. Thank you, Congresswoman Schakowsky.
Again, thank you for your efforts in this area.
I want to thank you for putting today's hearings in the
context of a larger set of issues. We can't look at this as if,
OK, here is what we have today and forget that there was a
yesterday and we would like to make sure there is not a
tomorrow.
And then this last observation. I had the pleasure of being
the Senate author of the provision to provide payment for our
military personnel coming home from Iraq so they could get from
Baltimore to St. Paul, or get from Baltimore to Omaha.
Ms. Schakowsky. Thank you very much.
Senator Coleman. As we were working on that provision, I
was struck with the irony and I was angered that on the one
hand we have situations of folks living the high life, flying
first class, and then we have got grunts trying to figure out a
way to see their wives or moms and dads or sons and daughters.
So I again want to thank you for fighting the fight here and
for your work.
Senator Levin.
Senator Levin. I thank the Congresswoman. Say hi to my
brother. [Laughter.]
Senator Coleman. Thank you very much, Congresswoman.
Before we introduce the next panel, I would turn to the
distinguished Ranking Member, Senator Levin, for any opening
remarks that he may have.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Mr. Chairman, thank you and thank you for
your determined leadership in this area and so many other areas
that come within the oversight responsibility of this
Subcommittee. You have taken on this Chairmanship with gusto
and I commend you for it.
As you pointed out, and I think both our witnesses so far
have pointed out, Mr. Chairman, the weaknesses that we will see
today in the DOD systems for authorizing travel are symptomatic
of broader management shortcomings that we have seen to be
pervasive in the Department of Defense financial management
system for so long.
Just in the last couple months, we have received two
reports from the DOD Inspector General, one documenting the
failure of management controls for the purchase card program by
Washington headquarters services, and the other Inspector
General's report documenting the failure of management controls
over DOD transit subsidies in the National Capital Region.
And because of these ongoing shortcomings in the Department
of Defense's financial management systems, it can take more
than 100 paper transactions in the contracting and disbursing
systems for the Department of Defense to make a single contract
payment. Because of these shortcomings, the Department of
Defense's working capital funds operate on the basis of
arbitrary prices that lead to perpetual problems in making the
books balance. Because of these shortcomings, the Department
cannot reliably account for the cost of performing work in-
house for the purposes of OMB Circular A-76. Because of these
shortcomings, DOD managers often have to set up separate
tracking systems of their own with varying degrees of success
to manage funds, to ensure that they have adequate financial
reserves, and to avoid Anti-Deficiency Act violations.
What today's hearing shows is that even in those cases
where the Department's financial management systems are capable
of producing useful data, it doesn't do any good if nobody is
paying attention. According to the GAO report, the Department
of Defense and the military services did not, one, obtain or
maintain centralized management data on the extent to which
military and civilian personnel used premium class
accommodations for their travel; two, issue adequate policies
relating to the approval of premium class; and three, require
consistent justification to justify premium class.
So at a time when top Department of Defense officials are
insisting that they need unprecedented new flexibility to
manage the resources allocated to the Department, it is
disturbing to see the continual shortcomings in the exercise of
the management responsibility that they already have.
Again, Mr. Chairman, thank you for your leadership and for
your convening this hearing on a very significant subject,
which again, as you point out, is really symbolic and
symptomatic of a deeper problem.
Senator Coleman. Thank you, Senator Levin. It is always a
pleasure to work with you in a nonpartisan way and a bipartisan
way on issues such as this.
I would now like to welcome our next panel to today's
important hearing: Gregory Kutz, a Director with the Financial
Management and Assurance Team at the General Accounting Office;
John Kelly, an Assistant Director with the Financial Management
and Assurance Team at GAO; and finally, John Ryan, an Assistant
Director in the Office of Special Investigations at GAO.
As I mentioned in my opening statement this morning, GAO is
here to release the results of the GAO's investigation of the
Department of Defense's use and monitoring of premium airline
travel during the fiscal years 2001 and 2002. The purpose of
this hearing is to identify the types of abuse that you
uncovered, discuss the causes, determine the magnitude of the
problem and identify what corrective action is taken. I believe
it is essential for us to monitor the utilization of both
government-issued travel cards and centrally billed accounts to
ensure that expected cost savings are realized.
I thank you again for your attendance at today's important
hearing. I understand that Mr. Kutz will testify but that the
other gentlemen will be here in a supporting capacity and may
have something to say.
As such, before we begin, pursuant to Rule 6, all witnesses
who testify before the Subcommittee are required to be sworn.
At this time, I would ask you to please stand and raise your
right hand.
Do you swear that the testimony you are about to give
before the Subcommittee will be the truth, the whole truth, and
nothing but the truth, so help you, God?
Mr. Kutz. I do.
Mr. Kelly. I do.
Mr. Ryan. I do.
Senator Coleman. We will use a monitoring system today and
I would ask that you limit your oral testimony to no more than
10 minutes. If your testimony goes beyond that, the written
testimony will be entered as part of the record.
Mr. Kutz, I believe you will be presenting the GAO's
statement this afternoon. You may proceed.
TESTIMONY OF GREGORY D. KUTZ,\1\ DIRECTOR, FINANCIAL MANAGEMENT
AND ASSURANCE TEAM, ACCOMPANIED BY JOHN V. KELLY, ASSISTANT
DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE TEAM, AND JOHN J.
RYAN, ASSISTANT DIRECTOR, OFFICE OF SPECIAL INVESTIGATIONS,
U.S. GENERAL ACCOUNTING OFFICE
Mr. Kutz. Thank you, Mr. Chairman. I have testified after
Senator Grassley several times and that is a hard act to
follow, so bear with me.
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\1\ The prepared statement of Mr. Kutz appears in the Appendix on
page 48.
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But thank you for the opportunity to be here to discuss our
audit of premium class travel at the Department of Defense.\2\
This is a continuation of our series of audits of DOD's $10
billion credit card programs. Today, we will discuss the use of
the centrally billed travel accounts to purchase premium class
airline tickets. As you mentioned before, first and business
class tickets are referred to as premium class.
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\2\ See Exhibit No. 1 which appears in the Appendix on page 72.
---------------------------------------------------------------------------
The bottom line of my testimony is that control breakdowns
resulted in significant improper premium class travel and
increased cost to taxpayers. These results provide another
example of why DOD financial management is on our list of high-
risk areas, highly vulnerable to fraud, waste, and abuse.
My testimony has three parts: First, the extent of premium
class travel; second, examples of improper travel; and third,
the key causes of the control breakdowns.
First, based on extensive analysis of Bank of America data,
we found the following for fiscal year 2001 and 2002. One-
hundred-and-twenty-four million dollars was spent on 68,000
premium class airline tickets by 44,000 individuals. Premium
travel represents a very small percentage of DOD's annual
travel budget of $5 billion. However, premium travel at DOD is
more than the entire travel budget of 12 Federal agencies.
Specifically, as shown on the posterboard and the monitor, the
$124 million DOD spent on premium travel was more than Labor,
NASA, SSA, Energy, and EPA spent on all travel for 2001 and
2002.\3\
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\3\ See Exhibit No. 2 which appears in the Appendix on page 122.
---------------------------------------------------------------------------
Based on our statistical sample, we estimate that about 50
percent of premium travel related to senior military and
civilian personnel. In addition, 27 of the 28 most frequent
premium class travelers were senior personnel. As Senator
Grassley noted, we consider travel by high-ranking officials to
be a sensitive payment area that is vulnerable to abuse.
The price difference between a premium ticket and coach
ticket is generally substantial. The poster board and monitor
show some examples of these price differences.\4\ For these
examples, premium tickets cost as much as 13 times more than a
comparable coach ticket. And as you mentioned, Mr. Chairman,
the cost of this trip from Los Angeles to Washington, DC, cost
$3,000 more than a coach ticket.
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\4\ See Exhibit No. 3 which appears in the Appendix on page 123.
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We also identified numerous cases of improper and
questionable travel, including the following. Six individuals
flew premium class to a 2-day conference in Moscow, with stops
in London, Brussels, and Paris. The travel order used ``mission
essential'' as justification, but we found no evidence that
this conference was mission essential.
We also found a number of trips with questionable medical
condition justification. For example, one individual took 14
premium class trips using a medical condition as justification.
During the same time frame and for trips of similar duration,
this individual also took 31 coach class trips.
One General took 16 premium class trips that were approved
by a subordinate. Allowing subordinates in the military chain
of command to approve travel is not a valid control.
We also found cases where individuals approved their own
travel, including a GS-15 with 11 premium class trips. Self-
approval of any travel is not a valid control.
GSA and DOD regulations state that government travelers
must exercise the same standard of care when spending taxpayer
dollars that they would when spending their own money. We found
that many of the premium tickets that we audited and
investigated did not meet that standard.
Third, based on our statistical sample, we estimate that 72
percent of DOD premium class travel was not properly authorized
and justified. Part of the problem was that the commercial
travel offices did not properly scrutinize the requests for
premium class tickets. We found that 64 percent of the tickets
in our sample did not have specific premium authorization and
thus should not have been issued.
Further, DOD did not have accurate data on the extent of
premium travel and did little or no monitoring of this travel.
As a result, DOD was not aware of the extent of improper
premium travel until they saw the results of our audit. In
addition, DOD's required reports to GSA on the extent of first
class travel were inaccurate.
We also found that DOD's policies were inconsistent with
government-wide travel regulations and did not specify how to
properly document authorization and justification of
transactions. In addition, the proliferation of internal DOD
policies caused confusion over the appropriate circumstances
for premium travel. As a result of our audit, DOD has begun
updating its travel regulations to more clearly articulate the
circumstances under which premium travel is authorized. The
updated regulations emphasize that premium travel must only be
used when exceptional circumstances warrant the additional
cost.
DOD should build on these improvements and establish strong
controls over this sensitive area to ensure that its travel
dollars are spent efficiently. To that end, we have issued a
report with 16 recommendations to the Secretary of Defense
aimed at reducing improper travel. DOD has concurred with all
of our recommendations.
In conclusion, DOD does not have the management controls in
place to identify issues, such as improper premium travel.
Secretary Rumsfeld has stated that successful business process
reform could save DOD up to 5 percent of its budget, or over
$20 billion annually. The millions of dollars of wasteful
spending described today are a small example of those potential
savings.
Oversight hearings, like the one today, are a critical
component to successful reform at DOD. In addition, high-level
management focus will be needed to end the improper use of
premium travel at DOD.
Mr. Chairman, this ends my statement. Special Agent Ryan,
Mr. Kelly, and I will be happy to answer questions.
Senator Coleman. Thank you very much, Mr. Kutz.
First, just a couple of background questions. When we are
talking about premium travel here, does that at all relate to--
what about folks who have frequent flyer miles and use them to
upgrade? Is that part of this process at all?
Mr. Kutz. No, that would not. Premium travel as part of our
report would have been only when the government paid for
premium travel. It is appropriate for people to use frequent
flyer miles now.
Senator Coleman. And premium travel includes both first
class and business class, is that correct?
Mr. Kutz. Correct.
Senator Coleman. There is very little difference between
first and business class?
Mr. Kutz. Sometimes they are the same.
Senator Coleman. I believe in going through my notes on
this that there has not been the same level of documentation
within the DOD for business class. Was that a definitional
issue? Can you shed some insight onto the difference in terms
of tracking between first class and business class?
Mr. Kutz. They were required by GSA policy to report
annually on first class travel and GSA rolls that up for all
the agencies in the Federal Government and reports that to the
Congress. As I mentioned in my opening statement, that report
understated the extent of first class travel.
Senator Coleman. First class.
Mr. Kutz. They had no information on business class travel,
and what we had to do to get that information, as I believe
Senator Grassley noted in his opening statement, was use data
mining to go in, and when you go into the database and you look
at a ticket number, there are certain characteristics in a
ticket number that tell you whether it is first or business
class. And so we were able to go in and get what is called
Level 3 data from Bank of America and extract that information.
Senator Coleman. And what percentage of premium travel was
first class versus what was business class?
Mr. Kutz. It was virtually all business class. There were
about 1,240, I believe, first class trips, and the other
66,000-plus were business class trips.
Senator Coleman. So I take it you would be very supportive
of OMB and GSA requiring annual reporting of all premium
travel, first class and business class, from here on in?
Mr. Kutz. Yes, that would be a good idea.
Senator Coleman. Thank you. You indicated in your testimony
that DOD wasn't aware. I am trying to understand what that
means. Who wasn't aware? If the practice is widespread, if it
has gone on, help me understand what it means not to be aware.
Was it not to be aware because it wasn't reported? Was it not
to be aware because folks just didn't have the data? Is there a
sense that there is kind of a problem in the culture here that
simply has allowed this and hasn't addressed it? Can you give
me your insight into that?
Mr. Kutz. Yes. There are cultural issues, because I think
there were some--there are some folks that probably did this
not knowing the rules. Others probably felt they had or
deserved to have the travel. But this is an issue we see across
the board with DOD. There are issues of overall monitoring and
the control environment, and here, it was a matter of not
having the data and having three separate organizations. I
think you can ask the next panel about who is going to be in
charge going forward. But no one was in charge, but three
groups were in charge. So at the end of the day, there was
really no oversight. Again, the three groups have some
culpability in that.
Senator Coleman. I want to get back to the difference in
handling first class, which was really a very small percentage
of the travel, which had the reporting requirements, which had
the rules, which I believe, as I understand it, had an approval
process requiring it being approved by----
Mr. Kutz. The Secretary or the designee of the Secretary.
Senator Coleman. So we are talking about a very high-level
person approving first class.
Mr. Kutz. That is the government-wide requirement, yes.
Senator Coleman. But in terms of business class, I believe
in your testimony you talked about instances where subordinates
were approving travel for superiors. Would I take it then to
understand that in business class, there is not a clear,
uniform directive that says it has to be done by somebody at a
higher level?
Mr. Kutz. That was correct.
Senator Coleman. And is there----
Mr. Kutz. Now, whether they have revised that or not, I
don't know, but there was varying practices for business class
travel.
Senator Coleman. My next question would be, do you know
whether that has been corrected?
Mr. Kelly. To the best of our knowledge, we don't know if
that has been corrected yet.
Senator Coleman. And would you be willing to offer a
recommendation as to some uniform standard?
Mr. Kutz. Right.
Senator Coleman. Can we do that, or is it the nature of the
military that you may have somebody on site somewhere and not
have somebody at that rank? Can you help me understand----
Mr. Kutz. Yes.
Senator Coleman [continuing]. How we ensure the common
sense thing, which is if you are going to get approval for
this, it should be done by somebody at a higher level.
Mr. Kutz. Our recommendation was that the approval should
be done by someone at the same level or, preferably, a higher
level, and they have concurred with that recommendation. So my
belief would be that they have gone in and changed the policy.
There are two things, though. There is writing a policy and
there is actually enforcing the policy, and that second part
here--in some cases, what we found, that there were policies in
place and people weren't following them. So they have to have
two things. They have to have the valid policies and they are
going to have to have an accountability mechanism in place to
make sure that even if they put a good policy in there for
approval, that it is being consistently followed.
Senator Coleman. I just want to clear up something
statistically. At one point in your testimony, you talked about
72 percent not properly authorized, and then you used a 64
percent figure.
Mr. Kutz. The 64 percent represent--out of the 72, 64
percent had no specific documentation in the packages that went
to the commercial travel office that said that they were for
premium class travel, which means that someone had to have
called the travel office and said, please get me a business or
first class ticket, and the travel office issued it without
following the appropriate policies and having the
documentation.
Senator Coleman. Much of this report is based on sampling.
Critics may come back and say, well, you took a very small
sample and they may then, therefore, challenge the results. Can
you talk to me a little bit about your statistical method, your
confidence in the validity of what we found?
Mr. Kutz. Right. Yes, we used statistical sampling when we
test internal controls and our confidence level, we are 95
percent confident that the failure rate is 72 percent, plus or
minus 5 or 10 percent. I don't know the specific details. So we
are 95 percent confident that the failure rate or the breakdown
in controls is between probably 65 and 75 percent.
Senator Coleman. I am trying to put myself in the position
of some folks in DOD and kind of looking and trying to give
them the benefit of the doubt. In your opinion, are the travel
regulations themselves simple enough for people to understand,
or is there a claim here that somehow there was confusion and
there was a lack of clarity in terms of what is required? Can
you help me out with your assessment of the nature of the
regulations here?
Mr. Kutz. There was a proliferation of policies out there
that--a lot of times in DOD, you have got policies at the
Office of the Secretary of Defense level and then each of the
services will develop their own and even units within the
military services will have their own policies. And here, we
found that there are lots of policies out there, some
inconsistent with each other, and some inconsistent with GSA's
government-wide regulations.
Senator Coleman. But I want to get back to the culture
question. Both in listening to the statements by Senator
Grassley and Congresswoman Schakowsky, I get a sense that there
is a cultural problem here, that common sense would dictate you
save taxpayers' money. That is what we are supposed to do. You
want people to fly in comfort, you don't want them to be
abused, but common sense says if you can fly somewhere for
coach class, you do that rather than presume, because you are a
high-ranking official, you are going to automatically fly first
class.
I guess I want to come back to that. Can we clean the
system up? Can we take an agency as diverse, as large as the
DOD--in your experience in the GAO, can we put into place some
clear standards here and have the confidence level, as
representatives of the taxpayers, that they can be enforced?
Mr. Kutz. I would say yes. With respect to the prior work
we did on credit cards, there has been significant progress in
improving the controls over the purchase and the individually
billed travel card. For example, the delinquency rates were
well over 10 percent when we first started doing our work on
the individually billed travel card, and my understanding is
now that they are well below 10 percent.
So DOD can make progress. These are issues that don't
require new business systems, which is a whole other matter we
will probably get into here. But this is pretty much people and
policies and procedures and implementing them. And the
interesting thing about the culture is that 50 percent of the
people who took this travel were senior, but the other 50
percent were very junior, and that is almost as surprising to
me as the senior people actually taking that travel.
Senator Coleman. But to me, it says you are building a cul-
ture----
Mr. Kutz. Yes, you build a culture, and unless you
intervene----
Senator Coleman [continuing]. Some people would change.
Mr. Kutz [continuing]. They are setting a bad example for
other people, probably, and they were following it.
Senator Coleman. Well, I do hope they can change. We will
expect change. We will monitor to see that change is taking
place and this is just not an exercise in you doing a report
and us having a hearing. We do expect things to change.
My distinguished Ranking Member, Senator Levin.
Senator Levin. Thank you, Mr. Chairman. Just to clarify a
couple of the points on this business class-first class, you
said there were 66,000 business class purchases, I think that
was the figure----
Mr. Kutz. A little over 66,000 and then about 1,200 first
class, yes.
Senator Levin. Do we assume that where there were 66,000
business class that most of those were the top class that was
available, or do we know what percentage where business class
was purchased that there was even a higher-cost ticket, the
first class ticket?
Mr. Kelly. We do not have that information. It is not
collected.
Senator Levin. You, at one point, said that the regulations
are not clear in some instances between the services, within
the services. Do we know in what percentage of the cases that
you looked at there was a violation of the regulation?
Mr. Kutz. Of the current DOD or government-wide
regulations?
Senator Levin. Or of the unit regulations or service
regulations.
Mr. Kutz. Well, certainly the 64 percent I mentioned that
had no specific documentation justifying the premium would have
been a violation of policy. The policy was that premium travel
required specific authorization and documentation.
Senator Levin. And that is true across the board----
Mr. Kutz. Across the board.
Senator Levin [continuing]. Every unit, every service,
period?
Mr. Kelly. Yes. That is a requirement.
Senator Levin. On the justification side, on giving the
reasons, the justifications, what percentage was there of that
lacking?
Mr. Kutz. That would have been virtually all of them, also.
Senator Levin. The same----
Mr. Kutz. Yes, I would say the same, because nothing is
justified unless it is authorized, first of all. The way the
rules work is that even if you meet the criteria for business
or first class, a lot of agencies don't allow their people to
do it because they have travel constraints and they try to save
the money for their budget. So it isn't an entitlement. You
still have to have someone make the justification to say, we
are willing to pay four or five times more for a ticket for you
because you meet these criteria. So it is not really an
entitlement. It is something that still needs authorization.
Senator Levin. So you can say with certainty what that
percentage is from your sample, even though you are saying that
there is a discord in the regulations between units, between
services. In that regard, there is a clarity as to what is
required and a clear percentage of what was not done according
to regulation.
Mr. Kutz. I would say over half of the problem here was
people not following valid policies, and then the rest of it
was where the policies need to be tightened up. So I think it
is a combination of both. I am not sure we can precisely
identify which is which, but over half of it was where there
were policies in place and people were not following them, and
there is no accountability system to ensure that people were
doing what they were supposed to.
Senator Levin. Can you compare the Department of Defense in
this regard with other agencies in terms of the percentage of
times in which the policies or regulations were not followed?
Mr. Kutz. No, but Mr. Ryan has some information he could
share on the practices of several other agencies.
Senator Levin. Is this typical of agencies? Does it exceed
the percentage of other agencies in terms of failure to
document? Where are we on a relative basis?
Mr. Kutz. Well, when we looked at the purchase card
program, we found that DOD in some cases was the worst in the
government. In other cases, they were similar to others, like
the delinquency rates. But with respect to premium, we have not
gone out and done other studies of this at other agencies,
except Mr. Ryan has talked to some agencies. I will let him
answer.
Mr. Ryan. Basically, what we tried to do is to contact the
security details that were for the head of the agencies to try
to find out what the secretaries were doing or the agencies. It
was kind of like they told us that they try to follow all the
GSA rules and regulations and the secretaries, according to the
protective details, will travel coach. If they want to move up,
they use their own miles. And they are saying that--the details
say that is the practice that they have.
Mr. Kutz. So we didn't go below that.
Mr. Ryan. Right.
Mr. Kutz. We thought if we were at the Secretary level,
that would have trickled down within the agencies.
Senator Levin. Congresswoman Schakowsky was interested in
this area and I think the rest of us would be, too. The report
does not give a dollar amount as to the savings that could have
been achieved had the waste not occurred. However, according to
Congresswoman Schakowsky's office, I understand there is some
evidence that could produce a number in that regard. Are you
able to give us a range of dollars that could have been saved?
Mr. Kutz. Yes. We believe it is tens of millions of dollars
a year, and I would say between $10 and $30 million would be a
good estimate, because we are talking about 70 percent of $124
million, and if you kind of trickle that down to an annual
savings, and you assume some of it might have been valid had
someone gone through and done the right documentation, I would
say $10 to $20 to $30 million a year.
Senator Levin. Now, on the broader financial management
issues which we indicated are a backdrop for this problem and
you thought you might be asked about, so here goes. Section
1004 of last year's Defense Authorization Act required the
Department to establish by no later than May 1 of this year a
financial management enterprise architecture for the Department
of Defense and a transition plan for implementing that
enterprise architecture. That requirement was consistent with
commitments that had previously been made by senior Department
of Defense officials. The GAO was required to follow up and
determine whether or not the Department complied with the
requirement.
Your report, which was issued in September, concludes that,
``DOD's initial architecture does not yet adequately address
the Act's requirements and other relevant architectural
requirements,'' and I would like to ask you some very specific
questions about that.
Section 1004 required that the new architecture comply with
all Federal accounting, financial management, and reporting
requirements. Does DOD's proposed architecture do that?
Mr. Kutz. The May version did not. We found a significant
number of requirements were not in there, hundreds of them,
although there were thousands that were in there, so it was a
mixed result.
Senator Levin. Is that something you have put in writing,
what were and what weren't?
Mr. Kutz. Yes, we did, and I would believe by now, and Mr.
Lanzillotta can probably answer this, they have got those in
there.
Senator Levin. All right. We will ask----
Mr. Kutz. Because they are updating the architecture all
the time.
Senator Levin. We will ask him that question, then.
Section 1004 required that the new architecture include
policies, procedures, data standards, and system interface
requirements that apply uniformly throughout the Department of
Defense. Does the Department's proposal do that?
Mr. Kutz. Partially, but not fully, is what our report
noted.
Senator Levin. And do you know if they have made progress
since your report?
Mr. Kutz. I believe they have. Again, they have agreed with
our recommendations and we were very specific in the kinds of
things that needed to be done. So I suspect they are further
along, because that was back in May.
Senator Levin. Do you track that?
Mr. Kutz. No, but we are required under Section 1004 to
report on this periodically and we are starting our next review
of this. So we will be reporting back to you on that in May
2004.
Senator Levin. Section 1004 required that the transition
plan include an acquisition strategy for the enterprise
architecture, including specific time-phased milestones,
performance metrics, and financial and non-financial resource
needs. Did their proposal do that?
Mr. Kutz. No. That was one of the areas where we felt it
fell far short of the requirement. The transition plan was
actually a plan to develop a transition plan. It really did not
chart what I think that the Act was looking for, which is, for
all of you that are not familiar with this, there are over
2,000 business systems out there right now and the plan was
intended to show how DOD is going to go from their 2,000-some
systems that cost $19 billion a year to operate and maintain to
the environment they see in the future, which should be several
hundred systems that cost billions and billions of dollars less
to operate. So they did not have that, and again, Mr.
Lanzillotta can probably tell you where they are with that
today.
Senator Levin. Section 1004 required the transition plan to
include a specific schedule for phasing out legacy systems that
are not consistent with the new architecture. Did the proposal
do that?
Mr. Kutz. No.
Senator Levin. And Section 1004 required the Department to
institute an investment management process to ensure that
investments in new business systems are consistent with the
requirements of the new architecture. Did the Department
establish an effective investment control process?
Mr. Kutz. I would say no, but they had made a start at
that, and the specifics of the Act, as I recall, are anything
over $1 million that is going to be obligated is supposed to
have comptroller review and approval before they enter into
those transactions. They have just begun and I think they have
maybe done 10 or 11 of the several hundred that might meet that
criteria. So they are beginning, but they have not met that
one.
Senator Levin. Thank you. Thank you so much.
Senator Coleman. Senator Pryor.
Senator Pryor. Thank you, Mr. Chairman, and I appreciate
your leadership on this because this is important.
I would like to ask, if I may, some questions about
perspective to try to get this in perspective. First, as I
understand your previous testimony, you have not done this type
of survey with other Federal agencies or other Federal
departments, but is it fair to say that your impression, and
probably your clear impression, is that this problem is far
worse in DOD than it is in other agencies? Is that fair?
Mr. Kutz. That would be fair. If the Secretaries of the
other agencies are going coach, then I would say that is a fair
statement.
Senator Pryor. Another question I have, and it is probably
in your report and I have been reading through it, it is very
interesting. I have not come across the part yet that tells me
what percentage--and you may have covered this in your opening
statement, but what percentage of the travel is not following
government guidelines that have been established? What overall
percentage of the travel is the so-called problem travel?
Mr. Kutz. Well, the premium travel is 1 percent of all
travel tickets but it is 5 percent of the dollars. That gives
you an idea of how many--I am not sure if that completely
answers your question, but it is a small percentage of the
transactions, but because they cost four or five times more
than a coach ticket, it becomes about 5 percent of all DOD
travel dollars.
Senator Pryor. Do you know, and you may not know this off
the top of your head, but what the overall Defense Department
travel budget is? I am sure it is complicated because----
Mr. Kutz. It is over $5 billion.
Senator Pryor. Five billion?
Mr. Kutz. Yes, and the centrally billed accounts are about
$1.45 billion a year.
Senator Pryor. OK. I assume they are not having problems
staying within their $5 billion travel budget?
Mr. Kutz. I couldn't address that necessarily.
Senator Pryor. OK. I do have another question that is
raised in the report and it is just an unanswered question.
Maybe I haven't gotten to the answer in the report yet. Is all
of this travel for DOD employees? It seems like there may be
some family travel in there. Is there any contractor travel in
there? I mean, what are we talking about here?
Mr. Kutz. I will let the gentlemen here that were involved
in some of the interviews elaborate, but we found travel that
was by family members as part of what is called a PCS move,
Permanent Change of Station move, and again, that was a
situation where I believe several of the opening statements
related to a trip from London to Honolulu of a family of four--
--
Senator Pryor. Right, I saw that.
Mr. Kutz [continuing]. And it was $21,000 versus $2,500,
and so that is in the population in all likelihood, a bunch of
that. And one of the reasons that they were able to do that is
because the travel office told the traveler that we have done
that for others.
We also found that there was a commission of private sector
individuals, that the government paid for them to take the trip
to Moscow, I mentioned in the opening statement----
Senator Pryor. Right.
Mr. Kutz [continuing]. So that was not government
employees.
Senator Pryor. What about any sort of contractors or non-
DOD people that are being paid for out of DOD funds?
Mr. Kutz. In our testing, did we come up with anything?
Mr. Kelly. I don't remember seeing any contractors. We do
know that sometimes wives of senior-level officials are asked
to go represent the United States overseas and there are some
of those situations.
Senator Pryor. Did you find any unauthorized travel, where
people should not have had the government pay for the trip, but
they did?
Mr. Kelly. We did not find any examples of people taking
trips when there was no travel order authorizing them to fly.
Mr. Kutz. If it appeared to be official government
business. We didn't see anything that was outside of this
realm.
Senator Pryor. Mr. Chairman, I think that is all I have
right now.
Senator Coleman. Thank you, Senator Pryor.
Just two quick follow-up questions. I am interested in the
range of dollar loss and I think, Mr. Kutz, you talked about
$10 to $30 million in savings. Is that just for the years 2001
and 2002?
Mr. Kutz. That would be for those 2 years, but I would
assume that that would continue. If they are able to put these
controls in place, I believe that is what would be saved going
forward per year.
Senator Coleman. So if one were to kind of reverse at
estimated dollar loss, what do you estimate the total dollar
loss then to be in fiscal years 2001 and 2002?
Mr. Kutz. Twenty to $60 million.
Senator Coleman. And----
Mr. Kutz. I think what we can do, I mean, if you look
forward, and in your opening statement you want to kind of
track these things, we could work with you to kind of monitor
this and see. If they implement the controls we are talking
about here, you should see this dramatically decrease going
forward.
Senator Coleman. And I would like to be able to see that to
say there is a reason that we do what we do.
Is there anything in this process that would provide some
avenues of recoupment of loss, or would that be difficult in
these situations?
Mr. Ryan. I think what we decided to do is, working with
your staff, we decided to refer the 44,000 people to DOD. DOD
can make their mind up as to whether or not they want to recoup
the money. What we are interested in doing is continue to do
investigations to identify what causes these problems so that
we can pass the information on, and hopefully we can get the
savings that way.
Senator Coleman. I think that, depending on the intent of
the person involved, assuming that some folks went through the
system, the problem is the system didn't do the check-up.
Mr. Kutz. Right.
Senator Coleman. There were travel orders here, so I am not
pointing a finger on the folks. Apparently there is a system.
They travel all the time. But what I am hearing today is that
there wasn't the kind of follow-up, there wasn't the
authorization, there wasn't the review, there wasn't the
justification, there wasn't then the documenting and all the
things down the line that the system should do simply weren't
happening here on a consistent, regular basis, would that be
correct?
Mr. Kutz. Yes.
Senator Coleman. Thank you. Gentlemen, thank you very much.
Senator Pryor.
Senator Pryor. No. Thank you.
Senator Coleman. This panel is excused. I would now like to
welcome our final panel of witnesses for this afternoon's
important hearing on the Department of Defense. We have
Lawrence J. Lanzillotta, the Principal Deputy Under Secretary
of Defense, the Comptroller's Office, and Charles S. Abell, the
Principal Deputy Under Secretary of Defense for Personnel and
Readiness.
I want to thank both of you for your attendance at this
afternoon's hearing and I look forward to hearing your
testimony concerning the actions DOD has taken or plans to take
to ensure full compliance with its travel regulations.
Before we begin, pursuant to Rule 6, all witnesses who
testify before this Subcommittee are required to be sworn. At
this time, I would ask you both to please stand and raise your
right hand.
Do you swear that the testimony you are about to give will
be the truth, the whole truth, and nothing but the truth, so
help you, God?
Mr. Lanzillotta. I do.
Mr. Abell. I do.
Senator Coleman. Thank you. Mr. Abell, I understand that
you will be givingn the Department's testimony today----
Mr. Abell. Yes, sir.
Senator Coleman [continuing]. And Mr. Lanzillotta will be
there to assist or answer any questions. As indicated before,
if you have a full statement and you wish to enter that into
the record and just summarize, let us know and that will become
part of the record.
With that, please proceed.
TESTIMONY OF HON. CHARLES S. ABELL,\1\ ASSISTANT SECRETARY OF
DEFENSE (FORCE MANAGEMENT POLICY), ACCOMPANIED BY LAWRENCE J.
LANZILLOTTA, PRINCIPAL DEPUTY UNDER SECRETARY (COMPTROLLER),
U.S. DEPARTMENT OF DEFENSE
Mr. Abell. Thank you, sir. Mr. Chairman, Members of the
Subcommittee, my colleague and I are here today to provide the
initial views of the Department of Defense in response to the
draft General Accounting Office report on DOD use of premium
class travel.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Abell appears in the Appendix on
page 70.
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The GAO report questions the Department's policies,
procedures, and monitoring related to our premium class travel
and we are already working on some needed changes, as have been
noted earlier. The Department of Defense takes very seriously
any questionable spending, such as that noted in the GAO
report. Any unjustified expenditure diverts funding vitally
needed to sustain U.S. military operations and other pressing
priorities.
For travel and every other functional area, the Department
must have policies that clearly detail what is proper. We must
have strong internal controls to monitor and enforce those
policies. Our policies must leave no room for misunderstanding
or abuse.
In addition to actions the Department is already taking in
response to the GAO report's findings, I am announcing here
today the formation of a task force to more fully diagnose and
propose remedies for our premium class travel shortcomings. The
work of this task force will benefit from the methodologies and
findings of the GAO report.
Our goal will be for this new task force to be as thorough
and as successful as our earlier task force on government
charge cards. As with that earlier effort, we will marshal
expertise and real-world experience from across the Department
of Defense, to include the Office of the Inspector General, and
we will invite our colleagues from the General Accounting
Office. Our work will range from overarching policies to
specific internal controls.
Since we are just beginning this comprehensive analysis of
premium class travel today, I cannot tell you exactly how we
will address all the issues raised in the GAO report. However,
the Department's creation of this new task force underscores
how seriously we take the type of problems identified by the
General Accounting Office.
An especially important mission of the task force will be
to analyze the roles played by each DOD organization involved
in premium class travel, roles ranging from policy development,
to authorization and travel orders, to paying the final travel
bills. The Department will determine whether any changes in
organizational roles are needed to strengthen internal controls
and accountability for premium class travel.
We are not waiting on the task force recommendations and
have already made some changes to our policies. As indicated in
the GAO report, the Department has begun updating its travel
regulations. Our goal again is to promulgate clear, strong
policies that will enable us to manage premium class travel
most effectively.
The Department expects its new regulations to state clearly
that premium class travel should be used only when authorized
and only when exceptional circumstances warrant the additional
cost; that authorization documents must state the general
condition that justifies premium class travel, for example, a
substantiated medical condition; that justification of premium
class travel must be consistent with criteria in government-
wide General Services Administration regulations; and that
travel regulations issued by DOD component organizations must
be consistent with the new overarching policy.
The new regulations will include details on how to properly
document authorization and justification of premium class
travel. Part of this guidance will be clear direction as to who
should retain documentation of each justification and for how
long.
We will realize further enhancement of our ability to
oversee and manage travel with the deployment of the Defense
Travel System. This system was recently approved for fielding.
It is operational in 24 sites already and will be totally
fielded by fiscal year 2006. When this system is fielded, it
will replace 43 legacy systems and give the Department a view
of these types of situations in real time versus discovering
problems after the fact.
In closing, over the past 2 years, the Department has
undertaken a massive overhaul of its management and support
activities. What we especially aim to achieve is a cohesive,
comprehensive management information system that will make it
much easier for us to track transactions, ensure strong
internal controls, and prevent abuses and eliminate
inadequately documented spending.
Finally, I want to assure you and this Subcommittee that
the Department of Defense takes very seriously any indication
of questionable spending. We will not tolerate any situation
that wastes money needed to support our military and that
undermines our strong stewardship of the public's trust and
resources. Thank you, Mr. Chairman.
Senator Coleman. Thank you very much, Mr. Abell.
I would note that the Comptroller is not here today. The
Principal Deputy Under Secretary is here. I do want to make it
clear and ask, do you speak for the Department of Defense and
will you assure this Subcommittee that the DOD is committed to
preventing this abuse of taxpayer money?
Mr. Lanzillotta. Yes, I do.
Senator Coleman. I have to say, gentlemen, maybe it is
because I am the new guy here, but I am not as cynical as some
of my more seasoned colleagues. As I listened to the comments
of the Congresswoman and Chairman Grassley, there is a great
deal of cynicism about the Department's commitment to getting
ahead of the problem, that the reaction is a response to the
problem, and I do want to applaud the fact that you are putting
together a task force that will diagnose and propose remedies
for these premium class travel shortcomings.
But can you respond to that charge that what we get is a
problem and we respond but we don't look ahead. Talk to me a
little bit about how you do that.
Mr. Abell. Mr. Chairman, I appreciate your perspective on
this. The Department of Defense has its eye on many balls, and
unfortunately, we don't catch all of them before they bounce
off the floor. This may be one that we didn't have our eye on
as much as we should.
As you have heard in previous testimony, it is a small
piece of our operation. That doesn't excuse any abuse or the
lack of clear, cogent direction. But I think it might explain,
while we were watching bigger things, this one might have
escaped our constant attention.
We also don't--haven't in the past provided our folks with
clear guidance. We have handed them books of this size,
sometimes out at the installation level fairly low-level folks,
and said, these are the regulations. Try not to screw it up.
That may be asking too much of them. We will look at some sort
of decision support tool. Some have suggested a form. That
strikes me as 1940's technology, but I think we can provide
them some sort of decision support tool that will allow them to
go through a checklist if you will, that helps them decide
whether or not they have followed all the regulations, and it
would also benefit all of us by providing something that could
help us in the audits.
It is my strong belief that many of the unauthorized or
unjustified trips were probably authorized and justified but
that our recordkeeping hasn't been sufficient to be able to
demonstrate that to an auditor.
Senator Coleman. There seemed to be a clear difference,
though, in terms of recordkeeping between first class and
business class and I would take it that that division will be
removed and they will focus on both.
Mr. Abell. Yes, sir. As was previously testified, there is
a requirement that we report first class travel to the General
Services Administration. I think our colleagues from GAO were
very kind. My understanding is that the quality of our report
to the GSA is probably less than we would hope, as well, and we
will fix that as part of this.
Senator Coleman. I appreciate your candor.
How many people are employed by the Department of Defense?
Mr. Abell. The military is about 1.4 million. We have about
800,000 reservists and another 600,000 civilian employees.
Senator Coleman. And how many different locations? How many
worksites?
Mr. Abell. Oh, jiminees. I do not know that number. I will
tell you that it is lunchtime somewhere in the Department of
Defense every hour of the day. So we are around the world a
number of times.
Senator Coleman. I asked that because one of the things we
have kind of talked about here is can you centralize travel
order authority or post-travel voucher review at single
locations. Will you talk to me about what centralizing this
type of travel order approval would mean? How would you go
about centralizing something like that, based on the diverse
system that you have?
Mr. Lanzillotta. Mr. Abell mentioned in his testimony that
the Department is in the process of fielding the Defense Travel
System. When we field the Defense Travel System, it will be the
unifying system across the Department of Defense for all travel
orders. I believe that this system, when fielded--it is fielded
at 24 locations now in pilot sites--will take care of many of
the problems that we have.
One of the main things that this system will do for us, is
that when a traveler comes up on the system, it will only
display coach reservations. So he won't be able to make a
premium travel, any type of premium travel, either business or
first class. For him to do that, he will have to go through
another procedure outside to get it specifically authorized and
that order will be flagged and tagged so we will know at the
Department level what we can do. So we will be able to do that
data mining.
We are building that functionality into the system now. In
the 24 pilot sites, we recognize this as a shortcoming that we
needed to fix and we are in the process of fixing it.
So initially, we do have a problem. We will have to use a
short-term solution of Bank of America as our credit card
vendor right now to pull some data together for us so we can do
the data mining techniques. In the future, we will have our own
system that we will be able to go through and do it and manage
it, and the purpose of our whole modernization program is to
provide that type of data.
Senator Coleman. The task force that you announced today to
diagnose and propose remedies, would they be looking at
simplifying the Joint Federal Travel Regulations? Are you going
to be looking at that piece of things?
And I have a second part of that. Are those regulations,
are they online? Are they available worldwide? How do you folks
know what the regulations are?
Mr. Abell. They are available on paper and they are visible
online, yes, sir.
Senator Coleman. When you say visible, does that mean
somebody can----
Mr. Abell. Yes, they can read it.
Senator Coleman. They are available?
Mr. Abell. Yes, sir.
Senator Coleman. OK.
Mr. Abell. The task force will look at all of those things.
I don't expect that the task force will do much to simplify the
Joint Travel Regulations or the Joint Federal Travel
Regulations since they mirror, and we hope precisely mirror,
the General Services Administration Federal Travel Regulations.
What we will do to help our folks in the field go from
something like this to something that is more manageable is try
to give them a decision support tool that walks them through
the processes so that they don't have to rely on their memory
or do extensive research every time they do this.
Senator Coleman. I would commend or recommend that you look
at the online capacities and capabilities to allow folks to
walk through that. You perhaps could simplify your system
online without necessarily changing the regulations, but just
make it easier for folks to process that stuff.
Mr. Lanzillotta, are you going to add something there?
Mr. Lanzillotta. Mr. Chairman, I would also like to maybe
let the Subcommittee know, on this task force, I would like to
give the results of the task force we did on the travel card
and the purchase card to show the Subcommittee the type of
things that the task force looked at and the type of things
that we implemented to give you an idea of what we hope to do
with this program.
The task force, we were able to establish a metrics program
so we could monitor performance of the travel card. We were
able to publish a CD that laid out the training
responsibilities of card holders. We were able to begin data
mining, start the data mining on the data that we could get on
the purchase and now the travel card that was mentioned by, I
believe, Greg on his testimony from the IG. We were able to
issue better guidance or more clear guidance to our security
managers. We issued disciplinary guidance applicable to the
individual and centrally billed accounts.
We looked at the codes and the use of blocking merchant
codes. That way, credit cards cannot be used in certain
merchant areas. We looked at the credit limits and established
more realistic credit limits on these cards.
We simplified the guidance. It has led to a reduced
delinquency rate on our travel cards. It is now on the
individual accounts about 6.3 percent and on the centrally
billed accounts below 2 percent. We are getting very close to
industry standards.
We implemented mandatory split disbursement for military
members and we asked for mandatory split disbursement for
civilian employees. Right now, it is the default solution if
they don't elect it. That allows us to pay directly to the
credit card. We implemented and collected approximately $42
million in delinquent dollars through that salary offset for
military members. We have asked for that authority also on
civilian members to help the government recoup the losses from
improper charges.
[Information supplied by DOD follows:]
NOTE: DOD has inplemented salary offset for civilian
employees. We are working with GSA and OPM to implement the
authority to include civilian retirees in the program.
We took out and eliminated 600,000 travel cards. We looked
at the established procedures, the cards that were not active
or people who left DOD, to go back and make sure that we could
go and close their accounts. We have been working with the bank
to develop even more internal controls.
I have a similar list for the purchase card things that we
have done to try to bring the Department more in line and
establish these controls on these programs. I just want to
assure the Committee that the Department takes this seriously
and these are the type of things that we were able to do in the
travel and purchase card to show success and we plan to do the
same thing in this program.
Senator Coleman. And I appreciate that, and I do want to
reiterate that $10 to $30 million in savings may not be a lot
in the perspective of a percentage of your budget, but it is
sure a lot to folks that live in St. Paul or live in Crookston
or live in Michigan or Arkansas. So I just want to reiterate
that. We are very serious about the need to deal with the abuse
and to make sure that the dollars are being saved.
Can I ask just one further question and get back to this
issue between business class and first class. It was the
testimony here that first class approval required, I think,
first class airline accommodations at the three-star equivalent
level. Business class rests with transportation officers. Can
you first tell me, what is the level of a transportation
officer in DOD and wouldn't it be appropriate to have all
premium travel approved at the same level?
Mr. Abell. Mr. Chairman, the first class travel is by the
Secretary of Defense, the Deputy Secretary, or their designee.
The premium class travel is, in the current environment,
approval authority is widely decentralized. It is one of the
things we will take a look at in this task force, is what level
should we have premium class travel, and as Mr. Lanzillotta has
testified, when the Defense Travel System comes in, it will be
done offline in a--not offline, but it will be kicked over to a
special authority and that would allow us to implement in an
automated way, as you have suggested, this special approval
authority, as well. I don't know what the right level is. We
will have to figure that out.
Senator Coleman. I would hope, though, that we take
certainly a close look at those situations where you have folks
at subordinate levels making approvals of folks to expend
dollars who are at a higher level. It seems to me something
that is a little illogical and that, at a minimum, should be
stopped.
Mr. Abell. We have no argument with that in concept. Back
to the size and scope of the Department, there will be cases
where somebody somewhere has to go around the world to find
their superior, but I am sure we can work out a way to make
sure that there are enough internal controls in place to take
care of those singular cases.
Senator Coleman. Thank you, gentlemen. Senator Levin.
Senator Levin. Thank you, Mr. Chairman, and I welcome you
both. I think you were both here when I asked the GAO five
questions as to the implementation of Section 1004 just a few
moments ago. Did you disagree with any of the answers you heard
about that, as to the level or the degree of implementation of
the requirements in last year's authorization bill?
Mr. Lanzillotta. Generally, we agree with GAO. The only
thing I would mention, Senator, is that I guess some of this is
in the eyes of the beholder on how far down the architecture
should go and on the transition plan. I would like to clarify,
especially on the transition plan, the comments made.
When we started the architecture and the architecture that
we delivered, it was an activities-based architecture
throughout the Department, and to do that, we met and mapped
all the activities that are business activities down to the
financial transaction area to go through with the entire
Department. So it really was a massive effort.
To do that, we found out that we had 2,274 business systems
that it touched. Originally, we started out--when we started
the effort, we thought it was only 475 and it continued to grow
as we went through and mapped it.
The transition plan that the bill called for, we have a
transition plan. It may not be the same transition plan or the
definitional transaction plan that the Subcommittee was
expecting. What we were trying to do is we want to go through,
and we have started by looking at the material weaknesses in
the Department in an incremental approach to reengineer those
processes. After we reengineer those processes, we want to
develop a system that will take care of that reengineered
process.
We couldn't, in the course of a year, develop and map out
the activities and know the final solution to the architecture.
So what we want to do, which I think is the most efficient way,
and I think that GAO will probably agree with the approach, is
we look at the material weaknesses, we engineer those processes
that we need to, in order to eliminate that material weakness,
and then develop a system that will take care of that.
Senator Levin. And when will that be developed?
Mr. Lanzillotta. We hope to have the first increment done
and have the clean financial statements for fiscal year 2007.
Senator Levin. The first financial statement reflecting the
new, that new architecture----
Mr. Lanzillotta. It would be the fiscal year 2007
statement.
Senator Levin. So it is going to take you 2 more years
before you get that in place, a system in place? You
reengineered your system----
Mr. Lanzillotta. To eliminate all the material weaknesses
that have currently been identified.
Senator Levin. Does GAO know that? Have you told them it is
going to be 2007 before we are going to get those kind of
statements, or are they hearing that for the first time today?
Mr. Lanzillotta. I guess I----
Senator Levin. Have you heard that before? Maybe I can go
back and ask the GAO. Is that an acceptable period of time? If
you don't mind----
Mr. Kutz. Well, there are two things. I mean, he is talking
about getting an opinion on financial statements, I believe,
versus developing a transition plan as part of the
architecture. So the 2007 goal to get an opinion on financial
statements is to me a little bit different than the goal to
completely reengineer and modify the systems. I think that is
going to take a lot longer, actually, than 2007, so I don't
know if that would be----
Mr. Lanzillotta. For all of our systems.
Mr. Kutz. Right, for all the systems.
Senator Levin. Are those timelines acceptable to you in
terms of the speed with which they are being done? Can they be
speeded up? Is that the first time we are going to have some
decent accounting systems at the DOD and the ability to audit?
Mr. Kutz. A lot will have to go right for 2007 to be
achieved, in my view.
Senator Levin. Is it on target now?
Mr. Kutz. I have not looked in detail at the plan, but we
know that 2007 is the goal that the Comptroller has for an
opinion on the balance sheet.
Senator Levin. Well, if you do look at the plan, Mr.
Chairman, to tell us if it is a realistic plan. It seems like a
long time off, but I guess from your perspective it is not a
long time off. Given the decades that this has been brewing,
maybe that is not such a long time. But if it is appropriate,
Mr. Chairman----
Senator Coleman. Senator Levin, we will follow up and I
will take that as a request from this Subcommittee. We will
follow it up in writing with a very specific request to
accomplish that.
Senator Levin. When the Comptroller was before the Armed
Services Committee, he made a certain commitment that the
Department, ``would not fund any programs for new business
management systems until we were convinced that they would all
fit in with one another,'' so you would not have the kind of
mess that the Department has with existing systems. That
requirement was included in the Authorization Act last year.
But the GAO has reported that the DOD has not yet
implemented an effective investment management process for
selecting and controlling ongoing and planned business system
investments. Until it does, DOD remains at risk of spending
billions of dollars on duplicative, stovepiped, non-integrated
systems that do not optimize mission performance and
accountability and, therefore, do not support the Department's
business transformation goals.
So my question, Mr. Lanzillotta, is are you aware of any
business management systems that have been canceled or modified
because of their failure to meet financial management
requirements?
Mr. Lanzillotta. Yes, Senator, we have canceled or
terminated programs that we didn't feel that were going to
yield compliant systems. If I could take a minute, I could
explain the Department and how we are trying to implement this
guidance.
Senator Levin. Sure.
Mr. Lanzillotta. What we have done is we have taken the
2,274 systems and we divided them into seven business areas for
the Department of Defense. We have created domain holders.
Those are the people who own the process or own that area of
the business. Mr. Abell happens to be one of our domain owners
for the human resource systems. We divided those 2,274 systems
into these seven areas. These domains now are responsible for
reviewing these systems, not only these old systems, but also
for approving new systems to make sure that they are compliant
with the architecture.
So our acquisition process for IT systems is now two-
phased. Not only when we get a system approved, but also it is
what systems go out of the inventory. Like with Defense Travel
System, when we plan to bring that on board, it will be one
system and it is planning to replace 43 other systems, and
those systems will be phased out.
We take those systems, the domain owner reviews their
systems, and it is a huge task. It is a challenging task. They
will come back and make a recommendation as to what systems
should be funded or what systems shouldn't be funded, and then
we will use that as an enforcement mechanism.
Senator Levin. You say some systems have been canceled?
Mr. Lanzillotta. Yes, Senator.
Senator Levin. It would be useful if you just, for the
record, give us some examples of that. Give us a half-a-dozen
examples, not right now, just for the record, if you would,
systems that have been canceled for non-compliance with that
requirement.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 5 which appears in the Appendix on page 129.
---------------------------------------------------------------------------
Mr. Lanzillotta. Sure.
Senator Levin. That would be great. Thank you. Thank you,
Mr. Chairman.
Senator Coleman. Thank you, Senator Levin. Senator Pryor.
Senator Pryor. Thank you, Mr. Chairman.
Let me give you all my perspective on this, and that is
admittedly, the dollars involved here in relative terms to DOD
budget and the travel budget are small, and I think, Mr. Abell,
you mentioned that in your opening statement or in one of your
answers to questions. But the way I look at it is if we can't
trust you on the small things, how can we trust you on the
large things?
What I sense is that, if I could put this in NCAA terms,
there is a lack of institutional control when it comes to these
nuts and bolts, dollar issues within the DOD. I am new on this
Subcommittee, but what I have heard today is the GAO looked
into credit cards and found a lot of wrongdoing. You all formed
a task force. Now we are looking into premium travel. You all
are going to form a task force. As I understand the testimony,
and I hope I am wrong, it is going to be 2007 before it is
fixed. That is totally unacceptable.
I guess the question I have for you is we talked about
credit cards. We talked about travel. What is next? What is
next in the DOD that GAO hasn't discovered yet? How many
millions are we just wasting there because of the lack of
managerial control of the dollars in DOD? So my question is,
what next is out there on the horizon where you think we have
problems?
Mr. Lanzillotta. Senator, that is the whole purpose of our
business modernization program. The reengineering of the
systems and our processes, that is what we are trying to avoid
as to what is next.
Now, referring back to Senator Levin's comment that the
Department has developed this problem over a long period of
time, we have put together this program and we are trying to go
through, look at each of our business processes, and reengineer
it using our domain process.
We have started our first increment on our material
weaknesses, which are the most serious financial areas that
need to be corrected. We are going through and we are not
waiting on GAO to tell us what is next. We know what is wrong.
It is just that we are trying to fix it by the reengineering.
It is just going to be a process that is going to take us
time, 2007 seems a long way away, but I think from Mr. Kutz's
testimony that he thinks that it might be a little ambitious
that we get it done by 2007. But that is what we are doing to
take care of the whole process. It is the magnitude of the
problem and the scalability that we have to get our systems to
handle these type of reengineering processes.
Senator Pryor. Today we heard testimony that the DOD is
wasting maybe $20 million a year, it may be $50 million a year.
There is not a real firm number on how much we are wasting just
in travel. What is your sense of the overall waste in the
Department of Defense today? How much money are we going to
save the taxpaywers when you put these new systems in and this
new architecture that you are talking about and you address
problems that you say you know are there.
Mr. Lanzillotta. Senator, at this point, I don't even know
how to hazard a guess.
Senator Pryor. Do you understand my concern? You can't even
guess how much waste there is. I mean, you have no idea, and
yet you come in and you ask us, hey, appropriate this money,
appropriate these dollars. We look at your travel account and I
don't know how much we have budgeted to the Department of
Defense's travel account, but you haven't run out of money. It
seems to me that if you budget right, you should have run out
of money, or you should have caught this problem, because you
would be looking at your budget and you know you don't have the
dollars there.
It raises very serious concerns on my part about how you
manage your internal affairs over there at the Department of
Defense. So could you give me some sense of the scale of the
problem at the Department of Defense?
Mr. Lanzillotta. Senator, I don't even know how to address
that. The scale is we are looking at the 2,274 systems that we
currently have in our business architecture and we are trying
to reengineer those processes. When we find out or notice or
somebody tells us or we find it that there is an area for
waste, fraud, and abuse, we do take action.
Now, people say, well, you noticed a problem and you
develop a task force. Well, that is right. We did. We took
action. We got the problem under control.
I don't know, or if I knew that there was a problem in a
particular area, I would immediately try to take action to
correct that problem. When you sit down there and ask me about
how much money will it save by--with one architecture--if I
know there is waste, I go after it. I don't know what I don't
know, and so I can't hazard a guess as to what there is. I know
what has been reported. I know what we find. I don't know how
much is out there. I don't know if there is anything out there.
GAO may have done an excellent job and has identified it all.
But we work at it.
Senator Pryor. I understand that DOD is a very large
agency, it has a very diverse mission and it's budget is
complicated. I appreciate that. I really do. And I know that,
like you said, you are in every time zone in the world. You
have got important tasks going on all over the world and it is
very dangerous at times in certain places. I am very
sympathetic and understanding of that.
But at the same time, your answers today just aren't
satisfactory to me. Like I said, I am just kind of waiting to
see what we are going to find out next about the Department of
Defense. I am glad you are being proactive and at some point,
hopefully by 2007, you will have some new systems in place. But
it is very troubling to me that you can't even begin to tell us
how much waste, fraud, and abuse is within your Department. It
is just--I understand you don't know what you don't know, but
it seems to me that you don't even have a way to measure it
right now. It is such a large department that you can't even
get your hands around it. Is that fair?
Mr. Lanzillotta. Well, Senator, that would have the
assumption that there is a defined number out there of waste,
fraud, and abuse, that somebody has gone out there and knows
that number. It can't be measured because nobody knows.
Senator Pryor. Well, it can be measured because if it is
there, it is there. It is just you don't know how to measure
it. You are not measuring it because you don't know how, is
that right? You don't have the capability today to look at your
internal systems and tell us how much money you are wasting at
the Department of Defense, is that true?
Mr. Lanzillotta. We don't have the capability at the
Department of Defense to go across all of our systems, and that
is true that our systems are not integrated. I don't take the
assumption, though, that automatically means that there is
waste, fraud, and abuse.
Senator Pryor. I am not starting with that assumption,
either, but I am starting with the fact that you can't tell us
what is or what isn't waste, fraud, and abuse within your own
Department. That is very troubling to me as a Member of
Congress who has oversight over the Department of Defense.
I mean, I think the Congress gives you all a lot of leeway.
We put a lot of confidence in you as an agency and as a
Department to do your mission. I don't want to say there are no
questions asked on this end because we ask a lot of hard
questions. But in the end, we defer a lot to the Department of
Defense. It is your area of expertise and we want to be
supportive and make sure that we have the best trained, best
equipped military in the world to go out and do whatever the
challenges are.
But then again, when you get back to look internally at the
nuts and bolts type of spending at the Department of Defense,
it just seems like there is not the control that is necessary.
It is a very large Department, but when you have such a large
and diverse Department, you need the controls and it seems to
me that there are just not the controls present. Is that fair
or not fair?
Mr. Lanzillotta. That is the purpose of the business
modernization program, is to make sure that there are adequate
controls on our business processes.
Senator Pryor. But is it fair to say that you don't have
the controls in place today?
Mr. Lanzillotta. It is fair to say that we don't have
satisfactory controls on all of our processes.
Senator Pryor. Mr. Abell, you have been awfully quiet over
there. Do you have any comment on this?
Mr. Abell. Senator, I can assure you that the issue of
premium travel will be resolved long before 2007. My assurance
to you is we will have it before St. Patrick's Day. But I
defer--you have been asking about business management and
financial controls and that is my colleague's area of
expertise. I make a deal with him that I don't do financial
management and he doesn't do management of human resources.
Senator Pryor. I do a lot of that around here myself, so I
am sympathetic to that. [Laughter.]
Mr. Chairman, I would like to reserve the right to insert a
few more questions for the record, but that is all I have right
now.
Senator Coleman. Thank you. Thank you, Senator Pryor.
The record, by the way, will be held open for 21 days for
any further questions and we will forward to the witnesses any
questions that you, Senator Pryor, or any of the Members of the
Subcommittee may have.\1\
---------------------------------------------------------------------------
\1\ See Exhibit No. 4 which appears in the Appendix on page 124.
---------------------------------------------------------------------------
Gentlemen, I want to thank you for appearing today. I want
to say that I appreciate your candor. I would also note that we
want to work with you. I do not view this as an adversarial
process. This is a shining light, identifying the problem and
solving it process. I think we and the Comptroller share a
common bond. We want to make sure that government resources are
used efficiently and that we are going to give it our best
efforts to make sure that happens.
We understand the challenge facing an agency as large as
the Department of Defense, but I share the concerns of my
friend and colleague from Arkansas. If you take care of the
little things, the big things oftentimes take care of
themselves. It may not always be that way, but you have got to
take care of those little things. Again, for the average
citizen out there, $10, $20, or $30 million is not a little
thing, but it is a big thing.
So let us commit to work together on this. We anticipate a
series of other hearings relating to the Department and other
issues concerning--a number of other things. I will leave it at
that. We will be in touch. We will work with you on that. But
again, I want to thank you for appearing here today.
With that, this hearing is adjourned.
[Whereupon, at 3:50 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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