Not in the Cards

he 1998 Travel and Transportation Reform Act required federal employees to use government charge cards, instead of personal credit cards, to pay for travel expenses. The cards were established to simplify accounting for travel expenses, in part by eliminating the need for travel advances, thereby saving time and money.

In theory, cardholders would submit their travel vouchers and documentation and be reimbursed promptly by their agencies for travel expenses. Then they would use those funds to pay their travel card bills. The reality is quite different. The ease of paying with plastic, and the ease of abusing that practice, has led to widespread misuse of travel cards. The good news is that agencies have worked hard to curb those abuses and, for the most part, are succeeding.

BROTHELS AND BAD CHECKS

In 2002, the Defense Department's travel card program landed in the spotlight following a series of widely publicized General Accounting Office reports that detailed instances of employees using the cards to buy all kinds of personal products and services. Charges even included more than $13,000 at brothels in Nevada (where such establishments are legal). GAO also reported that many employees paid their travel card balances with bad checks.

Defense is not alone. GAO investigations over the past three years have found that employees throughout the government have used travel cards to pay for a host of items unrelated to official government business, including clothes, mortgage payments and personal trips.

Delinquency rates-the proportion of accounts more than 60 days past due-vary widely among agencies. At the time of the GAO reports, the Army's travel card delinquency rate fluctuated from 10 percent to 18 percent-about 5 percent higher than the rest of the Defense Department and 7 percent higher than civilian agencies-and the Navy's delinquency rate was about 12 percent. In March 2002, the Bank of America threatened to cancel the travel cards it issued to Army employees because delinquent Army cardholders owed millions of dollars.

The Defense Department, with about 1.1 million cardholders, is the government's biggest user of travel cards. "If you look at the size of the Department of Defense and its charge volume, it doesn't take much for the agency to have an impact on the entire travel card program," says Sue McIver, director of the General Services Administration's services acquisition center, which oversees the government travel card programs. As for using travel cards at "adult" establishments, McIver notes that federal travelers can go to any restaurant they want, as long as they are paying for a legitimate travel-related meal, not entertainment.

WASTE NOT, WANT NOT

Not only do the abuses waste taxpayer and card issuers' money, they could spell trouble for national security. GAO found that many of the delinquent account holders at the Army, Navy and Air Force had Secret or Top Secret clearances. Delinquent account holders also were likely to have other financial problems, such as bankruptcy. Financial trouble is considered a security risk and is a consideration in determining whether to deny or revoke an employee's clearance. Yet, in many cases, security officials were unaware of the charge card problems, GAO said.

Employees who misuse cards probably figure that if they pick up a couple of souvenirs for the kids, then pay off the charge right away, no harm is done. That's not the case, according to McIver. "Our contracts with the banks say that we will use the cards for official travel expenses only," she says. "In addition, federal employees are bound by ethics laws to not use their government position for personal gain."

Part of the travel card problem lies with employees:

• Surprisingly, Defense is the only agency consistently reviewing individual credit histories before issuing travel cards. "Defense may still choose to issue a card to an individual who has a poor credit history, but may more aggressively manage at-risk cardholders," says McIver.
• Every sector of society has people who do not know how to handle credit, and the government is no exception. Young people often have little experience with personal financial management. Many of the problems in the military are associated with young enlisted personnel, although GAO found that higher-ranking personnel abused cards as well.
• Some employees are slow to file travel vouchers, so the travel card payment comes due before they are reimbursed. In such cases, employees sometimes fail to pay their bills or pay with bad checks.

• Some agencies have been slow to provide reimbursement, despite timely filing of travel vouchers.
• In some cases, agencies failed to provide sufficient training and education in how to properly use the cards.
• Many agencies were slow to take advantage of institutional controls, such as merchant category codes (MCCs), which categorize merchants by type of business. Managers can limit cards to businesses with travel-related MCCs (e.g., hotels and restaurants), reducing the possibility of abuse.

Over the past year, the Office of Management and Budget has pressured agencies to improve their travel card programs. In April 2002, then-OMB Director Mitch Daniels directed agency officials to develop "remedial action plans" for reducing fraud, waste and abuse in the programs and limiting the number of cards issued.

Agencies with low delinquency rates got that way by emphasizing training, implementing strong controls, using electronic reporting tools to monitor delinquencies and taking strong corrective actions when there's a problem, McIver says. The best performing agencies, she adds, "have built strong partnerships with their bank card providers and work strategically with their bank partners to ensure continued low delinquency."

Military and civilian agencies impose salary offsets on employees with accounts 120 days or more past due-in other words, they take the money owed out of the cardholder's paycheck. Travel cards that are 60 days past due may be suspended.

Virtually all agencies are now using MCCs to control where employees use their travel cards, according to McIver. HHS, for instance, has imposed what it calls a "retail block" on all cards, which prohibits them from being used at certain merchants.

The military now requires "split disbursement," something that many civilian agencies offer as an option. With split disbursement, the card issuer-in the military's case, Bank of America-is paid directly for charged expenses after a traveler submits his or her travel voucher. The traveler is reimbursed for permitted expenses that were not paid for with the travel card.

Some agencies are simplifying their reimbursement processes to speed payment to employees. GSA's SmartPay system, for example, lets employees file their travel vouchers online. Employees receive a direct-deposit reimbursement within five days.

Agencies are setting low credit limits for most travelers. For example, at the beginning of fiscal 2002, HHS capped the credit limit on most cards at $3,500, although some travelers, such as auditors, have higher limits because of their frequent travel.

Training is an important factor. "Defense has focused on educating cardholders about their personal responsibilities and liabilities and taking management actions," says Bryan Hubbard, a spokesman for the Defense Finance and Accounting Service. The military is concentrating on 18- to 25-year-olds, he says, teaching them how to use travel cards and how to file travel vouchers accurately. McIver says GSA offers online training in travel card use and sponsors a training conference every year for program managers.

At the management level, the Defense Department has taken a variety of steps, says Hubbard. It has increased oversight along the chain of command, canceled more than 400,000 unused travel cards, and instituted new program status updates for senior officials. In addition, the department has reviewed alternatives to the travel card, such as debit or stored value cards, and instituted new processes to make sure that cards are canceled for individuals who have separated or retired from service.

POSITIVE RESULTS

Defense's efforts have paid off. Between January 2001 and January 2003, past due charges fell from $32.3 million to $17.1 million, Hubbard says, and the number of delinquent cardholders fell from 45,881 to 27,480. And as for its double-digit delinquency rates, says Hubbard, "the Defense Department is proud [to have lowered] delinquency rates to 2.5 percent in January 2003 and 1.6 percent in April."

Chris Slack, government card executive with Bank of America, the issuer of Defense's travel cards, agrees that a lot of progress has been made. "We are definitely not in the environment we were in in 2001." Program enhancements such as salary offsets and split disbursements have helped improve Defense's delinquency rate, he says, and the bank expects the trend to continue.

Slack says a delinquency rate of 4 percent is in line with commercial standards. GSA data show that several departments and agencies average a stellar 3 percent or lower on individually billed travel card accounts, including the Housing and Urban Development and Justice departments, and HHS, GSA, Social Security Administration, the Federal Emergency Management Agency and the Nuclear Regulatory Commission.

HHS is not resting on its laurels. It submitted a remedial action plan to OMB saying it intended to reduce its delinquency rate to 1 percent or less by Sept. 30.

The government's quick response to the travel card problems demonstrates the importance of the travel card program, which has improved efficiency and saved money. By enhancing relations with the banks that issue the cards and continuing to improve the program, the reforms will no doubt ensure that travel cards become as much a fixture for government travelers in the future as cash advances were in the past.