"Following September 11, reducing fraud and abuse is even more important as the Pentagon's resources are needed to meet homeland security priorities and fight the war on terrorism," Grassley said. "Defense department credit cards are issued willy-nilly with no credit checks. The results are predictable. These credit cards are being taken on a shopping spree and the cardholders seem to be immune from punishment."
Grassley testified about specific examples of ongoing credit card abuse during the second in a series of House Governmental Affairs subcommittee hearings chaired by Rep. Steve Horn of California. Today there are 1.7 million defense department credit cards that generate $9 billion in expenditures annually.
Grassley said some of the spending is clearly personal and could be fraudulent in some cases. He cited cases of defense department credit cards being used at nightclubs and gambling casinos, upscale department stores and toy stores, and for the purchase of items such as leather goods, designer luggage, groceries, kitchen appliances, home computers, and even breast enhancement surgery.
Today's hearing is a follow-up to an initial review released by Grassley, Horn and the General Accounting Office in July 2001 that found a lack of accountability within the Department of Defense had resulted in clear instances of fraudulent, improper and abusive spending by employees. Grassley said that 46,572 defense personnel had defaulted on more than $62 million in "official" travel expenses as of November 2001. The bad debt grew at a rate of one million dollars per month, making the Pentagon's default rate six times the industry average.
"The authority to spend money in the name of the taxpayer is an awesome responsibility in my book," Grassley said. "Unfortunately, this awesome responsibility is not taken seriously at the Pentagon."
After the July 2001 hearing, Grassley and Horn asked the GAO to examine 300 transactions at two Navy units in San Diego to see if corrective actions were being taken. The investigation yielded more than a half million dollars in fraudulent and abusive purchases. While the GAO found that both units had made some efforts to improve internal review and oversight of credit card purchases, serious weaknesses remain.
Grassley was particularly disturbed by a case involving an employee assigned to the Navy Public Works Department in San Diego who used a department-issued credit card to purchase $11,551 in Christmas gifts at Macy's, Nordstrom and Circuit City. Purchases included gift certificates worth $7,500, a computer, a kitchen oven, groceries and clothing. The cardholder's purchases were approved by a supervisor without being reviewed and the bill was paid in full. When the cardholder moved to a different department within the Navy, the credit card was not canceled and was again misused for a personal car rental. The cardholder, who was given a promotion in October 2001, has never been asked to repay the debt.
"A person who holds up a liquor store and takes $500 cash can go to jail for 15 years, but if you use DOD plastic to steal 12,000 from the taxpayers as this employee allegedly did, you get a promotion. That's not right," said Grassley.
Grassley called for leadership at the top to set an example for other defense employees. He presented the committee with a list of 713 commissioned officers who have defaulted on $1.1 million in charges. The officers range in rank from junior lieutenant to senior colonel. Individual unpaid balances reach $8,000. "One of the most powerful elements of leadership is setting an example of excellence. Credit card abuse in the military will never stop until the officers clean up their act," Grassley said.
Grassley asked Horn to join him in writing a letter to Defense Secretary Donald Rumsfeld urging him to take action on the matter. "People who use their government credit cards must pay a price. When the price is right, the abuse will end," Grassley said. "If the abusers are forced to repay the money with penalties, the stealing will stop.