Grassley has exposed millions of dollars in credit card abuse by military personnel and urged the Department of Defense to take immediate action. Today, he testified about Army credit card abuse. In March, in another hearing chaired by Rep. Steve Horn of California, Grassley exposed credit card abuse by Navy personnel.
Here is an Associated Press story written by David Pace outlining the morning hearing, followed by the testimony Grassley delivered this morning. To access an audio comment, call 1-800-545-1267, and dial 311 or go to www.senate.gov/src/radio, then click the Grassley link. For a copy of the GAO reports, please visit Grassley's webpage at http://grassley.senate.gov
Copyright 2002 Associated Press
Associated Press Online
July 17, 2002 Wednesday 10:24 AM Eastern Time
SECTION: WASHINGTON DATELINE
LENGTH: 519 words
HEADLINE: Army Plastic Used at Strip Clubs
BYLINE: DAVID PACE; Associated Press Writer
DATELINE: WASHINGTON
BODY:
At least 200 Army personnel used their government charge cards to obtain hundreds of dollars in cash at strip clubs near military bases, a congressional investigation has found.
Sen. Charles Grassley, R-Iowa, said the individuals spent the money "on lap dancing and other forms of entertainment," running up a total bill of $38,000. Grassley disclosed the results of the General Accounting Office probe in testimony Wednesday before a House government operations subcommittee. GAO also found that Army charge cards were used for fraudulent purchases of more than $100,000 of computers and other electronic equipment; for fine china, cigars, wine and a $2,250 tree for planting on Earth Day; for cruises and a trip to Las Vegas; and for two pictures of Elvis Presley purchased at his Graceland mansion in Memphis.
In addition, investigators said government charge cards were used for a $30,000 purchase of 80 palm pilots at the Pentagon's top procurement office. An internal e-mail said there was a need "to get enough goodies for everyone."
Grassley said the e-mail sends a message that "we can splurge at the taxpayers' expense and not worry about it. It's unfortunate that such an attitude is being nurtured in the purchase card 'czar's' front office. It sends the wrong message to the troops in the field."
An Army spokesman did not immediately return a call seeking comment on the findings.
The GAO report is the latest volley in a two-year congressional probe of the Pentagon's credit card program. Last year, the 1.4 million defense employees used government travel cards for $2.1 billion in travel purchases; another 230,000 Defense Department workers used purchase cards for $6.1 billion in goods and services.
Defense Secretary Donald H. Rumsfeld created a special task force earlier this year to look into credit card abuses. The task force last month made 25 recommendations to tighten controls over cards and to increase prosecutions of those who abuse or misuse them.
The new GAO report is the first to focus on the Army, which has more than 430,000 travel cardholders and more than 100,000 purchase cards in use. The Army's charge bill last year totaled more than $3 billion. Investigators audited five major Army commands, including detailed work at one base in each command.
While working to maximize the use of credit cards for small purchases to save money through reduced procurement costs, the GAO said the Army "has not focused equal attention to internal control."
Auditors said they found that 40 percent to 86 percent of the monthly charge bills at the five bases had not been reviewed by managers to ensure that charges were properly documented.
The GAO also found that 1,200 Defense Department personnel had written bad checks to pay their government travel card bills. In examining the worst 105 cases, the GAO found that 40 of those cardholders hold secret, top secret or higher security classifications. Bank of America, which runs the Army charge card program, had to write off nearly $150,000 in bad debts on those 40 accounts.
Introductory Remarks
Mr. Chairman, before I get started today, I would like to thank you for your outstanding leadership on the Department of Defense (DOD) credit card issue.
We began this oversight investigation more than two years ago.
We leaped into this mess head first not knowing what we would find. As each new layer of abuse has been peeled back, we've made new discoveries. You have encouraged us to keep digging. At times, I feel like we're starring into a bottomless pit.
With 2.3 million government credit cards at 23 different agencies spawning expenditures of twenty billion dollars a year, the pit is deep and dark indeed.
Through thick and thin, you have stood like the Rock of Gibraltar. You have been steadfast and unwavering. You have provided the venue where we could do oversight without fear of interference. You have created an environment that gets results.
Thanks to you, Mr. Chairman, we have DOD credit card abuse under the microscope, and we're keeping it there.
And the General Accounting Office (GAO) is helping us do it and is doing a great job.
It has been an honor and a privilege for me to participate in this process.
As I said in March, in a place like the Pentagon, the glare of the public spotlight is never welcome, but shedding light on a problem like this one is the heart and soul of oversight. All the exposure makes good things happen.
Thanks to you, Mr. Chairman, the spotlight is switch is set on full power. The beam is focused on the problem. Hopefully, we will soon see the bottom of the pit and know what to do.
Mr. Chairman, we have come a long way. We have seen the Promised Land, but we are not there yet. We have generated pressure for change. The momentum is good, but the outcome is uncertain.
So we have more work to do. I hope today's revelations help us maintain momentum and keep us moving down the field toward the end zone.
Recent Progress
For starters, Secretary Rumsfeld is on our side.
He is trying to solve the problem instead of making excuses. And that's rare for the secretary of defense. He created the Charge Card Task Force to clean up the mess. It's moving in the right direction.
The Office of Management and Budget has just announced a crackdown on credit card abusers.
Salary offsets are working. Travel card "charge offs" have stopped. "Charge offs" are DOD accounts that Bank of America had to write off as bad debt due to non-payment. More than $6.0 million in outstanding debt has already been recovered and more is on the way.
The 713 commissioned officers who had defaulted on 1.1 million dollars in travel card charges are being dragged to the pay window. Half of those bills have been paid in full. The rest are in salary offsets or voluntary re-payment plans.
And the DOD Inspector General (IG) is starting to get proactive. So far, the IG has been "out to lunch" on credit card abuse, but that's changing. The IG is creating an automated "data mining" capability to "police" the system and provide real-time oversight.
One area still needing drastic improvement is travel voucher turn-around-time. It's taking far too long to reimburse troops for official travel expenses. This, in turn, is pushing account delinquencies upward.
With a little luck, maybe we may get to see reform in our lifetime.
Army Day-More Rotten Apples
Today isArmy Day - Army purchase cards and Army Travel cards.
Our first hearing in July 2001 and second hearing in March 2002 were Navy Days.
After the first two hearings, our critics complained that Grassley and Horn were focusing on a few isolated cases. One rotten apple doesn't make the whole barrel bad.
Well, today's hearing will lay the one-bad-apple theory to rest for good. It's dead.
This time around the GAO visited 13 installations and tested a much bigger sample.
The GAO used "data mining" techniques to cull several thousand suspicious transactions from hundreds of thousands of charges.
All sorts of stuff fell out, including 13 purchase card fraud cases, plenty of waste and abuse, plus a number of potential travel card fraud cases. Some are now active criminal investigations.
Lack of Reliable Data on Fraud Cases
We now know that there are lots of bad apples out there. But exactly how many?
The GAO says the number is big - like 500 plus.
The DOD IG thinks maybe it's more like 72.
However, nobody knows for sure.
GAO says there is no reliable data on the total number of cases under active investigation.
Somebody should be able to punch a button and get that number.
The lack of data on fraud cases is the product of a "hear no evil - see no evil" kind of mentality.
DOD can't manage effectively without that information.
Fraud and Abuse Cases
The GAO has found everything but the kitchen sink. And now we found that, too.
We have found government employees using their cards to make mortgage payments and closing costs; to buy cars; an engagement ring; racetrack betting; Elvis photos from Graceland; a framed John Elway jersey; a trip to the Rose Bowl game, and even Caribbean Cruises. You name it. They're doing it.
The GAO found at least 200 individuals who were using DOD plastic to buy cash in "Gentleman's Clubs" -- like the Bottoms Up Lounge.
These are adult entertainment bars that are located near military bases. They are probably run by the mob. After surrendering their military id's and credit cards, the soldiers get $500.00 in cash.
They spend the $500.00 on lap dancing or other forms of entertainment. But the amount posted on their accounts is $550.00. The extra $50.00 covers a 10 percent fee to get the cash.
At the last hearing, I mentioned XXXXX. He ran up a bill of $3,100.00 at one of these places. Since then, the GAO has found many others doing it, too, to the tune of $38,000.00."NSF" Check Writers
The GAO found 1,200 DOD personnel who wrote "NSF" or bad checks to pay travel card bills. Over 200 are chronic rubber check writers. Some are commissioned officers. One individual - a staff sergeant at Fort Jackson, S.C. - wrote 86 bad checks in 2001 alone totaling $270,000.00. That was against his unpaid balance of $36,000.
The staff sergeant's 86 bad checks should have come as no surprise. Before receiving his government cards, he had a criminal record for credit card fraud and bad checks; he had a $115,000 real estate loan that went bad; he had declared bankruptcy; and used two social security numbers to perpetrate his crimes.
The staff sergeant's 86 bad checks were a "boosting" operation. This is how "boosting" works.
Under industry regulations, a payment check must be credited to an account upon receipt. Once posted, the account appears to have been paid, providing more credit for more purchases. By writing successively larger bad checks at the right moment, the staff sergeant succeeded in raising his credit limit to $35,000. And he charged right up to the limit.
One or two bad checks can happen. I understand that, but the regular abusers - especially the commissioned officers - need to be held accountable.
Mr. Chairman, I asked the GAO to transmit the list of chronic bad check writers to Secretary Rumsfeld and the DOD IG for further review.
Writing a lot of bad checks and leaving a trail of bad debt are signs of financial irresponsibility.
These people could be national security risks.
Under existing DOD rules, a person's level of financial responsibility is a key factor in determining whether that person holds a security clearance and is placed in a sensitive position.
The GAO tested the rule.
To do this, the GAO culled out the 105 worst or most abusive travel card cases and did a match up with clearances.
Among the 105 worst cases, the GAO found 40 cardholders who hold secret, top secret or higher clearances. Each of those 40 accounts had to be "charged off" by Bank of America as bad debt. The bad debt on these 40 accounts alone is a staggering $148,430.00.
One of these individuals - GS-13 in the Pentagon - wrote 4 bad checks worth over $7,700.00 and had accumulated $3,257.00 in bad debt on her DOD travel card account. She used it to cover a personal move for $3,600. The move was from her apartment in Virginia to a new home in Mitchellville, MD. When she applied for a
DOD travel card, she exercised her rights. She put an X in the no-credit- check box and for good reason. She had a bad credit record. She had defaulted on several charge accounts.
She holds an top secret clearance and works on a highly classified project.
This case is troublesome for three reasons: 1) The person's supervisor was completely unaware of the bad checks and bad debt;
2) No disciplinary action has been taken; and 3) On the day she was interviewed by the GAO, she paid off her debt to the bank.
The GAO has referred all these cases to the Army's Central Adjudication Facility or CAF for review. The CAF grants clearances.
The CAF needs to assess the level of financial irresponsibility and determine whether any of these clearances should be pulled.
"Goodies For Everyone!""Let's get enough goodies for everyone!" That's the lofty objective behind a "command" decision to buy 80 Palm Pilots for $30,000.00.
The Palm Pilots were bought by an office over in the Pentagon - the Office of the Assistant Secretary of Defense for Acquisition. That's the office run by the DOD Purchase Card "Czar," Ms. De Lee.
Mr. Chairman, those audacious words come right out of an internal memo. I ask unanimous consent to place it in the Record.
"Let's get enough goodies for everyone." That's the epitome of abuse. It's the product of a culture. It is an attitude nurtured in a place where there is no restraint.
It says we can splurge at the taxpayers' expense and not worry about it.
It's unfortunate that such an attitude is being nurtured in the purchase card "Czar's" front office. It sends the wrong message to the troops in the field. The message going out is clear: Abuse is OK. Everyone deserves to get some "goodies."
The GAO figures Ms. Lee wasted $1,540.00 on the Palm Pilots. She paid top dollar for a rush order that ended up in a storage cabinet. Maybe the "goodies" were not needed after all. Maybe she wasted $30,000.00.
Mr. Chairman, we need to answer the question: Why are there so many bad apples in the barrel?
The reason can be boiled down to three words: Ineffective Internal Controls.
Weak or non-existent controls - like the ones in place today - leave the door wide open to theft.
Army internal controls are AWOL.
The GAO tested Army transactions against a standard set of internal controls. Army failure rates on control tests were unbelievably high across-the-board - as high as 86 to 87 percent in key areas.
An important part of checking to make sure "you got what you paid for" is inventory control. And the Army has none.
At Fort Benning, GA, for example, 84 percent of pilferable items bought with purchase cards were not recorded in the property books. Where is this stuff right now today?
Letting soldiers keep their cards when they leave is another kind of control failure.
The GAO found 317 cardholders at Fort Hood, Texas, who were allowed to keep their cards when they left the Army. We know that at least one of these cards was used to commit fraud.
When weak controls and no credit checks are combined with monthly purchase card spending limits of up to $100,000, fraud is too easy.
Mr. Chairman, weak controls leadeth the dishonest into temptation.
Checking credit card transactions is so simple -just match receipts with statements.
Why isn't the Army doing it?
The GAO says that Army troops are just too busy with other duties to do it.
Being too busy to make routine control checks to protect the taxpayers' money is not acceptable.
Purchase card accounts are U.S. Treasury accounts- accounts belonging to the taxpayers. Protecting tax money is not an option. It's mandatory.
If the troops can't do it, than maybe credit cards aren't the answer.
Mr. Chairman, I plan to return at 2 p.m. to provide an in-depth report on a very troublesome fraud case involving a current Army employee, Ms. XXXXXX.
XXXXXX Case
Mr. Chairman, at the last hearing, I shed some light on a particularly troublesome fraud case involving a current Army employee -- Ms. XXXXXX.
I would like to re-visit this case. I have new information.
The alleged fraud occurred while she was employed by the Navy Department in San Diego.
She is now in charge of "cash integration" in the Army's financial management organization over in the Pentagon.
Since our March hearing, her case has disappeared off the radar screen.
By raising this troublesome matter in March, I had hoped someone over in the Pentagon with some clout would hear me and do something.
Secretary Rumsfeld's Charge Card Task Force came to my office on May 16th to provide a briefing on plans for cleaning up the credit card mess.
The Task Force doesn't seem to care a hoot about XXXXX. I hope that's not a bad omen. The Task Force brushed off my questions about the Mays case.
When asked about it, the Task Force provided this canned response: " The Navy got the money back. Problem solved."
That response really bothers me. It just doesn't cut it.
Mr. Chairman, getting the money back is a red warning flag. It should trigger follow-up action - like a criminal investigation.
The GAO's Office of Special Investigations examined the XXXXXX case. Here are the facts as we know them.
XXXXXXs' purchase card allegedly went Christmas shopping in December 1999 and in a few short days ran up a $12,000 bill.
It was used to buy seven gift certificates worth $7,500.00, a Compaq computer, Amana range, groceries, gas, clothing. You name it. They got it. All expensive stuff - and all at the taxpayers' expense.
The Citibank statement for the December 1999 shopping spree is dated January 21, 2000.
All purchases were made over a six-day period - December 20th to December 26th.
The grand total on the statement is $12,550.24.
The Christmas shopping spree prompted the bank to suspend her account. XXXXXX got the bad news when she attempted to use the card again on December 27th.
When confronted with the suspicious transactions, she told the Bank she lost the card.
Two days later, she was issued a new one.
In late January 2000, she presented the $12,550.24 bill to her Navy supervisor for approval. Her signature appears at the bottom of the statement. Her signature signifies that she accepted the charges as her own.
According to the supervisor, she said she needed it approved in a hurry because she was already late in submitting it.
If she questioned the charges, she was required to attach a dispute form to the January 2000 statement. No dispute form was attached. There were no complaints, and no story about losing the card.
The supervisor then "rubber stamped" it -- approved -- without reviewing it.
Once she got the skids greased and the payment ball rolling, she claimed once again the charges weren't hers.She said she kept the card in her office desk drawer and somebody took it for a few days. She told that story on January 31, 2000. But the bill got paid in full anyway.
At this point, Citibank gave her a dispute form.
But for reasons yet to be explained, she waited thirteen months - until February 2001 - to file a sworn affidavit disputing charges.
By then, the evidence trail was cold.
When XXXXXX left the Public Works Department in June 2000 for another Navy office in San Diego, she did not surrender her card. She was allowed to keep it - contrary to regulations.
And she abused it again - this time for a personal car rental on June 18, 2000 for $357.95. Public Works gladly paid this bill, too.
XXXXXX also used her official travel card in mid 1999 to buy three airline tickets for her son. They cost another $722.00.
The grand total on XXXXXXs' government cards was $13,630.19
Mr. President, I ask unanimous consent to place Ms. XXXXX' January 2000 statement and related documents in the Record.
The handwriting on Ms. XXXXXs' purchase card receipts has been subjected to analysis by the U.S. Secret Service Forensics Division.
These experts have concluded that someone other than Ms. XXXXX actually signed the receipts but all appear to have been signed by the same person.
The Amana range, for example, was bought with a gift certificate made out to Ms. XXXXXX' ex-boyfriend's mother.
The boyfriend in question resided at Ms. XXXXXs' address at the time the fraudulent purchases were made.
Mr. Chairman, her ex-boyfriend has a long criminal record. He is considered a real pro at committing fraud.
This new information seems to raise the possibility that the boyfriend used the card without Ms. XXXXX knowledge or approval.
Most of the experts who have investigated this case don't buy that theory.
They believe that Ms. XXXXX did not make the purchases but knows who did.
Ms. XXXXXX needs to come clean. There are too many unanswered questions.
If she someone stole her card and used it between December 20th and December 26th as she claims, how did she happen to have it again on December 27th when she tried unsuccessfully to use it?
Why didn't Ms. XXXXXX examine her January 2000 bill before presenting it to her Navy supervisor? Did she check it and reconcile charges with her receipts?
Why did she sign the January 2000 statement, signifying that the charges were hers?
Why didn't she attach the required dispute form to her January 2000 statement?
Why did it take her 14 months to give a sworn affidavit disputing the charges?
Why did she abuse her purchase card again in June 2000?
When she handed the January 2000 statement to her supervisor, she had to know the score.
These charges were incurred on her credit card account. They appeared on her statement. She endorsed that statement, she submitted it and demanded immediate payment.
She now needs to accept responsibility for the charges that appear on her statement.
Yes, it's true that the Navy eventually got the money back in April 2001. And that's good news. The taxpayers' losses were recovered.
Getting the money back is a powerful indictment, however. It means that Citibank and/or the Navy came to the conclusion that the charges on Ms. XXXXXXs' account were fraudulent.
Mr. President, why can't Mr. Rumsfeld's Task Force see the handwriting on the wall?
And why didn't the Naval Criminal Investigative unit - NCIS - get on the stick and attack this case in January 2000? NCIS dropped the ball.
And that brings us back to Ms. XXXXX.
Ms. XXXXXX and/or her associates allegedly have the stolen goods. That means the bank gets left holding the bag. The bank gets busted, and the criminals skate. That's not right.
There are other signs that Ms. XXXXX was not acting in good faith.
The $357.95 personal car rental charge that she incurred was also reversed through a credit from Cititbank. Again, the Navy got the money back. Ms. XXXXXXX agreed to re-pay the bank but hasn't done that.
Ms. XXXXXX has just re-paid Bank of America the money she owed for her son's airline tickets. She initially paid the bank $343.21 on that bill.
But $378.79 was left unpaid for three years - until recently when we starting cranking up the pressure.
In February 2002, after being grilled by GAO investigators, she finally paid off the balance. The account was closed and not re-issued.
Mr. Chairman, Ms. XXXXXs' credit record is a virtual trail of bad debt. It's scandalous. She should never have been issued a government credit card. She has a long history of personal credit card abuse. She had at least 12 accounts that went bad.
Whoever gave her government credit cards should have their head examined.
Mr. Chairman, the bottom line is a lack of accountability.
Based on the GAO's work so far, I would have to say that the Army is tougher on credit card crime than the Navy.
We found a Army female sergeant who was court marshaled in April 2002 and sentenced to 18 months incarceration for $30,000 in fraudulent purchases.
The Army staff sergeant who wrote 86 bad checks was court-martialed and is now confined.
The Navy is at the zero end of the scale.
The XXXXXX case is a combined Army/Navy case.
To my knowledge, no disciplinary action has been taken against Ms. XXXXXXX.
She seems to be working her way up the promotion ladder like nothing ever happened.
As I understand it, she was moved into a bigger job and given a promotion in October 2001 -- 21 months after the alleged Christmas shopping spree.
Mr. Chairman, I am told the Navy helped put her on the fast track for the Army job.
The Navy gave her glowing recommendations when she applied for her current position with the Army. That's an old bureaucratic trick: Sprinkle some perfume on tarnished goods and pass it on the other service.
This case sets a terrible example. It symbolizes all that's wrong with the DOD credit card program.
Ms. XXXXX must be held accountable for the purchases that appear on her government credit cards.
If someone else committed these alleged crimes, she needs to spill the beans.
I want this matter investigated and resolved.
Right now, Mr. President, the prospect for accountability looks dim.
No one wants to touch this case with a ten-foot pole.
The U.S. Attorney has repeatedly declined to prosecute because the amount stolen is too small to mess with.
The Navy refuses to pursue the case because Ms. XXXXXX is no longer employed by the department.
Her current employer - the U.S. Army - refuses to take action because the alleged crimes were committed while she was employed by the Navy.
The XXXXXX case is falling right between the cracks.However, there are two new developments.
First, I am told the DOD IG opened an active investigation on June 3rd.
Second, Ms. XXXXXX holds a security clearance. As I explained this morning, a person's level of financial responsibility is a key factor in granting clearances.
On June 12th, I asked the Assistant Secretary of the Army to review her credit history and determine whether she has the requisite level of financial responsibility to hold a clearance.
On July 1st, I was informed that her security clearance has been "informally suspended," pending further review.
If DOD is unable to resolve this matter in a way that is fair and just for XXXXX and Citibank, then all the promises about credit card reform are nothing but empty promises.
Accountability and reform go hand in hand. Without accountability, there will be no reform.
XXXXXX is a good place to start. That's where the rubber meets the road.