Feds rack up travel card debt

Federal employees are abusing their travel cards and defaulting on millions of dollars in charges, according to congressional panel testimony on Tuesday.

By law, federal employees are to use government travel charge cards instead of personal credit cards to pay for travel expenses. They are designed to make the travel process more efficient and less costly for the government. Usually, employees are responsible for paying the card charges after the government reimburses them.

But in some cases, employees are using the credit cards for personal expenses rather than government travel, said Rep. Stephen Horn, (R-Calif.), chairman of the House Government Reform Committee's Government Efficiency, Financial Management and Intergovernmental Relations Subcommittee. "In other cases, employees are defaulting on their payments, costing the government millions of dollars in potential revenue" in the form of rebates, Horn said in his written testimony.

For instance, Bank of America reported in March that Defense Department employees have defaulted on more than $50 million in federal travel expenditures since the program began in November 1998. And some agencies have not been paying their government-guaranteed travel accounts.

The travel cards — as well as purchase and fleet cards — are issued by several banks under the General Services Administration SmartPay program. Marty Wagner, associate administrator for the Office of Governmentwide Policy at GSA, defended the program and said delinquency rates are falling.

"In fact, several agencies have already instituted salary offset, direct reimbursement to the bank, credit checks, and other controls to decrease delinquency rates," he testified.

But banks that issue the travel cards and maintain the accounts are having trouble making money. Bank of America provides travel and procurement card services to 42 federal agencies "with the vast majority of our business unfortunately dedicated to travel, and specifically to DOD travel," said Clifford Skelton, a senior vice president in charge of Bank of America's Government Credit Card Services Division. "Travel-only businesses don't make money — they lose money," he said. Some reasons include:

40,000 sailors, soldiers, airmen, marines and civilian DOD employees have defaulted on more than $53 million (or five times the commercial standard) in what is supposed to be official travel. The cost of service for DOD is 26 percent more expensive than in a commercial portfolio. Cash advances are twice as likely not to be paid back when compared with other card charges. Things are set to improve, according to Jerry Hinton, director of finance at the Defense Finance and Accounting Service, which oversees the DOD card program.

On April 11, DOD extended its contract with Bank of America through Nov. 29 and made some changes to reduce risk. These changes include a plan to lower cash and credit limits of individual cards, and to review the database of cards issued and deactivate or cancel cards of "infrequent" travelers.