The White House: Travel Office Operations (Chapter Report, 05/02/94, GAO/GGD-94-132). Although the White House had the authority to fire several employees in its press travel office in 1993, the White House should have made the effort to insulate its management decisions from influence from persons with a personal interest in travel office operations. Catherine Cornelius, Harry Thomason, and Darnell Martens, all of whom had potential personal or business interests in the Travel Office operations, created the momentum to examine the Travel Office by raising allegations about improper management to White House officials and participating in activities that appeared to anticipate the firings. Although Mr. Thomason and Mr. Martens had passes that gave them unrestricted access to the White House and participated in discussions about the Travel Office, GAO did not conclude that they were "special government employees" subject to conflict of interest laws. GAO does question the practice of granting nongovernment employees uncontrolled access to White House offices without having policies to govern their activities because the appearance of influence and authority that access conveys could lead to inappropriate actions or abuses. This report discusses (1) past operations and oversight of the Travel Office; (2) current Travel Office operations and the extent to which identified problems have been corrected; (3) actions taken in the spring of 1993 that prompted the White House decision to investigate Travel Office operations and fire the employees; (4) actions taken by other agencies during this period, including the Federal Bureau of Investigation and Internal Revenue Service; and (5) other matters related to the Travel Office situation. --------------------------- Indexing Terms ----------------------------- REPORTNUM: GGD-94-132 TITLE: The White House: Travel Office Operations DATE: 05/02/94 SUBJECT: Investigations by federal agencies Human resources utilization Conflict of interest Crimes or offenses Personnel management Internal controls Accounting procedures Financial management Employee dismissal Executive agencies ************************************************************************** * This file contains an ASCII representation of the text of a GAO * * report. 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We are unable to accept electronic orders * * for printed documents at this time. * ************************************************************************** Cover ================================================================ COVER Report to the Congress May 1994 WHITE HOUSE - TRAVEL OFFICE OPERATIONS GAO/GGD-94-132 White House Travel Office Abbreviations =============================================================== ABBREV CRS - computer reservation system DNC - Democratic National Committee DOJ - Department of Justice DOT - Department of Transportation EOP - Executive Office of the President FBI - Federal Bureau of Investigation FTMC - Federal Travel Management Center GFU - Governmental Fraud Unit (FBI) GSA - General Services Administration IRS - Internal Revenue Service ITGCU - Interstate Theft and Government Crimes Unit (FBI) KPMG - KPMG Peat Marwick MTMC - Military Traffic Management Command NPR - National Performance Review OIG - Office of the Inspector General (Treasury Department) OMB - Office of Management and Budget OPR - Office of Professional Responsibility RFP - request for proposals SIU - Special Inquiry Unit (FBI) WCCU - White Collar Crime Unit (FBI) Letter =============================================================== LETTER B-255157 May 2, 1994 The President of the Senate and the Speaker of the House of Representatives This report was prepared in response to Public Law 103-50, which requires us to conduct a review of the actions taken with respect to the White House Travel Office. We are sending copies of this report to appropriate congressional committees, the Assistant to the President and the Chief of Staff, the Attorney General, and other interested parties. We will also make copies available to others upon request. This report was prepared under the direction of Nancy Kingsbury, Director, Federal Human Resource Management Issues, who may be reached on (202) 512-5074 if there are any questions. Other major contributors to this report are listed in appendix IV. Charles A. Bowsher Comptroller General of the United States EXECUTIVE SUMMARY ============================================================ Chapter 0 PURPOSE ---------------------------------------------------------- Chapter 0:1 On May 19, 1993, the White House Press Secretary announced that all seven employees of the White House Travel Office were being dismissed because of poor management practices. The Press Secretary suggested in the following question-and-answer period that possible criminal activity was being investigated. Media reaction and subsequent public and congressional debate about the details of the White House's action resulted in an internal White House review of the matter and an accompanying report issued on July 2, 1993. The Supplemental Appropriations Act of 1993 (P.L. 103-50), signed the same day, required that GAO "conduct a review of the action taken with respect to the White House Travel Office . . . ." On the basis of discussions with majority and minority congressional staff and a review of the White House's internal study of the matter, GAO identified and reviewed a range of issues. Specifically, GAO reviewed (1) past operations and oversight of the Travel Office; (2) the current operations of the Travel Office and the extent to which problems identified in the past had been corrected; and (3) the actions taken in the spring of 1993 that led to White House officials' decision to investigate the operations of the Travel Office and remove the employees; (4) the actions of other federal agencies during this period, including the Federal Bureau of Investigation (FBI) and Internal Revenue Service (IRS); and (5) certain other matters related to the events that occurred in the Travel Office. BACKGROUND ---------------------------------------------------------- Chapter 0:2 The White House Travel Office has functioned for many years to provide travel and communications services to the Executive Office of the President (EOP). The Travel Office provides travel arrangements for members of the press corps who accompany the President on trips. The Travel Office also provides ticketing and travel services for EOP staff traveling on official business. In assisting the press on presidential trips, White House Travel Office staff arrange for or coordinate such services as chartered air transportation, ground transportation services, and working space and telephone services. The press travel services of the White House Travel Office are unusual in that they are provided by government employees but paid for with private funds, and the operations are carried out in close proximity to the President. Because the President may travel on short notice, these services must sometimes be arranged in a few hours or days. For the 1-year period from May 1992 through April 1993, the Travel Office disbursed about $7.7 million to pay for expenses related to press travel. In May 1993, on the basis of allegations of mismanagement and possible wrongdoing, senior White House officials contracted with KPMG Peat Marwick (KPMG), a public accounting firm, to study the Travel Office's financial operations and referred these allegations to the FBI. KPMG found serious financial management weaknesses and, on the basis of its findings, the seven Travel Office employees were removed from their positions. The FBI decided to investigate whether criminal acts had occurred, and that investigation was ongoing at the time GAO finished its work in mid-April 1994. Because of the ongoing criminal investigation, GAO was unable to interview certain individuals, including the seven former Travel Office employees and two individuals whose allegations about the Travel Office operations played a significant role in the events that transpired in May 1993. This limited the information available to GAO for evaluating (1) the operations of the Travel Office before May 1993 and (2) the status in the White House of the two individuals who played a role in the events. The White House did an internal review of the events surrounding the removal of the Travel Office employees and on July 2, 1993, issued a report on the results of its review. The report, entitled the White House Travel Office Management Review, criticized some of the actions of White House officials in the matter. RESULTS IN BRIEF ---------------------------------------------------------- Chapter 0:3 Although the Travel Office had carried out press travel activities for many years, GAO found that, historically, no criteria had been identified for how the Travel Office should be managed. Little guidance or oversight of the Travel Office's function had been provided to its employees, despite evidence that the operations may have had significant financial management weaknesses. The May 1993 assessment of the Travel Office's financial management practices by KPMG found significant financial management weaknesses, including the lack of formal guidelines and procedures for procurement, poor accounting systems, inadequate documentation and billing practices, and ineffective controls over cash management. GAO's review of records from the Travel Office and KPMG's workpapers, as well as discussions with KPMG and former and current White House officials, confirmed that serious financial management weaknesses existed. GAO noted that these results were similar to findings from a review requested by a former Director of Administration in the early 1980s, which reportedly found "tremendously lax accounting" and led to the resignation of the Travel Office Director. The Management Review stated that a new accounting system was developed and procedures were in use in July 1993 to resolve the deficiencies in Travel Office operations. GAO found that the deficiencies were not fully resolved at that time. While a number of actions were taken between June and October to improve the day-to-day press travel operations, documented systems and procedures needed to achieve, on a continuing basis, the "stringent internal control procedures to assure sound financial management" announced in the Management Review had not been fully implemented by the time GAO completed its work on April 15, 1994. GAO noted, however, that in the past few months the new Travel Office Director had made additional progress in improving systems and procedures. For example, an automated accounting system now identifies and records costs, and internal controls were implemented to provide for review and approval of vouchers prior to payment. On the basis of a review of financial management and procurement procedures that apply in federal government and private sector activities, GAO identified and used 29 specific criteria in its evaluation of Travel Office operations. White House officials agreed that these 29 criteria constituted a reasonable and prudent framework. At the time GAO finished its work, the Travel Office Director had taken, or had agreed to take, action to implement procedures and systems consistent with GAO's 29 criteria. GAO found that White House officials had legal authority to terminate the White House Travel Office employees without cause in May 1993 because their appointments were made at the pleasure of the President. Senior White House officials told GAO that the decision to remove the employees was based on KPMG's findings of serious financial management weaknesses. However, GAO also found that Catherine Cornelius, Harry Thomason, and Darnell Martens, individuals who had potential personal or business interests in the Travel Office operations, created the momentum to examine the Travel Office by raising allegations about the management of the Office to White House officials and participating in actions that appeared to anticipate the removal of the employees. Although Mr. Thomason and Mr. Martens had passes that gave them unrestricted access to the White House complex and participated in discussions about the Travel Office matter, the facts available did not support a conclusion that they were "special government employees" subject to the conflict-of-interest laws. GAO believes that the White House should have, but did not, make efforts to insulate its management decisions from influence by individuals with a personal interest in Travel Office operations. The Management Review reached the same conclusion. Further, GAO questioned the practice of permitting nongovernment employees to have uncontrolled access to White House offices without having policies in place to govern their activities because the appearance of influence and authority that access conveys could lead to inappropriate actions or abuses. GAO found that FBI and IRS officials' actions during the period surrounding the removal of the Travel Office employees were reasonable and consistent with the agencies' normal procedures. GAO found no evidence that White House staff made any contact with IRS about the Travel Office matter. However, GAO believes that some White House officials' actions in conveying the FBI officials a sense of urgency and high level interest in the matter created an appearance of inappropriate White House pressure. The Management Review reached the same conclusion. PRINCIPAL FINDINGS ---------------------------------------------------------- Chapter 0:4 CRITERIA GAO USED TO EVALUATE PRESS TRAVEL OPERATIONS -------------------------------------------------------- Chapter 0:4.1 GAO could find no criteria or guidance established by the current or previous administrations to use in evaluating the press travel operations of the Travel Office. Thus, GAO researched private sector financial management and procurement practices and federal government guidance and concluded that 29 specific financial management and procurement practices provided a reasonable framework for evaluating the Travel Office operations. These criteria fall into six basic areas: (1) administrative guidelines to establish lines of authority and documented policies and procedures to ensure assets are properly safeguarded and oversight provided; (2) procurement processes that provide for competition to ensure value for funds expended; (3) standards for accumulation and allocation of costs to provide a basis for accurate billing for services rendered; (4) procedures for preparation and distribution of bills for services; (5) cash management procedures to ensure that vendors are paid, funds are collected, and cash balances are reconciled in a timely manner; and (6) documentation of financial transactions in an accounting system that permits accurate disclosure of those transactions in financial reports. Although explicit criteria were not identified in KPMG's study of the Travel Office press travel operations, GAO noted that KPMG's work provided evidence and observations related to 25 of the 29 criteria GAO identified. POOR FINANCIAL MANAGEMENT WITH LIMITED OVERSIGHT AND GUIDANCE -------------------------------------------------------- Chapter 0:4.2 In response to allegations in the spring of 1993 by Ms. Cornelius, Mr. Thomason, and Mr. Martens of poor management practices and possible wrongdoing in the operations of the Travel Office, White House officials engaged KPMG to conduct a study of certain policies, procedures, and practices of the Travel Office. KPMG found numerous financial management weaknesses, including informal or poorly communicated accounting policies and no documentation of systems and procedures; no evidence of competition in the procurement of air transportation or a formal contract for the principal air carrier used; no general ledger; informal and inconsistent billing practices, including inadequate documentation to support billings; and improper controls over cash. GAO reviewed the trip files from 42 of the 98 press trips that occurred between March 1992 and May 1993 and other available Travel Office financial records. GAO also reviewed KPMG workpapers and discussed them with KPMG officials. Because of limitations created largely by the FBI's ongoing criminal investigation, GAO could not fully evaluate the Travel Office's financial management prior to May 1993. However, on the basis of its own observations and the results of the KPMG study, GAO concluded that significant financial management weaknesses existed in the press travel operations. Notwithstanding those significant weaknesses, the trip files reviewed by GAO showed that major expenses were documented, travelers were identified, and calculations were made to divide the costs of the trips and bill those costs to the press' employing organizations. According to press representatives, services provided in making and implementing these arrangements were satisfactory. The most significant costs for the trips were air transportation and telephone services. Because one air carrier was used almost exclusively during the period between June 1992 and May 1993, GAO also traced selected transactions to the financial records of that air carrier and identified no discrepancies with Travel Office records. GAO found that, during the 1980s and early 1990s, White House officials provided little guidance or oversight to Travel Office employees concerning press travel operations, even though there were some indications of financial management weaknesses. For example, in the early 1980s, a review of the Travel Office conducted by the Office of Management and Budget (OMB) staff was reported to have found poor financial management practices and excess money in the Travel Office bank account; this money was then refunded to press organizations. The OMB staff review led to the resignation of the Travel Office Director. Former White House officials charged with supervising the Travel Office told GAO they had provided virtually no oversight or guidance. Similarly, current White House officials told GAO they had paid little attention to the Travel Office until the additional allegations were made by Ms. Cornelius, Mr. Thomason, and Mr. Martens in the spring of 1993. PROGRESS WAS MADE IN 1993 TO IMPROVE TRAVEL OFFICE OPERATIONS -------------------------------------------------------- Chapter 0:4.3 The July 1993 Management Review stated that a new accounting system was developed and procedures were in use to resolve the deficiencies in Travel Office operations. However, GAO found that the deficiencies were not fully resolved at that time. GAO noted that, at the request of White House officials, General Services Administration (GSA) staff had established interim procedures for identifying air charter companies eligible to be considered to provide service and had established a process to solicit quotes from a number of these companies for each presidential trip. Regarding the EOP staff travel function, GAO noted that GSA awarded a contract to American Express under Federal Travel Management Center guidelines. American Express is continuing to operate under this contract. GAO also found that, although a new accounting system was installed in the Travel Office in June 1993, the Management Review's statement that the system established "stringent internal control procedures to assure sound financial management" was not accurate, and "detailed accounting procedures" described as "in use" were not fully implemented. White House officials told GAO that other corrective actions had not been implemented due in part to pressures to meet the continuing demands for press travel services and catch up on billing for and reconciliation of past trips. The new Travel Office Director appointed in October 1993 was charged with completing the work to improve financial management. WHITE HOUSE STRATEGY FOR COMPLETING FINANCIAL MANAGEMENT IMPROVEMENTS -------------------------------------------------------- Chapter 0:4.4 GAO documented and discussed with the Travel Office Director the processes and procedures being used in the Travel Office and made suggestions for additional improvements. The Travel Office Director and responsible White House officials agreed that GAO's criteria and resulting recommendations were useful. They also identified actions taken or planned for implementation by July 1994 to ensure that the Travel Office would operate consistent with GAO's criteria in the future. Significant steps to be accomplished include completion of documentation of operating procedures and implementation of the plan to obtain annual financial statement audits. Although improvements have been made, as of April 1994, press representatives reported that they were concerned that the billing process was not yet timely or accurate. ACTIONS RELATED TO REMOVAL OF TRAVEL OFFICE EMPLOYEES -------------------------------------------------------- Chapter 0:4.5 Although the Travel Office employees had served in the Office for between 8 and almost 30 years, they were appointed under employment authorities that authorize the President to appoint and remove employees essentially at his discretion. Within a few days after the removal of the seven employees, White House officials reconsidered the action in the case of five of the employees (the other two filed for retirement, for which they were eligible), and these five were maintained in pay status until they were offered and accepted positions in other federal agencies. Although the Travel Office staff had provided services for a decade with virtually no oversight, interest in the propriety of the operations was stimulated in the spring of 1993 largely by the actions of Ms. Cornelius, Mr. Thomason, and Mr. Martens. Ms. Cornelius was a junior White House staff member who wanted to run the Office and who had observed what she said was possible wrongdoing in the Travel Office. Mr. Thomason, although a private citizen, served as an adviser to the President. While in this capacity, he made inquiries about obtaining Travel Office business on behalf of Mr. Martens, his business partner, and carried his concerns about the operations of the Travel Office to senior White House officials and the First Lady. Once these allegations were brought to their attention, White House officials initiated the KPMG assessment of the Travel Office operations and made inquiry to the FBI about whether additional investigation was warranted. The White House Chief of Staff told GAO that, on the basis of KPMG's findings, he had approved the removal of the employees. Mr. Thomason's and Mr. Martens' participation in events preceding the removal of the Travel Office employees raised concerns about whether they were special government employees subject to the criminal conflict-of-interest laws. Absent evidence that either Mr. Thomason or Mr. Martens had an appointment to a government position or an employment relationship with the White House, these facts did not support a conclusion that they were special government employees subject to the conflict-of-interest laws. However, as noted above, GAO was unable to interview the two individuals, and the Department of Justice's investigation is still ongoing. GAO believes that every effort should be made to insulate the federal government's management decisions from the appearance that personal interests play a role. That did not happen in this instance. The Management Review reached the same conclusion. GAO further noted that the appearance of inappropriate influence was heightened in this case by the fact that Mr. Thomason and Mr. Martens had been granted temporary passes that gave them access to the White House complex for several months. Such access conveys the appearance of influence and authority. Thus, GAO questions the appropriateness of granting such unrestricted access to nongovernment employees without having policies in place for governing their activities. Because limited information was provided to FBI officials by Associate Counsel to the President William Kennedy and others in early discussions, FBI agents who responded to the White House inquiry on May 12 required some time and additional discussions to determine whether an investigation was warranted and, if so, how it should proceed. Following discussions with Ms. Cornelius, FBI agents concluded that further investigation was warranted and consulted appropriate FBI and Justice officials to approve that decision on May 14. FBI interactions with Associate Counsel Kennedy and White House press officials occurred in a mode of urgency, but GAO found no evidence that the FBI took any inappropriate action as a result of those conditions. Following these events, the White House Counsel issued additional guidance to White House staff that required any contact with the FBI to be directed through the Counsel's office to the most senior Justice officials. GAO finished its work in mid April, at which time the FBI investigation was still ongoing. GAO has a long-standing policy of not interfering in ongoing executive branch criminal investigations and, thus, obtained no information about the FBI investigation. Media reports that IRS agents issued to a taxpayer a summons for records in response to the Travel Office controversy, and that Mr. Kennedy had suggested to FBI officials that IRS might be called, raised concerns that the White House may have attempted to influence IRS action, either directly or through the FBI. On the basis of GAO's review of investigations by the IRS Inspection Service, the Department of the Treasury Office of Inspector General, and its own review, GAO found that IRS officials acted within the scope of their procedures and regulations. GAO found no evidence that White House officials contacted the IRS about the Travel Office matter, or that the FBI made any inappropriate contacts with the IRS. Tax laws that protect the confidentiality of taxpayer information prohibit GAO from publicly disclosing the details of the IRS' actions. The White House Counsel issued guidelines to White House staff in February 1993 that contain the White House procedures for obtaining from and providing information to the IRS. Expanded in July 1993, these guidelines require all information concerning potential tax violations to be sent to the White House Counsel, who in turn is to refer the information to either the Attorney General or the Deputy Secretary of the Treasury. RECOMMENDATIONS ---------------------------------------------------------- Chapter 0:5 To further improve the operations of the White House Travel Office, GAO recommends that the Assistant to the President and Chief of Staff direct the Assistant to the President for Management and Administration to complete efforts to prepare comprehensive and accurate guidance for Travel Office staff to better ensure that procedures are implemented properly; establish a process to ensure that appropriate oversight and review of Travel Office operations is provided, including an annual financial audit; give priority to completing other actions that will fully implement systems and procedures consistent with the financial management criteria described in this report; and establish a mechanism to validate that the actions taken and promised have been effectively implemented. To better ensure that White House access is commensurate with accountability, GAO also recommends that the Chief of Staff to the President develop policies governing appropriate activities by nongovernment employees granted regular White House access and establish a mechanism for periodically assessing the implementation of those policies. AGENCY COMMENTS ---------------------------------------------------------- Chapter 0:6 GAO arranged for senior White House, Justice, and KPMG officials to review a draft of this report. Justice officials provided written comments on the report; White House officials and KPMG did not. GAO considered the specific comments that were made as the reviews took place and made changes where appropriate. Justice officials in general agreed with our findings about the interactions between FBI and White House officials and noted that they were consistent with Justice's investigation of the matter. INTRODUCTION ============================================================ Chapter 1 On May 19, 1993, the White House Press Secretary announced that all seven employees of the White House Travel Office were being replaced because of poor management practices, and suggested in the following question-and-answer period that possible criminal activity was being investigated. The White House Travel Office is a small, previously little known activity in the White House that makes commercial travel arrangements for employees of the Executive Office of the President (EOP) and arranges transportation and ground services for the press who travel with the President to cover his activities. The press reaction to the announcement and subsequent public and congressional debate about the details of the White House's actions in the Travel Office matter led the White House Chief of Staff, on May 25, to initiate an internal review of the episode. The results of this review were issued on July 2, 1993, in a report entitled White House Travel Office Management Review. The Management Review provided a description of events leading up to the decision to remove the Travel Office employees; concluded that some of the actions taken by White House officials or other individuals were inappropriate or gave the appearance of conflicts of interest; and announced that corrective actions were being taken to improve the management of the Travel Office, avoid similar inappropriate actions in the future, and assist some of the affected Travel Office employees to find new positions. Congressional concerns about the White House Travel Office episode resulted in an amendment to the Supplemental Appropriations Act of 1993 (P.L. 103-50), which was signed by the President on July 2, 1993. That amendment, section 805, reads as follows: "Notwithstanding any other provision of law, the Comptroller General of the United States shall conduct a review of the action taken with respect to the White House travel office and shall submit the findings from such review to the Congress by no later than September 30, 1993." On September 30, 1993, we issued an interim report\1 on the status of our work in response to this legislative mandate. That report described delays encountered in reaching agreement with the White House and Department of Justice concerning our access to individuals and documents needed for our review. Subsequently, we were able to obtain sufficient access to enable us to address the issues related to the Travel Office events. -------------------- \1 Letter to the President of the U.S. Senate and the Speaker of the U.S. House of Representatives, GAO/GGD-93-143, Sept. 30, 1993). BACKGROUND ---------------------------------------------------------- Chapter 1:1 The White House Travel Office, officially called the White House Travel and Telegraph Office, has functioned for many years to provide travel and communications services to the EOP, including the President's immediate offices. It is unclear when the travel and communications functions were originally established, but the President of the White House Correspondents' Association told us of a reference to a White House office arranging for trains to carry members of the press accompanying President Andrew Johnson (who held office from 1865 to 1869) on his travels in the United States. Federal agencies routinely provide travel services for their staffs when they travel on official business. Until recent years, such services were provided by agency staff. Now, nearly all agencies provide staff travel services through Federal Travel Management Center (FTMC) contracts awarded by the General Services Administration (GSA) to private sector travel agents. A GSA official told us that, as of May 1993, the White House Travel Office and the Federal Bureau of Investigation (FBI) were the only two executive branch civilian entities in the Washington, D.C., area using government employees to provide travel services. To permit the press to accompany the President to report on his activities when he travels, White House Travel Office staff arrange for or coordinate chartered air transportation and airborne meal service; ground transportation services for press and their equipment and baggage; working space, electrical sources, and telephone services to permit reports to be sent to news organizations; and other miscellaneous services, such as suitable background decorations for press conferences and food when other sources of food are not readily available. On international trips, officials from the Immigration and Naturalization Service and Customs Service travel with the press to facilitate immigration and customs' matters with foreign governments and to enforce immigration and customs laws when the press travelers return to the United States. The Travel Office staff and facilities (office space, telephones) are a part of the EOP and are paid for with appropriated funds. The costs of transportation and other travel services arranged for the press corps by the Travel Office are paid for by the press and not by the government. Except for costs paid by the government for employees who participate in these trips as part of their official duties, the costs are prorated and billed to the press' employing organizations on a trip-by-trip basis. The Travel Office maintains a checking account in a local bank to pay service providers (e.g., air charter companies, ground transportation services, workspace providers, and telephone companies.) The requirement for the press travel services appears to arise from (1) the need for the White House to maintain security control of press activity because of the proximity of press corps members to the President on a routine basis, and the amount of accompanying baggage and equipment that must also be contained in a secure environment; (2) the need to closely coordinate timely access of press to the President as plans and schedules change and to manage inflight operations so that the press can cover the arrival of the President at destinations; and (3) the public interest, in a democracy, in facilitating press coverage of the President's activities so that the public can be fully informed about those activities. Systematic data on the costs of the Travel Office's activities were not available. Information developed on actual ticket sales for EOP employees traveling on official business for the first 6 months after the replacement of the Travel Office employees in May indicated that EOP staff travel costs are currently about $2 million per year. From May 1992 through April 1993, the Travel Office records showed that about $7.7 million was disbursed from the press travel fund for expenses related to press travel. The White House Travel Office is located in the Old Executive Office Building, adjacent to the White House. In May 1993, it was staffed by seven White House employees who had served in the White House from 8 to almost 30 years. Since the removal of the seven employees from the Travel Office in May 1993, and following the short-term arrangements made to replace them (described further in ch. 3), American Express has provided EOP staff travel services under a modification to the State Department's FTMC contract. Consistent with standard FTMC contract terms, staff travel services are provided at no additional cost to the government;\2 four American Express employees currently handle the staff travel function in the Travel Office. Press travel arrangements are currently provided by the Travel Office Director, a Deputy Director, two White House employees who travel with the press and facilitate the arrangements, and a detailee from the Department of Agriculture who assists with the Office's accounting functions. The White House Press Advance Office carries out certain duties such as advance planning. In addition, American Express staff perform limited duties in conjunction with the press charter operations. As in the past, the Travel Office Director reports to the Assistant to the President for Management and Administration. -------------------- \2 Under FTMC contracts, travel service providers like American Express are paid commissions by airlines and other vendors, as they would be for any private sector transaction. Thus, the services are provided at no direct cost to the government. See ch. 3 for further discussion of the American Express contract and plans for future solicitations. OBJECTIVES, SCOPE, AND METHODOLOGY ---------------------------------------------------------- Chapter 1:2 The language of section 805 of Public Law 103-50 requires that we "conduct a review of the action taken with respect to the White House travel office . . . ." To identify the issues to be covered in this assignment, we (1) reviewed the White House Travel Office Management Review to inventory the issues considered by the White House to be pertinent to the actions taken and (2) discussed the events surrounding the Travel Office matter and the Management Review with the staffs of the committees and Members of Congress who contacted us, or who had been cited in the media as expressing concerns about the Travel Office matter and who could meet with us to discuss their concerns.\3 Throughout our review, we addressed issues involving White House Travel Office operations that were raised by these sources. Because they raised issues that involved only the White House Travel Office's services provided to the press, this report focuses on the Travel Office's press travel operations. The issues we examined are described in this report within three broad areas of inquiry: (1) the past financial management and procurement practices and oversight of the Travel Office, including a discussion of the criteria we identified as a framework for the evaluation of the Travel Office press travel operations; the study of financial management in the Travel Office conducted for the White House in May 1993 by KPMG Peat Marwick (KPMG), a public accounting firm; and the steps taken to carry out the press travel function during the period following the removal of the Travel Office employees; (2) the current operations of the Travel Office, including financial management systems and procedures, and the extent to which problems identified in the past had been corrected; and (3) the removal of the White House Travel Office employees in mid-May 1993, including the origins of that decision, the involvement of various parties in events preceding the decision, including the roles and involvement of individuals who had personal or business interests in Travel Office operations and actions actually taken affecting the employees; and actions taken by White House officials and officials of the FBI and the Internal Revenue Service (IRS) during the few weeks leading up to and following the decision to remove the employees. To examine these issues, we interviewed (1) current and former officials of the White House and the EOP who were involved in the Travel Office matter or could inform us about the operations of the Travel Office\4 and (2) representatives of other organizations who were knowledgeable about the White House press charter operations, including airlines, airline brokers, travel agencies, the White House Correspondents' Association, and press travelers' employing organizations; reviewed records from the White House Travel Office documenting operations between January 1992 and March 1994 and workpapers from KPMG's May 1993 study of Travel Office operations; we discussed the workpapers with KPMG officials; reviewed the July 2, 1993, White House Travel Office Management Review; interviewed officials of various executive branch agencies who were involved in the Travel Office events or related matters, including the Department of Justice, FBI, Immigration and Naturalization Service, Customs Service, GSA, IRS, Office of Government Ethics, Office of Management and Budget (OMB), Department of Transportation, and U.S. Park Police. (A list of all of the individuals interviewed is provided in app. II.) Reports in the press about certain actions of IRS officials during May 1993 that appeared to be connected to the White House Travel Office matter led to an investigation of IRS officials' actions by the IRS Inspection Service and later, in response to a congressional inquiry, a further investigation by the Department of the Treasury Office of Inspector General (OIG). Because the OIG investigation was ongoing at the same time as our review, and consistent with the cooperation expected between Inspectors General and GAO under the Inspector General Act of 1978, we initiated a cooperative arrangement in which we obtained access to and largely relied on workpapers from the Treasury OIG review in our assessment of the actions of IRS officials. In turn, we provided for Treasury OIG investigators access to related documents and interviews we obtained to supplement their investigation. The Treasury OIG communicated its investigation results to the congressional requester on April 1, 1994. After the announcement of the removal of the Travel Office employees in May 1993, the FBI initiated a criminal investigation related to the Travel Office operations. We have a long-standing policy of not interfering in ongoing executive branch criminal investigations and, thus, obtained no information about the FBI investigation. Also because of the criminal investigation, some of the key individuals with whom we wished to speak refused to speak with us.\5 We have no subpoena power with which to compel their testimony. Since it was unlikely that interviews with the individuals would be possible for the foreseeable future, we decided to report on our findings without talking to them. Our inability to interview certain individuals, most notably the former Travel Office employees, was one factor preventing us from fully evaluating the financial management operations of the Travel Office prior to May 1993. In addition, although we examined certain records from the operation of the Travel Office during the period from January 1992 to May 1993, an independent evaluation of the effectiveness of financial management operations would require us to observe transactions being processed by the employees and to discuss with the employees the records we obtained and procedures we observed. We are also limited in our ability to describe, independently of the Management Review, the roles of the individuals we did not interview in the decisions to replace the Travel Office employees and retain other parties to provide travel services. Much of the information for this review was obtained from interviews with the individuals who participated in the events described. These interviews took place during a period when other investigations of the events were ongoing, including the criminal investigation and an investigation by the Justice Office of Professional Responsibility (OPR). As a result, interviews we conducted were in some cases preceded by interviews by other investigating officials. In many instances, legal representatives from Justice or the White House attended the interviews; in some cases, interviewees invited their private attorneys to attend. We have no basis to object to the participation of such representatives, or to believe that the circumstances of these interviews materially affected our findings. We did our work in Washington, D.C.; Houston, TX; New York, NY; Smyrna, TN; Little Rock, AR; Albuquerque, NM; and Norfolk, VA, from August 1993 through April 15, 1994. We conducted our review in accordance with generally accepted government auditing standards. We arranged for senior White House, Justice, and KPMG officials to review a draft of this report. Justice officials provided written comments that are reprinted in Appendix III and discussed in chapter 4. White House officials and KPMG did not provide written comments. -------------------- \3 These contacts included (1) majority and minority staff of the Senate Appropriations Committee, which authored the language of P.L. 103-50; (2) the Senate Republican Leader's staff; (3) majority and minority staff of the House Government Operations Committee (the Ranking Minority Member from this Committee had previously requested that we provide staff on detail to investigate the Travel Office matter, but withdrew that request on the enactment of the P.L. 103-50); (4) majority staff of the House Appropriations Subcommittee on Treasury, Post Office and General Government, which has jurisdiction over the White House's appropriation; (5) staff representing the House Republican Policy Committee; and (6) staff from the office of Congressman Frank Wolf, a member of the House Appropriations Subcommittee whose district includes the residence of at least one of the affected Travel Office employees. Toward the end of our review, we were contacted by Senators Charles E. Grassley and Christopher S. Bond, who expressed interest in some of the issues being addressed in our review but did not raise any additional issues. \4 In a few instances, including our inquiries to the First Lady, we obtained information by submitting questions in writing to White House officials. These officials obtained and forwarded to us responses to these questions. \5 During earlier periods of our review, Justice asked us not to interview a number of individuals because to do so at that time would possibly impact the criminal investigation. Most of those interviews were held. The individuals we have still been unable to interview--the seven former Travel Office employees, Mr. Harry Thomason, and Mr. Darnell Martens--have all refused to meet with us until the criminal investigation is completed or they are formally cleared of any wrongdoing. We have also not interviewed the FBI field agents responsible for the criminal investigation, which is consistent with FBI policy about access to investigators during ongoing investigations. PROGRESS MADE BUT FINANCIAL MANAGEMENT WEAKNESSES REMAIN ============================================================ Chapter 2 Through several administrations, the White House Travel Office operated with little guidance concerning its financial management or procurement activities, and White House officials to whom the Travel Office reported provided inadequate oversight of the Office, despite some evidence that serious management problems existed. The assessment of the Travel Office operations by KPMG in May 1993 showed that significant financial management weaknesses existed in the press travel operations. To evaluate the Travel Office's financial management procedures and practices, we identified and used 29 criteria for sound financial management. Our review confirmed the KPMG findings concerning financial management in the Office before May 1993, which included the lack of formal guidelines and procedures for procurement, poor accounting systems, inadequate documentation and billing practices, and ineffective controls over cash management. The White House Travel Office Management Review said that a new accounting system had been developed and procedures were in use in July 1993 to resolve the deficiencies in Travel Office operations. However, our work showed that while a number of actions were taken between June and October to improve the day-to-day press travel operations of the Travel Office, the documented systems and procedures needed to achieve on a continuing basis the "stringent internal control procedures to assure sound financial management" announced in the Management Review had not been fully implemented when we completed our work on April 15, 1994. The new Travel Office Director has taken, or has promised to take, actions that, if properly implemented, should resolve the Travel Office weaknesses we identified. PAST REVIEWS OF TRAVEL OFFICE NOTED FINANCIAL MANAGEMENT PROBLEMS AND OTHER CONCERNS ---------------------------------------------------------- Chapter 2:1 According to the Director of Administration in the EOP from 1981 to 1985, OMB reviewed the operations of the White House Travel Office in 1981 or 1982.\1 The former Director of Administration said that he recalled that he did not suspect the Travel Office of engaging in any wrongdoing but that he was interested in good management. According to the former Director of Administration, the review found no evidence of criminal wrongdoing but did reveal lax accounting practices that had the potential for fraud and a substantial excess of cash (a balance of about $150,000) in the Travel Office checking account. The former Director of Administration instructed that the excess balance in the checking account be refunded to the press. The Director of the Travel Office at that time retired; the former Director of Administration told us that if the Travel Office Director had not retired, he would have been removed. According to an employee of the Office at the time, a new Travel Office Director was appointed who was an acquaintance of a senior official in the new (Reagan) administration. We were told by an employee of the Travel Office at that time that the new Director "didn't work out" and was replaced after a few months by an experienced Travel Office staff member, who served as the Director until May 1993. In 1988, the GAO Hotline\2 received an anonymous letter regarding the Travel Office. In keeping with its standard practice, the Hotline referred the letter to the appropriate agency officials for action, in this instance to the White House Counsel's office. The allegations made in the letter included lack of competitive bidding, favoritism based on personal relationships toward a particular airline (Pan American World Airways--PanAm--which was the principal air carrier used by the Travel Office at the time), and inappropriate gratuities such as gifts and travel upgrades provided by the airline to the press corps, Travel Office employees, and other White House officials. According to documents retrieved by White House officials at our request from the Reagan Presidential Library, White House Counsel staff reviewed the allegations by interviewing the Travel Office employees in 1989 but concluded that the allegations were not substantiated and closed the matter without further action. -------------------- \1 The former Director of Administration said that he no longer had a copy of the review but that it should be available in the Reagan Presidential Library. At our request, the White House Counsel's office asked the Reagan and Bush Presidential Libraries to search for records of this report. However, neither library staff was able to find it. \2 GAO maintains a Hotline that receives reports by telephone, fax, and mail of potential fraud, waste, or abuse in government activities. The Hotline receives about 5,600 contacts annually. Most matters brought to the Hotline's attention that warrant further investigation are referred to appropriate agency officials, usually agency Inspectors General, for investigation. PRESS CONCERNS ABOUT COSTS AND SERVICES EMERGED IN EARLY 1990S -------------------------------------------------------- Chapter 2:1.1 According to White House Correspondents' Association representatives, a combination of factors led to reduced press participation in presidential trips. Press organizations, including television networks, faced increasingly limited budgets at the same time that President Bush was traveling more frequently. As fewer press members signed up for trips because of limited resources, the cost of the trips, which were billed on a prorated basis, increased for the press who continued to travel. This problem became more acute as the 1992 presidential campaign progressed. In November of 1991, White House Correspondents' Association members met with the White House Press Secretary to discuss alternatives for providing travel services to the press. Options considered included reducing the number of press travelers for some trips so that smaller and less expensive aircraft could be used; not providing air transportation services in some instances; limiting other White House services to reduce costs, such as reducing the number of White House staff traveling with the press to provide transcription services; and providing a lesser standard of service with respect to seating and meals on flights. Although such options continued to be discussed during the ensuing months, solutions did not readily appear. Each of the options seemed to have effects that were not acceptable either to the press or the White House, such as unworkable restrictions on press coverage, unacceptable press working conditions like the unavailability of hot meals, or unacceptable impacts on presidential security. OVERSIGHT OF TRAVEL OFFICE ALMOST NONEXISTENT THROUGH SEVERAL ADMINISTRATIONS -------------------------------------------------------- Chapter 2:1.2 Prior to the emergence of allegations of potential wrongdoing in the Travel Office in May 1993, virtually no oversight of the Office was provided by the Assistant to the President for Management and Administration or his predecessors, to whom the Travel Office Director reported. Mr. David Watkins, Assistant to the President for Management and Administration, told us that he had not set any job or performance expectations for the Travel Office Director, and he had not provided any guidance about the financial management of the Office, requested any financial statements or reports, or provided procurement guidance. He said that, during its first few months, the Clinton Administration had higher priorities to deal with. A White House official's notes from discussions held at the time of the KPMG study of the Travel Office operations in May 1993 suggested that the Travel Office Director believed that the financial and billing systems used in the Travel Office had been provided in the past by the White House Office of Administration, but no systems and procedures to implement sound financial management practices were required or established. Similar lack of oversight occurred in previous administrations. The Bush Administration official responsible for oversight of the Travel Office told us that she had provided no instructions to the Travel Office Director on how to procure services or account for the money that was used in the Travel Office operations because the Office was functioning well and did not use government funds for press trips. As we undertook our review of the Travel Office operations, covering events that occurred both before and after May 1993, we sought information about the financial management and procurement criteria that guided the operations of the Office. We found no evidence that questions about what financial management and procurement practices were appropriate had been considered in the past, and none of the officials responsible for oversight of the Travel Office indicated that such criteria had been identified. We believe the lack of identified criteria for and guidance to the Travel Office employees about expectations for procurement and financial management contributed to the serious financial management weaknesses in the Travel Office. CRITERIA WE USED IN OUR EVALUATION ---------------------------------------------------------- Chapter 2:2 Neither the current nor previous administrations had established criteria or guidance to use in evaluating the Travel Office's press travel operations. These operations involve activities carried out by government employees using private monies. Researching private sector financial management and procurement practices and federal government guidance, we established and used a framework of 29 financial management and procurement practices for evaluating Travel Office press travel operations. White House officials agreed that this framework was prudent and reasonable. Our 29 criteria fall into six basic areas: (1) administrative guidelines to establish lines of authority and documented policies and procedures to ensure assets are properly safeguarded and oversight provided; (2) procurement processes that provide for competition to ensure value for funds expended; (3) standards for accumulation and allocation of costs to provide a basis for accurate billing for services rendered; (4) procedures for preparing and distributing bills for services; (5) cash management procedures to ensure that vendors are paid, funds are collected, and cash balances are reconciled in a timely manner; and (6) documentation of financial transactions in an accounting system that permits accurate disclosure of those transactions in financial reports. A detailed discussion of the 29 criteria is presented in appendix I. FINANCIAL MANAGEMENT IN THE TRAVEL OFFICE PRIOR TO MAY 1993 ---------------------------------------------------------- Chapter 2:3 We examined trip records from 42 of 98 press trips accompanying the President that occurred between March 1992 and May 1993. We also examined bank statements, receipt logs, and various other records of operations that were available. These records provided some information about the types of transactions and costs associated with press travel arrangements. However, we were unable to independently evaluate the effectiveness of the Travel Office's financial management for the period through May 19, 1993, because (1) we did not observe transactions being processed by Travel Office employees prior to May 1993 and (2) we were unable to talk with the seven former Travel Office employees because of the ongoing FBI criminal investigation. In addition, the records available for our examination were incomplete.\3 Nonetheless, on the basis of our review of KPMG work and the financial records made available to us, we found that significant financial management weaknesses existed in the press travel operations. -------------------- \3 We verified that White House officials provided copies of avaiable records. TRAVEL OFFICE MAINTAINED SOME RECORDS TO SUPPORT TRIPS -------------------------------------------------------- Chapter 2:3.1 We observed financial records the Travel Office used, both manual and automated, that recorded and summarized the press charter activity. For example, the Travel Office paid vendor invoices and deposited press members' reimbursement checks into a single bank account that appeared to be reconciled periodically. The Office tracked invoices received from vendors for goods and services in logs that grouped the invoices by type of good or service provided. Separate logs were maintained for bus companies, truck rental, hotel/food/electric, and telephone service. The Office tracked press members' checks in a log that detailed for each check the (1) date received, (2) payer, (3) check number, (4) date of check, and (5) amount. The Travel Office apparently maintained all data related to a trip in folders referred to as "trip files." These trip files typically contained (1) planning documents that included areas to note the name of the charter company, dates/times requested, locations, support unit notification, equipment ordered, Air Force contact information,\4 bus contact information, and pricing information; (2) sign-up sheets filled in by press members that requested plane seats and indicated whether a hotel room should be reserved; (3) manifests of press traveling on the charter plane and on Air Force One, which were produced by an automated system; (4) invoices from vendors; (5) a worksheet showing manually computed costs for each leg of each trip per press member; and (6) an automated spreadsheet that summarized and totaled the amounts billed to each press member by type of expense (air, ground, other) for each leg of each trip. The Travel Office staff also prepared worksheets for each trip that itemized the estimated amount for each type of cost; how much the Travel Office billed the press for these costs; and the actual amount paid, along with the check number and date. -------------------- \4 Press travel operations require close coordination with officials of the Air Force's 89th Military Airlift Wing, located at Andrews Air Force Base, MD. The 89th Wing is responsible for the President's travel on Air Force One and supporting military aircraft. As a standard practice, a press contingent flew on Air Force One with the President. The Air Force billed the Travel Office for the costs of the press passengers on Air Force One, which were included in the total costs billed in turn on a prorated basis to all press travelers. TRAVEL OFFICE RECORDS WERE INCOMPLETE AND RECONCILIATION WAS NOT POSSIBLE -------------------------------------------------------- Chapter 2:3.2 We could not reconcile the former Travel Office's transactions on an individual trip or aggregate basis because the available records were incomplete. The White House provided us records for 98 of the trips arranged by the Travel Office from March 1, 1992, to May 19, 1993, as well as bank statements, cancelled checks, deposit slips, petty cash fund records, and logs of incoming checks from the press, and invoices from vendors. From the records provided, we attempted to recreate the financial activity that occurred in the Travel Office during this period. Our effort included attempts to analyze the promptness of reimbursements by trip participants, verify that trip participants were accurately billed, summarize trip costs, and determine whether checks written and monies spent were properly supported by documentation. We reviewed in detail the contents of 42 trip files and found that none of the files included a complete set of bills for press that traveled on the trips. Nor could we reconcile the amounts included on the Travel Office documents that summarized the amount each press member should be billed with the log of checks received from the press. In addition, we did not have access to data contained in an automated system that produced the press bills. Also, we did not find any financial reports to assist in our attempt to verify the validity of data in the trip files we received. We were able to trace selected records from the Travel Office trip files to the records of UltrAir,\5 the principal air carrier used during the period covered by our review (March 1992 to May 1993); we found no discrepancies in those records. Figures 2.1 and 2.2 show costs, respectively, for a trip involving multiple destinations over a short period and for a trip whose itinerary was fairly simple. This information is provided to illustrate the relative percentages of individual types of costs incurred. As shown in these figures, the largest sources of costs are air charter arrangements and installation of telephone equipment.\6 Figure 2.1: Costs Incurred for Press Travel on President's May 28-30, 1992, Trip to Phoenix, Los Angeles, Fresno, and Dallas (See figure in printed edition.) Source: White House Travel Office trip files. Figure 2.2: Costs Incurred for Press Travel on President's April 30, 1992, Trip to Columbus, OH (See figure in printed edition.) Source: White House Travel Office trip files. Although the Travel Office staff appeared to be periodically reconciling its cash balance with the bank's balance, we could not find support in the records provided for several checks written to the order of cash totaling $8,000. This concurs with the work done by KPMG. In addition, we received only journals, rather than the actual vouchers, to support the payment of more than $25,000 from the petty cash fund. The journal we received indicated the expenses paid from the petty cash fund ranged from $10 for a tip to a bellman to $600 paid to ground handlers. We do not know if the Travel Office required receipts for expenses paid from this fund. -------------------- \5 Airline of the Americas, later UltrAir, was founded by Charles P. Caudle, a former PanAm pilot, and Gordon A. Cain, Chairman of the Sterling Group, Inc. Mr. Caudle told us that the airline was founded initially to provide charter services for tour operators, and they solicited the White House business when Airline of the Americas' certification to fly was approved too late for them to take advantage of the tourist season that year. He said that White House business alone was not sufficient to support the airline's operations. More recently, UltrAir has established limited regularly scheduled commercial service on the East Coast of the United States. When UltrAir was determined by the White House Travel Office to meet press requirements for seating and service and was regularly available, the Travel Office appears to have reestablished the past practice of using one provider for most press service. For the press charters, UltrAir used the same crews who had served the press charters with PanAm and were familiar to the traveling press. \6 Charges for telephone calls are paid directly by press travelers through credit cards or other arrangements. Hotel charges noted are for items such as meeting rooms and setups for filing centers; press travelers pay directly for their hotel sleeping rooms. TRAVEL OFFICE LACKED PROCESSES FOR SEEKING COMPETITION AND DOCUMENTING PROCUREMENTS -------------------------------------------------------- Chapter 2:3.3 As discussed previously, until allegations of potential wrongdoing in the Travel Office emerged in April 1993, the Office operated with little or no guidance concerning the financial management and procurement practices it was to follow. The Travel Office had no established processes for seeking competition among travel service providers or for documenting the procurement actions that were taken. To ensure that the Travel Office receives the best value for the funds it spends, goods and services generally should be procured through a competitive process. In the absence of an established procurement process, arrangements for travel services during the period we examined generally were made on an informal basis with little or no competition. During the period between June 1992 and May 1993, the Travel Office relied almost exclusively on one carrier, UltrAir, apparently based on the carrier's willingness to regularly meet the Travel Office's requirements with respect to equipment, service, and availability. We interviewed officials from 21 airlines that had equipment in their fleets that would meet the Travel Office requirement for press travel (such as 727s, L-1011s, or Airbus 300s) to determine whether they might have been interested in competing for the press charter business. Of these airlines, none said that they had approached the Travel Office about competing for the business and were told they would not be considered. However, officials from one airline, which did eight press charters for the Travel Office in 1992, said that once UltrAir was certified to fly in May 1992, the Travel Office did not consider continuing to use their airline. Of the 21 airlines we contacted, 7 said that they were not interested in the press charter business because they had no charter fleet, could not meet the requirements for the press charters, or flew charters only at night. Some airline officials observed that some of the requirements, especially requirements for first class meal service throughout the cabin and for aircraft availability (for security reasons) 6 hours before flight time without additional compensation, were unreasonable.\7 Since May 1993, officials from four airlines that we talked to have provided press charter services. In view of the information provided us by the 21 carriers and the Travel Office's experiences since May 1993, it appears that had the Travel Office solicited among air charter carriers for domestic travel services,\8 offers from qualified carriers would have been limited, but some competition could have occurred. In some cases, the Travel Office's reliance on UltrAir, without soliciting other price quotes, might have been justified by circumstances existing at the time, such as specific requirements pertaining to security, service, and timing of press travel. However, without a reasonable effort to solicit other carriers or documentation of the reasons why such an effort was not made, neither the press nor the public\9 can be assured that the Travel Office attempted to obtain the best possible value for the funds spent on press travel services. -------------------- \7 The standard of air service the press has requested has been controversial in discussions about the Travel Office matter. According to White House Correspondents' Association representatives, reasonable requirements include (in order of priority) (1) safety, (2) sufficient space (seat pitch or distance between the seats) on the aircraft to use computers to work, and (3) hot meal service since other options for meals are frequently not available. \8 The Travel Office sought competition for international flights after the bankruptcy of PanAm because UltrAir did not have sufficiently long-range aircraft. \9 Because government officials are managing and spending the press corps' funds for an activity in which the government has an interest, the Travel Office has an obligation to obtain the best value for the goods and services it procures. KPMG FOUND NUMEROUS WEAKNESSES ---------------------------------------------------------- Chapter 2:4 In response to the allegations about the financial management of the Travel Office in early May 1993, KPMG was engaged by White House officials to quickly assess the operations of the Office. A team of auditors from KPMG began work at the Travel Office on Friday, May 14, 1993, and worked through the weekend. KPMG submitted a report dated May 17, 1993 to Mr. William H. Kennedy, III, Associate Counsel to the President, on the results of its study. KPMG found numerous weaknesses, including informal or poorly communicated accounting policies and no documentation of systems or procedures; no evidence of competitive bids for air transportation or a formal contract for the air carrier used by the press; no general ledger; informal and inconsistent billing practices, including inadequate documentation to support billings; and improper controls over cash. On the basis of our review of KPMG workpapers and the contract between KPMG and the White House, it appears that KPMG performed the tasks it was asked to do. KPMG agreed to document the practices of the Travel Office in operation at that time and assess whether the Office's accounting policies, practices, and procedures were reasonable. KPMG staff interviewed the Travel Office Director to gain an overall understanding of the Office's practices. In addition, KPMG looked at certain aspects of the Travel Office's operations, such as the timeliness of deposits in the bank, the accuracy of billings to the press, and the accountability for checks written to cash. Some of the procedures performed were designed to obtain descriptive information in that the goal was to quantify the level of financial activity in the Travel Office. For example, using the Travel Office's bank statements, KPMG summarized the volume of cash activity flowing through the press travel fund account from January 1992 through April 1993. This analysis determined that both receipts to and disbursements from the account totaled over $10 million for the 16-month period. KPMG REPORTED WEAKNESSES IN AREAS EQUIVALENT TO GAO CRITERIA -------------------------------------------------------- Chapter 2:4.1 In its study, KPMG did not develop a list of explicit criteria in the six categories of management practices as we did. However, our work showed that KPMG addressed 25 of the 29 criteria we identified. KPMG agreed that it addressed 25 of the 29 criteria and concluded that the White House Travel Office did not have adequate procedures in place that would satisfy 19 of the 25. For example, KPMG found no evidence of administrative guidelines, such as written policies and procedures, audits, or oversight. They also found no evidence of sound procurement procedures, such as competition and written contracts, good cost accumulation and allocation practices, or any financial reporting activity. KPMG did find evidence of some practices that would indicate that the Travel Office had procedures that addressed six of the other criteria to some extent, which included (1) billings' being promptly prepared, (2) bank statements' being reconciled monthly, (3) undeposited funds being secured, (4) amounts owed being tracked, (5) press payments being applied to more than one bill, and (6) receipts being deposited at least weekly. Table 2.1 shows our assessment of the KPMG findings as they relate to the criteria we identified. Table 2.1 KPMG Observations Related to Criteria GAO Identified KPMG Observations Category/criteria May 1993 ---------------------------------------- ------------------ Administrative guidelines ------------------------------------------------------------ Written policies and procedures None Segregated duties; lines of authority None clearly communicated Periodic audits None Oversight and guidance None Procurement of goods and services ------------------------------------------------------------ Customers' needs determined None Goods and services acquired None competitively Documented agreements or written None contracts Accumulation and allocation of costs ------------------------------------------------------------ System to identify and record all costs None System to determine costs to be Not tested recovered System to provide accurate data for None billing Billing practices ------------------------------------------------------------ Billings prepared timely Some procedures in place Payment due date identified Not tested System to maintain history of billings None and receipts System to apply receipts to appropriate Some procedures in outstanding bills place System to track money owed and produce Some procedures in collection letters for overdue accounts place Cash management ------------------------------------------------------------ Vouchers reviewed and approved before None payment Procedures to prevent duplicate payments Not tested Payments made timely Not tested Receipts deposited on the day received None or next business day Small receipts accumulated and deposited Some procedures in weekly place Adequate internal controls for security Some procedures in of funds place Periodic bank reconciliations Some procedures in place Financial reporting ------------------------------------------------------------ Transactions accurately recorded and None disclosed in financial reports General ledger to classify, summarize, None and report financial data Subsidiary ledgers to provide detailed None information, which are periodically reconciled System for reports None Report on Financial Position None Report on Operations None Report on Cash Flows None ------------------------------------------------------------ Source: GAO analysis of KPMG data. One of the significant accounting system weaknesses reported by KPMG was the lack of documentation to support checks written to cash. The accounting firm tested the propriety of 17 checks for amounts totaling $48,500, that were written to cash during the scope of its study. Of those 17 checks, the Travel Office staff could not fully account for 8 checks written for amounts totaling $23,000. The Travel Office normally used checks written to cash to replenish the petty cash fund. However, the petty cash journal did not reflect these amounts. The ledger page where three checks for amounts totaling $7,000 should have been listed was missing, and one check for $5,000 was recorded in the ledger for $2,000. Some of the funds were accounted for prior to the conclusion of KPMG's study, resulting in a final discrepancy of $18,200. As discussed earlier, our work in this area concurs with KPMG's findings. KPMG also reported it could not rely on the reports generated by the automated billing system and that the Travel Office did not maintain copies of bills sent to the press. KPMG attempted to compare the actual costs incurred for a trip to the amounts billed to the press for 28 trips. However, because the automated billing system produced inconsistent reports, the accounting firm could not draw a conclusion about the accuracy of the billing process. STEPS TAKEN IN INTERIM PERIOD BUT PROBLEMS NOT FULLY RESOLVED ---------------------------------------------------------- Chapter 2:5 In the interim period between mid-May 1993, when the Travel Office employees were removed, and October 1993, when a new Travel Office Director was named, White House Administrative Office officials, with assistance from employees of other executive branch agencies, provided press travel services and took a number of steps to improve the management of the Travel Office. On July 2, 1993, the Management Review stated that a new accounting system had been developed and procedures were in use to provide "stringent internal controls to assure sound financial management." In our view, "sound financial management" involves systems and procedures that are documented, accurate, applied routinely and consistently, and result in timely billings and payments to customers and vendors. These goals were not met by July 1993, and had not been fully implemented by the time we completed our work in mid-April 1994. On May 18, 1993, the day before the Travel Office employees were dismissed, the White House requested help from OMB to acquire a new accounting system in the Travel Office. On June 4, 1993, an OMB senior systems examiner prepared a memorandum to the Acting Director of Administration that stated that the Travel Office needed a basic accounting system that provided adequate financial controls. The examiner recommended, and the Travel Office purchased and installed, an off-the-shelf accounting software package a few weeks after the Travel Office employees were dismissed. This accounting system had the capability to maintain accurate billing and payment records over time and create financial reports covering transactions occurring after it was installed. White House Administrative Office officials established working procedures to provide for supervisory review of vouchers and approval of payments and eliminated the use of cash in the operations of the Travel Office. Beginning on May 21, 1993, at the request of White House officials, several senior travel management officials from GSA became involved in the management of the Travel Office functions.\10 At the request of White House officials, GSA officials executed an FTMC contract for EOP staff travel services, established interim procedures, and provided press travel services. GSA officials also established a system to obtain price quotes from a list of carriers for air charter flights and documented procurements with contracts. In addition to providing assistance to the Travel Office in making press travel arrangements, GSA also reviewed the policies and procedures of the Travel Office and made recommendations in a report issued August 6, 1993. As part of a management development program, the Travel Office obtained the services of an accountant on detail from the Department of Agriculture in August 1993.\11 The accountant worked briefly with GSA staff before assuming full responsibility for the Office's billings, receipts, and payments in September 1993. During the fall of 1993, the Travel Office identified several trips that occurred under the management of the Travel Office before May 1993 but had not been billed to the press. The Travel Office has attempted to identify all press travel activity from the period before May 1993 that has not been billed. A new Travel Office Director was appointed on October 26, 1993. His previous experience as a major in the U.S. Air Force included service as the Director of White House Airlift Operations and as Headquarters Director of the Air Force Flight Support and Presidential Advance Agent Program. After his appointment, GSA officials no longer provided assistance with travel arrangements. During December 1993, GSA detailed an additional staff person to the Travel Office to assist in eliminating the backlog of unbilled trips from the period before October. -------------------- \10 Immediately following the removal of the Travel Office employees on May 19, 1993, White House officials invited World Wide Travel Service, Inc., a travel services firm that had worked with the Clinton campaign, to assume responsibility for EOP staff travel arrangements, and Ms. Penny Sample, President of Air Advantage, an air charter broker firm, to assist with the press travel arrangements. Both parties left the White House after a short period of time. Further details on this transition period are provided in chapter 3. \11 The accountant served initially at the White House as a part of a management development program, not as a detailee. She was officially detailed to the White House on October 1, 1993. OPERATING PROCEDURES HAVE BEEN FURTHER IMPROVED BUT ADDITIONAL WORK REMAINS ---------------------------------------------------------- Chapter 2:6 Beginning in February 1994, we obtained access to the financial records of the current Travel Office and interviewed and observed the employees of the Travel Office carrying out their day-to-day duties. We documented the practices and procedures we observed and discussed them with Travel Office officials. The operating procedures we observed were an improvement over the practices observed by KPMG in May 1993. Travel Office officials were responsive to suggestions made during these discussions about further improvements that could be made. Additional work is still required to institutionalize and refine current procedures so that "stringent internal controls to assure sound financial management" are likely to be achieved on a continuing basis. As we completed our work in April 1994, the Travel Office Director and White House Management and Administration officials agreed that each of our financial management criteria should be achieved, and identified the operating procedures implemented or planned for doing so. When fully implemented and institutionalized, the steps taken and planned should result in a framework for operating procedures and internal controls for continuing sound financial management. PROCEDURES CURRENTLY IN USE IN TRAVEL OFFICE ADDRESS MANY CRITERIA ---------------------------------------------------------- Chapter 2:7 Progress has been made in using operating procedures that address many of the criteria we identified. However, at the time of our observations and limited testing of those procedures, they had not been institutionalized through established and documented operating procedures. Without systematic and documented procedures, periodically reviewed and updated, staff turnover or competing priorities may result in a recurrence of financial management problems. ADMINISTRATIVE GUIDELINES -------------------------------------------------------- Chapter 2:7.1 A fully functioning, sound financial management system includes complete administrative guidelines in place to ensure that everyone involved clearly understands the procedures and practices to follow, so that assets are properly safeguarded. Such guidelines also provide a basis for continuing good management practices through transitions in personnel such as the events of May 1993. Comprehensive guidelines should include written policies and procedures, clearly documented lines of authority, periodic audits, and effective oversight and guidance. The new Travel Office Director told us during our initial interviews with him that delivery of services, that is, getting the press to presidential events, had been his top priority. However, he said he was aware of the importance of maintaining current written policies and procedures for the Office. The Travel Office staff initially documented operating procedures for the Office in July 1993. The Travel Office was expanding its operating manual when we reviewed the operations in February and March 1994. These improvements are intended, when they are completed, to include instructions for executing transactions, such as procuring airline charters, ground transportation services, and other activities commonly associated with arranging press transportation. When the Travel Office Director took over the Office in October 1993, he orally communicated the staff's roles and responsibilities to them. Our interviews with the staff indicated they are aware of their duties and the lines of authority. The Director has agreed, however, to document staff responsibilities. White House Management and Administration officials told us that oversight of the Travel Office's activities was provided through weekly staff meetings held since June 1993, which include review of the status of improvements made and current activities. Internal oversight of the Travel Office consisted primarily of supervisory review. For example, Mr. Brian Foucart, Acting Director of Administration, was responsible for reviewing the Travel Office Director's work and the Travel Office Director was responsible for reviewing the Accountant's and Trip Coordinator's work. The White House does not have an internal audit function, nor is there a unit in the White House that is independent of the Travel Office and responsible for periodically reviewing the activities of the Office. Accordingly, White House officials were considering hiring a public accounting firm to perform financial statement audits of the press charter operations. The Office planned to have its first financial statement audit performed for the operating year ending December 31, 1994, which is the end of the first calendar year following full implementation of the new procedures. PROCUREMENT OF GOODS AND SERVICES -------------------------------------------------------- Chapter 2:7.2 Good business practice includes obtaining value for funds expended through appropriate competition for goods and services. As a result of procedures instituted while GSA handled the press travel activities between May and October 1993, the White House Travel Office had in place procedures for determining customers' needs, seeking quotes among travel service providers, and documenting transactions. These procedures, effectively implemented, should better ensure that the Office receives the best value for money spent. The Travel Office primarily procured air charter and ground transportation services for the press. The White House Press Advance Office determined needs and selected vendors for the other costs paid for by the press.\12 When time permitted, the Travel Office sought quotes from various carriers and brokers for air charter service. The Office solicited interest from approximately 7 to 10 carriers when it had an adequate lead time for procuring air charter service. The contract was awarded primarily on the basis of cost, but other factors such as the carrier's reputation or previous experiences in dealing with the carrier were considered. When the trip lead time was 2 days or less, the Director contacted several carriers by telephone before a contract was awarded. In both instances, the carrier prepared a formal written contract, signed it, and forwarded it to the Travel Office for signature by authorized personnel in the Travel Office. The Travel Office procured ground transportation for press trips that required air charter, as well as for trips that did not involve air charter. Ground transportation associated with air charter primarily involved transporting the press from the airport to the event and back to the airport or to a hotel if the press remained in the city overnight. Ground transportation not associated with air charter typically involved trips that were relatively close to Washington, D.C. The Travel Office called two or three bus companies to obtain price quotes when procuring ground transportation. When there was only one bus company in a city, the Travel Office necessarily procured the service from that company. Also, formal contracts for ground transportation were prepared when the transportation company required them. In those instances, the contract was prepared by the company. For example, rental car companies required contracts and prepared them for cars rented to the White House Travel Office. In the area of satisfying customer needs, the Travel Office Director stated that he met with the White House Correspondents' Association to determine the level of service the press wanted the Office to provide them. The Director said he had established quarterly meetings with the White House Correspondents Association to discuss their needs. We suggested to the Travel Office Director that he also discuss Travel Office billing and accounting practices with accounting and business staff from the press' employing organizations to determine their needs. -------------------- \12 These arrangements include filing center locations, caterers, and equipment rental companies. We did not review the operations of the White House Press Advance Office during this assignment. ACCUMULATION AND ALLOCATION OF COSTS -------------------------------------------------------- Chapter 2:7.3 Financial management systems and procedures should identify and record all costs associated with an activity, determine which costs should be recovered, and provide a basis for accurate pricing and billings to customers. The accounting system software installed in the Travel Office in June 1993 is capable of recording, storing, and distributing the costs of press travel activities, and contained records of transactions since June 1993. To improve the timeliness of billings, the Travel Office staff also implemented new procedures to collect and document service costs as they are incurred during trips, which made actual cost information available for billings. Many types of costs are incurred in providing press travel services. Some of these costs are direct, while others are indirect. Direct costs are incurred solely for--and can be specifically traced to--the benefit of the White House press charter operations. For example, charters are procured for the exclusive benefit of the press. Indirect costs are those costs that benefit several activities of the White House. For example, utilities are provided for several offices in the White House including the press charter operation. Therefore, the portion of this cost that benefits the press charter operation could be considered an indirect cost of that operation. The Travel Office identified and accumulated the direct costs of the press travel operations that were billed to the press. Trip coordinators gathered financial records, such as invoices, to support costs incurred for the benefit of press travel operations. These financial records were assembled and filed by trip. The Travel Office used checklists in addition to reviews by the Director, and/or Deputy Director, and the Accountant to ensure all direct costs billable to the press were included and the amounts were accurate. There were other direct costs that the White House has decided not to bill the press. For example, salaries of the Travel Office staff were not billed to the press although they could be directly attributed to press charter operations. The Director said that the decision not to charge the press for these costs was based on his experience that it is common practice to use appropriated funds to pay the salaries of staff that support nonappropriated activities. The press was not billed for indirect costs. BILLING PRACTICES -------------------------------------------------------- Chapter 2:7.4 Accurate and timely billing is critical to any business activity, but it is especially important to the press charter operation because it is the only source of revenue available to pay vendors. An effective billing system should also include such features as payment due dates, customer histories, matching of receipts, and effective follow-up procedures for past due accounts. The Travel Office has a system that tracks and identifies passengers on each leg of the air charters. This helped to ensure that the Travel Office could bill all press members who flew on the charter. The Travel Office's goal is to bill for trips within two weeks of completion of the trip. Because the Travel Office staff were still working on the backlog of billings that developed after the removal of the former Travel Office employees in May 1993, that goal had not yet been fully achieved. The Director estimated that the Office will be issuing timely billings by the end of May 1994. To ensure that the operation recovered the cash spent on press trips, the Travel Office rebilled customers for any adjustments it or the press made to previously billed amounts. Adjustments to billed amounts (rebillings) occurred when the Travel Office received additional vendor invoices after the bills had been sent to the press, or when a customer (the press) complained that the bill was incorrect and White House research also confirmed the bill was incorrect. The bills were generally based on actual costs and the amount due was clearly listed on the bills. Bills were identified as due upon receipt.\13 When estimates were used in determining the amount to bill, this information was on the billing document. Estimates were used for billing purposes only when vendors delayed submitting their bills to the Travel Office. For example, one vendor, a telephone company, billed the Travel Office as much as 6 months after a trip was completed. The Travel Office has little recourse against vendors that do not bill them promptly, but efforts to collect vouchers and other actual cost information during trips are intended to minimize the occurrence of late bills. The Travel Office identified overdue bills and issued notices manually. We pointed out that the accounting system being used could provide periodic reports on overdue bills if fixed due dates were identified and entered in the system, and the Travel Office Director agreed to add due dates to the bills. -------------------- \13 The Travel Office Director believed this statement was an adequate identification of the date the bill was due. We pointed out that postal delays and other factors may result in varying arrival times and, accordingly, a fixed, identifiable "due date" is not certain. The fixed date would be significant because it would be the basis on which overdue bills were identified for further collection notice and action. CASH MANAGEMENT -------------------------------------------------------- Chapter 2:7.5 Cash management procedures and practices are necessary and prudent to safeguard the assets of an activity, and to ensure security of negotiable assets and receipts and the accuracy of disbursements. Current practice has been to maintain press travel funds in an account in a Washington, D.C., bank. Other federal government entities in which government employees are responsible for private funds deposit the funds in a Treasury deposit account as described in the Treasury Financial Manual. After the removal of the former Travel Office employees, the Travel Office instituted cash management policies and procedures that collectively helped to ensure appropriate and timely disbursements of amounts owed by the Office, and timely collection and prompt deposit of funds owed to the Office. The Travel Office had also strengthened the safeguarding of its cash by eliminating the petty cash fund. Proper disbursements were facilitated by the Travel Office's review and approval procedures. Disbursements were given two levels of review prior to payment. First, the Director reviewed and initialed documents supporting a disbursement. Then the Acting Director of Administration was responsible for reviewing and initialing the documents supporting the disbursement to ensure the charges were reasonable before signing the checks. Additionally, all checks over $2,500 were cosigned by the Assistant to the President for Management and Administration. The Travel Office also implemented procedures to help ensure duplicate disbursements were not made. Specifically, the Accountant visually inspected a computer screen or printout of past disbursements to determine if a vendor had been paid more than once for the same service. Payments to vendors, especially for large bills such as the costs of air charters, were sometimes delayed because the Travel Office account had insufficient funds until the associated press trip bills were paid. The Travel Office maintained a minimum cash balance of $50,000 in the press travel fund bank account to ensure sufficient funds were available to pay for services when advance payment was required, as sometimes happened. The Travel Office appeared to accumulate and deposit its receipts generally on a daily basis. Funds that could not be deposited immediately were locked in a safe until deposits could be made. The Travel Office Director recognized that the Office's cash position needed to be improved so that it could pay vendors for charters in a more timely manner. Once all payments for old bills attributed to the former Travel Office operation and the early months of the new Travel Office are received from the press, the Office's cash position may improve, thus allowing for prompt payment to vendors for amounts owed. The Director projected that billings and collections would be current by May 1994. The Travel Office ensured its cash records were accurate by requiring the Accountant to reconcile its cash balance with the cash balance reported by the bank each month. Also, the Travel Office staff told us they plan to contact Treasury officials to discuss establishing a Treasury deposit fund account as described in the Treasury Financial Manual. FINANCIAL REPORTING -------------------------------------------------------- Chapter 2:7.6 Financial reports provide a basis for interested parties--higher level management, customers--to regularly review how well an entity's managers controlled costs and managed assets entrusted to them. The Travel Office Director recognized the need to implement financial systems that identify, record, classify, and report the Office's financial activities. Generally accepted guidance recognizes that effective financial systems produce reports that can be used both internally and externally to provide assurance that, financially, the Travel Office is operating as directed. The Travel Office had taken an important first step by acquiring an integrated general ledger accounting system. The system was purchased in June 1993 on the recommendation of OMB. The accounting system has the capability of processing transactions that depict amounts the Travel Office owes to vendors and amounts the press owes the Office and it also can produce financial reports of Travel Office activity. These reports include a schedule of (1) resources owed to the Office and resources owed by the Office and the net difference between the two at a given date, (2) revenues and expenses and the difference between these two elements for a given period, and (3) cash inflows and outflows over a given period. Although the system has the capability to meet the criteria we have identified, it had not produced financial reports for several reasons. First, the Accountant had been tasked to ensure all amounts owed to the Office and amounts the Office owes vendors are correctly entered into the system before accurate reports can be generated. The Office estimated that process will be complete by May 1994. Second, there were numerous manual processes that supported feeding information into the system that were cumbersome and inefficient. The Office was working with a computer programmer to eliminate the inefficiencies. Also, the Accountant was unfamiliar with some features of the system such as report generation. During our later interviews with the Accountant, she informed us that she had received formal training on how to use the system and that she felt more comfortable with operating it after receiving the training. SUSTAINED IMPLEMENTATION OF IDENTIFIED IMPROVEMENTS IS NECESSARY TO ACHIEVE SOUND MANAGEMENT OF TRAVEL OFFICE ---------------------------------------------------------- Chapter 2:8 White House and Travel Office officials agreed that completion of improvements to address each of the 29 criteria identified during this review is important for ensuring the sound management of the Travel Office in the future. A summary of the status of the Travel Office actions on each of the 29 criteria identified as of the completion of our work in mid-April 1994 is shown in Table 2.2. Target dates for planned actions are also shown. White House officials estimate that most of the remaining steps will be implemented by July 1994. The last objective to be achieved is the completion of the first independent financial statement audit, which White House officials plan to undertake at the end of calendar year 1994. White House officials also told us that they recognized that the process of maintaining sound financial management practices requires regular review and refinement of operating procedures and continuous oversight. Adoption of annual financial statement audits and improvements resulting from audit recommendations would also assist in maintaining those objectives. Table 2.2 Status of Financial Management Criteria Implementation in the White House Travel Office as of April 15, 1994 Category/criteria GAO assessment ---------------------------------------- ------------------ Administrative guidelines ------------------------------------------------------------ Written policies and procedures Revised and expanded (May 1994) Segregated duties; lines of authority Revised and clearly communicated expanded (May 1994) Periodic audits Planned (December 1994) Oversight and guidance Procedures in place\a Procurement of goods and services ------------------------------------------------------------ Customers' needs determined Procedures in place\a Goods and services acquired Procedures in competitively place Documented agreements or written Procedures in contracts place\ Accumulation and allocation of costs ------------------------------------------------------------ System to identify and record all costs Procedures in place\a System to determine costs to be Procedures in recovered place\a System to provide accurate data for Procedures in billing place\a Billing practices ------------------------------------------------------------ Billings prepared timely Backlog eliminated (May 1994) Payment due date identified Procedures in place\a System to maintain history of billings Procedures in and receipts place System to apply receipts to appropriate Procedures in outstanding bills place System to track money owed and produce Procedures in collection letters for overdue accounts place\a Cash management ------------------------------------------------------------ Vouchers reviewed and approved before Procedures in payment place Procedures to prevent duplicate payments Procedures in place\a Payments made timely Backlog eliminated (June 1994)\a Receipts deposited on the day received Procedures in or next business day place\a Small receipts accumulated and deposited Procedures in weekly place\a Adequate internal controls for security Procedures in of funds place\a Periodic bank reconciliations Procedures in place\a Financial reporting ------------------------------------------------------------ Transactions accurately recorded and Procedures in disclosed in financial reports place General ledger to classify, summarize, Procedures in and report financial data place Subsidiary ledgers to provide detailed Procedures in information, that are periodically place reconciled System for reports Planned (July 1994) Report on Financial Position Planned (July 1994) Report on Operations Planned (July 1994) Report on Cash Flows Planned (July 1994) ------------------------------------------------------------ \a The Travel Office's current operating procedures vary from the procedures described in the Office's Accounting Procedures Handbook. Source: GAO analysis of White House data. WHITE HOUSE AND OTHER AGENCIES' ACTIONS RELATED TO STAFF CHANGES AT THE WHITE HOUSE TRAVEL OFFICE ============================================================ Chapter 3 Because the appointments of the White House Travel Office employees were made at the pleasure of the President, White House officials had the legal authority to terminate them without cause. Although senior White House officials said that the decision to remove the seven employees was based on KPMG's findings of serious financial management weaknesses, we found that individuals who had potential personal or business interests in the Travel Office operations created the impetus to examine Travel Office matter. These individuals--Catherine Cornelius, Harry Thomason, and Darnell Martens--raised allegations about the management of the Travel Office to White House officials and participated in actions that appeared to anticipate the employees' removal. Although the available facts do not support a conclusion that Mr. Harry Thomason and Mr. Darnell Martens were special government employees subject to conflict-of-interest laws, their participation in discussions about the Travel Office events and their unrestricted access to the White House complex raised questions about the appropriateness of their roles and whether they were furthering personal interests. If nongovernment employees are permitted to have unrestricted access to White House offices, they should have a clear understanding of expectations for their conduct to avoid inappropriate influence and the appearance of conflict of interest. FBI and IRS officials' actions at the time of the removal of the Travel Office employees were reasonable and consistent with those agencies' normal procedures. We found no evidence that White House staff contacted the IRS about the Travel Office events. However, the appearance of inappropriate White House pressure on FBI officials was created by some White House officials' actions. With the removal of the Travel Office employees, several organizations were approached to provide White House travel services. World Wide Travel Service, Inc. and Air Advantage had both been involved in campaign travel. World Wide Travel was brought in on May 19, 1993, to handle Travel Office operations for an unspecified period until a competitive procurement could be arranged. Air Advantage was brought in on May 18 or 19 to provide temporary help in procuring aircraft charters for the White House press corps. Both organizations departed after a short time. GSA handled the chartering of aircraft and made other arrangements for the White House press corps until the appointment of the new Travel Office Director in October 1993. American Express provides commercial travel services for EOP staff. Although the Management Review said problems in the Travel Office had been addressed, press organization officials reported late and inaccurate billings and other problems in Travel Office operations. ALTHOUGH AUTHORITY TO REMOVE TRAVEL OFFICE EMPLOYEES IS CLEAR, DISMISSAL LED TO RECONSIDERATION AND CRITICISM ---------------------------------------------------------- Chapter 3:1 The seven White House Travel Office employees had served for many years. The Director and Deputy Director had been involved in the Office in various capacities for almost 30 years, and the other five employees had worked in the Office from 8 to 26 years. On May 19, 1993, Mr. David Watkins, Assistant to the President for Management and Administration, to whom the Director of the Travel Office reported, informed the employees that they were being dismissed effective June 5, 1993. The employees were told they were being dismissed because of poor management practices in the Travel Office. Public announcements of the dismissals referred to possible criminal wrongdoing.\1 Although many observers considered the Travel Office employees to be career employees not tied to any particular administration or political party, most of the seven employees were appointed to their positions under the authority of title 3 of the U.S. Code.\2 title 3 is the appointing authority established to permit the President great flexibility in the appointment of officials in his immediate office. Under title 3, "the President is authorized to appoint and fix the pay of employees in the White House Office without regard to any other provision of law regulating the employment or compensation of persons in the Government service."\3 Likewise, the President may dismiss title 3 employees without cause.\4 Accordingly, the announced dismissals of these employees were within the President's authority. -------------------- \1 The Director and some of the employees were in the Travel Office when the dismissals were announced. The Deputy Director was in Japan on an advance trip when he heard about the dismissals from news reports. Another employee was on vacation in Ireland and was informed of the dismissals by a family member who also heard about the dismissals from news reports. \2 Two of the seven employees served under Schedule A, excepted appointments, but they had no adverse action appeal rights since they were appointed by the President. See 5 U.S.C. 7511(b)(3) (Supp. II 1990). \3 3 U.S.C. 105(a)(1). For a detailed discussion of the title 3 appointing authority, see Personnel Practices: Retroactive Appointments and Pay Adjustments in the Executive Office of the President (GAO/GGD-93-148, Sept. 9, 1993). \4 See Haddon v. Walters, 836 F.Supp. 1 (D.D.C. 1993), sustained on rehearing, 64 Fair Empl. Prac. Cas. (BNA) 66 (D.D.C. Feb. 17, 1994). ADVERSE REACTION LED TO RECONSIDERATION -------------------------------------------------------- Chapter 3:1.1 Press reaction to the employees' removal was considerable. White House officials reconsidered their decision to terminate the five who had no direct financial management responsibilities and took no formal action to remove them from the federal service. The Management Review criticized the employees' removal, concluding that the abrupt manner of the dismissals was "unnecessary and insensitive." In announcing the removal of the Travel Office employees, White House press officials said they expected a positive reaction from the press because they were taking action to resolve management problems, reduce staff, and save money. The announcement attributed the decision to poor financial management practices, as demonstrated by a study conducted by a public accounting firm. However, in responding to questions about the dismissals, White House Press Secretary Dee Dee Myers, using talking points that Mr. Watkins gave her, acknowledged that an investigation of possible criminal wrongdoing was involved--an announcement that the Management Review said should be done only in extraordinary circumstances. Press representatives told us that they recognized the White House officials' authority to dismiss the employees but that the announced allegations of wrongdoing were inconsistent with press corps members' long-standing personal knowledge of the White House Travel Office employees and thus generated considerable reaction in the press. Within days of the announcement of the dismissals, and before the effective date of June 5, White House officials reconsidered the decision to terminate the five employees who they said had not had direct responsibility for financial management in the Travel Office. Although these five employees were removed from their positions, they were continued in pay status\5 and told that an effort would be made to find suitable positions for them in other federal agencies once the investigations of their roles were resolved. In the end, no formal personnel action to remove the five employees from federal service was taken.\6 Over the following months, White House officials made efforts to locate positions for the five employees that were consistent with their experience and qualifications. Also Justice notified the employees that they were not targets of the ongoing criminal investigation, and letters confirming that information were sent to the five employees' legal representatives in June and July 1993. Eventually, in the fall and winter of 1993, the five employees were appointed to positions consistent with their experience in travel management and communications at GSA, the Department of State, the Department of Commerce, and the Department of Defense. Four of the former employees were appointed to travel-related positions and one was appointed to a communications position. All of them were appointed to positions at the same salaries as their White House Travel Office positions.\7 On the basis of the effective dates of the new appointments, and the salary rates paid during the period the employees were continued in pay status without working, we estimate that the total net salary cost for the period of paid leave for the five employees was about $103,300.\8 The Director and Deputy Director of the White House Travel Office retired. According to Mr. Watkins, 2 days prior to the announced dismissals, the Travel Office Director had said that he wanted to retire. Mr. Watkins said he did not want to accept the Director's retirement request until he met with the entire Travel Office staff. When the dismissals were announced, the Director and Deputy Director applied for retirement. They are currently on the Office of Personnel Management's retirement rolls. -------------------- \5 The Management Review and press reports referred to this action as placing the employees on "administrative leave." \6 To implement a personnel decision, even for title 3 employees, EOP procedures require that documentation directing the Office of Administration to terminate the appointment be prepared and submitted to officials responsible for inputting actions to the White House automated payroll system and a confirming Standard Form 50 (personnel action) would be generated by the payroll system showing the effective date of the action. None of these documents were prepared in the case of the five nonsupervisory employees. \7 Three employees were appointed to career positions under 5 CFR 315.602, a provision which permits noncompetitive career appointments for employees who served in the office of the President or Vice President, or on the White House staff, for at least two years and who were appointed without a break in service. One was appointed to a career position using a different appointing authority. One employee is currently appointed to a temporary position, that will expire in November 1994. \8 Estimate is based on salary costs for the period from June 5, 1993, the originally announced effective date of the removals, to the effective dates of the new appointments. We did not include benefits in this calculation. One employee was detailed to a position for 6 weeks prior to actual appointment; the estimate of the cost of paid leave for this employee was based on the effective date of the detail. MANAGEMENT REVIEW CRITICIZED SOME ACTIONS -------------------------------------------------------- Chapter 3:1.2 In its review of the actions of White House officials, the Management Review concluded that, although the employees in question served at the pleasure of the President, the abrupt manner of the dismissals was "unnecessary and insensitive" and "need not have been so abrupt." The Management Review stated that "All of the employees should have had an opportunity to hear the reasons for their termination, especially the allegations of wrongdoing, and should have been afforded an opportunity to respond." The Management Review also concluded that, although the legal right to terminate the employees without cause was clear, the cause asserted--poor management and possible wrongdoing--was "inappropriate with respect to the [five] employees who did not exercise financial authority." The Management Review also recognized that the public acknowledgement of the criminal investigation had the effect of tarnishing the employees' reputations, and the existence of the criminal investigation caused the employees to retain legal counsel, reportedly at considerable expense. Out of concern for this financial burden, Congress amended the Department of Transportation and Related Agencies Appropriation Act of 1994,\9 to provide financial relief for the employees. Title I of the act, which appropriates money to the Department of Transportation (DOT), provided $150,000 to the DOT Office of General Counsel for the Travel Office investigation-related legal expenses of the five employees during calendar year 1993, on the condition that the employees were not subjects of the investigation. As of April 12, 1994, no funds had been paid yet to reimburse the employees' legal expenses.\10 -------------------- \9 P.L. 103-122, 107 Stat. 1198, Oct. 27, 1993. \10 According to the Special Counsel administering the fund, bills have been submitted and the first reimbursements are expected to be made soon. ALLEGATIONS MADE BY PARTIES WITH SPECIAL INTERESTS ---------------------------------------------------------- Chapter 3:2 The chronology of the Travel Office events shows that White House management officials' interest in the activities of the Office may have been initially stimulated by allegations or inquiries made by individuals who were personally interested in changes in the Office's management or business decisions. According to the Management Review, Ms. Catherine Cornelius, a former campaign travel coordinator, was interested in managing the White House Travel Office. The Management Review further stated that in addition to Ms. Cornelius, Mr. Harry Thomason and Mr. Darnell Martens, who both had potential business interests in Travel Office operations, were also catalysts that precipitated the movement to examine Travel Office operations. These individuals' allegations led to the KPMG study and the FBI inquiry into the allegations. Although Mr. Thomason and Mr. Martens were issued White House passes and participated in discussions about Travel Office operations, the available facts did not support a conclusion that they were special government employees and were subject to the conflict-of-interest laws. However, their unrestricted access to the White House complex and their participation in discussions and activities leading up to the removal of the employees suggest that their activities as nongovernment employees were not adequately monitored or controlled. CAMPAIGN STAFF MEMBER SHOWED PERSISTENT INTEREST -------------------------------------------------------- Chapter 3:2.1 As documented in the Management Review, Ms. Cornelius,\11 a junior White House staff member who had worked on travel activities during the Clinton campaign, sent three memoranda to Mr. Watkins during the presidential transition period and the early days of the administration criticizing the operations of the White House Travel Office and suggesting alternative structures and practices for carrying out the EOP staff and press travel functions.\12 Ms. Cornelius had expressed interest in taking over the management of the Travel Office for the Clinton Administration. One of the memoranda she wrote proposed explicitly that she serve as a co-director of the Travel Office. Although assessments of White House activities by former campaign staff during transitions or early in an administration are common, the analyses presented by Ms. Cornelius contained significant errors. For example, in a memorandum dated December 31, 1992, Ms. Cornelius claimed that the Travel Office, although staffed with government employees, used a branch of SatoTravel to access travel schedules and information.\13 SatoTravel is an airline-owned corporation that competes with commercial travel agencies for government service contracts. Although SatoTravel operates travel services for the Secret Service, the company told us it has never been affiliated with or served the White House. Further, the descriptions of the operations of the White House Travel Office and travel industry practices used for comparisons in two of the memoranda were inaccurate and resulted in estimates of costs and savings that were significantly misleading. For example, an overestimate of ticket sales and an inaccurate description of assumed travel industry commission and rebate practices resulted in an estimate by Ms. Cornelius that the White House Travel Office could earn $210,000 in rebates. On the basis of a more factual assessment of ticket sales and a better understanding of travel industry practices, we determined estimated earnings would be closer to $10,000 under the same conditions. Although Ms. Cornelius, later with an associate,\14 made three such proposals for changes to the Travel Office, Mr. Watkins told us he had little recollection of the details of the memoranda and apparently he did not respond substantively to any of them. None of these inquiries resulted in changes to the Travel Office organization or practices during the first 4 months of the administration. Indeed, the former Travel Office Director later reported to a White House Management and Administration official that he had no substantive contact with Mr. Watkins during the first months of the administration and did not know to whom he was supposed to report in the Clinton White House. Mr. Watkins, as well as a predecessor in the previous administration, told us they provided no guidance to the Travel Office about procurement or financial management and asked for no information about the operations of the Office. In early April, Mr. Watkins assigned Ms. Cornelius to the Travel Office to assist with staff travel arrangements and to prepare a further report\15 on the operations of the Office that could form the basis for considering how to reorganize the Travel Office to help in achieving the previously announced 25-percent staff reduction in the White House. -------------------- \11 According to Ms. Cornelius, she is a third cousin to the President. Her employment in the White House is not in violation of 5 U.S.C. 3110, which restricts the employment of relatives in the federal service, because the statute specifically defines "relative," and the only cousins included in that definition are first cousins. \12 Ms. Cornelius told us that she wrote the first memorandum on her own initiative, but the later two memoranda were requested by Mr. Watkins. Mr. Watkins said he did not ask for any of the memoranda. He said he did ask for a report from Ms. Cornelius in May that was not prepared because it was overtaken by events. \13 SatoTravel officials told us that they believe that this incorrect assertion, which in the context of Ms. Cornelius' memorandum implied a political affiliation with the previous administration, may have affected their ability to successfully compete for White House staff travel business when the Travel Office employees were replaced. \14 The third memorandum, dated February 15, 1993, proposed a hypothetical organizational structure for the Travel Office and named Ms. Cornelius as a co-director, along with the co-author of the memorandum, who was another White House staff member. \15 Mr. Watkins said the allegations that surfaced shortly after Ms. Cornelius was assigned to the Travel Office, and the subsequent investigations apparently overtook the original plan for a report by May 15, which was never written. OTHERS SOUGHT TRAVEL OFFICE BUSINESS -------------------------------------------------------- Chapter 3:2.2 According to the Management Review, Mr. Harry Thomason, a friend and informal unpaid consultant to the President, was a part owner of the aviation consulting firm of Thomason, Richland, and Martens based in Cincinnati. Another partner in the firm was Mr. Darnell Martens, who is President of the firm.\16 Mr. Martens had been associated with the Clinton campaign as a billing agent and consultant for the campaign's air charter broker, Air Advantage. The Management Review reported that Mr. Martens contacted Mr. Thomason in early February 1993 seeking help in contacting the White House to learn how to bid for the press air charter business. On the basis of information obtained by Mr. Thomason, Mr. Martens was referred to the White House Travel Office Director through Dee Dee Myers. In a conversation with the Travel Office Director, described in a memorandum attributed to Mr. Martens and reproduced in the Management Review, the Travel Office Director told Mr. Martens that there was no possibility of a commercial operation such as his (an air charter broker) obtaining White House Travel Office press charter business. The Management Review stated t