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entitled 'Vendor Payments: Inadequate Management Oversight Hampers the 
Navy's Ability to Effectively Manage Its Telecommunication Program' 
which was released on July 13, 2004.

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Report to Congressional Requesters: 

June 2004: 

VENDOR PAYMENTS: 

Inadequate Management Oversight Hampers the Navy's Ability to 
Effectively Manage Its Telecommunication Program: 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-671]: 

GAO Highlights: 

Highlights of GAO-04-671, a report to the Honorable Janice D. 
Schakowsky, House of Representatives: 

Why GAO Did This Study: 

Problems with management oversight and control of DOD’s purchase card 
program led to concerns that similar issues exist for DOD’s vendor 
payments. As a result, this report focuses on the Navy’s 
telecommunication program and whether (1) the Navy has the basic cost 
and inventory information needed to oversee and manage these purchases 
and (2) selected Navy sites have adequate control to provide reasonable 
assurance that goods and services are purchased cost effectively and 
payments are made only for valid charges.

What GAO Found: 

The Navy did not know how much it spent on telecommunications and did 
not have detailed cost and inventory data needed to evaluate spending 
patterns and to leverage its buying power. Obtaining knowledge of 
current requirements and usage, as well as developing forecasts of 
future telecommunication needs, would assist Navy’s acquisition 
planning to ensure future needs were met in a more cost-effective 
manner. 
 
At the four case study sites we audited, management oversight of 
telecommunication purchases did not provide reasonable assurance that 
requirements were met in the most cost-effective manner. For local and 
long-distance services, these sites did not follow policies to 
biennially review and revalidate these requirements. As a result, they 
paid for services no longer required. Also, the Navy lacks policies to 
provide assurance that cell phone requirements are met in the most 
cost-effective manner. Cell phone usage at three sites was not 
monitored to determine whether plan minutes met users’ needs. 
Consequently, these sites overpaid for cell phone services. Also, none 
of the sites had adequate controls over review of invoices to provide 
assurance of payments for only valid charges. These sites failed to 
detect erroneous charges and potentially improper use of these 
services.

In addition, the Navy lacks specific policies and processes addressing 
the administration and management of calling cards. Consequently, some 
sites did not know they owned and were being billed for calling cards. 
Other sites allowed calling cards to be shared and were unable to 
determine the legitimacy of the calls, and thus paid for potentially 
fraudulent or abusive long-distance charges. On one card alone, in a 
3-month period, the Navy paid over $17,000. However, because no one 
was regularly monitoring the activity on this card, the unit was 
unaware of potentially fraudulent charges. Not until the vendor’s fraud 
unit raised questions about more than $11,000 in charges incurred 
during the first 6 days of July 2003 was the card suspended. 

Examples of Wasteful Telecommunication Payments: 

[See PDF for image]

[End of figure]

What GAO Recommends: 

To provide assurance that existing telecommunication policies are 
enforced, GAO recommends that the Navy (1) develop and maintain a 
complete inventory of services, (2) support DOD’s efforts to track the 
cost of acquiring telecommunication services, and (3) establish 
comprehensive policies governing the purchase and use of cell phones 
and calling cards. GAO also recommends that the Navy develop a 
strategic management framework for improving the acquisition of 
telecommunication services. For the selected units audited, GAO made 
several recommendations aimed at improving controls over 
telecommunication transactions.

In written comments on a draft of this report, DOD agreed with 9 and 
partially agreed with the remaining 2 GAO recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-671.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Gregory Kutz, (202) 
512-9095 or kutzg@gao.gov.

[End of section]

Contents: 

Letter: 

Results In Brief: 

Background: 

The Navy Lacked Strategic Knowledge of Expenditures to More Efficiently 
Purchase Telecommunication Services: 

Navy Sites Lacked Controls Needed to Ensure Appropriate Oversight and 
Payment of Telecommunication Services: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Acknowledgments: 

Tables: 

Table 1: Status of Review of Long-Haul Lines at Selected Navy Sites: 

Table 2: Summary of Under-and Overutilization of Cellular Plans: 

Table 3: Examples of Users Underutilizing Plan Package Minutes: 

Table 4: Potentially Improper Long-Distance Calls Approved by NCTAMS 
Norfolk: 

Table 5: Compromised Calling Cards at Selected Sites: 

Table 6: Major Commands and Units Selected for Review: 

Figure: 

Figure 1: Potential Fraudulent Use of a Comprised Card: 

Letter June 14, 2004: 

The Honorable Janice D. Schakowsky: 
House of Representatives: 

Dear Ms. Schakowsky: 

As you are aware, we have conducted a series of audits and 
investigations of the Department of Defense's (DOD) purchase card 
program and found substantial breakdowns in internal controls that 
resulted in fraud, waste, and abuse. Concerned that similar problems 
may plague DOD's vendor pay processes through which approximately $112 
billion was spent and obligated in fiscal year 2003, you asked us to 
evaluate the effectiveness of DOD's management oversight and controls 
in this area. As agreed with your staff, the scope of our audit 
included our assessment of the Navy's oversight and controls over 
vendor purchases and payments for telecommunication service--including 
local and long-distance services, calling cards, and cellular phone 
service.

This report provides you with our assessment of whether (1) the Navy 
has the basic cost and inventory information needed to manage and 
oversee its purchases from telecommunication vendors and (2) selected 
Navy sites have effective internal control to provide reasonable 
assurance that telecommunication goods and services are purchased cost 
effectively and payments are made only for valid telecommunication 
charges. Because the Navy was unable to provide us with a complete 
population of telecommunication expenditures from which we could 
sample, test, and discuss in this report as being control weaknesses, 
as agreed with your staff, we used a case-study approach to assess the 
adequacy of internal controls over vendor purchases and payments at 
four Navy locations, instead of on a Navy-wide basis. We were unable to 
perform statistical testing at these case study locations because the 
local databases were often incomplete, or they had insufficient, 
inconsistent, or inaccurate data. As a result, we evaluated the design 
of controls in place and relied on nonrepresentative selections to 
evaluate the effectiveness of case study locations' internal controls 
over telecommunication programs.

We were able to evaluate the availability of cost and inventory 
information Navy-wide, working at the Defense Information Systems 
Agency (DISA) and Naval Network and Space Operations Command (NNSOC),
[Footnote 1] and evaluated the adequacy of the Navy's expenditure 
reporting systems. In general, our assessment of purchasing and receipt 
and acceptance controls was limited to four Navy units from the 
following commands: (1) SPAWAR Systems Center, Charleston, South 
Carolina (SPAWAR Charleston); (2) Naval Air Warfare Center Aircraft 
Division, Patuxent, Maryland (NAVAIR Patuxent); (3) Naval Surface 
Warfare Center, Crane, Indiana (NAVSEA Crane); and (4) Commander-in-
Chief Atlantic Fleet, Norfolk, Virginia (CINCLANTFLT Norfolk). We also 
performed limited work at HQ DISA and its major contracting 
organization--the Defense Information Technology Contracting 
Organization (DITCO Scott), and DISA CONUS (organizational element 
functionally responsible for the review and revalidation (R&R) 
process), both located at Scott Air Force Base, Illinois, pertaining to 
the review and revalidation of telephone services, and at the Naval 
Computer and Telecommunication Area Master Station Atlantic (NCTAM, 
Norfolk) related to purchasing controls. In addition, we used data-
mining techniques to identify possible control weaknesses associated 
with the purchase and use of long-distance calling cards. This data-
mining effort prompted us to audit selected calling card transactions 
at seven locations--discussed in detail in our objectives, scope, and 
methodology contained in appendix I. We conducted our work from May 
2003 through February 2004 in accordance with generally accepted 
government auditing standards. We requested comments on a draft of 
this report from the Secretary of the Navy or his designee. We received 
written comments, which are reprinted in appendix II. In addition, DOD 
provided some technical comments, which we incorporated in the report 
as appropriate.

Results In Brief: 

The Navy lacked the basic cost and inventory information needed to 
manage and oversee its purchases from telecommunication vendors. 
Complete and accurate cost and inventory information provides a 
foundation for evaluating spending patterns on a Navy-wide, Command-
wide, or unit-wide basis. This information in turn would allow the Navy 
to leverage its buying power if it chose to employ a more strategic 
approach to acquiring telecommunication services based on improved 
knowledge of spending, rather than continuing to use a generally 
decentralized and fragmented approach to acquiring services to meet 
more localized needs. However, we found that the Navy did not know 
exactly how much it was spending on telecommunication services nor did 
it know much about its telecommunication service vendors. Without this 
knowledge, the Navy cannot take steps to leverage its buying power and 
achieve significant savings, even though it is a large customer for 
telecommunication services. In addition, from an internal control 
perspective for assuring appropriate payments to telecommunication 
service vendors, the Navy lacked a complete and accurate inventory of 
its local and long-distance networks, and some of the Navy locations we 
audited did not maintain an accurate inventory of the number of calling 
cards and cell phones currently in use or have accurate records as to 
whom the cards and phones were issued. Without an accurate inventory of 
the telecommunication networks and services currently in operation, the 
Navy cannot effectively ensure that it pays only for services it 
receives and hold individuals accountable for unauthorized 
telecommunication usage.

At the four Navy case study units we audited, management oversight or 
controls over the purchase of telecommunication goods and services did 
not provide reasonable assurance that telecommunication requirements 
were being met in the most cost-effective manner possible. For local 
and long-distance services, these units did not follow established 
policies to biennially review and revalidate their telecommunication 
requirements--in part because they lacked a complete and accurate 
inventory of their local and long-distance networks. As a result, the 
Navy was paying for telecommunication service it no longer required. 
For example, when we asked the four Navy units and DITCO Scott to 
review and revalidate 55 long-distance lines that had not been reviewed 
in over 2 years, they found that 12 of the 55 lines (22 percent) were 
no longer needed. According to Navy and DITCO Scott officials, all 12 
lines have since been disconnected, but they were unable to quantify 
the total waste associated with paying for these unneeded lines. For 3 
of the lines, DITCO Scott officials estimated that $36,000 had been 
paid since fiscal year 2000 or 2001, the years the payments should have 
stopped.

Further, the Navy had no policies to ensure that cell phone 
requirements are met in the most cost-effective manner possible. 
Consequently, three of the four sites we audited were paying too much 
for these services. In one case, the unit did not take advantage of 
lower, prenegotiated rates provided through the General Services 
Administration (GSA) and instead paid full retail, which was 12 percent 
more than the GSA rate. Further, because cell phone usage was not 
monitored to ensure that the plan minutes included in the cell phone 
contract cost effectively met the users' needs, we found that many 
users were consistently overutilizing or underutilizing their cell 
phone plans and paying much more than necessary for these plans. For 
example, after our discussions with them, SPAWAR Charleston officials 
reassessed usage requirements for 71 of their 1,900 cell phone plans 
and determined they could save over $59,000 annually through better 
management. They also told us that they intend to reassess the 
remaining plans as soon as time permits.

None of the four sites we audited had effectively implemented 
established policies governing the receipt and acceptance of 
telecommunication goods and services to ensure that payments were made 
only for valid telecommunication charges. DOD regulations[Footnote 2] 
require that payments on invoices be supported by documentation that 
reflects the receipt of services and goods and that those goods and 
services conformed to the contractual requirements. For 
telecommunication payments, this involves reviewing telecommunication 
invoices and reconciling invoice charges with an accurate inventory of 
telecommunication lines, circuits, networks, and services currently in 
operation and verifying that the billing rates used to calculate the 
charges are valid. Based on our audit of selected vendor invoices at 
the Navy sites we audited, we found that two of the four sites had 
performed little or no review, while the other two sites had controls 
in place but were not effectively performing the reviews of invoices 
prior to certification of payment. As a result, the reviewing officials 
at these sites did not detect erroneous or duplicate telecommunication 
charges. For example, one Navy site did not detect charges for 
discontinued local service on five different occasions. Because this 
site had not consistently implemented controls to detect invalid 
charges, it overpaid by $5,600.

Additionally, the Navy did not have specific policies addressing the 
administration and management of calling cards; as a result, the Navy 
has paid for potentially fraudulent or abusive long-distance charges. 
Further, some of the Navy sites we audited did not know they owned and 
were being billed for long-distance calling card services. In other 
cases, the Navy knew it owned the calling cards but card users in these 
units frequently shared the same calling card and personal 
identification number (PIN)--resulting in multiple calls being made 
throughout the world on the same card at approximately the same time 
and preventing the Navy from determining the legitimacy of the phone 
calls. According to MCI officials, each calling card with its 
respective PIN should be issued to and used only by one individual in 
order to assist in monitoring calling card usage. Additionally, calling 
cards should be tracked to determine who is accountable for each card's 
use and invoices should be reviewed to detect and prevent unauthorized 
calling card use. The sharing of calling cards hinders the Navy's 
ability to investigate calling card misuse. For example, one account 
owner said that he routinely provided the same card number and PIN to 
some of his officers, as needed, but did not know how many officers he 
had given the numbers to or how many currently had possession of the 
numbers. For this card alone, the Navy paid over $17,000 in long-
distance charges for the 3-month period from April to June 2003. 
According to Navy officials, the card has been cancelled, but despite 
our repeated inquiries, as of the date of this report the Navy had yet 
to provide us with the identity of the individuals who were using this 
card or assurance as to whether the calls were for a legitimate 
purpose.

This report contains 8 recommendations to the Secretary of the Navy and 
3 recommendations to the Chief of Naval Operations (CNO) concerning 
actions needed to (1) enforce existing policies related to maintaining 
accurate inventory data and performing review and revalidation 
procedures; (2) develop and enforce comprehensive policies and guidance 
governing the purchase, issuance, and use of cell phone and calling 
card services; and (3) develop a strategic management framework for 
improving the acquisition of telecommunication services by 
strengthening the Navy's analysis of telecommunication service 
requirements and spending. In written comments on a draft of this 
report, DOD concurred with 9 of the 11 recommendations. DOD partially 
concurred with the 2 remaining recommendations. Due to the lack of 
clarity of the Navy's planned actions on the 2 recommendations, we were 
unable to assess the extent to which its actions will comply with the 
intent of our recommendations. The department also provided some 
technical comments, which we incorporated in the report as appropriate.

Background: 

The military services and DOD have long procured and operated multiple 
types of telecommunication services to meet their individual mission 
needs. DOD guidance[Footnote 3] defines telecommunications as circuits 
or equipment used to transmit or receive information via voice, data, 
video, integrated telecommunication transmission, wire, or radio. 
Telecommunication equipment and services collectively include such 
items as telephones, switching systems and circuit termination 
equipment. Overall, telecommunications can be thought of broadly in two 
categories--base and long-haul telecommunications. Also, DOD has been 
using and paying for some special category types of services--cell 
phones and calling cards--that can usually be used to access either the 
base or long-haul infrastructure or both.

DOD defines base telecommunications as facilities, equipment, and 
services used to support the distribution, transmission, or reception 
of information via voice, data, video, integrated telecommunications, 
wire, or radio within the confines of an area, such as an installation. 
This may include local interconnecting lines to the first commercial 
central office providing service to the local community and to other 
DOD component facilities in the local area. Calls originating and 
ending within the local calling area are considered local service calls 
and activities pay a flat monthly fee for such service. The fee that is 
paid to vendors is based upon the number of circuits billed and not the 
number of calls made. DISA does not have direct responsibility for 
acquiring and managing base telecommunication equipment and services, 
although it does have some oversight responsibilities.

Long-haul telecommunications are the facilities, equipment, and 
services (in addition to those described for base telecommunications) 
that are used for the transmission or receipt of information that 
crosses the boundary of a facility's local calling community. DOD 
service components are required to contract for their long-haul 
services through DITCO, DISA's contracting organization. DITCO charges 
the components the actual costs for the services it provides them, plus 
a surcharge (which is currently 2 percent) to cover DITCO's cost of 
administering the program.

Cell phones allow DOD personnel, including Navy personnel, to make 
official calls when other alternatives are unavailable or are 
uneconomical. They can be used to access a local as well as a long-
distance network, but it is generally more economical to use other 
service for local service, when possible. Navy activities generally 
either contract directly for cellular phone service or procure the 
phones under an already established GSA negotiated contract. Vendors 
normally offer various service plan packages to their customers with a 
range of rates, depending on the types of service and options provided. 
Items that can cause rates to vary are geographical location, the 
user's calling area, and the number of telephones requested. Cellular 
phones differ from conventional telephone systems in the way charges 
for calls accrue. For cellular phones, activities are usually charged a 
fixed fee for a specific plan package, which includes a limited number 
of available minutes. After using all of the available minutes in a 
month, activities then pay a per-minute charge for any excess minutes, 
not included in the contracted amount. When callers exceed the number 
of minutes allowed in the plan package, they generally pay a very high 
premium per minute for the minutes in excess of the plan. Generally, 
charges for cellular phone services include (1) charges for airtime for 
all completed outgoing and incoming calls and (2) charges (known as 
roaming charges) for calls made when the caller is outside his or her 
home service area. In addition, cellular phones may incur long-distance 
charges for calls made where the number called is outside the local 
area in which the caller is physically located or if this service is 
not included in the service contract.

Calling cards are used to access telecommunication services at a 
location where DOD-owned services are unavailable or where it is 
desired that the calls be charged to an account other than the one from 
which the calls are being made. Navy calling cards are issued to 
individual Navy employees for their official use in conducting 
government business. The card provides the user with access to the 
Federal Telecommunications System (FTS)[Footnote 4] and offers a 
variety of available services. Navy activities generally procure the 
calling cards through DITCO in bulk and they are stored by the 
activities until issued. DITCO obtains the calling cards through a 
prenegotiated GSA contract. The cards incur no charges until issued and 
activated. The Navy activities are responsible for issuing the cards to 
individuals and the individuals activate the cards. Once issued, the 
activities are responsible for reviewing and certifying the calling 
card charges, just as they are for all other types of telecommunication 
service charges.

DOD and its components have long acquired telecommunication systems to 
meet their individual mission needs, resulting in a fragmented and 
redundant telecommunication environment. To eliminate costly 
duplication and improve the effectiveness and efficiency of its 
communication services, in 1991 DOD began to plan and implement the 
Defense Information Systems Network (DISN) as the common-user, long-
haul telecommunication network for all DOD components.[Footnote 5] 
Under the DISN program, DOD's service components and Defense agencies 
are still responsible for acquiring local base telecommunication 
services for their local bases and installations; however, DISA is to 
be the sole provider of long-haul telecommunication services for all 
DOD components.

To improve the interoperability of DOD's long-haul telecommunication 
networks and service as well as to reduce costs, the Assistant 
Secretary of Defense for Command, Control, Communications, and 
Intelligence (ASD/C3I)[Footnote 6]established policies and procedures 
that (1) directed DOD components to develop comprehensive inventories 
of their own long-haul telecommunication networks and directed DISA to 
develop a Defense-wide inventory of long-haul networks; (2) directed 
DISA to report annually on telecommunication services, acquisitions, 
trends, and associated costs; (3) mandated components to use common-
user networks such as DISN or FTS 2000 for long-haul communications; 
(4) directed DISA to establish a waiver process to let components 
procure independent networks when their telecommunication needs could 
not be met by common-user networks; and (5) directed DOD components to 
periodically review and revalidate their long-haul telecommunication 
requirements. In a previous review of the DISN program,[Footnote 7] and 
during our work on this audit, we found that DOD had not effectively 
implemented any of these directives. In response, DOD agreed to address 
our concerns and to implement these policies and procedures. However, 
as discussed in this report, the Navy has not yet established an 
accurate and complete telecommunication inventory or created a database 
of information on acquisition, trends, and associated costs, which are 
necessary to plan for future growth and cost effectively purchase new 
telecommunication equipment and services.

The Navy Lacked Strategic Knowledge of Expenditures to More Efficiently 
Purchase Telecommunication Services: 

The Navy did not know exactly how much it was spending on 
telecommunication services nor did it know much about its 
telecommunication service vendors. The Navy's lack of detailed cost 
data prevented us from analyzing its telecommunication expenditures on 
an aggregate level. For this reason, we were unable to comprehensively 
sample and test the adequacy of the Navy's controls or perform 
effective data mining of its telecommunication expenditures. More 
importantly, this lack of adequate information also prevented the Navy 
from obtaining the knowledge needed to take steps to leverage its 
buying power, even though it is a large customer for telecommunication 
services. Moreover, obtaining knowledge of current requirements and 
usage, as well as developing forecasts of users' future 
telecommunication needs, would assist Navy acquisition planning to 
ensure those future needs can be met in a more cost-effective manner.

Our past work has identified specific practices that can be employed by 
DOD agencies to manage services acquisitions--including 
telecommunication services--from a more strategic perspective, thereby 
enabling DOD organizations to leverage buying power and achieve 
significant savings.[Footnote 8] These include establishing a central 
agent or manager for acquiring services, gaining visibility over 
spending, and revising business processes to enable the organization to 
leverage its buying power. Our past work showed that leading 
organizations that applied a strategic approach to their purchases of 
services found it necessary to develop new "spend analysis" information 
systems that could provide them with reliable data in a timely fashion. 
Spend analysis is a tool that answers basic questions about how much is 
being spent for what goods and services and helps to identify both 
buyers and suppliers, as well as opportunities to leverage buying, save 
money, and improve performance.

Having the type of information discussed above would enable the Navy to 
perform spend analysis on the purchase and use of its telecommunication 
assets, which would provide the Navy with a complete picture of what is 
being spent on telecommunications--the cornerstone to identifying what 
can be done to improve the purchasing process and to leverage the 
Navy's buying power. The task of gaining accurate visibility over 
spending will be difficult for the Navy given the lack of information 
systems available to provide spending data and the magnitude, breadth, 
and complexity of spending involved with multiple types and sources of 
telecommunication services. However, leading companies we studied that 
developed formal, centralized spend analysis programs found that they 
could overcome similar difficulties of piecing together incomplete and 
inaccurate data from various information systems through the use of key 
processes involving automating, extracting, supplementing, organizing, 
and analyzing data.[Footnote 9] Currently, the Navy lacks the needed 
information to perform effective cost/spend analysis.

Recognizing that the best practices experiences of leading companies 
could help improve the cost effectiveness of DOD's acquisition of 
services, Congress included[Footnote 10] provisions in the National 
Defense Authorization Act for Fiscal Year 2002[Footnote 11] that 
require, among other things, that DOD establish an automated system to 
collect and analyze data to support management decisions in contracting 
for services. The provisions were intended to put DOD in a position to 
gain visibility over services contract spending and more effectively 
leverage its buying power, thus (1) improving the performance of its 
service contractors, (2) organizing its supplier base, and (3) 
achieving significant savings and ensuring that its dollars are used 
more effectively.[Footnote 12] Although DOD is in the early stages of 
responding to these legislative requirements, DOD has a departmentwide 
spend analysis pilot underway and has called on agencies to embrace a 
strategic approach for acquiring services.[Footnote 13] Based on our 
assessment of the Navy's payment and expenditure reporting systems, the 
Navy's current process for acquiring telecommunication services is not 
strategic and its ability to use spend analysis to support a strategic 
approach is hampered by the lack of centrally available and detailed 
telecommunications expenditure data. Because the Navy does not budget 
or account for telecommunication requirements separately from other 
nontelecommunication requirements, the Navy's automated systems are not 
designed to track the cost associated with purchasing telecommunication 
services in total or by network or by type of service provided. 
Consequently, the Navy is unable to perform the kind of meaningful 
spend analysis envisioned by the act.

The Navy has yet to take steps to perform the kind of meaningful spend 
analysis employed by leading companies to better manage its purchasing 
of telecommunication services. Much earlier, in 1991, DOD directed DISA 
to establish a central inventory of all long-haul telecommunication 
equipment and services and directed the heads of DOD components to 
establish and maintain an inventory of all base telecommunication 
equipment and services. However, we found in several instances that 
DISA's long-haul database was incomplete and contained numerous errors 
and that the Navy had yet to establish a base communications database 
as directed. Specifically, we found that (1) the DISA database did not 
track long-haul equipment and services that were purchased outside of 
DISA channels, (2) networks and services were still reflected in the 
DISA database long after they had been discontinued, and (3) point of 
contact or ownership information often had not been updated in years. 
In addition, some of the Navy locations we audited did not maintain an 
accurate inventory of the number of calling cards and cell phones 
currently in use or maintain adequate records of to whom the cards and 
phones were issued. As discussed later, our case-study work at four 
Navy locations demonstrated that this lack of reliable inventory data 
combined with other breakdowns in basic controls creates a fertile 
environment for fraud, waste, and abuse.

Navy Sites Lacked Controls Needed to Ensure Appropriate Oversight and 
Payment of Telecommunication Services: 

Although DOD established a policy in 1991 requiring that DOD components 
biennially review and revalidate their local and long-distance 
telecommunication requirements, none of the four Navy locations we 
visited or DITCO Scott had established effective review and 
revalidation programs to ensure that they were not paying for capacity 
or services they no longer needed or they were not paying too much for 
the needed services used. In addition, the Navy did not have policies 
to ensure the cost-effective purchase and use of cell phone services. 
Consequently, we found that the four Navy sites we audited had 
established their own policies for the procurement and management of 
cellular services and equipment. These policies varied greatly, due to 
the differences in size, capability, and requirements of the cellular 
program at each site, which resulted in some of these sites paying more 
for these equipment and services than was necessary. Further, although 
DOD financial management regulations require proper receipt and 
acceptance of goods and services and the reconciliation of bills prior 
to payment, we found that the Navy activities we visited were 
improperly approving payments for telecommunication services without 
appropriate review. Failure to properly reconcile the bills has allowed 
payment to be made for inappropriate and irregular local and long-
distance charges and has allowed the activities to improperly make 
overpayments and duplicate payment to telecommunication vendors. 
Finally, we found that the Navy does not have policies addressing the 
administration and management of calling cards. This has resulted in 
either inconsistent policies or a total lack of policies from one 
command to the next. Because of this lack of control, we identified 
several instances where the Navy had paid bills for calling card 
services that appeared to us to be potentially fraudulent or abusive, a 
situation that will likely be repeated unless changes are made.

Navy Sites Were Not Performing Effective Review and Revalidation of 
Local and Long-Distance Requirements: 

The review and revalidation process is important because it enables an 
activity to determine, based on empirical data, whether it is meeting 
its local and long-distance telecommunication needs in the most cost-
effective means possible. According to DOD instructions[Footnote 14] 
this involves (1) assessing telecommunication traffic or usage to 
determine whether telecommunication services are still needed, (2) 
conducting market surveys to determine if current telecommunication 
contracts provide the most cost-effective solution for satisfying usage 
requirements, and (3) updating the appropriate inventory database to 
indicate that the requirement for the local and long-distance lines has 
been revalidated. It is particularly important that Navy personnel 
routinely review and revalidate their needs for the local and long-
distance services they currently have and are paying for, and that they 
promptly cancel any unnecessary lines to avoid paying monthly usage 
fees for unneeded services. Activities are assessed fees for a line 
based either on the usage, a flat rate regardless of usage, or a 
combination of both. Therefore, if lines are not promptly canceled and 
if they have a monthly charge, the Navy will continue to receive and 
pay for these services indefinitely until they are canceled.

None of the Navy sites we visited or DITCO Scott had effectively 
implemented existing policies to perform all three of the review and 
revalidation procedures mentioned earlier. At NAVSEA Crane, officials 
had recently assessed their telecommunication traffic to determine 
whether the services for which they were currently contracted were 
still needed. However, they had not conducted a market survey and, 
therefore, had no assurance that they were meeting their 
telecommunication needs in the most economical way possible. Two other 
sites, NAVAIR Patuxent and SPAWAR Charleston, had assessed their 
telecommunication traffic and performed a market survey but had failed 
to update the database to reflect that they had taken the required 
actions. As mentioned previously, these failures undermine DISA's 
ability to monitor and effectively manage the DISN program and to 
maintain the quality of the database. For example, according to DISA's 
long-haul database, as of February 17, 2004, approximately 3,100 of the 
Navy's 26,000 long-haul lines had either not been revalidated in over 2 
years or had not been properly updated. Some of these records indicated 
that the lines had been past due for revalidation for decades--in one 
case since March 1969. According to agency officials, as a result of 
our review, both NAVAIR Patuxent and SPAWAR Charleston have implemented 
corrective actions to ensure that the appropriate inventory database is 
updated whenever they revalidate their local and long-distance lines.

As shown in table 1, at two of the four sites, we identified 37 long-
distance lines that had not been reviewed and revalidated in over 2 
years. When we asked the appropriate Navy personnel to review these 37 
long-distance lines to determine if they were still needed, they found 
that 8 of the 37 lines for which they had been paying a total monthly 
usage fee of $4,969 were no longer needed. We relied on the accuracy of 
their responses and did not perform an independent review to determine 
their validity.

Table 1: Status of Review of Long-Haul Lines at Selected Navy Sites: 

Unit: SPAWAR Charleston; 
Number of lines reviewed within 2-year period: 60 of 84; 
Number of lines the Navy determined should be disconnected: 0; 
Monthly charges for unneeded lines: N/A.

Unit: NAVAIR Patuxent; 
Number of lines reviewed within 2-year period: 136 of 136; 
Number of lines the Navy determined should be disconnected: N/A; 
Monthly charges for unneeded lines: N/A.

Unit: NAVSEA Crane; 
Number of lines reviewed within 2-year period: 20 of 20; 
Number of lines the Navy determined should be disconnected: N/A; 
Monthly charges for unneeded lines: N/A.

Unit: CINCLANFLT Norfolk; 
Number of lines reviewed within 2-year period: 12 of 25; 
Number of lines the Navy determined should be disconnected: 8; 
Monthly charges for unneeded lines: $4,969.

Unit: Total; 
Number of lines reviewed within 2-year period: 228 of 265 (37 lines 
had not been reviewed in over 2 years); 
Number of lines the Navy determined should be disconnected: 8; 
Monthly charges for unneeded lines: $4,969. 

Source: GAO's calculation using DISA's long-haul database.

[End of table]

Subsequent to our inquiry, Navy officials told us that the 8 lines 
shown in table 1 have now been disconnected. For these 8 lines, they 
were unable to quantify the total unnecessary cost that had been 
incurred to operate them because they were unable to determine exactly 
how long the lines had been operating without a valid need. To further 
demonstrate the risk of not promptly reviewing and revalidating 
existing lines, DITCO Scott officials were able to tell us that 4 of 
their 18 past-due lines for revalidation should have been discontinued 
in fiscal year 2000 or 2001. Instead, they continued to incur and pay 
monthly charges of $917 for 3 of these lines for about 3 years--
incurring about $36,000 in unnecessary charges--until we raised the 
issue in fiscal year 2003 and the lines were discontinued. For the 
fourth line, DITCO was unable to quantify the cost for unnecessary 
usage.

Similarly, two of the four Navy sites we audited had not reviewed or 
revalidated their base communication networks as required; however, the 
immediate financial impact of not doing so is not as evident. Base 
telecommunication networks are the equipment or services used to 
support the transmission of data within the confines of an 
installation. According to a Navy official, because a unit is not 
charged specifically for individual base communication lines, there are 
no unit cost savings associated with the deletion of a few unused 
individual lines. However, over time, the number of unused lines may 
become significant enough to warrant resizing a unit's base 
communication network. For this reason, it is important that the Navy 
also implement an effective review and revalidation program for its 
base as well as its long-distance telecommunications. When we asked 
Navy officials at the two sites why they were not routinely reviewing 
and revalidating their telecommunication needs, we found that they were 
not aware of the requirement or did not see it as a top priority. The 
remaining two locations, NAVSEA Crane and NAVAIR Patuxent, had reviewed 
and revalidated their base communication network as required.

The Navy Lacked Policies for the Cost-Effective Purchase and Usage of 
Cell Phone Services: 

The Navy's use of cell phones has increased dramatically in recent 
years, allowing Navy personnel to make official calls when other 
alternatives are unavailable or uneconomical. In 1997, on the basis of 
a recommendation of the Naval Audit Service, NCTC, in conjunction with 
the Chief of Navy Operations, agreed to develop and issue specific 
guidelines and procedures relating to acquisition, accountability, and 
use of cellular phones. However, at the time we did our work for this 
assignment, neither DOD nor the Navy had taken the required actions to 
establish comprehensive policies or guidance governing the purchase and 
use of cell phone services, including guidance on (1) using 
prenegotiated or centrally negotiated rates or (2) requiring periodic 
assessment of cell phone usage to determine if plan packages provide 
the most cost-effective means to satisfy its usage requirements. 
Consequently, three of the four sites we audited were either paying 
retail prices for their cell phones when lower prenegotiated rates were 
available or were paying too much for cell phone services because they 
were not monitoring the use and thus had no basis for aligning the 
contracts with expected use.

In the absence of DOD-and Navy-wide policies and procedures for the 
purchase of cell phones, individual Navy units have had to develop 
their own approaches for the procurement and management of cellular 
services and equipment. While three of the four sites we visited made a 
concerted effort to either (1) purchase cell phones at the GSA-
negotiated rate--currently 12 percent discount off retail--or (2) 
establish their own negotiated contract with local cellular service 
providers, the remaining location, NAVSEA Crane, did neither. Instead, 
at NAVSEA Crane, individuals responsible for the procurement as well as 
cell phone users themselves bought their cell phones directly from 
retail sources using their purchase cards. As a result, NAVSEA Crane in 
some instances was paying a higher rate for cell phones--12 percent 
higher--than that established by GSA and in some cases paying taxes 
that should not be paid by government entities.

In contrast, CINCLANFLT Norfolk negotiated a contract with one vendor 
using a shared minute plan, which allows multiple individuals to be on 
the same plan using an allocated number of minutes. The advantage of 
this plan is that if one individual goes over his or her allocated 
number of minutes and another individual uses fewer than his or her 
allotted number of minutes, charges for additional usage are not 
incurred. As a result of this plan, excess minutes were eliminated and 
CINCLANFLT Norfolk's monthly access charges were reduced from $45.65 to 
$33.19. To take it one step further, the NAVAIR Command was able to 
achieve a large saving for all seven of its subcommands because it 
leveraged its buying power as a command to negotiate a better deal with 
a single service provider. Under this contract, NAVAIR Patuxent, a 
participating subcommand, received a 23 percent discount off retail--
almost twice the amount of the GSA-negotiated discount rate--and free 
standard cell phones. NAVAIR Command was able to negotiate such a 
favorable contract because it had the information it needed on its cell 
phone users, allowing it to negotiate with different local vendors and 
select the vendor with the best rate. This information included such 
factors as the number of cell phone users, the total number of plan 
minutes used, and the amount spent annually for cell phone equipment 
and services. As a result of the negotiated contract, NAVAIR Patuxent 
estimated that it saved approximately $110,000 in fiscal year 2003 and 
projects that it will save over $200,000 in fiscal year 2004 for its 
cell phone services and equipment requirements. The differences in the 
three procurement methods illustrated show that even on a small level, 
information consolidation and centralization is the foundation for 
implementing cost-effective methods for procuring cell phones and 
related services. Realizing this, NAVSEA Crane is currently developing 
a centralized procurement contract with a local vendor.

In addition, three of the four Navy locations we audited paid too much 
for cell phone services because they were not monitoring individual 
plan usage. As shown in table 2, we identified selected cases at three 
of the four sites we audited where cell phone users were either (1) 
consistently exceeding their monthly allotment of minutes, thus 
incurring excessive charges for extra minutes (overutilization); or (2) 
consistently using only a small portion of their allotted minutes, thus 
incurring high charges per minute actually used because they contracted 
for substantially more minutes than needed (underutilization). At the 
fourth location, as previously mentioned, CINCLANFLT Norfolk negotiated 
a contract with one vendor using the shared minute plan, which allows 
multiple individuals to be on the same plan using an allocated amount 
of minutes--eliminating their charges for over-and underutilization of 
cellular plans.

Table 2: Summary of Under-and Overutilization of Cellular Plans: 

Units: SPAWAR Charleston; 
Number of: plans tested: 54; 
Number of plans overutilized in fiscal year 2002: 12; 
Number of Plans underutilized in fiscal year 2002: 4; 
Percentage of over-or underutilized plans: 30%.

Units: NAVAIR Patuxent; 
Number of: plans tested: 14; 
Number of plans overutilized in fiscal year 2002: 3; 
Number of Plans underutilized in fiscal year 2002: 3; 
Percentage of over-or underutilized plans: 43%.

Units: NAVSEA Crane; 
Number of: plans tested: 28; 
Number of plans overutilized in fiscal year 2002: 0; 
Number of Plans underutilized in fiscal year 2002: 5; 
Percentage of over-or underutilized plans: 18%.

Units: CINCLANFLT Norfolk; 
Number of: plans tested: N/A; 
Number of plans overutilized in fiscal year 2002: N/A; 
Number of Plans underutilized in fiscal year 2002: N/A; 
Percentage of over-or underutilized plans: N/A.

Total; 
Number of: plans tested: 96; 
Number of plans overutilized in fiscal year 2002: 15; 
Number of Plans underutilized in fiscal year 2002: 12; 
Percentage of over-or underutilized plans: 28%. 

Source: GAO's calculation using unit-provided data.

Note: Overutilized: Individuals who exceeded their plans 5 months or 
more in a year. Underutilized: Individuals who consistently used less 
than 30 percent of their plan for the year.

[End of table]

Overutilization of cellular plans can result in considerable additional 
costs to the government. We found that management personnel at these 
sites were not routinely comparing cell phone plans and usage to 
identify possible savings. For example, we found at one unit listed in 
table 2 that for some cellular plans, excess minute charges ranged from 
20 to 35 cents per minute. This is more than twice the cost of the 
plans' allowable per minute charges, which ranged from 7 to 15 cents 
per minute. For the 15 overutilized plans, these two sites incurred 
over $34,000 in excess minute charges in fiscal year 2002. Officials at 
NAVAIR Patuxent, concerned over our finding regarding the 
overutilization of cellular plans at their site, implemented a 
quarterly review process where they monitor cell phone usage with 
respect to allotted minutes and modify individual cell phone plans to 
achieve maximum cost effectiveness. According to these officials, for 
the first quarter of fiscal year 2004, NAVAIR Patuxent saw a reduction 
of 39 percent in its excess minute costs. Similarly, SPAWAR Charleston 
is in the process of negotiating a contract with a vendor for shared 
pool minutes to reduce its excess minute costs.

While the monetary impact of underutilizing cell phone minutes is not 
as significant as consistently exceeding plan minutes, at one site in 
particular--NAVSEA Crane--using data-mining techniques[Footnote 15] on 
vendor invoices, we found instances where cell phone users were paying 
$95 per month for service plans in which they were using less than an 
average of 2 percent of their allotted monthly minutes for fiscal year 
2002. As shown in table 3, the average cost per minute on these 
underutilized cell phone plans was extremely high.

Table 3: Examples of Users Underutilizing Plan Package Minutes: 

Number of months plans were underutilized: 12; 
Cost of plan: $95.00; 
Plan monthly: allowed minutes: 650; 
Average monthly minute usage for fiscal year 2002: 1.23 minutes; 
Average cost per minute (rounded to the nearest dollar): $76.00.

Number of months plans were underutilized: 12; 
Cost of plan: $95.00; 
Plan monthly: allowed minutes: 650; 
Average monthly minute usage for fiscal year 2002: 22.17 minutes; 
Average cost per minute (rounded to the nearest dollar): $4.00.

Number of months plans were underutilized: 10; 
Cost of plan: $95.00; 
Plan monthly: allowed minutes: 650; 
Average monthly minute usage for fiscal year 2002: 9.1 minutes; 
Average cost per minute (rounded to the nearest dollar): $10.00. 

Source: GAO calculation using units' vendor invoices for fiscal year 
2002.

[End of table]

When we saw similar issues at SPAWAR Charleston, officials reviewed the 
usage requirements for 71 of their 1,900 cell phone users and 
determined that these users had either significant over-or 
underutilization. They further determined that they could save over 
$59,000 annually on these 71 plans alone if they changed the individual 
users to plans that more accurately matched their actual usage. 
According to these officials, they intended to review the remaining 
plans to achieve additional savings.

Vendor Payments Approved Without Appropriate Review: 

None of the four sites we audited had consistently implemented 
procedures that complied with DOD policies regarding reconciliation of 
telecommunication invoices. DOD regulations[Footnote 16] require that 
payments on invoices be supported by documentation that reflects the 
receipt of services and goods and that those goods and services conform 
to the contractual requirements. These documents must be reconciled 
prior to payment unless special circumstances warrant otherwise. For 
telecommunication, this reconciliation process involves reviewing 
telecommunication invoices and reconciling invoice charges with an 
accurate inventory of telecommunication lines, circuits, networks, and 
services currently in operation and verifying that the billing rates 
used to calculate the charges are valid. However, we found that two of 
the Navy sites we audited had few or no controls in place, while the 
other two sites were not consistently implementing their established 
controls to review vendor invoices prior to certification of payment. 
Consequently, approving officials at these sites failed to detect 
inappropriate and irregular telecommunication charges, which allowed 
overpayments and duplicate payments to be made to vendors.

Two of the four sites we audited had few or no controls in place to 
review and reconcile vendor invoices prior to certification of payment. 
At NAVSEA Crane, we reviewed the payment information for fiscal year 
2002 and the first 6 months of fiscal year 2003 and found that 
officials reviewed the total amount billed per invoice and did not 
review specific charges to determine whether the charges were valid. 
Consequently, NAVSEA Crane paid almost $1,700 in vendor-assessed late 
fees. According to agency officials, only DFAS can approve late fees 
for past due Navy payments, and therefore NAVSEA Crane failed to ensure 
that any review of late fees was completed prior to payment. The other 
site, CINCLANFLT Norfolk, which procured its local and long-distance 
services via NCTAMS, had its invoices certified for payment by NCTAMS 
for more than 1 year without proper review. This occurred because 
CINCLANFLT Norfolk had not received billing information from NCTAMS 
that would allow it to review and reconcile its detailed charges with 
the services currently in operation.

According to NCTAMS officials, billing information, such as service 
charges and long-distance call details, is e-mailed to the respective 
units' contact point using the same e-mail address used by the vendor. 
However, NCTAMS officials did not confirm that the units were receiving 
the billing information or if the e-mail address was correct. Instead, 
these officials stated that they assumed the billing information was 
correct unless they were contacted by the activity within 15 days. 
However, relying on negative assurance prevents these sites from 
properly reviewing and reconciling invoices in accordance with DOD 
policies. For example, at NCTAMS, we found 52 long-distance calls on a 
July 2003 invoice that were 24 hours or over in length. These calls 
included 4-day, 10-day, and 12-day phone calls, which all originated 
from different phone numbers at different times. The length of these 
calls alone should have prompted further investigation but, because the 
invoice was never properly reviewed, the billing errors went unnoticed 
until we called the issue to the attention of NCTAMS officials. As 
shown in table 4, we further investigated 10 of the 52 calls to 
determine what caused the apparent billing errors. In 7 of the 10 
cases, NCTAMS officials who approved the invoices could neither provide 
us with an explanation for the length of the calls nor could they 
provide us with valid points of contact for the activities responsible 
for the calls.

Table 4: Potentially Improper Long-Distance Calls Approved by NCTAMS 
Norfolk: 

Date (2003): July 15; 
Destination of call: Richmond, Va; 
Total consecutive minutes: 18,282; 
Total hours: 304; 
Cost of call: $414; 
Explanation provided by installation: The lengthy duration of the call 
was due to a circuit malfunction. The installation asked the vendor 
for a refund after our inquiry.

Date (2003): July 09; 
Destination of call: Richmond, Va; 
Total consecutive minutes: 6,201; 
Total hours: 103; 
Cost of call: $140; 
Explanation provided by installation: The lengthy duration of the call 
was due to a circuit malfunction. The installation asked the vendor for 
a refund after our inquiry.

Date (2003): July 24; 
Destination of call: Elizabeth City, N.C; 
Total consecutive minutes: 6,338; 
Total hours: 106; 
Cost of call: $214; 
Explanation provided by installation: Navy official indicated that the 
call was valid and was made to provide support for testing research 
and development programs.

Date (2003): July 15; 
Destination of call: Norfolk, Va; 
Total consecutive minutes: 14,648; 
Total hours: 244; 
Cost of call: $440; 
Explanation provided by installation: No explanation provided.

Date (2003): July 25; 
Destination of call: Herndon, Va; 
Total consecutive minutes: 6 separate 4,269 minute calls; 
Total hours: 71; 
Cost of call: $580; 
Explanation provided by installation: No explanations provided. 

Sources: GAO calculation using NCTAM-provided data.

[End of table]

The other two sites, SPAWAR Charleston and NAVAIR Patuxent, had 
procedures in place to review and reconcile telecommunication invoices 
prior to payment, but these procedures were not consistently 
implemented. As a result, we found these reviewing officials had not 
detected irregular charges, which resulted in overpayments and 
duplicate payments being made to vendors. For example, at SPAWAR 
Charleston, officials paid $5,600 over a 5-month period for services 
that had been discontinued. Further, we found that both SPAWAR 
Charleston and NAVAIR Patuxent had made duplicate payments on invoices 
because they did not follow the procedures in place to pay only the 
current charges on an invoice. Instead, on two occasions, these units 
paid the total balance due. As a result, officials at both of these two 
sites paid a total of $17,855 (SPAWAR, Charleston--$17,382 and NAVAIR 
Patuxent--$473) in duplicate payments for prior months' charges, which 
had been previously paid. If SPAWAR Charleston and NAVAIR Patuxent had 
consistently followed their procedures for reviewing and reconciling 
telecommunication invoices, the overpayments would not have occurred.

These examples illustrate the types of potential billing errors that 
telecommunication managers should be able to avoid with more detailed 
reviews of invoices. According to some Navy officials, reviewing and 
reconciling detailed telecommunication charges each month is time-
consuming and impractical given the number of telecommunication local 
and long-distance transactions occurring monthly. In addition, they 
stated that the rate structures used to calculate the invoice charges 
were often so complex that they were unable to determine how the final 
charges were calculated or whether they were, in fact, correct.

Controls over Issuance and Use of Calling Cards Were Inadequate: 

As part of their long-haul service contract provided through DISA, DOD 
components may also order and receive long-distance calling card 
services. Long-distance calling card charges are then billed, along 
with other long-haul services, on the components' monthly invoices. 
According to an MCI official, each calling card with its respective PIN 
should be issued to and used only by one individual in order to assist 
in monitoring calling card usage. Additionally, calling cards should be 
tracked to determine who is accountable for each card's usage, and 
invoices should be reviewed to detect and prevent unauthorized calling 
card use. However, some of the Navy sites we audited were unaware they 
owned calling cards. Furthermore, neither DOD nor the Navy had specific 
policies addressing the administration and management of calling cards. 
This lack of policies, combined with the ineffective controls over 
payments to telecommunication vendors, discussed previously, creates a 
fertile environment for fraud, waste, and abuse.

To identify possible calling card misuse, we analyzed 3 months of the 
Navy's calling card activity and used data-mining techniques to select 
seven calling card accounts from seven Navy activities that had either 
overlapping calls (two or more calls occurring at the same time with 
different originating numbers) or calls originating from different 
geographic locations at approximately the same time--using the same 
calling card number. Such cases would indicate calling cards that were 
being shared and/or compromised. As shown in table 5, five of the seven 
cards had been compromised.

Table 5: Compromised Calling Cards at Selected Sites: 

Unit: NACTAMS Norfolk; 
Description of suspicious calling card activity at selected sites: On 
June 15, 2003, calls made from Arkansas, Puerto Rico, and Ecuador 
within 2 hours of each other; 
Control breakdown: Not aware of calling card; 
Did not review invoices; 
Unit's response as a result of the identified suspicious activity: 
Based on our inquiry, unit canceled 35 cards including selected card 
in December 2003; 
 Calling card vendor (MCI) actions: None.

Unit: NCTSSD; 
Description of suspicious calling card activity at selected sites: On 
May 19, 2003, calls made from Hawaii and Japan within 3 hours of each 
other; 
Control breakdown: Not aware of calling card; 
Did not receive or review invoices; 
Unit's response as a result of the identified suspicious activity: 
Based on our inquiry, unit canceled 5 cards including selected card in 
February 2004; 
Calling card vendor (MCI) actions: MCI's fraud detection unit 
suspended use of the card on July 26, 2003, due to simultaneous usage.

Unit: MCB Camp Pendleton; 
Description of suspicious calling card activity at selected sites: On 
May 25, 2003, calls made from Florida and Virginia within hours from 
each other; 
Control breakdown: Not aware of calling card; 
Did not receive or review invoices; 
Unit's response as a result of the identified suspicious activity: 
Based on our inquiry, unit canceled 13 cards including selected card 
in September 2003; 
 Calling card vendor (MCI) actions: MCI's fraud detection unit 
suspended use of the card on July 7, 2003, due to simultaneous usage.

Unit: USS Mitscher; 
Description of suspicious calling card activity at selected sites: On 
May 17, 2003, calls occurred at the same time from New York and 
Virginia; 
Control breakdown: Not aware of calling card; Did not receive or review 
invoices; 
Unit's response as a result of the identified suspicious activity: Due 
to the vendor's alert, unit canceled calling card in July 2003; 
Calling card vendor (MCI) actions: As a result of MCI's fraud detection 
unit alert for suspected fraud use, unit cancelled the card on July 7, 
2003.

Unit: NAVAIR Lakehurst; 
Description of suspicious calling card activity at selected sites: On 
April 1, 2003, calls occurred at the same time from New York and 
Puerto Rico; 
Control breakdown: Unit identified control breakdown through review of 
its vendor invoices and determined that the card had been stolen; 
Unit's response as a result of the identified suspicious activity: 
Unit conducted an investigation and determined that the card number 
had been stolen and therefore canceled the card; 
Calling card vendor (MCI) actions: None. 

Source: DISA/DITCO Columbus calling card transactional database from 
April through June 2003.

[End of table]

When we contacted the Navy officials and account owners responsible for 
managing and reviewing telecommunication invoices, we found that for 
four of the five calling cards shown in table 5, they were unaware that 
their unit owned or used calling cards. Further, according to these 
officials, they had not receive detailed information on calling card 
charges from either the vendor or from NACTAMS and therefore did not 
know that they were paying for these charges. Consequently, these 
officials could not determine if the calling cards had been compromised 
because they did not know who had possession of the cards and many did 
not have documentation supporting the use of these cards for the time 
period in question. Also, NCTSSD and MCB Camp Pendleton were unaware 
that in July 2003 the vendor's fraud detection unit had suspended the 
calling cards we reviewed. As a result of our review, NCTAMS Norfolk, 
NCTSSD, and MCB Camp Pendleton identified and cancelled a total of 52 
calling cards, including the 3 we selected, which they were unaware 
that they owned. However, neither MCI nor DISA was able to tell us how 
many dollars of charges had been made on these 52 calling cards since 
the cards had been activated. The remaining two units either canceled 
their card due to an MCI fraud alert as mentioned above or an internal 
investigation.

Although the account owners for the two remaining calling card accounts 
we audited were aware that their unit owned and used calling cards, 
they did not have policies restricting the sharing of the cards. In 
many cases, card users within the same units shared the same calling 
cards and PIN. For example, at NAVAIR Patuxent, officials told us that 
they believed the selected card's transactions were due to shared use 
and as a result of our review have changed their local calling card 
policies to prevent the sharing of calling cards in the future and to 
hold individuals accountable if unauthorized usage is found. At BCO 
Philadelphia, agency officials told us that the cards were shared 
because the unit's cell phones were down. However, after the cell 
phones were reactivated, the sharing of calling cards was discontinued. 
As a result of the sharing of calling cards, officials at both of these 
locations could not subsequently determine whether these two calling 
cards were used for legitimate business reasons and whether all the 
charges were accurate. Further, because these cards were shared and 
thus the numbers compromised, these officials could not identify the 
responsible party for the questionable calls.

Overall, these seven units lacked effective management oversight and 
adequate internal controls, which left them vulnerable to potential 
fraudulent and abusive calling card transactions. For example, an 
official at the USS Mitscher said that he routinely provided the same 
card number and PIN to several of his officers, as needed, but he did 
not know how many officers he had given the numbers to or how many 
currently had possession of the numbers. For this one card alone, 
between April and June of 2003, the Navy paid over $17,000 in long-
distance charges. However, because no one was monitoring the activity 
on this card regularly, the unit was unaware of the excessive charges. 
Instead, it was not until the vendor's fraud unit raised questions 
about more than $11,000 in charges during the first 6 days of July 2003 
that the card was suspended. As shown in figure 1, on July 6, 2003, the 
card had 189 calls that originated from 12 different cities in five 
different states and Canada to 12 different countries for a total of 
over $5,000. In this 24-hour period, the card incurred over 55 hours of 
calling card charges.

Figure 1: Potential Fraudulent Use of a Comprised Card: 

[See PDF for image] 

[End of figure] 

Conclusion: 

The lack of management oversight and accountability combined with 
inadequate internal controls over payments to telecommunication vendors 
has created an environment that is vulnerable to fraud, waste, and 
abuse. Until the Navy enforces existing policies related to maintaining 
accurate inventory data and designs automated systems capable of 
tracking cost data, the Navy has no assurance that telecommunication 
goods and services are purchased in the most cost-effective way 
possible. Further, the failure of the units we audited to follow 
existing policies related to reviewing and revalidating 
telecommunication requirements and performing adequate receipt and 
acceptance procedures puts these units at risk of making payments for 
erroneous or improper telecommunication charges. Finally, although we 
performed audit work only at selected units, the Navy's lack of 
comprehensive policies and guidance governing the purchase, issuance, 
and use of cell phone and calling card services increases the 
likelihood that the problems we identified at these units may exist 
elsewhere within the Navy.

Recommendations for Executive Action: 

To improve the Navy's management oversight of its telecommunication 
program, we recommend that the Secretary of the Navy take eight 
corrective actions and the CNO take three corrective actions.

We recommend that the Secretary of the Navy direct the CNO to ensure 
that existing policies are enforced. Specifically, the CNO should 
ensure that the Navy: 

* develops and maintains a comprehensive inventory of the Navy's base 
telecommunication equipment and services;

* supports DISA efforts to track acquisitions of telecommunication 
services throughout DOD, actual costs of those services, and trends in 
usage (that is, the volume and types of traffic that networks carry).

We further recommend that the Secretary of the Navy direct the CNO to 
establish comprehensive policies and guidance governing the purchase 
and use of: 

* cell phone services, which should include (1) the use of 
prenegotiated or centrally negotiated rates and (2) periodic assessment 
of cell phone usage to determine if plan packages provide the most 
cost-effective means to satisfy the Navy's usage requirements; and: 

* calling card services, which should include policies about 
accountability, the proper review of invoices, and the prohibition of 
sharing of calling cards.

To strengthen the Navy's ability to acquire telecommunication services 
effectively and efficiently, we recommend that the Secretary of the 
Navy direct the CNO to develop, in coordination with the Navy commands, 
a strategic management framework for improving the acquisition of 
telecommunication services. This framework should include provisions 
for: 

* inventorying current and potential users of telecommunication 
services to determine existing and future requirements;

* identifying and exploiting opportunities to consolidate requirements 
among Navy commands; and: 

* adopting, when appropriate, commonly used commercial practices, such 
as conducting spend analyses and competing and negotiating pricing 
discounts based on overall Navy volume, to strengthen the Navy's 
bargaining position in acquiring telecommunication services.

To ensure the successful implementation of this strategic management 
framework and to better leverage Navy buying power, we recommend that 
the Secretary of the Navy direct the CNO to strengthen analysis of 
telecommunication service requirements, spending, and the capabilities 
of telecommunication service providers by enhancing core internal 
technical expertise and information systems.

At the selected units that we audited, we recommend that the CNO direct 
the commanders to provide assurance that existing policies are enforced 
and fully evaluate the internal controls over the: 

* review and revalidation of telecommunication requirements,

* reconciliation of telecommunication invoices with a current inventory 
of telecommunication equipment and services, and: 

* distribution and use of calling cards and cancellation of cards that 
are not properly controlled.

Agency Comments and Our Evaluation: 

DOD provided written comments on a draft of this report, which are 
reprinted in appendix II.

DOD concurred with 9 of our 11 recommendations and partially concurred 
with the remaining 2 recommendations. These latter recommendations were 
that the Navy (1) support DISA efforts to track acquisitions of 
telecommunication services, the actual cost of those services, and 
trends in usage of telecommunication services throughout DOD; and (2) 
strengthen the analysis of telecommunication services requirements, 
spending, and the capabilities of telecommunication service providers 
by enhancing core internal technical expertise and information systems. 
Although the Navy said it plans to take actions on these 2 
recommendations, it was unclear whether these planned actions will 
satisfy our recommendations. The department also provided technical 
comments, which we have incorporated in the report as appropriate.

Concerning Navy support of DISA efforts to track acquisition of 
telecommunication services throughout DOD, the actual costs of those 
services, and trends in usage, DOD responded that the Secretary of the 
Navy will direct cognizant senior Department of the Navy officials to 
support DISA tracking efforts to the maximum extent practicable. Such 
measures are an important aspect of the management of telecommunication 
programs and appear to be responsive to our recommendation. However, 
since we are uncertain of the meaning of "maximum extent practicable", 
we cannot evaluate the extent to which DOD plans to implement this 
recommendation. We continue to strongly encourage the Navy to track all 
acquisitions of telecommunication equipment and services in order to 
enable it, in conjunction with DISA, to successfully develop an 
enterprisewide governance process for telecommunication, meet DOD 
expectations for major management reform, and obtain the maximum 
savings in its procurement services.

Regarding the Navy enhancing core internal technical expertise and 
information systems, DOD stated that requirements would be analyzed and 
considered as part of DOD's efforts to develop a management framework 
for improving the efficiency of the Navy's acquisition and use of 
telecommunication services. Although it appears the DOD's response may 
address the intent of this recommendation, the extent of its efforts is 
unclear. We continue to believe that the Navy could benefit from a 
strengthened analysis of its telecommunication service requirements, 
spending, and the capabilities of its service providers, which could be 
aided by enhancing its core technical expertise and information 
systems.

As agreed with your office, unless you announce the contents of this 
report earlier, we will not distribute it until 30 days from its 
issuance date. At that time, we will send copies of this report to 
other interested congressional committees, the Secretary of the Navy, 
the Chief of Naval Operations, and the Assistant Secretary for 
Financial Management (Comptroller) for the Navy. Copies will be made 
available to others upon request.

Please contact me at (202) 512-9505 or [Hyperlink, kutzg@gao.gov] 
if you or your staffs have any questions about this report. Other GAO 
contacts and key contributors to this report are listed in appendix 
III.

Sincerely yours,

Signed by: 

Gregory D. Kutz: 
Director, Financial Management and Assurance: 

[End of section]

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

We reviewed selected aspects of DOD's and the Navy's management of 
their telecommunication programs. We modified the scope of our work, in 
process, because in some cases the information needed to perform 
comprehensive analyses was lacking and in other cases the data were so 
fragmented that they could not be analyzed in the aggregate. Thus, in 
many cases, we had to rely on case studies and nonrepresentative 
selections of transactions to illustrate the internal control problems 
we identified.

This assignment originated because of congressional concerns that DOD's 
vendor pay process, which accounted for approximately $112 billion in 
fiscal year 2003, might suffer from many of the same types of pervasive 
problems that we uncovered during our previous work on DOD's purchase 
card program. Specifically, we were asked to evaluate the effectiveness 
of DOD's management oversight and controls of payments to its vendors. 
Initially, we intended to assess DOD's oversight and controls over 
vendor purchases and payments for telecommunication goods and services-
-including local and long-distance services, calling cards, and 
cellular phone services. However, because it was not feasible to 
provide a comprehensive assessment of the adequacy of all 17 of DOD's 
vendor payment systems or the multitude of varying controls and 
processes over the telecommunication purchases and processes that we 
encountered, we subsequently focused our effort primarily on the Navy. 
Then, because the Navy was unable to provide us with a complete 
population of telecommunication expenditures from which to perform 
statistical sampling and testing of transactions, we used a case-study 
approach to assess the adequacy of management oversight and internal 
controls. This lack of information with which to do statistical 
sampling and testing applied at all levels, including the unit level. 
Even at the case study locations selected, we were unable to perform 
statistical testing because the local databases were often incomplete, 
or they had insufficient, inconsistent, or inaccurate data. Because of 
this, we evaluated the design of controls in place and relied on 
nonrepresentative selections to evaluate the effectiveness of the case 
study locations' internal controls of their telecommunication programs. 
Consequently, we were unable to gauge the extent of the problem from a 
DOD, Navy, or even unit perspective.

Our objectives were to determine (1) whether the Navy has the basic 
cost and inventory information needed to oversee and manage its 
purchases from telecommunication vendors and (2) whether selected Navy 
sites have adequate controls to provide reasonable assurance that 
telecommunication goods and services are purchased cost effectively and 
payments are made only for valid telecommunication charges. We reviewed 
current DOD and Navy guidance contained in applicable regulations, 
directives, instructions, or other guidance concerning the procurement, 
management, and use of common-user networks. We also reviewed our own 
prior reports as well as prior DOD Inspector General and other DOD 
military audit services' reports. We met and had numerous discussions 
with officials from DISA--DOD's major telecommunication manager--and at 
DITCO Scott, the primary contracting organization in DISA.

To determine whether the Navy's controls of expenditures are adequate 
to provide reasonable assurance that telecommunication goods and 
services are purchased cost effectively and that payments are made only 
for valid transactions, we audited the effectiveness of the Navy's 
internal controls over its fiscal year 2002 telecommunication 
transactions at selected sites. Because the Navy lacked a consolidated 
source for telecommunication data, we were unable to obtain complete 
and accurate information for telecommunication disbursements Navy-
wide. Instead, we identified the approximate amount spent by the Navy 
on telecommunications for fiscal year 2002 by manually identifying 
known telecommunication vendors and matching this list against the 
information contained in the Standard Accounting and Reporting System 
(STARS), the Financial Accounting Budget System (FABS), and the 
purchase card accounting database.

Using these three databases, we were able to determine that the Navy 
paid at least $271 million to telecommunication vendors in 2002. 
Because the STARS database contained the highest dollar amount of 
telecommunication payments, we summarized the STARS payments by the 
Authorized Accounting Activity (AAA) code to identify the organizations 
having responsibility for providing the funding for the payments. 
However, these accounting organizations were not necessarily the users 
of the goods and services for which they made payments. Using the 
information developed from this methodology, we identified the four 
major commands having the largest telecommunication payments in 2002. 
They were the Space and Naval Warfare Systems Command (SPAWAR), the 
Naval Network and Space Operations Command (NNSOC),[Footnote 17] the 
Naval Air Systems Command (NAVAIR), and the Naval Sea Systems Command 
(NAVSEA). We then selected one activity (or subactivity, if necessary) 
within each command at which to do further detailed work. Using our 
methodology, the four major commands selected accounted for about $114 
million of the Navy's total $271 million in telecommunication payments, 
or 42 percent of fiscal year 2002 Navy telecommunication payments. 
(These amounts may include tactical and nontactical telecommunication.) 
The four activities selected accounted for $63 million of the $114 
million (55 percent) of the total for the four commands.

Table 6: Major Commands and Units Selected for Review: 

Dollars in millions.

SPAWAR; 
Total fiscal year 2002 telecommunication disbursements: $24; 
Selected unit: SPAWAR Charleston; 
Total fiscal year 2002 telecommunication disbursements: $13.

NAVAIR; 
Total fiscal year 2002 telecommunication disbursements: $20; 
Selected unit: NAVAIR Patuxent; 
Total fiscal year 2002 telecommunication disbursements: $14.

NAVSEA; 
Total fiscal year 2002 telecommunication disbursements: $21; 
Selected unit: NSWC Crane; 
Total fiscal year 2002 telecommunication disbursements: $4.

NNSOC; 
Total fiscal year 2002 telecommunication disbursements: $49; 
Selected unit: NCTAMSLANT (including CINCLANTFLT Norfolk); 
Total fiscal year 2002 telecommunication disbursements: $32[A].

Total; 
Total fiscal year 2002 telecommunication disbursements: $114; 
Total fiscal year 2002 telecommunication disbursements: $63. 

Source: GAO calculations of the Navy's fiscal year 2002 vendor pay 
systems.

[A] NCTAMSLANT fiscal year 2002 disbursement included $243,000 for 
CINCLANFLT Norfolk.

[End of table]

At the four navy activities, we used a case study approach. At the 
sites, we obtained and reviewed information from directives, policies, 
and procedures governing their telecommunication programs. We evaluated 
the documentation provided and had numerous meetings and follow-up 
discussions with personnel responsible for various aspects of the 
telecommunication programs at the sites we visited as well as at remote 
locations, if applicable.

To assess the overall control environment governing telecommunications 
to determine if it provides reasonable assurance that telecommunication 
goods and services are purchased and paid for cost effectively, the 
primary criteria we used were applicable laws and regulations; our 
Standards for Internal Control in Federal Government (G [Hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-21.3.1] AO/AIMD-00-
21.3.1, November 1999); and our Internal Control Standards: Internal 
Control Management and Evaluation Tool (G [Hyperlink, http://
www.gao.gov/cgi-bin/getrpt?GAO-01-1008G] AO-01-1008G, August 2001). To 
assess the management control environment, we evaluated DOD and Navy 
management practices using the fundamental concepts and standards 
contained in GAO's Internal Control Standards. To test the 
implementation of key control activities during fiscal year 2002 at the 
four installations we audited, we performed the following detailed 
testing.

* Base Communications--At each site visited, we obtained a database or 
list of base (local service) circuits. For each base circuit, we 
requested information such as the installation date, the validation 
date, the service end date, and the discontinue date (if applicable), 
the physical location of the circuit (building), the responsible point 
of contact and organization, the vendor, and billing information for 
fiscal year 2002 and the first 6 months of fiscal year 2003. From each 
local database, we selected nonrepresentative selections of base 
circuits to test for compliance with DOD, Navy, and local policies. For 
each selected transaction, we compared the total number of circuits and 
total disbursements for selected months in order to perform a 
reconciliation of the invoice totals. For months in which the totals 
did not agree, we analyzed detailed information in the reconciliation 
and invoices to test for (1) inaccuracy of data, (2) payment for items 
not currently owned or being used, (3) differences in invoice amounts 
versus reconciliation and database amounts, and (4) payments for excess 
lines. We also analyzed invoices after circuits had been discontinued 
to determine whether the vendor was still charging for disconnected 
circuits, and we analyzed selected invoices to determine if the vendor 
had assessed late fees and whether those late fees had been certified 
for payment by the selected case study sites.

* Long-Haul Communications--Using the DISA[Footnote 18] database, we 
obtained a list of circuits with past due validation dates as of July 
9, 2003, for the activities and major commands. We compared the long-
haul inventory information in DISA's database to the installation's 
long-haul inventory information in order to determine (1) if long-haul 
circuits were being reviewed and revalidated every 2 years, as required 
by regulation; (2) the accuracy of DITCO's long-haul inventory 
information; and (3) whether the installations had procured long-haul 
services or equipment without going through DITCO. We spoke with 
numerous agency officials on site and in follow-up discussions in order 
to try to resolve any discrepancies.

* Cell Phones--Further, at three of the four case study sites,[Footnote 
19] we determined if cell phones were monitored to detect significant 
over-or underuse of plan minutes and for compliance with DOD, Navy, and 
local policies. To determine if cell phones were being monitored for 
over-or underuse of plan minutes, we first obtained a list of cell 
phone users. Next, we obtained detailed monthly billing for each user 
selected for fiscal year 2002 and May 2003 and through data mining 
compared the monthly minutes used to cell plan minutes to identify if 
the cellular plan was being under-or over utilized. To test for 
compliance, we selected a nonrepresentative selection of cell phone 
transactions (request for service, authorization, receipt and 
acceptance, and payment) and compared the transactions against DOD, 
Navy, and local policies.

* Calling Cards--We analyzed the DISA/DITCO Columbus calling card 
transactional database, which contained DOD's calling card transactions 
from April through June 2003. However, due to the scope of our audit, 
we focused our review only on the Navy's calling card transactions. 
Through data mining, we identified Navy calling card numbers that (1) 
had overlapping calls or calls from different geographical areas within 
an hour. From this population, we selected seven calling card accounts 
and spoke with officials from the following seven activities and the 
telecommunication vendor, MCI, to determine why there were overlapping 
calls or calls placed from different geographical areas. The seven 
activities were (1) NCTAMS Norfolk, (2) Base Communications Office 
(BCO) Philadelphia, (3) Naval Computer and Telecommunication Station 
San Diego (NCTSSD), (4) Marine Corps Base (MCB) Camp Pendleton, (5) USS 
Mitscher, (6) Naval Air Lakehurst, and (7) NAWCAD Patuxent. At these 
locations, we spoke with Navy officials and their telecommunications 
vendor, MCI, to determine why there were overlapping calls or calls 
placed from different geographical areas at almost the same time.

We requested comments on a draft of this report from the Secretary of 
the Navy or his designee. DOD provided written comments, which are 
presented and evaluated in the "Agency Comments and Our Evaluation" 
section and are reprinted in appendix II. We conducted our work from 
May 2003 through February 2004 in accordance with generally accepted 
government auditing standards.

[End of section]

Appendix II: Comments from the Department of Defense: 

ACQUISITION, TECHNOLOGY AND LOGISTICS:

OFFICE OF THE UNDER SECRETARY OF DEFENSE:

3000 DEFENSE PENTAGON 
WASHINGTON, DC 20301-3000:

DPAP/P:

MAY 24 2004:

Mr. Gregory D. Kutz:
Director, Financial Management And Assurance:
U.S. General Accounting Office: 
Washington, DC 20548:

Dear Mr. Kutz:

This is the Department of Defense (DoD) response to the GAO draft 
report, (04-671), "VENDOR PAYMENTS: Inadequate Management Oversight 
Hampers the Navy's Ability to Effectively Management Its 
Telecommunication Program," dated April 20, 2004 (GAO Code 192079)."

My point of contact is Mr. Mike Canales and he can be reached at (703) 
695-8571 or via e-mail at michael.canales@osd.mil. Please contact Pat 
Christensen of the Navy for any follow-up action at 703-601-0230, or 
via e-mail at patriciaxhristensen@navy.mil.

Sincerely, 

Signed by: 

Deidre A. Lee:

Director, Defense Procurement and Acquisition Policy:

Enclosure: As stated:

GAO DRAFT REPORT DATED APRIL 20, 2004 GAO-04-671 (GAO CODE 192079)

"VENDOR PAYMENTS: INADEQUATE MANAGEMENT OVERSIGHT HAMPERS THE NAVY'S 
ABILITY TO EFFECTIVELY MANAGE ITS TELECOMMUNICATION PROGRAM":

DEPARTMENT OF DEFENSE COMMENTS TO THE GAO RECOMMENDATIONS:

RECOMMENDATION 1: The GAO recommended that the Secretary of the Navy 
direct the CNO to develop and maintain a comprehensive inventory of the 
Navy's base telecommunications equipment and services. (p. 27/GAO Draft 
Report)

DOD RESPONSE: Concur. The Navy has already initiated efforts to develop 
an enterprise-wide governance process for telecommunications and 
recognizes that the effectiveness of this process is dependent on 
managers having an accurate understanding of the Navy's inventory of 
telecommunications equipment and services.

RECOMMENDATION 2: The GAO recommended that the Secretary of the Navy 
direct the CNO to support DISA efforts to track acquisitions of 
telecommunication services throughout DOD, the actual costs of those 
services, and trends in usage (that is, the volume and types of traffic 
that networks carry). (p. 27/GAO Draft Report)

DOD RESPONSE: Partially concur. The Secretary of the Navy will direct 
cognizant senior Department of the Navy officials to support DISA 
tracking efforts to the maximum extent practicable.

RECOMMENDATION 3: The GAO recommended that the Secretary of the Navy 
direct the CNO to establish comprehensive policies and guidance 
governing the purchase and use of cell phone services that should 
include (a) the use of pre-negotiated or centrally negotiated rates and 
(b) the periodic assessment of cell phone usage to determine if plan 
packages provide the most cost-effective means to satisfy the Navy's 
usage requirements. (p. 27/GAO Draft Report)

DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant 
senior Department of the Navy officials to establish policies and 
guidance governing the purchase and use of cell phone services.

Enclosure:

RECOMMENDATION 4: The GAO recommended that the Secretary of the Navy 
direct the CNO to establish comprehensive policies and guidance 
governing the purchase and use of calling card services, which should 
include policies about accountability, the proper review of invoices, 
and the prohibition of sharing of calling cards. (p. 27/GAO Draft 
Report)

DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant 
senior Department of the Navy officials to establish policies and 
guidance governing the purchase and use of calling card services.

RECOMMENDATION 5: The GAO recommended that the Secretary of the Navy 
direct the CNO to develop, in coordination with Navy commands, a 
strategic management framework for improving inventorying current and 
potential users of telecommunication services to determine existing and 
future requirements. (p. 27/GAO Draft Report)

DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant 
senior Department of the Navy officials to develop a strategic 
management framework to improve the effectiveness/efficiency of Navy 
oversight, management and acquisition of telecommunications services 
and business operations.

RECOMMENDATION 6: The GAO recommended that the Secretary of the Navy 
direct the CNO to develop, in coordination with Navy commands, a 
strategic management framework for identifying and exploiting 
opportunities to consolidate requirements among Navy commands. (p. 27/
GAO Draft Report)

DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant 
senior Department of the Navy officials to develop a strategic 
management framework to improve the effectiveness/efficiency of Navy 
oversight, management and acquisition of telecommunications services 
and business operations.

RECOMMENDATION 7: The GAO recommended that the Secretary of the Navy 
direct the CNO to develop, in coordination with Navy commands, a 
strategic management framework for adopting, when appropriate, commonly 
used commercial practices, such as conducting spend analyses and 
competing and negotiating pricing discounts based on overall Navy 
volume, to strengthen Navy bargaining position in acquiring 
telecommunication services. (p. 27/GAO Draft Report)

DOD RESPONSE: Concur. The Secretary of the Navy will direct cognizant 
senior Department of the Navy officials to develop a strategic 
management framework to improve the effectiveness/efficiency of Navy 
oversight, management and acquisition of telecommunications services 
and business operations. Where appropriate this will involve the 
adoption of best commercial practices.

RECOMMENDATION 8: The GAO recommended that the Secretary of the Navy 
direct the CNO to strengthen analysis of telecommunications services 
requirements, spending, and the capabilities of telecommunication 
service providers by enhancing core internal technical expertise and 
information systems. (p. 28/GAO Draft Report)

DOD RESPONSE: Partially Concur. The requirement for enhanced core 
internal technical expertise and information systems will be analyzed 
and considered as part of the Navy's efforts to develop a management 
framework for improving the efficiency of the Navy's acquisition and 
use of telecommunications services.

RECOMMENDATION 9: The GAO recommended that the CNO direct the 
commanders to provide assurance that existing policies are enforced and 
fully evaluate the internal controls over the review and revalidation 
of telecommunication requirements. (p. 28/GAO Draft Report)

DOD RESPONSE: Concur.

RECOMMENDATION 10: The GAO recommended that the CNO direct the 
commanders to provide assurance that existing policies are enforced and 
fully evaluate the internal controls over the reconciling of 
telecommunication invoices with a current inventory of 
telecommunication equipment and services. (p. 28/GAO Draft Report)

DOD RESPONSE: Concur. In consonance with the Navy's efforts to develop 
an accurate understanding of the Navy's inventory of telecommunications 
equipment and services as discussed in response to GAO recommendation 
1.

RECOMMENDATION 11: The GAO recommended that the CNO direct the 
commanders to provide assurance that existing policies are enforced and 
fully evaluate the internal controls over the distribution and use of 
calling cards and take further actions to discontinue cards that are 
not properly controlled. (p. 28/GAO Draft Report)

DOD RESPONSE: Concur.

[End of section]

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Diane Handley, (404) 679-1986 Rathi Bose, (404) 679-1996: 

Acknowledgments: 

In addition to those named above, Art Brouk, Michael Chambless, 
Francine DelVecchio, Johnny Clark, Carmen Harris, John Ledford, and 
John Ryan made key contributions to this report.

(192097): 

FOOTNOTES

[1] NNSOC is the major command over the regional Naval Computer and 
Telecommunications Area Master Stations (NCTAM). Prior to July 2001, 
NNSOC was referred to as the Naval Computer and Telecommunications 
Command (NCTC).

[2] DOD 7000.14-R, Financial Management Regulation, Volume 10, Chapter 
1, March 2002, and Chapters 7, 9, February 1996.

[3] Department of Defense Instruction 4640.14, Base and Long-Haul 
Telecommunications Equipment and Services, December 6, 1991.

[4] FTS is a long-distance telecommunication service available for use 
by U.S. government agencies. GSA currently provides services through 
contracts designated by the title 'FTS2001'.

[5] A common-user long-haul network is one that provides long-distance 
communication service to a large, general population of users, rather 
than being dedicated to a small and specialized community.

[6] This organization has been renamed and is now called the Assistant 
Secretary of Defense (Networks and Information Integration), (ASD 
(NII))/Chief Information Officer.

[7] U.S. General Accounting Office, Defense Networks: Management 
Information Shortfalls Hinder Defense Efforts to Meet DISN Goals, GAO/
AIMD-98-202 (Washington, D.C.: July 1998). 

[8] U.S. General Accounting Office, Best Practices: Taking a Strategic 
Approach Could Improve DOD's Acquisition of Services, GAO-02-230 
(Washington, D.C.: January 2002); Best Practices: Improved Knowledge of 
DOD Service Contracts Could Reveal Significant Savings, GAO-03-661 
(Washington, D.C.: June 2003); and Contract Management: High-Level 
Attention Needed to Transform DOD Services Acquisition, GAO-03-935 
(Washington, D.C.: September 2003).

[9] GAO-03-661.

[10] S. Rep. No. 107-62, at 325-27 (2001); H.R. Conf. Rep. No. 107-333, 
at 687-88 (2001).

[11] National Defense Authorization Act for Fiscal Year 2002, Pub. L. 
No. 107-107, §§ 801, 802, 115 Stat. 1174-78 (December 28, 2001) 
(codified at 10 U.S.C. §§ 2330, 2330a, and 2331, and 2330 Note). 
Congress expressed a preference for a single system to collect data on 
purchase of both services and information technology in excess of the 
simplified acquisition threshold. 10 U.S.C. § 2330a(c).

[12] GAO-03-935.

[13] GAO-03-661, GAO-03-935. 

[14] Department of Defense Instruction 4640.14, Base and Long-Haul 
Telecommunications Equipment and Services, December 6, 1991, and 
Department of Defense Directive 4640.13, Management of Base and Long-
Haul Telecommunications Equipment and Services, December 5, 1991.

[15] Data mining involved the manual or electronic sorting of vendor 
invoice data to identify and select for further follow-up and analysis 
transactions with unusual or questionable characteristics.

[16] DOD 7000.14-R, Financial Management Regulation, Volume 10, Chapter 
1, March 2002, and Chapters 7-9, February 1996.

[17] To get to the user level at NNSOC, we visited Naval Computer and 
Telecommunications Area Master Station Atlantic-Virginia (NCTAMSLANT). 
We obtained a list of member activities within the command, which 
NCTAMSLANT has responsibility for making payments for telecommunication 
services and equipment. From this list we chose to do further work at 
the Commander-in-Chief US Atlantic Fleet (CINCLANTFLT), primarily based 
on the variety of telecommunication services being paid for.

[18] DISA, through an organization located at Scott Air Force Base, 
Illinois, maintains DOD's long-haul database.

[19] We were unable to perform any testing at CINCLANTFLT to determine 
if individuals were under-or overutilizing their plans because 
CINCLANTFLT uses the shared minute cellular plans.

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