By Martin H. Bosworth
ConsumerAffairs.com
September 20, 2005
The $2,000 debit cards issued to Hurricane Katrina survivors were short-lived but in a more ambitious program, the government is raising the credit limit on cards issued to federal employees and contractors to as much as $250,000.
The credit limit increases are supposed to enable government contractors to purchase equipment and resources for the disaster relief effort more quickly. But critics fear extensive abuse as cardholders buy personal items and charge the purchases to the government, or buy items from companies run by their cronies.
The credit limit increase was included at the request of President Bush as part of the $51 billion allocated for Katrina relief efforts by Congress.
The measure drew scathing criticism from Senator Charles Grassley (R-IA), chairman of the Finance Committee, who called it "outrageous," and said he would insert new language into a Katrina health care bill being developed by the Senate that would reduce the purchase limits to $50,000.
The increases were described in a press statement from the Office of Management and Budget (OMB) as "cutting the red tape on contracts" and essential to providing relief services to Katrina-stricken areas quickly and efficiently."
Author of Guidance Rules Arrested
The OMB issued new "guidance" rules to ensure the cards are not abused, such as identifying which individuals in each government agency are authorized to use the new purchase limits, and determining if purchases meet the criteria of being used exclusively for assistance with Katrina relief.
The author of the new purchase guidance rules, Office of Procurement Policy (OPP) Director David Safavian, stated that "this guidance helps make sure that adequate management controls are in place to ensure that taxpayers' dollars are spent efficiently and responsibly in support of disaster victims."
But Safavian was arrested by FBI agents on Sept. 19th, and charged with lying to an ethics officer of the Government Services Administration (GSA) regarding his relationship with controversial lobbyist Jack Abramoff. Safavian reportedly resigned as OPP director on Friday, Sept. 16th.
Potential for "Massive Fraud"
Beth Daley, of the Project On Government Oversight (POGO), stated that she saw the potential for "massive fraud and abuse" with the new spending limits, even with the OMB controls in place. POGO is a Washington, DC-based nonprofit organization that tracks government waste and abuse of taxpayer money.
"We've already seen numerous examples of inappropriate card usage by employees in the pastreally seamy stuff," Daley said. "The government would be wise to limit the number of people who have these purchase increases."
The "seamy stuff" Daley referred to included numerous Government Accountability Office (GAO) investigations of credit card abuse that included Pentagon and Navy employees using the cards to purchase trips to brothels and lap dances, and in one infamous case, a government employee who purchased breast enhancements for his girlfriend.
Other cases of abuse included buying personal computers, large-screen televisions, home furnishings, and even pets.
Cronyism Potential
Even more troubling are the possibilities of government employees purchasing directly from favored vendors or contractors without any competition or "bidding" on projects for Katrina relief. Due to the time lag between purchases and actual billing to the government, it could be weeks before any cases of fraud or abuse are successfully tracked down and investigated.
"The people who control spending increases for cases like this already have the authority to do it," Daley said. "This [increase of purchase limits] was totally unnecessary."
Investigations into past credit card abuses have found that even when agencies reimburse employees for using their personal credit cards, the employees are slow to pay the bank.
Bank of America, the chief issuer of credit cards to the government, was forced to "charge off" 13,800 accounts with over $16.6 million in bad debt from delinquent or unpaid military personnel accounts, according to a 2002 American Banker www.house.gov/burton/RSC/word/Wilson72803a.doc report.
Sen. Grassley co-authored a letter to the Congressional leadership asking them to lower the purchase limits and enact prior authorization before any high-level purchases were made.
"Your attention to this matter is critical to ensuring that this disaster is not compounded by a federal response that is vulnerable to fraud, waste, and abuse," the letter stated.
Ironically, Grassley was the author of the bankruptcy reform legislation signed into law in May of 2005, which makes it harder for consumers to discharge credit card debt via bankruptcy.
Bank of America misplaced data tapes containing millions of its government and military cardholders' personal information files in February 2005. Given the proliferation of credit cards among government personnel, the potential for identity theft damage from the lost data is considerable.
It is frequently argued that salaries for military and civilian personnel in government agencies don't match comparable rates in the private sector, so using credit cards for necessary expenses such as travel and equipment purchases is said to be as unavoidable.
But with the new mandatory minimum credit card payments in place for consumer-owned cards, cash-strapped public servants, especially those working for long periods away from home, may find themselves more and more tempted to use government-issued cards for necessities and luxuries alike.
Another problem stems from the regulations on card usage, which require cumbersome and complex forms to be filled out every time a card is used for a purchase. The simple solution would be to run credit checks on government and military employees before issuing cards, and to set spending limits based on each cardholder's history, similar to regular consumers.
Rep. Tom Davis (R-VA), chairman of the House Government Reform Committee, opposed new rules governing eligibility for card holders.
"Davis said measures to strengthen charge card programs, used for the procurement of routine items and for travel expenses, are unnecessary and contradict the purpose of the program, which is to make purchasing more efficient," according to a May 2005 article in GovExec.Com.
In testimony before Congress in 2002 as the scandals of credit card overspending were first coming to light, POGO's executive director, Danielle Brian, warned of the dangers of unregulated increases in government card spending.
"The downward spiral away from competitive purchasing and toward more acquisition from the few remaining giant defense contractors is exacerbated by the use of government credit cards," she said.
