United States General Accounting Office Washington, DC 20548 May 24, 2001 The Honorable Dan Burton Chairman, Committee on Government Reform House of Representatives Dear Mr. Chairman: I am writing in response to your March 22, 2001, letter asking for our views on the merits of allowing federal employees to keep and use the frequent flyer miles received on official travel as an aid in efforts to recruit and retain employees. You also asked us to obtain the views of the Foreign Service Officers Association on this issue. A few months ago, a task team of GAO staff began looking informally into whether GAO should seek legislative authority to allow its employees, as well as perhaps other federal employees, to keep for their personal use frequent flyer miles received as a result of official travel. The purpose of such authority would be to help GAO and other agencies better compete with the private sector in recruiting and retaining top- quality employees. The team reviewed the current federal policy on this issue, determined how that policy was being implemented, compared the federal policy to the private sector’s practice, and informally obtained the views of officials from several federal agencies on the current policy and possible changes to it. While the current policy covers frequent traveler benefits, including those offered by airlines, hotels, and car rental vendors, our review was limited to frequent flyer benefits. However, we recognize that all of these are promotional benefits offered to the general public at no additional cost to the government. To carry out our informal inquiry, we reviewed relevant federal legislation and regulations and previous Comptroller General decisions. We obtained information on our own units’ application of the federal frequent traveler policy as it applies to frequent flyer miles and interviewed representatives from several federal organizations, including the Departments of Defense (DOD), the Interior, and Justice; the General Services Administration (GSA); the Internal Revenue Service (IRS); the Securities and Exchange Commission (SEC); and the U.S. Postal Service. We chose GSA because it is responsible for the governmentwide policy on federal travel, DOD and the Postal Service because they have so many employees, and the other agencies because we understood that they had explored forming or had formed programs to capture and use frequent flyer miles for government travel. At your request, we also Page 2 talked to a representative from the Foreign Service Officers Association. Finally, we obtained information on the private sector’s plans and practices in this area from the National Business Travel Association, an organization consisting of travel service providers and corporate travel managers, and a limited literature review. We did not discuss frequent flyer issues with the airlines, but we did review relevant policies and procedures posted on their Internet Web sites. Moreover, given the informal nature of our review, we did not obtain official agency comments on the information we are providing in this letter; however, we did discuss its contents with representatives from the agencies we contacted. In summary, current federal policy prohibits most federal employees from retaining for personal use frequent flyer miles received on official travel and requires federal agencies to encourage, promote, and facilitate the use of such miles to reduce the government’s travel costs. Governmentwide data are not readily available on the extent to which this policy is implemented or on what savings can be attributed to it. However, our experience, as well as that of several other federal agencies, indicates that the policy is difficult to implement, primarily for two reasons. First, the airlines-- which regard frequent flyer miles as belonging to the individual traveler, not the organization that pays for the travel--are generally unwilling to create separate official and personal frequent flyer accounts for individual travelers. Second, employees are often reluctant to provide their employers with account statements detailing both official and personal travel. In addition, practical constraints and the burden and cost of administering the program limit its benefits to the government. For example, free frequent flyer tickets are not always available when needed. Furthermore, according to GSA, even if federal agencies made more aggressive efforts to capture and use their employees’ official travel miles, the airlines might respond by reducing or eliminating the discount the federal government currently receives on contract airfares. GSA reports that this discount has saved the government over $2 billion annually. The private sector, by contrast, commonly allows its employees to keep the frequent flyer miles they receive on business travel, giving private companies, including government contractors, a competitive edge over federal agencies in this area. Overall, in our view, while the current federal policy was well intentioned, its implementation is fraught with difficulties, and the competition to attract and retain skilled employees has increased such that Congress should consider changing the federal government’s policy to allow employees to keep any frequent flyer miles received on government travel. However, if this is done, it will be important for agencies to effectively implement controls over the need for travel and the selection of routes and carriers consistent with the government’s overall best interests. Changing the federal policy could increase the travel costs of some agencies that now capture and use their employees’ official travel miles, and we do not know whether or how the airlines would respond to such a change. Allowing employees to keep their official travel miles would be consistent with the airlines’ position that frequent flyer miles belong to the individual traveler. Above all, a change in the current policy would boost federal employees’ morale and help the government attract and retain top-quality employees. In this regard, we believe, Congress should consider making Page 3 any such policy change retroactive so that employees can benefit from any unused miles accumulated to date. Current Federal Frequent Traveler Policy Under current federal laws and regulations, the frequent traveler benefits1 received by a federal employee in conjunction with official travel are generally considered government property, and the employee may not retain the benefits for personal use. As a result, the employee should accept the benefits on behalf of the government and turn them over to the employee's agency. The agency should then integrate the benefits into its travel plans to maximize their value to the government. Initially, this policy was enunciated and followed in a number of prior Comptroller General decisions. These decisions were based on the fundamental rule of law that a federal employee is obligated to account for any gift, gratuity, or benefit received from private sources incident to the performance of official duty. Any such gifts, gratuities, or benefits tendered to the employee are viewed as having been received on behalf of the government.2 In 1994, Congress enacted a statute designed to help realize to the maximum extent practicable cost savings for official travel from frequent traveler benefits. The statute directed the Administrator of GSA to issue guidelines to ensure that agencies promote, encourage, and facilitate the use of frequent traveler programs offered by airlines, hotels, and car rental vendors by federal employees who engage in official travel.3 This act specifically provides that any awards granted under such a frequent traveler program accrued through official travel shall be used only for official travel.4 GSA has incorporated these policies into the Federal Property Management Regulations5 and the Federal Travel Regulation,6 applicable to most federal civilian employees. Similarly, the Joint Federal Travel Regulations,7 applicable to members of 1These include the benefits offered by airlines, hotels, and car rental vendors. 2See 67 Comp. Gen. 79 (1987) (quoting B-199656, July 15, 1981); and 63 Comp. Gen. 229 (1984). See also, 63 Comp. Gen. 233 (1984); B-215826, Jan. 23, 1986; and B-257525, Nov. 30, 1994. 3Federal Acquisition Streamlining Act of 1994, P.L. 103-355, § 6008, 102 Stat. 3367 (1994), 5 U.S.C. § 5702, note. 4P.L. 103-355, § 6008(b). GSA issued Bulletin FTR 17, Oct. 24, 1995, advising agencies of the provisions of P.L. No. 103-355, § 6008 and reminding them of the existing provisions of the Federal Travel Regulation concerning cost-saving opportunities provided by the use of frequent traveler benefits. In Bulletin FTR 17, GSA also encouraged agencies to establish programs under the Government Employees Incentive Awards Act, 5 U.S.C. §§ 4501-4507, to reward employees who take the initiative to accrue travel savings, and GSA offered its program as a guide in establishing such reward programs. 541 C.F.R. § 101-25.103-2. 641 C.F.R. part 301-53. 7Paragraph U2010B. Page 4 the uniformed services, recognize that promotional material received by a uniformed service member traveling on official business at government expense belongs to the government and must be relinquished in accordance with service regulations.8 Legislation would be required to change the government's general policy to allow civilian employees and uniformed service members to retain for personal use frequent traveler benefits accrued on official travel. Such legislation would be necessary to repeal the current requirement that such benefits be used only for official travel9 and to affirmatively authorize employees and members to retain for personal use these benefits that are now considered the property of the government. Use of Frequent Flyer Miles for Official Travel Is Difficult and Appears Limited Comprehensive governmentwide data are not readily available on the extent to which federal agencies capture and use frequent flyer miles for official travel. GSA officials told us that they do not collect such data. However, our task team did obtain information on GAO’s practices, as well as those of several other federal organizations. This information follows. GAO’s Experience GAO has never had a centralized, formal program to reduce its travel costs by capturing and using its employees’ official travel miles. Several years ago, we pilot- tested a program in one of our headquarters units but soon discontinued it for a variety of reasons. These reasons, which have also discouraged other headquarters units, include the airlines’ refusal to establish separate official and personal travel accounts for employees, employees’ reluctance to participate, administrative burdens and costs, and limited savings. Furthermore, few frequent flyer seats were available at desired travel times, transfers of free tickets to other employees took time and effort, and employees who flew on different airlines often took a long time to accumulate enough miles for free trips. Although we never set up a GAO-wide program to capture and use frequent flyer miles, several of our field offices tried to establish such programs. Of these, the majority discontinued their efforts for the same reasons that discouraged our headquarters units. Two field offices did, however, establish programs and continue to operate them, yet their dollar savings have been very limited. One office saved $6,600 over about 33 months. This office has many employees with enough miles on single carriers for free trips, but these miles have been difficult to use because few seats have been available when employees have needed to travel. Furthermore, in past years, the unit’s savings were reduced by the $50 fee that the contract carrier charged for reservations made less than 3 weeks in advance. Accumulating sufficient 8 There are some federal organizations that are not covered by § 6008 of P.L. 103-355 and also have their own property disposal authority. One such organization we are aware of that does not prohibit its employees from retaining frequent flyer benefits for their personal use is the U.S. Postal Service. 9§ 6008 of P.L. 103-355. Page 5 frequent flyer miles for this unit's employees has become more problematic since the government contracted with a different carrier for one of the unit’s most heavily traveled routes. The other field office, which reported saving about $32,000 over 6 years, also noted that multiple changes in contract carriers have made it more difficult to accumulate and effectively use frequent flyer miles. Experiences of Other Federal Organizations The other federal organizations we contacted had varied approaches to capturing and using frequent flyer benefits for official travel. A representative from one--the U.S. Postal Service, which is not subject to the travel rules that apply to most federal agencies--said that the Service does not prohibit its employees from making personal use of the frequent flyer miles received on official travel. In 1998, the Department of the Interior considered establishing a frequent traveler program that would have been managed by a contractor. However, the Department rejected the contractor’s proposal as too expensive and difficult to implement. Interior believed that the fees the contractor would have charged were excessive and the savings were uncertain. In addition, under the contractor’s proposal, Interior would have had to provide the contractor with data on the frequent flyer miles received by its employees. It would have had to obtain the data from the employees because the airlines would not provide the information to the agency. An Interior Department representative told us that some of its bureaus use frequent flyer benefits to enable their employees to take training and attend conferences because their budgets do not cover non-program-related travel. Therefore, if frequent flyer miles received on program-related travel were not captured and used for this type of travel, the bureaus might not be able to send their employees to these types of events. At the same time, if employees were allowed to retain the frequent flyer benefits, they might be willing to use some of their miles for such travel on a voluntary basis. GSA, IRS, and the Department of Justice have established gain-sharing programs that enable frequent travelers to share in the savings they achieve in airfares, lodging costs, or both. Under these programs, employees can obtain cash awards based on savings they can document by using free tickets from airline frequent flyer programs or by securing lodging rates below the maximum amounts allowed. According to GSA officials, GSA considered establishing a frequent traveler program in the early 1990s but abandoned the idea because the airlines would neither pool the miles received by GSA employees for the agency’s use nor provide data to GSA on the miles its employees received. In 1995, however, GSA established a voluntary gain- sharing program under which employees who use free tickets awarded for official travel miles or secure lodging at less than the established lodging rates can receive cash awards of up to half the amount saved for the government. GSA reported that from January 1995 through September 2000, almost $823,000 was saved under the program, and employees received about half that amount in cash awards. These savings do not take into account the costs of administering the gain-sharing program, which GSA officials believe were minimal. However, GSA officials view the program Page 6 as a limited success because the savings are low relative to GSA's overall travel costs, which totaled about $190 million for the last 6 years. In addition, GSA officials believe that most of the savings are from the lodging portion of the program rather than from the use of frequent flyer miles. IRS established a program similar to GSA's in 2000 at the request of the National Treasury Employees Union. Employees can accrue savings by such means as using frequent flyer miles to obtain free airline tickets, sharing hotel rooms with coworkers, or staying with friends or relatives. IRS travel officials did not have data on the savings achieved through their program because the program is less than a year old. However, they view the program as a success. They said employees like the program and most of the savings are in lodging costs. The Justice Department established its gain-sharing program at the beginning of fiscal year 1996. Like GSA and IRS, Justice shares savings its employees achieve by using frequent flyer miles and obtaining lodging at reduced costs. The program is discretionary, and Justice components can choose whether they want to include frequent flyer savings, lodging savings, or both. Administrative support staff who assist travelers who achieve savings can also share in the savings awards. According to Justice, it saved about $70,000 in fiscal year 1996 and $202,000 in fiscal year 1997 and paid cash awards equaling about half of the savings. Again, these financial benefits do not factor in the gain-sharing program’s administrative costs. Justice did not provide savings data beyond fiscal year 1997. According to a representative from DOD, the Department does not have a departmentwide frequent traveler program and has no data on the extent to which its components have such programs. He said that in the mid-1990s, his command attempted to, but could not, find an effective program for capturing and using employees' official frequent flyer miles anywhere in DOD. He believes the use of free tickets awarded for frequent flyer miles in DOD is spotty at best. He cited many of the same practical difficulties with implementing the current federal policy that we and other agencies identified, including the reluctance of both the airlines and employees to provide frequent flyer data to the government and the problems with tracking and using miles for official travel. He also identified another difficulty--the time and expense associated with taking disciplinary action against employees who violate the current policy by making personal use of miles received on official travel. He said his agency completed a demotion action against an employee for personal use of miles, but assistance from the airlines was difficult to obtain. Such action, he maintained, was not cost-effective. These difficulties, combined with a departmental emphasis on adopting private-sector practices, have led DOD to prepare draft legislation that would abolish the current restriction and allow military and civilian employees governmentwide to retain for personal use frequent flyer benefits received on official travel. He said that DOD has discussed its proposal with other federal agencies, which have been supportive. DOD is currently considering submitting its proposal to the Office of Management and Budget. An SEC representative informed us that SEC began using a contractor’s software 2 to 3 years ago to facilitate the use of frequent flyer mileage. She said that employees’ participation in SEC’s frequent flyer program is voluntary and that SEC’s savings have Page 7 been minimal, in part because frequent flyer tickets do not give travelers flexibility in arranging their travel. Specifically, she said that it is difficult for SEC employees to obtain seating using frequent flyer tickets because many trips are scheduled, canceled, or changed at the last minute. Finally, she said that SEC is likely to discontinue its contract because the savings, minus the contractor’s 30-percent commission, are not sufficient to offset SEC’s “hidden” management and oversight costs and employees have not been enthusiastic about participating in the program. The Private Sector’s Practices According to the results of three recent surveys, the private sector commonly allows its employees to retain for personal use frequent flyer miles received on business travel. This practice may give the private sector, including government contractors, an advantage over the federal government in recruiting and retaining employees. While small compared with the higher salaries companies often pay, this advantage may nonetheless influence the job choices of some employees, especially if they are frequent travelers. In April 2001, the National Business Travel Association surveyed its members via the Internet on frequent traveler programs. According to the Association, 200 companies responded. Of these, 98 percent said they do not recover frequent traveler benefits received by employees on business travel for their companies, and 95 percent said they have no plans to do so. According to the Association, most companies do not want to become involved in capturing these benefits because it is too difficult to track miles or points received. In May 2000, the Bureau of National Affairs reported the results of a 1999 survey of about 1,800 companies on their business travel policies. These companies, about 450 of which responded to the survey, represented a cross section of U.S. employers: 34 percent were manufacturing companies, 36 percent were nonmanufacturing (e.g., service) businesses, and about 30 percent were other establishments, such as health care facilities, educational institutions, and government agencies. Seventy percent of the companies had fewer than 1,000 employees, and the remainder had more. According to the survey, most employers with business travelers allowed their workers to keep frequent flyer miles received on business travel for their own use. About two-thirds of the responding companies reported specifically allowing their employees to retain the miles for their personal use, about 20 percent reported having no policy at all, and under 10 percent reported requiring their employees to relinquish mileage received to the company. A few companies reported having gain-sharing programs similar to GSA’s, IRS’, and Justice’s. The findings from these two surveys appear consistent with the results of an American Express survey of business travel management, reported in July 1999 by Business Travel News, a business travel industry publication. According to the article discussing this survey, the trend in the private sector was away from collecting frequent flyer awards, and the number of corporations doing so was declining. Specifically, the survey showed that the proportion of companies managing and using frequent flyer miles received by their travelers fell from 9 percent in 1994 to 4 percent in 1996. According to the article, “most companies neither want the headache of Page 8 tracking miles nor the disincentive that taking them away might present to employees.” In addition, the article discussed the views of the travel services manager of a company that was using a contractor to aggressively track and use frequent flyer miles for company business. Although this approach was saving the company 10 percent of its overall air travel costs, the manager said he would rather receive discounts from the airlines than deal with frequent flyer miles. These survey results are also consistent with the experience of one large corporation that we contacted in 1994 after learning that it had established a program to capture and use for company travel frequent flyer miles received by employees on company business. The company later told us that it had discontinued the program because of its adverse effect on employee morale. In April 2001, we contacted the company again, and a representative told us that the company continues to allow its employees to make personal use of frequent flyer miles received on company travel. Views on Frequent Flyer Issue You asked for our views on this issue as well as those of the Foreign Service Officers Association. I will discuss the Association’s views first. In April 2001, the Director of Congressional Affairs for the Foreign Service Officers Association told us that the Association would support legislation that would allow federal employees to keep for personal use frequent flyer miles earned on official travel. He said the Association recognizes that many foreign service officers frequently travel long distances and would therefore receive considerable benefits from such legislation. However, he noted that these officers are often assigned to hardship locations that require difficult travel. He also said that if this type of legislation is not feasible, the Association’s members would like to be able to use their frequent flyer miles to upgrade to business class on long flights. In our view, the current federal policy on frequent flyer miles was well intentioned as a potential means for reducing federal travel costs and promoting economy in government. We recognize that federal agencies, including GAO, might be able to achieve some additional savings by taking more advantage of frequent flyer miles for government travel. However, the practical obstacles to achieving significantly greater savings are such that few agencies have overcome them without creating incentives, such as gain-sharing plans, that have generally reduced the government’s savings by half. Additionally, more aggressive efforts to use frequent flyer miles to reduce the government’s travel costs could, according to GSA, jeopardize its ability to negotiate significant savings under its contract air carrier program. This negotiated travel program saves the government over $2 billion annually. GSA officials responsible for the program told us they believe the savings achieved through this program far outweigh the benefits the government would gain through more aggressive efforts to capture and use frequent flyer miles for official travel. We do not know how a change in the current federal policy to permit individual use would affect GSA’s ability to negotiate savings in contract airfares. However, a change would not seem likely to have a negative impact, since, in contrast to the current policy, it would be consistent with the airlines’ position that frequent flyer miles belong to the individual traveler. Page 9 Changing the federal policy on frequent flyer miles would have some disadvantages for the government. First, it would eliminate any savings that certain agencies currently achieve by implementing the policy. In addition, some employees who now travel on free tickets obtained with frequent flyer miles might no longer be able to travel when funds for air travel were not available or were in short supply. However, these disadvantages would, we believe, be far outweighed by the advantages of a change, both to federal employees and to the government. A change would eliminate the current disparity in practice between the private sector and the government and would put federal employees on a par with their private-sector counterparts, including federal contractor personnel, in this area. Like private-sector employees, federal employees who put up with flight delays and cancellations and travel on their own time to meet work schedules would then feel that they were being compensated, in part, for these frustrations and sacrifices. Establishing parity between the federal government and the private sector in this area would also aid the government in recruiting and retaining top-quality employees. If the current policy is changed to allow federal civilian and military employees to retain their official travel miles for personal use, controls over the need for travel and the selection of routes and carriers would have to be effectively implemented. These controls are designed to prevent employees from selecting certain carriers to earn miles or otherwise undercutting the government’s negotiated fare agreements with major carriers. Today, millions of frequent flyer miles earned on official travel are going unused, benefiting neither the government nor its employees. Changing the federal frequent flyer policy—and changing it retroactively so that employees can take advantage of these unused miles--would boost federal employees’ morale and strengthen the federal government’s ability to compete with the private sector. We therefore believe Congress should consider allowing federal employees to keep and make personal use of the frequent flyer miles they have already received and will receive for official travel. In order to assist the Committee, we have enclosed draft legislation that would accomplish this objective (see enc. I). If you have any questions on the information we are providing or if we can be of further assistance, please call me on (202) 512-5500 or John H. Anderson, Jr., Managing Director, Physical Infrastructure Issues, on (202) 512-2834. Sincerely yours, David M. Walker Comptroller General Of the United States Page 11 Enclosure I Draft Legislation Be it enacted by the Senate and House of Representatives of the United States in Congress assembled, SEC. 1. Section 5702 of title 5, United States Code, is amended – (1) by redesignating subsection (c) as subsection (d); and (2) by inserting after subsection (b) the following new subsection (c): “(c) Notwithstanding the provisions of subsection (d), promotional items an employee (including a justice or judge) receives as a consequence of using travel or transportation services procured by the United States or accepted pursuant to 31 U.S.C. § 1353 may be retained by the employee for personal use. Promotional items include only those obtained under the same terms as those offered to the general public and at no additional cost to the government. Promotional items include but are not limited to frequent flyer miles, upgrades, and access to carrier clubs or facilities.” SEC. 2. Section 404 of title 37, United States Code, is amended – (1) by redesignating subsection (j) as subsection (k); and (2) by inserting after subsection (i) the following new subsection: “(j) Promotional items a member receives as a consequence of using travel or transportation services procured by the United States or accepted pursuant to 31 U.S.C. § 1353 may be retained by the member for personal use. Promotional items include only those obtained under the same terms as those offered to the general public and at no additional cost to the government. Promotional items include but are not limited to frequent flyer miles, upgrades, and access to carrier clubs or facilities.” SEC. 3. Section 6008 of the Federal Acquisition Streamlining Act of 1994, Public Law 103-355 (5 U.S.C. § 5702, note), is repealed. SEC. 4. Sections 1 and 2 of this act shall apply to promotional items received prior to the effective date of this act. Sectional Analysis Section 1 of this legislation would amend section 5702 of title 5, United States Code (Per diem, employees traveling on official business). This amendment would authorize federal civilian employees, including justices and judges, who receive promotional items incident to using government procured travel or transportation services, or such services accepted from non-Federal sources pursuant to 31 U.S.C. § 1353, to retain such promotional items for personal use. The travel or transportation services from which the promotional benefits accrue are intended to include services provided by airlines, hotels, and rental car vendors. The Administrator of the General Services Administration would be expected to prescribe regulations under existing authority in 5 U.S.C. § 5707 to protect the government from incurring excess costs or Page 12 improper selection of travel or transportation providers for the benefit of the employee. Enclosure I Section 2 of this legislation would amend section 404 of title 37, United States Code (Travel and Transportation Allowances). This amendment would provide the same treatment for members of the uniformed services. The Secretaries of the services concerned under existing authority in 37 U.S.C. § 404 would be expected to prescribe regulations similar to those prescribed by the Administrator of General Services. Section 3 of the legislation would repeal section 6008 of the Federal Acquisition Streamlining Act of 1994, Pub. L. 103-355, 108. Stat. 3367 (1994) (5 U.S.C. § 5702 note). Section 6008 requires the Administrator of the General Services Administration to issue guidelines to ensure that agencies promote, encourage, and facilitate the use of frequent traveler programs offered by airlines, hotels, and car rental vendors by Federal employees who engage in official travel, for the purpose of realizing cost savings for official travel. Section 6008 also provides that any awards granted under such a frequent traveler program accrued through official travel shall be used only for official travel. It would be necessary to repeal section 6008 since its provisions conflict with the purposes of sections 1 and 2 of the proposed legislation. Section 4 would make it clear that the legislation is applicable to any unused promotional benefits received by an employee or service member prior to the effective date of the legislation as well as to such benefits received on and after the effective date of the legislation.