The government agency that distributes foreign aid cost taxpayers half a million dollars the past two years by repeatedly upgrading senior officials' plane tickets from coach to business class, an investigation found.

Among those at the U.S. Agency for International Development (search) who took advantage of the upgrades were Administrator Andrew Natsios and the agency's internal watchdog, Inspector General Everett Mosley, according to two internal reports obtained by The Associated Press.

"It can be concluded that employees who took advantage of the (upgrade) allowed this private gain to take precedence over the ethical principles of properly following government travel rules and regulations," investigators reported.

The investigators were from Mosley's office of the inspector general.

USAID's travel practice, more liberal than that followed by other government agencies, was ended by Natsios as a result of the investigation.

Mosley is the official assigned to investigate fraud, waste and abuse in the agency. The probe provided a rare instance when Mosley's subordinates investigated their boss and referred him to the Justice Department (search) for possible criminal prosecution.

Mosley's investigators also concluded Natsios may have run afoul of standards of conduct by failing to stop the practice "after he and members of his executive staff had been put on notice" that it was inappropriate.

Prosecutors declined criminal prosecution, in part because Mosley's conduct was being referred to the President's Council on Integrity and Efficiency (search), which investigates allegations of wrongdoing against inspectors general.

Both officials defended their conduct, saying they simply followed USAID's two-decades-old rules that allowed senior political appointees to upgrade to business class for a trip that lasts more than seven hours. The rest of the government permits upgrades only when trips are longer than 14 hours and creates no distinctions between rank-and-file workers and senior officials.

"The implication is, somehow I established a policy that's at variance to get a benefit for myself," Natsios told The Associated Press. "This policy has been in force for 22 years. The question for me is, if this is so serious a problem, why has no inspector general said anything for 22 years."

Natsios cited a memorandum from the State Department's general counsel, concluding that federal rules permit discretion in setting travel policy and did not specifically prohibit the USAID exception.

In a separate interview, Mosley said: "I followed the agency travel policy which had been in place, ... and I had no reason to question it."

Business class (search) seats get travelers better food, toiletry and amenities kits, extra legroom, wider and deeper reclining seats, plush foot rests, complimentary alcoholic drinks and laptop computer outlets.

Because it was reserved for USAID's senior officials, the policy "created a sense of entitlement to business class travel among the agency senior executive staff based solely on rank or position," Mosley's investigators concluded.

From January 2002 to February 2004, USAID "has paid a cumulative total of $494,000 for business class travel that is not properly justified based on government rule and/or regulation," investigators said. The investigators did not try to calculate the extra cost over the two decades the policy was in effect.

While the report doesn't specify a number of upgraded flights, officials had to take hundreds of upgrades — which can reach into thousands of dollars per trip — to rack up such costs over the years.

For instance, Mosley's six upgraded trips cost more than $40,500, when coach tickets would have cost about $26,000, they reported.

A trip by Natsios and another official to Zurich, Switzerland, cost nearly $13,000; coach tickets would have cost $1,770, the reports said.

Senate Finance Committee Chairman Charles Grassley, R-Iowa, said Mosley said he had not been warned USAID lacked authority to set the seven-hour travel rule, but Mosley's own staff travel expert told investigators he gave Mosley that warning in the fall of 2000.

Mosley "engaged in wasteful and unauthorized travel practices, and then failed to be truthful about it," said Grassley, who has closely followed the investigation.

"Even though the Justice Department has declined to prosecute Mosley on criminal charges, he still must face the music on the alleged ethics violations outlined in the investigation."

The internal investigation also questioned whether Natsios and other officials may have violated a law that prevents retaliation against whistle-blowers when they reassigned the agency's chief of travel and transportation after she protested the upgrades.

Natsios said she was transferred because she ran a dysfunctional office, and her protests about upgrades played no role.