To assist USO, the Congress, beginning in fiscal year 2000,  provided a total of $23.8 million in O&M funds in the form of grants for  USO. USO used these funds as seed money for the endowment. DOD Provided Substantial Appropriated and Nonappropriated Support to USO, but Total Amount Cannot Be Determined

During fiscal years 2000 through 2002, DOD provided substantial  appropriated and nonappropriated support, but the total amount cannot  be determined because of limitations in DOD’s and USO’s record-keeping  systems. DOD also  provided other appropriated support such as lodging, transportation, and  use of some facilities. However, we could not identify the total monetary  value of DOD’s support derived from appropriated funds because neither  DOD nor USO has record-keeping systems to aggregate or report the  needed information. While DOD also provides nonappropriated support,  largely in the form of in-kind goods (e.g., food and refreshments), services  (e.g., Internet and telephone access), and infrastructure support (some  performance facilities), to help sustain USO’s overseas operations, the  same limitations precluded us from determining the total monetary value  for this support. We identified at least $34.7 million in appropriated funds that DOD  provided to support USO’s activities during fiscal years 2000 through 2002. As of  September 2003, in fiscal years 2000 through 2002, DOD had provided a  total of $20.8 million in grants to USO as seed money to fund the Spirit of  Hope Endowment Fund, which is intended to ensure the continued  existence of USO’s programs and services. Contracts

AFEO provided USO with about $12.1 million in contract reimbursements  during fiscal years 2000 through 2002. Direct Payments

AFEO and the Air Mobility Command used appropriated O&M funds to  pay directly for USO tour-related expenses, such as commercial airfares,  visas and passports, and military airlift services. Sufficient Financial and Management Controls Did Not Exist to Assure Appropriate Use of Appropriated Funds

DOD and USO did not have sufficient financial and management controls  in place to provide reasonable assurance that all appropriated funds were  used appropriately. DOD properly awarded grant funds to USO, and USO  appropriately administered these funds. However, USO did not require its  independent auditor to fully test internal controls over grant funds or  funds reimbursed by DOD, as required under grant and contractual  agreements with DOD. For support provided through contract  reimbursements and direct payments, AFEO lacked clearly written  supplemental guidance regarding allowable expenses, effective  management oversight in reviewing USO invoices, and adequate  procedures for capturing reimbursable expenses. In some cases, these  weaknesses resulted in inappropriate expenditures of funds. Specifically,  we found problems with expenditures totaling about $433,000, including  approximately $86,000 in improper expenditures, $3,000 in questionable  expenditures, and $344,000 for unsupported expenditures. As a result of  our audit, AFEO officials told us they have initiated several actions to  improve financial and management controls and to recover funds from  USO. Improved oversight of expenses reimbursed to USO for overseas tours. Additionally, as of September  2003, AFEO had recovered about $19,000 in improper and questionable  payments it made to support USO overseas tours. Had USO’s independent auditor fully tested  internal controls, the problems we identified might have surfaced. Appendix I: Scope and Methodology

We reviewed the Department of Defense’s (DOD) Armed Forces  Entertainment Program and its partnership with the United Services  Organization (USO) in providing U.S. armed forces with celebrity  entertainment overseas.
Why GAO Did This Study

For more than 60 years, the United Services Organization (USO), in partnership with the Department of Defense (DOD), has provided support and entertainment to U.S. armed forces, relying heavily on private contributions and on funds, goods, and services from DOD. To assist USO, Congress, beginning in fiscal year 2000, provided a total of $23.8 million in grants to be awarded through DOD as seed money for an endowment fund. The availability of these funds to USO, along with DOD's ongoing support funded in its regular annual appropriations, represents a substantial financial commitment. GAO determined (1) the source and amount of DOD's support to USO in fiscal years 2000-2002 and (2) the sufficiency of internal controls to provide reasonable assurance that federal funds are used in an appropriate manner. GAO focused its audit on USO World Headquarters' activities and audited a limited selection of USO transactions for the 3 fiscal years.

What GAO Found

During fiscal years 2000 through 2002, DOD provided USO with substantial appropriated and nonappropriated support, but the total amount cannot be determined because of limitations in DOD's and USO's record-keeping systems. GAO identified at least $34.7 million in appropriated funds that DOD provided to support USO during fiscal years 2000 through 2002. Of this amount, $20.8 million was in congressionally appropriated grants to help USO establish the Spirit of Hope Endowment Fund to ensure the continuation of USO's programs and services. Another $12.1 million was for reimbursements to USO, and at least $1.8 million was paid directly by DOD for tour-related expenses such as commercial airfares, visas, and passports. DOD also provided other appropriated support, such as lodging and transportation. However, GAO could not determine the total monetary value of DOD's support from appropriated funds because neither DOD nor USO has record-keeping systems that aggregate the needed information. DOD also provides USO with nonappropriated support, largely in the form of in-kind goods (e.g., food), services (e.g., Internet access), and infrastructure support (e.g., performance facilities), to help sustain USO's overseas tours, but the same limitations precluded GAO from determining the total monetary value. DOD and USO did not have sufficient financial and management controls to reasonably ensure that all appropriated funds were used appropriately. DOD properly awarded grant funds to USO, and USO properly administered these funds. However, USO did not require its independent auditor to fully test internal controls over grants or funds reimbursed to USO by DOD, as required by its agreements with DOD. In terms of reimbursements to USO and direct payments by DOD, DOD lacked clearly written supplemental guidance regarding allowable expenses, management oversight in reviewing USO's invoices, and procedures for capturing reimbursable expenses. In some cases, these weaknesses resulted in inappropriate expenditures of funds. Based on limited testing, GAO found problems with payments totaling about $433,000, including about $86,000 in improper expenditures, $3,000 in questionable expenditures, and $344,000 for unsupported expenditures. Had USO's independent auditor tested internal controls, the problems GAO identified might have surfaced. As a result of GAO's audit, DOD stated it has initiated several actions to improve financial and management controls and to recover funds from USO. As of September 2003, DOD had recovered about $19,000 from USO in improper payments for overseas tour expenses.