Defense Management
DOD Needs to Strengthen Internal Controls over Funds Used to Support USO Activities Gao ID: GAO-04-56 December 5, 2003For 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.
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.
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Director: Team: Phone:GAO-04-56, Defense Management: DOD Needs to Strengthen Internal Controls over Funds Used to Support USO Activities
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Report to the Chairman, Committee on Appropriations, House of
Representatives:
United States General Accounting Office:
GAO:
December 2003:
Defense Management:
DOD Needs to Strengthen Internal Controls over Funds Used to Support
USO Activities:
GAO-04-56:
GAO Highlights:
Highlights of GAO-04-56, a report to the Chairman, Committee on
Appropriations, House of Representatives
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. As shown
in the table below, 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.
What GAO Recommends:
GAO recommends that the Secretary of Defense develop and implement
improvements in program guidance, record- keeping systems, and tests
of internal controls to improve the accountability and control of
funds used to support USO‘s operations.
In commenting on a draft of this report, DOD generally concurred with
GAO‘s recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-56.
To view the full product, including the scope and methodology, click
on the link above. For more information, contact Sharon Pickup, (202)
512-9619, or pickups@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOD Provided Substantial Appropriated and Nonappropriated Support to
USO, but Total Amount Cannot Be Determined:
Sufficient Financial and Management Controls Did Not Exist to Assure
Appropriate Use of Appropriated Funds:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Details of Improper First-Class and Business-Class
Travel:
Appendix III: Comments from the Department of Defense:
Appendix IV: Staff Acknowledgments:
Tables:
Table 1: Appropriated Funds Provided by DOD to Support USO Activities
for Fiscal Years 2000 through 2002:
Table 2: Appropriated Funds Provided Via Direct Payments by DOD for USO
Activities as Identified by GAO for Fiscal Year 2002:
Table 3: Examples of Improper Payments for Items Reimbursed or Paid by
AFEO for USO Tours for Fiscal Year 2002:
Table 4: Examples of Questionable Payments for Items Reimbursed or Paid
by AFEO for USO Tours for Fiscal Year 2002:
Table 5: Examples of Unsupported Payments for Items Reimbursed by AFEO
for USO Tours for Fiscal Year 2002:
Table 6: Examples of Improper First-Class and Business-Class Travel
Paid by the Armed Forces Entertainment Office Identified by GAO for
Fiscal Year 2002:
Figure:
Figure 1: Flow of DOD Funds to Support USO Activities during Fiscal
Years 2000 through 2002:
Abbreviations:
AFEO: Armed Forces Entertainment Office:
DOD: Department of Defense:
GSA: General Services Administration:
JFTR: Joint Federal Travel Regulations:
JTR: Joint Travel Regulations:
O&M: operations and maintenance:
OMB: Office of Management and Budget:
OSD: Office of the Secretary of Defense:
USO: United Services Organization:
United States General Accounting Office:
Washington, DC 20548:
December 5, 2003:
The Honorable C.W. Bill Young:
Chairman, Committee on Appropriations
House of Representatives:
Dear Mr. Chairman:
For more than 60 years, the United Services Organizations (USO), a not-
for-profit, nongovernmental but congressionally chartered
organization, has offered support and entertainment to the men and
women of America's armed forces and their families. The USO mission is
to enhance the quality of life of the personnel within the U.S. armed
forces community wherever they are based.
Throughout the years, USO has relied on corporate donors and individual
contributors, as well as on funds, goods, and services provided by the
Department of Defense (DOD), to support its operations. With the
creation of a federal charter for USO in 1979, Pub. L. No. 96-165, DOD
was granted statutory authority to make the department's resources
available to help USO achieve its mission. DOD provides both
appropriated and nonappropriated resources to support USO's operations.
Appropriated support is derived from DOD's operations and maintenance
(O&M) funds, and nonappropriated support is provided largely through
DOD-donated goods, services, and infrastructure. DOD's Armed Forces
Entertainment Office (AFEO), through its Armed Forces Professional
Entertainment Program, is primarily responsible for coordinating with
USO to deliver overseas entertainment. Under a contractual arrangement,
USO solicits celebrity entertainers for gratis or reduced rates to
perform at overseas DOD locations. AFEO reimburses USO for certain
expenses incurred in securing celebrity entertainment, including
honoraria,[Footnote 1] production support, and other administrative
costs. AFEO and other DOD entities also pay directly from their
respective O&M accounts, referred to as direct payments, for certain
goods and services provided for USO tours, such as commercial airfare
and military airlift services.
At your request, we determined (1) the source and amount of support
provided to USO during fiscal years 2000 through 2002 and (2) the
sufficiency of the financial and management controls to provide
reasonable assurance that funds were used appropriately.
We focused our audit on DOD's support for activities of the USO World
Headquarters, which operated USO's overseas entertainment tours, and
did not include the activities of chartered, stateside USO affiliates,
which are financially autonomous from the USO World Headquarters. We
did not audit support provided to USO from nonfederal sources. Because
of limitations in AFEO and USO record keeping, we limited our audit to
support provided by DOD during fiscal years 2000 through 2002. To
assess financial and management controls, we evaluated the adequacy of
the overall control environment and management oversight of controls at
USO and AFEO, audited selected transactions between AFEO and USO for
fiscal year 2002, analyzed AFEO's centrally billed account for fiscal
year 2002, and reviewed AFEO's purchase card account for fiscal years
2001 and 2002. We also reviewed annual audits of USO's consolidated
statement of financial position and the related consolidated statement
of activities and cash flows prepared by an independent audit firm. For
more details on our scope and methodology, see appendix I.
Results in Brief:
During fiscal years 2000 through 2002, DOD provided significant
appropriated and nonappropriated support; however, the total amount
cannot be determined because of limitations in DOD's and USO's record-
keeping systems. For this 3-year period, we identified at least $34.7
million in appropriated funds that DOD used to support USO's
activities. Of this amount, $20.8 million was awarded in
congressionally appropriated grants, which USO used to help fund the
Spirit of Hope Endowment Fund, a restricted fund intended to ensure the
continued existence of USO's programs and services. We also identified
another $12.1 million in reimbursements to USO under its contract with
AFEO for such costs as celebrity honoraria and production expenses for
overseas tours, and at least another $1.8 million in direct payments by
AFEO and other DOD entities for tour-related expenses, such as
commercial airfares, visas, passports, and military airlift services.
DOD also provided other appropriated support such as lodging,
transportation, and use of facilities. However, we could not determine
the total monetary value of DOD's appropriated support because neither
DOD nor USO has record-keeping systems to aggregate or report the
needed information. While DOD also provided 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 of this support.
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 agreements
with DOD. For support provided through contract reimbursements and
direct payments, AFEO lacked clear 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, based on our limited
testing, we found problems with expenditures totaling about $433,000,
including about $86,000 in improper expenditures, about $3,000 in
questionable expenditures, and approximately $344,000 for unsupported
expenditures. For example, AFEO improperly reimbursed USO about $9,000
for administrative services that had already been paid and about $1,300
for unallowable food, liquor, and other miscellaneous expenses. Also,
AFEO improperly incurred approximately $67,000 for first-class and
business-class travel expenses that were not authorized in accordance
with DOD and federal travel regulations and around $9,000 for
transportation expenses for unauthorized travelers. These latter
expenses were paid by AFEO, but they should have been billed to and
paid by USO. As a result of our audit, AFEO officials told us they
initiated several actions to improve financial and management controls
and to recover funds from USO. As of September 2003, AFEO had recovered
from USO about $19,000 in improper payments it made to support USO's
overseas tours.
We are making recommendations to the Secretary of Defense to develop
and implement improvements in program guidance, record-keeping systems,
and tests of internal controls to improve the accountability and
control of funds used to support USO operations. In commenting on a
draft of this report, DOD generally concurred with our recommendations.
Background:
USO is a congressionally chartered, nonprofit, nongovernmental, and
charitable corporation whose mission is to enhance the quality of life
for U.S. armed forces personnel and their families. The USO World
Headquarters acts as the enabling body for the organization, sets
overall policy and strategy, is responsible for the operation of
overseas USO centers, and produces overseas celebrity entertainment
tours in partnership with AFEO. From World War II through the Vietnam
War, USO and DOD partnered to enhance troop morale and provide
entertainment to military outposts worldwide. Following the Vietnam
War, legislation establishing USO's federal charter and various DOD
directives and instructions formalized this close association and made
DOD resources, including funds, available to the maximum extent
possible to support USO's mission.[Footnote 2] DOD uses both
appropriated and nonappropriated resources to support USO's operations.
Appropriated support is derived from DOD's O&M funds, and
nonappropriated support is provided largely through DOD-donated goods,
services, and infrastructure.
DOD regulations designate (1) the Under Secretary of Defense for
Personnel and Readiness as the official liaison between DOD and USO and
(2) AFEO, a joint-service operation, as the DOD liaison office for USO.
AFEO, established in 1951, administers DOD's Armed Forces Entertainment
Program in partnership with USO. The U.S. Air Force is the executive
agent for AFEO, having assumed that role from the U.S. Army in 1997.
AFEO's mission is to provide free, high quality, live entertainment to
U.S. military personnel and their families stationed overseas. AFEO
supplies all noncelebrity entertainment, and USO is the primary
provider of celebrity entertainment. Noncelebrity entertainment is made
up of up-and-coming performers professionally managed by an agent;
celebrity entertainment consists of well-known entertainers, listed in
Billboard or with gold or platinum recordings.
Under a contractual arrangement with AFEO, USO recruits celebrity
performers for the Armed Forces Entertainment Program. AFEO reimburses
USO for certain tour-related expenses such as honoraria, production
support, and other direct costs. In some cases, AFEO and other DOD
entities also make arrangements to support USO overseas tours and pay
directly for these expenses, such as for commercial airfares, visas,
passports, and military airlift services, from their respective O&M
accounts. Also, USO has agreed to pay for certain tour-related costs,
for example, paying the difference between the cost of business-class
and first-class air travel and the travel costs for individuals
accompanying performers whose costs are not covered under the contract
with AFEO.
Following the 1991 Gulf War, USO faced serious financial problems
because of declining contributions and therefore became concerned about
its continued ability to serve the military. To address these concerns,
USO's Board of Governors established the Spirit of Hope Endowment Fund
in 1998. According to a former USO official, the intent of the fund was
to infuse USO with funds to provide for the perpetuity of its programs
and services. 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. As of September 2003, DOD had provided about $20.8
million to 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. For this 3-year period, we identified at least $34.7 million
in appropriated funds that DOD provided to support USO activities in
the form of grants, contract reimbursements, and direct payments. 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.
USO Received Appropriated and Nonappropriated Support from Many DOD
Sources:
During fiscal years 2000 through 2002, USO received appropriated and
nonappropriated support from a variety of DOD sources. As figure 1
shows, this appropriated money flowed to USO in the form of grants
awarded by the Office of the Secretary of Defense (OSD) and from
contract reimbursements and direct payments provided by AFEO and other
DOD components. Nonappropriated support was provided largely through
in-kind contributions that included goods (e.g., food and
refreshments), services (e.g., Internet and telephone access), and
infrastructure support (some performance facilities), contributed by
various DOD components.
Figure 1: Flow of DOD Funds to Support USO Activities during Fiscal
Years 2000 through 2002:
[See PDF for image]
[End of figure]
Appropriated Funds:
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 table 1 shows, this funding included grants and contract
reimbursements to USO and direct payments by DOD.
Table 1: Appropriated Funds Provided by DOD to Support USO Activities
for Fiscal Years 2000 through 2002:
Dollars in millions.
Grants;
Fiscal year 2000: $4.8;
Fiscal year 2001: $7.5;
Fiscal year 2002: $8.5;
Total: $20.8.
Contract reimbursements;
Fiscal year 2000: 4.3;
Fiscal year 2001: 3.5;
Fiscal year 2002: 4.3;
Total: 12.1.
Direct payments;
Fiscal year 2000: [A];
Fiscal year 2001: [A];
Fiscal year 2002: 1.8;
Total: 1.8.
Total appropriated funds;
Fiscal year 2000: $9.1;
Fiscal year 2001: $11.0;
Fiscal year 2002: $ 14.6;
Total: $34.7.
Source: GAO analysis of DOD data.
[A] AFEO officials could not provide a total amount for direct payments
made to support USO's activities during fiscal years 2000 and 2001,
because of limitations in AFEO's record-keeping system; therefore,
there are no entries for those fiscal years.
[End of table]
We also found that DOD components often provide in-kind support,
derived from appropriated funds, to USO for its overseas tours such as
transportation, free lodging, and some office and performance
facilities.
Grants:
During fiscal years 2000 through 2003, the Congress authorized DOD to
provide a total of $23.8 million in grants to support USO's activities.
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. The Congress
provided the funds through DOD's O&M appropriation in four annual
defense appropriations acts.[Footnote 3] The funds, appropriated only
for grants to USO, were first allocated to the Deputy Assistant
Secretary of Defense for Personnel Support, Families and Education. In
1998, USO established the Spirit of Hope Endowment Fund and, after
receiving the grants from DOD, transferred the funds into the endowment
fund. According to USO policy, the USO Board of Governors established
the Spirit of Hope Endowment Fund, which is a restricted account. Money
placed into the fund is to be considered as principal and must remain
in the account. USO can use the income (e.g. interest and dividends)
that accrues on the balance held in the endowment fund to support its
operations. USO used about $333,000 in investment income in calendar
years 1999 and 2000 for its operations.
Contracts:
AFEO provided USO with about $12.1 million in contract reimbursements
during fiscal years 2000 through 2002. In September 1999, AFEO awarded
an $8.7 million sole source, indefinite delivery, indefinite quantity
contract to USO.[Footnote 4] The purpose of this contract was to
provide celebrity entertainment for U.S. armed forces at military
installations overseas. The contract performance period was for 3 years
(October 1, 1999, to September 30, 2002) with five 1-year option
periods (October 1, 2002, to September 30, 2007). According to AFEO and
Air Force contracting officials, AFEO spent the entire $8.7 million
before the end of the first 3-year period, and it is currently amending
the contract to increase the amount of funding. In addition to the $8.7
million contract, AFEO negotiated separate purchase orders for costs
associated with specific USO tours. The terms of the $8.7 million
contract applied to each of these separately negotiated purchase
orders. Specifically, the contract provided reimbursements to USO for:
* administrative support services--accounting and administrative
services needed to plan and execute overseas tours, including compiling
and submitting voucher packages to AFEO for expense reimbursements;
* celebrity honoraria--payments to celebrity entertainers or groups and
their production and/or tour managers to help defray day-to-day
expenses; and:
* other direct costs--tour production and equipment rental costs;
travel costs to include commercial airfare, car rental or bus fares;
lodging and per diem if authorized by DOD's Joint Travel Regulations;
miscellaneous expenses such as shipping, visas, and equipment repair or
replacement for celebrity tours; and a 19 percent management fee,
calculated using the total of other direct costs expended for
noncelebrity tours.[Footnote 5]
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. As table 2 shows,
during fiscal year 2002 alone, we identified direct payments that
totaled at least about $1.8 million. However, because of record-keeping
limitations, AFEO officials could not assure that these amounts
represented all direct payments.
Table 2: Appropriated Funds Provided Via Direct Payments by DOD for USO
Activities as Identified by GAO for Fiscal Year 2002:
Funding source: Direct payments--AFEO:
Direct payments--AFEO: Centrally billed account; Fiscal year 2002:
$783,684.
Direct payments--AFEO: Purchase card[A]; Fiscal year 2002: 2,466.
Direct payments--AFEO: Appropriated funds cite; Fiscal year 2002:
602,212.
Funding source: Direct payments--Air Mobility Command:
Direct payments--Air Mobility Command: Appropriated funds cite; Fiscal
year 2002: 412,227.
Total direct payments; Fiscal year 2002: $1,800,589.
Source: GAO analysis of DOD data.
[A] AFEO could not assure that this total includes all funds used in
support of USO overseas tours.
[End of table]
AFEO used its centrally billed account to pay about $783,000 for its
personnel travel expenses and commercial airfares for USO personnel and
tour entertainers; its purchase card account to pay around $2,500 for
visas, passports, and shipping expenses for entertainment equipment;
and its appropriated funds cite to make direct payments totaling about
$602,200 for its personnel travel expenses and airlift services
provided by the U.S. Air Force, Air Mobility Command. We also
identified about $412,000 that the Air Mobility Command paid directly
for airlift services for one USO tour. According to AFEO and Air
Mobility Command officials, the command's airlift services included the
movement of passengers and baggage either on regularly scheduled
flights or on special assignment airlift missions from designated U.S.
stateside military locations to overseas military locations. These
special assignment airlift missions involve chartering a military
aircraft for a specific purpose.
Nonappropriated Support:
DOD components provide nonappropriated support largely in the form of
in-kind goods, services, and infrastructure, such as food and
refreshments, Internet and telephone access, and free office space,
lodging, and some performance facilities, to help sustain USO's
overseas tours.
Total Amount of Support Could Not Be Determined Because of Limitations
in DOD's and USO's Record-keeping Systems:
We could not determine the total amount of appropriated and
nonappropriated support to USO's activities because of limitations in
DOD's and USO's record-keeping systems. Specifically, we were unable to
identify the total value of appropriated support for the fiscal year
2000 through 2002 period because DOD's records were incomplete. For
example, AFEO could not readily provide an accurate accounting of
contract reimbursements or direct payments for charges to its centrally
billed and purchase card accounts, primarily because it did not track
and identify which transactions were for USO celebrity tours and which
transactions were for noncelebrity tours that did not involve USO.
(Most federal funds that are provided to support USO's activities are
provided for celebrity tours. The cost of noncelebrity tours is paid by
AFEO.) Our audit of AFEO's purchase card transactions confirmed that
one could not distinguish between USO and non-USO activities. Without
such detail, AFEO could not provide complete reports on funding for
USO's activities.
During our audit, AFEO provided us with total amounts for contract
reimbursements and some direct payments for fiscal year 2002, but it
could not ensure that the totals included all appropriated funds
provided in support of USO's overseas tours. Moreover, AFEO could not
provide the same information for fiscal years 2000 and 2001 because the
records for those years were less complete, and the time and resources
required to gather and verify the information were more than AFEO could
expend given the unit's workload.
Additionally, AFEO could not provide data on how much appropriated
funds were spent for military airlift services to support USO's
overseas tours because neither AFEO nor the Air Mobility Command has
record-keeping systems to aggregate or report the needed information.
For example, the command's records can track and report all airlift
services charged to AFEO, but those records do not indicate whether the
services were provided to support USO's tours, nor do they
differentiate between celebrity and noncelebrity tours. Furthermore,
neither AFEO nor the Air Mobility Command maintains records of the cost
of airlift services that other U.S. military units (such as the Army
and the Navy) provided in support of USO's tours.
We also could not identify the monetary value for other support derived
from appropriated funds, such as transportation, free lodging, and some
office and performance facilities provided by military units other than
the Air Mobility Command. We could not identify the value of this
support because neither DOD nor its components have record-keeping
systems to aggregate or report the needed information.
Finally, we could not identify the value of DOD's nonappropriated
support to USO, provided largely through in-kind contributions that
included goods (e.g., food and refreshments), services (e.g., Internet
and telephone access), and infrastructure support (some performance
facilities) again, because neither DOD nor its components have record-
keeping systems to aggregate or report the needed information.
Furthermore, USO's records for in-kind contributions do not clearly
identify all private sector and DOD contributions.
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.
DOD and USO Had Sufficient Procedures for Administering Grants, but USO
Did Not Fully Comply with Audit Requirements:
During fiscal years 2000 through 2002, DOD awarded about $20.8 million
in congressionally appropriated grants to USO. DOD properly transferred
these funds. Specifically, before transferring funds, it entered into
grant agreements with USO that included conditions for the use of these
funds. For example, these agreements allowed USO to deposit the funds
in the Spirit of Hope Endowment Fund or use any investment income
earned from the funds for operational expenses.
The agreements also set forth administrative and accounting
requirements, to include compliance with the Office of Management and
Budget (OMB) Circular A-133, Audits of States, Local Governments, and
Non-Profit Organizations, as revised June 1997, which implements the
Single Audit Act, as amended.[Footnote 6] The Single Audit Act is
intended to promote sound financial management, including effective
internal controls over federal funds. The single audit is an important
tool utilized by federal agencies--including DOD--to monitor federal
awards to nonprofit organizations and ensure that the federal funds are
properly used.[Footnote 7] OMB Circular A-133 §_.500 requires an audit
of the financial statement(s) for the program receiving federal funds
in accordance with generally accepted government audit standards. The
audit should be an organizationwide audit that focuses on the
recipient's internal controls and compliance with laws and regulations
governing federal awards and be designed to test the program's internal
controls in a manner sufficient to illustrate that a low level of risk
exists for the program.[Footnote 8]
Furthermore, OMB Circular A-133, subpart B, §.200, requires nonfederal
entities expending $300,000 or more a year in federal awards to have a
single or program-specific audit conducted for that year in accordance
with the provisions of the circular. Specifically, §.205 states that
the determination of when an award is expended should be based on when
the activity related to the award occurs. Generally, the activity
pertains to the expenditure or expense transactions associated with
grants. Specifically, the cumulative balance of federal awards for
endowment funds, which are federally restricted, is considered expended
in each year in which the funds are restricted.
Consistent with the grant agreements, USO deposited the entire $20.8
million in grant funds in investment accounts designated specifically
for the Spirit of Hope Endowment Fund, and used investment income
earned on these funds for operational expenses. With respect to these
deposits, USO invested the funds in income-producing assets such as
stocks, bonds and U.S. Treasury bills. USO used about $333,000 drawn
from investment income for operational expenses, and the entire amount
of deposited grant funds remained invested. However, USO did not fully
comply with the agreements' audit requirements in identifying the scope
of work to be performed by its independent auditor in performing annual
audits. While USO arranges for its independent auditor to perform an
annual audit, this audit focuses on verifying the sources and accuracy
of amounts included in USO's financial statements and does not
comprehensively test internal controls on the receipt and use of grant
funds or document tests performed as required by OMB Circular A-133.
USO officials initially believed there was no need for an audit that
complied with the Single Audit Act, since it spent only investment
income from the grant funds and none of the actual grant funds. Based
on our review, USO officials now agree that the act applies and that
the annual audit should be performed in accordance with the act's
requirements and OMB Circular A-133.
Internal Control Weaknesses Led to Problem Expenditures for Contract
Reimbursements and Direct Payments:
For contract reimbursements and direct payments, we found significant
problems with DOD and USO controls over these funds. For example, AFEO
lacked clearly written supplemental guidance regarding allowable
expenses, effective management oversight in reviewing USO's invoices,
and adequate procedures for capturing reimbursable expenses. Also,
similar to the grant funds, USO did not fully comply with audit
requirements contained in its contracts with DOD.
Lack of Clear and Current Written Supplemental Guidance:
At the time of our audit, the guidance in effect concerning the
expenses AFEO will pay in support of USO's overseas tours was not
sufficiently detailed to provide clear, consistent instructions to be
followed by AFEO or USO. This guidance included the contract agreement
between AFEO and USO, general rules regarding AFEO's direct payment
accounts, federal acquisition and travel regulations, and DOD
Instruction 1330.13.
AFEO refers to the aforementioned guidance in paying for USO overseas
tour expenses through contract reimbursements and direct charges to its
centrally billed and purchase card accounts. However, as described
below, we found several weaknesses in the guidance.
* Contract reimbursements. The contract between AFEO and USO identifies
the general categories of tour-related expenses for which USO can be
reimbursed to include administrative support services; honoraria; and
other direct costs such as production support/equipment rental, travel,
lodging, and miscellaneous expenses. The contract contains numerous
clauses and statements that indicate reimbursements will be made in the
accordance with Joint Travel Regulations and the Federal Acquisition
Regulation. However, the contract is not specific concerning the types
of costs--such as the type of production support and other incidental
direct costs--and the supporting documentation needed to ensure that
AFEO only pays for costs that are allowable and proper. AFEO officials
stated that they follow additional policies related to the allowable
contract reimbursements for tour-related expenses, such as "thank you"
dinners, but these policies are not documented in writing.
* Centrally billed account. AFEO stated that it uses the account
primarily to pay for commercial airfares for USO personnel and
entertainers covered under invitational travel orders.[Footnote 9]
Federal travel regulations contain stringent circumstances under which
first-class and business-class travel can be authorized. However,
according to AFEO and USO officials, neither has more detailed,
written, and program specific guidance to determine when and how USO
will pay for first-or business-class travel.
* Other direct charges. AFEO provides additional support to USO by
directly charging the cost of travel-related expenses, such as visas
and passports, to its purchase card account, and by allowing its O&M
funds account cite to be charged for Air Mobility Command airlift
services. However, AFEO has no specific program guidance regarding how
USO should be billed for unauthorized travelers on Air Mobility Command
flights.
Furthermore, DOD Instruction 1330.13, last updated September 8, 1985,
establishes policy and assigns responsibility for carrying out the
Armed Forces Professional Entertainment Program for entertaining troops
overseas. This instruction states that the Secretary of the Army has
responsibility for administering the program; however, the Air Force
assumed responsibility in fiscal year 1997. An AFEO official
acknowledged that this instruction is out of date. Also, this policy
lacks clear statements regarding expenses that should be paid by AFEO
and USO, respectively.
Insufficient Management Oversight:
The lack of sufficient management oversight of funds provided to USO
was also a key internal control problem. For example, AFEO officials
generally did not closely review or question expenses USO submitted for
reimbursement. Additionally, AFEO's review and reconciliation process
for its centrally billed account and billings from the Air Mobility
Command was not sufficient to identify airlift expenses that should be
charged to USO. Furthermore, during our audit of contract files at the
Air Force contracting office responsible for administering the
contracts between AFEO and USO, we found no evidence of contract
reviews. An Air Force contracting official stated its office sometimes
questioned the need for some expenses for celebrity tours when
modifications to the contracts were requested. At these times, the
expenses were questioned because the supporting documentation provided
to the contracting office by AFEO was not always adequate. However,
according to the Air Force contracting officer currently responsible
for the contracts, the existing workload and higher priorities require
her to perform more detailed oversight of high-dollar defense
contracts. Because celebrity tour costs generally ranged from $10,000
to $300,000, they are given lower priority for contract oversight.
Furthermore, we found that USO did not perform the type of audit
required under the terms of its contracts with AFEO. Similar to the
grant agreements, the contracts contain a requirement for a single
audit that would focus on USO's internal controls as they relate to the
federal funds provided through contracts to USO to support the Armed
Forces Entertainment Program. USO signed the contracts with AFEO. These
contracts were to provide celebrity entertainment for U.S. armed forces
at military installations overseas, on a fixed price and cost
reimbursable basis. When USO signed these contractual agreements, it
agreed to comply with all contractual requirements. These contractual
agreements set forth accounting requirements to be met in accordance
with Federal Acquisition Regulation 52.215-2, Alternate II, which
requires compliance with OMB Circular A-133. As previously discussed,
this circular implements the Single Audit Act, as amended, and is
intended to promote sound financial management, including effective
internal controls over federal funds.
Our review of USO's audited financial statements, discussions with the
independent auditor responsible for performing the audit, and
discussions with USO officials indicated that the single audit
requirement set forth in the contractual agreements was not met. As
discussed previously, USO arranges for an annual audit of its financial
statements, but this audit does not include comprehensive testing of
internal controls and the documentation of tests performed that is
required by OMB Circular A-133. USO officials initially believed there
was no need for an audit that complied with the Single Audit Act, since
USO is merely a vendor providing services for AFEO, but now, based on
our audit, it agrees that such an audit is required.
Payment of Improper, Questionable, and Unsupported Expenses:
In the absence of strong internal controls, we found numerous instances
where AFEO paid for improper, questionable, and unsupported expenses in
support of USO's overseas celebrity tours. Based on our limited testing
of six celebrity tour files, our analysis of AFEO's centrally billed
account, and our examination of Air Mobility Command records, we
identified a total of about $433,000 in problem expenditures during
fiscal years 2000 to 2002 including improper and questionable expenses
totaling around $89,021 and unsupported expenses totaling approximately
$344,000. We defined an expense as improper when an item was not
authorized or properly justified in accordance with the contracts
between AFEO and USO, the Joint Travel Regulations and the Joint
Federal Travel Regulations issued by DOD, and the Federal Travel
Regulation issued by the General Services Administration.[Footnote 10]
For example, we found improper reimbursements for expenses such as
alcoholic beverages, meals, lodging, and duplicate billings for
administrative services. AFEO also inappropriately paid for first-class
and business-class travel and some military airlift services. We
identified numerous examples of questionable payments of USO tour costs
by AFEO for items such as limousine services, hotels, and airport VIP
lounge services. We defined a questionable payment as any item that was
reimbursed without documentation showing that the item was necessary
for official government business under the Armed Forces Entertainment
Program. We also identified numerous unsupported payments. We defined
an unsupported payment as any item that was reimbursed without
documentation detailing the nature of the expense and the way the price
for the expense was determined.
Improper Expenses:
We found payments for improper expenses for items such as unallowable
alcoholic beverages, meals, and lodging, honorarium, and production
support for an entertainer who did not participate in a tour for which
expenses were reimbursed, and a duplicate billing for administrative
services. Moreover, AFEO inappropriately paid for first-class and
business-class travel and some military airlift services. AFEO
acknowledged that these expenses should not have been reimbursed or
paid. For example, AFEO explained that meal expenses for celebrities
receiving honorarium are not reimbursable because the honorarium is
intended to help defray the cost of meals and other essentials, and the
invitational travel orders we reviewed specifically stated that meal
expenses were not authorized. Expenses for alcoholic beverages are
never allowable in conjunction with government travel. The cost for
first-class travel, and the cost for unauthorized travelers on Air
Mobility Command airlifts, should have been borne by USO. Table 3
highlights the improper payments we identified.
Table 3: Examples of Improper Payments for Items Reimbursed or Paid by
AFEO for USO Tours for Fiscal Year 2002:
Improper expenses: Alcoholic beverages; Reason item was improper: Not
allowed under DOD and federal travel regulations; Amount: $56.
Improper expenses: Hotel meals; Reason item was improper: Per diem was
not authorized for travelers; Amount: 252.
Improper expenses: Lodging for one individual; Reason item was
improper: No travel orders authorizing lodging expenses; Amount: 61.
Improper expenses: Celebrity honorarium; Reason item was improper:
Traveler did not participate in tour; Amount: 600.
Improper expenses: Production support; Reason item was improper:
Traveler did not participate in tour; Amount: 300.
Improper expenses: Duplicate billing for administrative services;
Reason item was improper: Expense already paid; Amount: 8,894.
Improper expenses: First-class travel; Reason item was improper: First-
class travel was not authorized or properly documented in accordance
with DOD and federal travel regulations; Amount: 29,586.
Improper expenses: Business-class travel; Reason item was improper:
Justification for travel was not authorized or properly documented in
accordance with DOD and federal travel regulations; Amount: 37,153.
Improper expenses: Air Mobility Command airlift services; Reason item
was improper: No travel orders authorizing payment of airlift services;
Amount: 9,065.
Improper expenses: Total improper expenses identified: Amount: $85,967.
Source: GAO analysis of DOD data.
[End of table]
Improper expenses of particular note are explained in more detail
below:
* Duplicate billing for administrative services. In calendar year 2002,
AFEO paid USO twice for administrative expenses associated with
overseas tours. We identified improper payments totaling about $9,000.
A USO contract employee, responsible for preparing the expense reports
for overseas tours, included invoices for these services in several of
the tour files we audited. According to the contract employee, USO
officials directed that the invoices be submitted to AFEO for payment.
The Air Force contracting officials responsible for managing the
contract stated that in accordance with the terms of the contract
between AFEO and USO, USO is paid a monthly administrative fee that
covers numerous administrative tasks, including preparing the expense
reports for USO tours.[Footnote 11] Contracting officials stated that
the monthly administrative fee included the cost for all accounting
services, including those performed by the contractor.[Footnote 12]
Neither AFEO nor USO could provide an estimate of how long the double
billings occurred. However, one USO official believed that the contract
employee started to submit the invoices with the inception of the
contract in 1999 and ended with the termination of the contractor's
services in May 2003. Based on our review of documentation provided by
USO for calendar years 2001 and 2002, the amount billed could have
totaled $78,000. We found no indication that the individual was paid
twice for the services performed.
* Improper payments for first-class and business-class travel. Our
analysis of AFEO's centrally billed account[Footnote 13] for fiscal
year 2002 and selected tour files revealed numerous instances of
improper payments by DOD for first-class and business-class travel
totaling about $66,000. These first-class and business-class airline
tickets were considered improper because they were not authorized and/
or properly justified in accordance with the Joint Travel
Regulations[Footnote 14] and the Joint Federal Travel Regulations
issued by DOD and the Federal Travel Regulation[Footnote 15] issued by
the General Services Administration (GSA).
AFEO's policy, while not written, is to authorize up to business-class
travel for overseas flights for USO celebrity tours. According to an
AFEO official, AFEO's policy is to not authorize first-class travel,
and the Director of Services, Air Force Office of Installations &
Logistics, the office to which AFEO reports, is required to approve
business-class travel. If first-class travel is requested, USO is
supposed to pay for the cost of the upgrade from business-class to
first-class. However, contrary to the stated policy and statements made
by AFEO officials, this was not always the case. In each case, we found
AFEO purchased and paid for either the unauthorized first-class or
business-class ticket. We found no instances in which AFEO requested
reimbursement from USO for the cost difference between business-class
and first-class airline tickets. Further, neither AFEO nor USO could
provide any documentation that indicated that USO paid the additional
cost of first-class travel at the time the tickets were purchased.
USO officials stated that they were unaware that first-class airline
tickets were charged to AFEO's centrally billed account for USO tours.
USO officials stated they would have reimbursed AFEO for the cost of
the upgrade from business-class to first-class if AFEO had notified
them or if they were provided documentation of the first-class charges.
AFEO officials acknowledged that closer scrutiny of the documentation
received from USO should have identified those instances in which
first-class and business-class airline tickets were improperly paid by
AFEO. Additionally, AFEO noted that the monthly reconciliation of the
centrally billed account statement to the individual airline ticket
transactions[Footnote 16] should have identified the discrepancies we
found. Our review of the monthly reconciliations showed that first-
class travel was clearly identified, but AFEO failed to seek
reimbursement from USO. A more in-depth discussion of our analysis of
the improper first-class and business-class travel we identified is
detailed in appendix II.
* Improper payments for Air Mobility Command Airlift Services. Our
analysis of AFEO-issued invitational travel orders and Air Mobility
Command billing data for airlift services showed that AFEO paid around
$9,000 for airlift services provided by the Air Mobility Command, for
individuals traveling on "no cost" travel orders. According to AFEO, no
cost travel orders are issued to USO tour support personnel and some
entertainers in those cases where AFEO has stated the government will
not pay the transportation costs. These orders enable certain support
personnel or guests of entertainers to utilize government
transportation with the costs of their transportation being the
ultimate responsibility of USO. In cases where AFEO has paid for travel
conducted on no cost orders, it is necessary for USO to reimburse AFEO.
According to AFEO, these improper charges and payments occurred because
it was unaware that the travel was being billed to its appropriated
fund cite. An AFEO official believed that the Air Mobility Command was
billing USO directly for the airlift services. According to an Air
Mobility Command official, its billing system recognizes airlift
charges incurred by AFEO personnel and personnel traveling in support
of AFEO's mission, but the system does not identify if the travel is
USO related. Nor can the Air Mobility Command bill a nongovernmental
entity for airlift services unless that entity has an account in the
command's billing system.
Questionable Expenses:
We identified numerous examples of questionable payments of USO tour
costs by AFEO totaling about $3,000, as shown in table 4.
Table 4: Examples of Questionable Payments for Items Reimbursed or Paid
by AFEO for USO Tours for Fiscal Year 2002:
Questionable expenses: Limousine services; Reason item was
questionable: Appears to be excessive with no explanation or
documentation showing why it was necessary; Amount: $1,656.
Questionable expenses: Miscellaneous hotel expenses for tour members;
Reason item was questionable: No existing guidance consistent with DOD
and GSA regulations; Amount: 579.
Questionable expenses: Airport VIP lounge; Reason item was
questionable: Appears excessive with no explanation or documentation
showing why it was necessary; Amount: 375.
Questionable expenses: USO dinner; Reason item was questionable: No
existing guidance consistent with DOD and GSA regulations; Amount: 330.
Questionable expenses: USO tour producer meals; Reason item was
questionable: No existing guidance consistent with DOD and GSA
regulations; Amount: 114.
Questionable expenses: Total questionable expenses identified:
Amount: $3,054.
Source: GAO analysis of DOD data.
[End of table]
More specifically, we found that AFEO paid for:
* 19 hours of limousine services from hotels in the Washington, D.C.,
area to Andrews Air Force Base, Maryland, at a cost of $1,656 before an
overseas tour began and:
* several USO thank you dinners for the USO entertainers at the end of
a tour.
We could find no documentation to indicate why these expenses were
necessary. For example, concerning the thank you dinners, AFEO
officials said it was their policy, although unwritten, to reimburse
USO for one dinner per tour. Our audit of the documentation indicated
that this practice was inconsistently applied. In one instance, we
found that AFEO disallowed a thank you dinner for one tour, but it paid
for several meals that were classified as thank you dinners for another
tour. Additionally, the documentation was not always adequate to
identify whether these expenses were for meals for celebrities or for
other individuals on the tour. For example, we found that tour managers
and a USO tour producer's meals were reimbursed over a number of days.
An AFEO official acknowledged that there was no existing guidance that
identified these items as allowable expenses. AFEO officials told us
that they plan to discontinue the practice of reimbursing USO for thank
you dinners.
Unsupported Expenses:
We identified numerous examples of unsupported payments by AFEO
totaling approximately $344,000 for production support for USO tours.
Table 5 highlights the unsupported payments we identified.
Table 5: Examples of Unsupported Payments for Items Reimbursed by AFEO
for USO Tours for Fiscal Year 2002:
Unsupported expenses: Production support[A]; Reason item was
unsupported: Lack of detailed supporting documentation; Amount:
$260,660.
Unsupported expenses: Production tour manager expense; Reason item was
unsupported: Lack of detailed supporting documentation; Amount: 56,250.
Unsupported expenses: Celebrity honorarium; Reason item was
unsupported: Lack of detailed supporting documentation; Amount: 27,000.
Unsupported expenses: Total unsupported expenses identified; Amount:
$343,910.
Source: GAO analysis of DOD data.
[A] We identified four instances of unsupported production support. The
total amount includes the unsupported expenses for all four instances.
[End of table]
We found that supporting documentation for the six celebrity tour files
we audited was inadequate for a number of invoices, and therefore AFEO
had no assurance that the reimbursed costs were proper. We asked AFEO
to provide additional documentation on these invoices. AFEO could not
provide the necessary documentation and stated that this was the only
documentation USO provided. We asked USO for detailed support for a
number of selected invoices. USO did not have support readily available
in its records. In response to our request for additional
documentation, USO contacted the vendors and received details on
several invoices. USO provided additional support for $43,910 of the
$343,910 included in table 5.
For the largest case in our testing, AFEO reimbursed $216,750 for
production support based on a single entry on an invoice. In contrast,
our examination of another invoice for production support included an
itemized list of specific items such as microphone stands, speakers,
and stage supports. Additionally, based on our audit of five
noncelebrity tours, we found that documentation was far more
comprehensive in support of the expenses paid by AFEO.
Additionally, in some instances we were unable to identify which
individuals received celebrity honoraria. We traced names from the
invitational travel orders on the six tours audited but were unable to
verify which individuals were being paid honoraria and which ones were
not. In some cases, individuals who were part of a celebrity's
entourage were classified as celebrities and received honoraria while
others were not. AFEO agreed that it was not always possible to
identify which names listed on invitational travel orders received
honoraria. In one instance, honoraria and production support costs were
charged for 13 individuals, but the supporting documentation indicated
that only 12 individuals participated in the tour. An AFEO official
stated that the individual's itinerary must have changed and
acknowledged that this should have been documented in the file. Based
on available documentation, AFEO was charged $900 in honoraria and
production support costs for an individual who did not participate in
the tour. As a result of our analysis, AFEO verified that this
individual did not participate in the tour, and it is seeking
reimbursement from USO.
USO officials acknowledged the problems we identified with the
transactions we reviewed. They stated they did not have a clear
understanding of AFEO's policy as to which expenses were reimbursable
and which ones were not. They stated that they submitted invoices based
on prior verbal agreements and past practices with AFEO. USO officials
stated that AFEO's practice over the last several years was
inconsistent and that reimbursement for certain expense items was "hit
or miss" from one tour to the next. According to USO officials, it was
their intention to submit invoices and vouchers for expenses in
accordance with federal laws and regulations. However, because they had
no specific instructions identifying which costs were allowable and
which costs were not allowable, it was sometimes frustrating for them
to decide what to include as an expense item in an invoice package.
Actions Taken to Improve Controls over Support Provided to USO:
USO and AFEO acknowledged that they need better policies and procedures
to provide reasonable assurance that expenses are authorized in an
appropriate manner and are reimbursable based upon the contracts
between the organizations. As a result of our audit, USO and AFEO
officials told us they have initiated some actions to improve
accountability and controls over federal funds used to support USO's
activities and to recover funds paid by AFEO that USO should have paid.
For example, a USO official told us USO is in the process of developing
written guidance for its celebrity tour managers and accounting staff
that specifies those expenses that are reimbursable under the contracts
with AFEO and those that are not.
AFEO officials told us that to improve financial and management
controls, their office, in conjunction with the Air Force Directorate
of Services, is in the process of drafting an operating instruction for
AFEO. They stated that this operating instruction will address AFEO
roles and responsibilities, overseas areas served, points of contact,
promotional package selection process, tour projections, authorized
reimbursements, invitational travel orders, passports, visas,
immunizations, military and commercial transportation, final payment
process, and tour evaluation forms. Additionally, according to AFEO
officials, they have taken the following actions.
* Established procedures to track those contract reimbursement and
purchase card transactions used to fund USO celebrity tours versus
noncelebrity tours.
* Created a listing of reimbursable items, specified by contract line
item number, allowed and the required documents needed for final
payment processing. The listing was provided to USO, as well as to the
U.S. Air Force contracting office responsible for administering the
contracts between AFEO and USO for a modification to the basic
contract.
* Improved controls over the purchase of airline tickets charged to the
centrally billed account by implementing procedures for processing
requests for approval of upgrades to business-class travel through the
U.S. Air Force, Director of Services. According to AFEO officials, they
now document cost comparisons of economy-class airline tickets versus
business-class travel in the AFEO business-class authorization letter.
A copy of the approved upgrade letter will be provided to the contract
travel office and maintained in the individual tour folders with copies
of the annotated invitational travel orders.[Footnote 17] For those
portions of overseas travel that are upgraded to business-class because
no other class of travel is available, the commercial travel office
will certify these circumstances by entering a statement on the
itinerary as required by the Joint Travel Regulations. No prior
approval is necessary under these circumstances. USO will fund any
domestic portion of travel that incurs additional costs above economy-
and/or coach-class standards. If any other type of upgrade is provided,
at no additional cost to AFEO, the change in travel class will be noted
with a memorandum for the record and filed in the tour folder.
* Improved oversight of expenses reimbursed to USO for overseas tours.
According to AFEO officials, now, at least three individuals are
reviewing expense packages for payment certification. First, the
applicable AFEO circuit manager reviews the voucher package to assure
receipts and requests for reimbursement match the itinerary and are
appropriate. Second, the AFEO financial advisor reviews the package to
assure reimbursements are authorized and properly documented, then
signs the package as the acceptance officer. Third, either the AFEO
administrative assistant or the AFEO deputy director performs a final
review and certifies the package for payment. The Defense Finance and
Accounting Form 250 is prepared and certified by two signatures.
Additionally, as of September 2003, AFEO had recovered about $19,000 in
improper and questionable payments it made to support USO overseas
tours.
We have not audited any transactions since AFEO officials stated these
actions have been taken and thus cannot conclude whether these actions
have actually taken place or have resulted in improved financial and
management controls.
Conclusions:
As U.S. armed forces continue to be actively engaged in operations
throughout the world, it is important that troop morale is maintained
at high levels. USO's overseas entertainment tours have provided
quality entertainment to the troops, and DOD's financial and in-kind
support has been key to the Armed Forces Professional Entertainment
Program's continued success. When a nongovernmental organization, such
as USO, receives federal funds to assist a government organization,
such as DOD, that organization is accountable for the proper use of the
funds. A key factor in helping achieve that accountability is to
implement appropriate internal controls. However, our audit found that
DOD's program lacks effective financial and management controls to
provide reasonable assurance that federal funds are used consistent
with the terms specified in grant and contract agreements. Neither AFEO
nor USO can determine the total amount of financial or in-kind support
DOD provides to sustain USO's overseas tours. Furthermore, without
adequate supplemental guidance to identify allowable costs for overseas
tours and effective management oversight, AFEO does not have reasonable
assurance that it is paying for only allowable costs and that
appropriated funds are being spent in accordance with federal laws and
regulations. Moreover, USO's failure to fully comply with audit
requirements in grant and contract agreements reduces DOD's assurance
that USO has adequate internal controls over federal program funds,
leaving the program vulnerable to fraud, waste, and abuse. Had USO's
independent auditor fully tested internal controls, the problems we
identified might have surfaced. AFEO officials stated they have taken
action to improve management oversight during the review of invoice
packages and to develop written policies and procedures consistent with
DOD and federal travel regulations. Although these actions, if
implemented, should assist AFEO in achieving a stronger control
environment, an earnest commitment by DOD and USO management is also
needed to ensure proper controls and use of DOD funds.
Recommendations for Executive Action:
To improve financial and management controls over support provided to
USO, we recommend that the Secretary of Defense direct the Under
Secretary of Defense for Personnel and Readiness, in consultation with
the Secretary of the Air Force, to take the following actions.
* Develop and implement a record-keeping system capable of reporting
all appropriated and nonappropriated funds, including all in-kind
goods, services, and infrastructure provided by DOD in support of USO
overseas tours and operations. Among other things, this system should
clearly identify airlift services provided in support of USO tours.
* Take steps to ensure USO complies with the Single Audit Act as
stipulated in its grant and contractual agreements with DOD, which
require an annual audit that tests internal controls over federal funds
to assess control risk.
* Develop and consistently implement supplemental guidance, in
accordance with contract terms, and federal travel and acquisition
regulations, to identify allowable expenses and reimbursements and
appropriate documentation for:
* travel-related USO expenses, including commercial air travel,
* honoraria, and:
* services and equipment provided for USO.
* Identify all expenses AFEO inappropriately paid, which should have
been paid by USO, and request that USO fully reimburse AFEO for the
expenses.
* Arrange for DOD's Inspector General to perform internal control
audits periodically to determine if the control weaknesses we
identified are resolved, and report the results of these audits to the
Secretary of Defense and the Secretary of the Air Force.
Agency Comments and Our Evaluation:
In commenting on a draft of this report, the Principal Deputy Under
Secretary of Defense for Personnel and Readiness concurred with four of
our recommendations and partially concurred with the fifth. The
Principal Deputy Under Secretary indicated that actions are underway or
completed to address our recommendations and correct the deficiencies
noted in our report. Furthermore, although he concurred with our first
recommendation, he acknowledged that DOD financial systems do not
support an automated means for reporting the type of information we
suggested. However, he noted that AFEO continues to implement and
improve its record-keeping systems to clearly identify and report USO
tour costs by establishing:
a separate Bank of America centrally billed account for all commercial
transportation costs associated with USO celebrity tours;
a separate purchase card account for visas, excess baggage, printing,
shipping, and miscellaneous costs associated with USO celebrity tours;
and:
an accounting line in the Air Mobility Command billing process to
identify, where possible, military airlift transportation costs
associated with USO celebrity tours.
The Principal Deputy Under Secretary further indicated AFEO has taken
action to identify and recoup expenses inappropriately reimbursed to
USO, and that DOD Instruction 1330.13, Armed Forces Entertainment, will
also be revised to require the military services to submit to AFEO an
annual report identifying appropriated funds, nonappropriated funds,
and in-kind goods or services provided to USO. According to the
Principal Deputy Under Secretary, all actions are to be completed by
April 30, 2004.
Finally, the Principal Deputy Under Secretary partially concurred with
our final recommendation, agreeing that periodic internal control
audits are necessary to determine whether control weaknesses we
identified are resolved. He believes, however, that USO's independent
auditor's annual audit, performed in accordance with the Single Audit
Act, rather than audits performed by the DOD Inspector General, would
meet the requirement to test internal controls over federal funds to
assess control risk, and that the DOD Inspector General would provide
periodic oversight of the single audits performed for USO. We agree
that these actions meet the intent of our recommendation.
The Principal Deputy Under Secretary's comments are included in
appendix III of this report.
Unless you publicly announce its contents earlier, we plan no further
distribution of this report until 10 days from the date of this letter.
At that time, we will send copies of this report to interested
congressional committees with jurisdiction over DOD's budget, as well
as to the Secretary of Defense, the Secretary of the Air Force, and the
President and Chief Executive Officer of USO. We will make copies
available to others on request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.
Please contact Sharon L. Pickup on (202) 512-9619 or Greg D. Kutz on
(202) 512-9505 if you or staff have any questions. You may also contact
George F. Poindexter, Assistant Director, on (202) 512-7213, or Darby
W. Smith, Assistant Director, on (202) 512-7803. Major contributors to
this report are listed in appendix IV.
Sharon L. Pickup:
Director:
Defense Capabilities and Management:
Gregory D. Kutz:
Director:
Financial Management and Assurance:
Signed by Sharon L. Pickup and Gregory D. Kutz:
[End of section]
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. We collected, reviewed, and analyzed relevant
program information and conducted interviews with DOD and USO officials
responsible for administering the Armed Forces Entertainment Program,
specifically officials from the Office of the Under Secretary of
Defense (Personnel and Readiness), Morale, Welfare and Recreation
Policy; Armed Forces Entertainment Office (AFEO); Defense Supply
Service--Washington, Department of the Army; 11th Contracting Squadron,
Department of the Air Force, Bolling Air Force Base, District of
Columbia; and USO. Additionally, we interviewed personnel with the
Deloitte and Touche Accounting Firm, the independent auditing firm
responsible for auditing USO's annual consolidated financial statements
and supplemental schedules.
To determine the source and amount of federal funding provided to
support USO, we reviewed and analyzed relevant congressional
authorization and appropriations acts. We also reviewed and analyzed
applicable grant agreements; contract negotiation files; DOD and Air
Force operations and maintenance budget data; USO's annual audited
financial statements and supporting documentation and annual financial
reports; AFEO financial records, including the centrally billed and
purchase card accounts; and Air Mobility Command billing data for
passengers and baggage for selected airlift missions. We discussed
discrepancies that existed among the various financial records with
AFEO, USO, Air Force Contracting Squadron, and Air Mobility Command
officials. Other than for the grants, we were unable to obtain complete
appropriated funding data for fiscal years 2000 through 2002 for
federal funds provided to USO for overseas tours. We could not obtain
complete funding data because of limitations in DOD's record-keeping
systems, which did not differentiate between costs for celebrity versus
noncelebrity tours. Therefore, AFEO officials agreed to take the steps
necessary to provide, to the extent possible, complete funding data for
fiscal year 2002. However, AFEO officials could not assure us that the
totals included all appropriated funds provided in support of USO
overseas tours. Additionally, they told us they could not provide the
same information for fiscal years 2000 and 2001, because the records
for those years were less complete, and the time and resources required
to gather and verify the information were more than could be expended
given the unit's current workload. DOD officials could not provide
sources and amounts for total nonappropriated support provided to USO
because their recording-keeping systems do not aggregate or report the
needed information. We reviewed USO records for in-kind contributions,
but those records do not clearly distinguish private sector
contributions from federal contributions.
To assess the adequacy of internal controls in place to provide
reasonable assurance that appropriated federal funds are used
consistent with the terms specified, we reviewed applicable federal
laws and regulations, DOD policies and procedures, and GAO's Standards
for Internal Control in the Federal Government.[Footnote 18]
Additionally, we audited the contract between USO and AFEO. We
interviewed USO and AFEO officials to gain an understanding of internal
controls, and reviewed the payment process for celebrity and
noncelebrity tours. In gathering this information, we concluded that
internal controls over the payment process were ineffective, and
therefore we limited our auditing to a nonrepresentative selection of
tours. We audited selected USO tour transactions to evaluate the design
and implementation of key internal control procedures and activities.
We selected 11 tours--6 celebrity and 5 noncelebrity tours. We traced
expenses that were paid by AFEO to supporting invoices and receipts,
requesting additional documentation from AFEO as well as from vendors
for certain transactions. In addition to our audit of selected
transactions, we looked at whether indications existed of potentially
improper and questionable transactions as well as invoices that were
reimbursed without adequate documentation. We discussed discrepancies
with AFEO, USO or contract officials at Bolling Air Force, District of
Columbia, who were responsible for administering the contract between
USO and AFEO. Additionally, we interviewed the USO contract accountant
to determine the relationship between accounting fees collected under
the contract and those billed as part of tour expenses that were
submitted to AFEO by USO for reimbursement. Based on our initial review
of the tour files, we also audited AFEO's centrally billed and purchase
card accounts for fiscal year 2002.
We audited AFEO's centrally billed account for fiscal year 2002 to
determine if the amount spent on first-class and business-class airline
travel in support of USO tours was in accordance with DOD and federal
policies and procedures. To assess the magnitude of first-class and
business-class travel, we isolated those transactions billed to AFEO's
centrally billed account specifically related to airline travel. We
created a new file that contained only the first-class and business-
class travel billed to AFEO's centrally account. The airline industry
uses certain fare and service codes to indicate the class of service
purchased and provided. The database contained transaction specific
information, including the fare and service code to price the tickets
AFEO purchased. Using data-mining techniques, we identified the fare
basis codes that corresponded to the issuance of first-, business-, and
coach-class travel. Using these codes, we selected all airline
transactions that contained at least one leg in which AFEO paid for
first-class and business-class travel accommodations. We estimated the
cost of coach travel using the government rates established by General
Services Administration (GSA). For flights not covered by GSA, we
estimated coach travel using the lowest current rates identified from
Expedia.com. We also analyzed purchase card transactions for fiscal
years 2001 and 2002 to provide reasonable assurance that charges were
in accordance with DOD policies and procedures and in support of USO
tours.
We also reviewed USO's independent auditor's reports and management
letters for calendar years 1996 through 2001, as well as the
independent auditor's work papers for audit work related to USO
transactions with AFEO for calendar year 2001. The 2001 audit was the
most recently completed audit that was available through the end of our
field work.
In performing this audit, we used the same accounting records and
financial reports DOD and USO use to manage the Armed Forces
Entertainment Program. We did not independently determine the
reliability of all the reported financial information. However, our
recent audits addressing the reliability of DOD's financial statements
question the reliability of reported financial information.[Footnote
19] Furthermore, our recent audits of DOD's travel card and purchase
card accounts identified weaknesses in the overall control environments
and breakdowns in key controls relied on to manage these programs,
leaving them vulnerable to fraud, waste, and abuse.[Footnote 20]
We performed our audit from March 2003 through September 2003 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Details of Improper First-Class and Business-Class
Travel:
Table 1 details our analysis of the improper first-class and business-
class travel we identified based on our limited testing. Without
authorization or adequate justification, these cases illustrate the
improper use of first-class and business-class travel and the resulting
increase in travel costs. Following the table is more detailed
information on some of these cases.
Table 6: Examples of Improper First-Class and Business-Class Travel
Paid by the Armed Forces Entertainment Office Identified by GAO for
Fiscal Year 2002:
Example number: 1; Type of tour: Celebrity; Itinerary: Los Angeles to
Washington, D.C., and back; San Francisco to Washington, D.C.;
Philadelphia to Cincinnati; Philadelphia to Dallas; Class of tickets
purchased: 8 first-class tickets; Cost of tickets paid: $16,658;
Estimated pretax cost of coach fare tickets: $1,680; Reason
travel was improper: First-class travel was not authorized.
Example number: 2; Type of tour: Celebrity; Itinerary: Los Angeles to
Washington, D.C., and back; San Francisco to Washington, D.C.;
Philadelphia to Cincinnati; Philadelphia to Dallas; Class of tickets
purchased: 6 first-class tickets; Cost of tickets paid: 8,397;
Estimated pretax cost of coach fare tickets: 1,901; Reason
travel was improper: First-class travel was not authorized.
Example number: 3; Type of tour: Celebrity; Itinerary: Washington,
D.C., to Atlanta to Las Vegas; Dallas to Washington, D.C.; Boston to
Washington, D.C., and back; and Albuquerque to Dallas; Class of tickets
purchased: 7 business-class tickets; Cost of tickets paid: 13,488;
Estimated pretax cost of coach fare tickets: 1,400; Reason
travel was improper: Business-class was not authorized.
Example number: 4; Type of tour: Noncelebrity; Itinerary: Washington,
D.C., to Atlanta to Las Vegas; Dallas to Washington, D.C.; Boston to
Washington, D.C., and back; and Albuquerque to Dallas; Class of tickets
purchased: 3 business-class tickets; Cost of tickets paid: 2,193;
Estimated pretax cost of coach fare tickets: 2,193[A]; Reason
travel was improper: Lacked specific documentation justifying business-
class travel.
Example number: 5; Type of tour: Celebrity; Itinerary: Los Angeles to
Washington, D.C., and back; Pittsburg to Washington, D.C.; Class of
tickets purchased: 2 first-class tickets; Cost of tickets paid: 1,556;
Estimated pretax cost of coach fare tickets: 720[B]; Reason
travel was improper: Only business-class was authorized.
Example number: 6; Type of tour: Celebrity; Itinerary: Los Angeles to
Washington, D.C.; Frankfurt, Germany; Cairo, Egypt, and back; Class of
tickets purchased: 2 business-class tickets; Cost of tickets paid:
15,660; Estimated pretax cost of coach fare tickets: 7,694;
Reason travel was improper: Lacked specific documentation justifying
business-class travel.
Example number: 7; Type of tour: Celebrity; Itinerary: Los Angeles to
Vancouver, British Columbia; London, England; Doha, Qatar; Amman,
Jordan, and back; Class of tickets purchased: 1 business-class ticket;
Cost of tickets paid: 8,005; Estimated pretax cost of coach fare
tickets: 4,085; Reason travel was improper: Lacked specific
documentation justifying business-class travel.
Example number: 8; Type of tour: Noncelebrity; Itinerary: Cairo, Egypt,
to Istanbul, Turkey, to Athens, Greece, to various cities in Italy;
Class of tickets purchased: 4 business-class tickets; Cost of tickets
paid: 5,052; Estimated pretax cost of coach fare tickets: 4,863;
Reason travel was improper: Lacked specific documentation
justifying business-class travel.
Example number: 9; Type of tour: Noncelebrity; Itinerary: Cairo, Egypt,
to Istanbul, Turkey; Class of tickets purchased: 13 business-class
tickets; Cost of tickets paid: 4,441[C]; Estimated pretax cost of coach
fare tickets: 3,650; Reason travel was improper: Lacked
specific documentation justifying business-class travel.
Example number: 10; Type of tour: Celebrity; Itinerary: Atlanta and
Little Rock, to Washington, D.C.; New York and Chicago to Tulsa, Okla.;
Class of tickets purchased: 2 first-class tickets; Cost of tickets
paid: 2,975[D]; Estimated pretax cost of coach fare tickets: 1,402;
Reason travel was improper: First-class travel was not
authorized.
Total; Cost of tickets paid: $78,425; Estimated pretax cost of coach
fare tickets: $29,588.
Source: GAO analysis of DOD data.
[A] Estimated leg of business-class travel.
[B] Estimated business-class fare.
[C] Estimated legs of first-class fare.
[D] Estimated legs of first-class fare.
[End of table]
Example 1 involved five individuals traveling first class at a cost to
the government of $16,658. An audit of the tour files and the travel
order indicated that the travel order specifically states that travel
at government expense shall not exceed the cost of common carrier
(i.e., the rate authorized under the government contract). However, the
individuals were issued first-class tickets for this trip, resulting in
an additional cost to the government of $14,978 compared to an
estimated total cost of about $1,680 for eight coach tickets.
Example 2 involved six individuals traveling first class at a cost to
the government of $8,397. An audit of the tour files and the travel
order indicated that the travel order specifically states that travel
at government expense shall not exceed the cost of common carrier.
However, the individuals were issued first-class tickets for this trip,
resulting in an additional cost to the government of $6,496 compared to
an estimated total cost of about $1,901 for six coach tickets. This
tour also had seven individuals traveling business-class at a cost to
the government of $13,488 for domestic flights. According to AFEO,
business-class is only authorized for overseas flights, not domestic
flights. This resulted in an additional cost to the government of
$12,088 compared to an estimated cost of about $1,400 for coach-class
tickets.
Example 5 involved two individuals who traveled first class from New
York-LaGuardia to Jacksonville, Florida. Supporting documentation
indicates that business-class was authorized. The cost of two business-
class tickets amounted to $720[Footnote 21] compared to the two first-
class tickets of $1,556. Without authorization or valid justification,
the additional $836 spent on the first-class ticket was improper.
Furthermore, our audit showed that the difference in the cost of first-
class travel and the cost of economy class can be significant. For
example, during a review of one tour, we found that the cost of one
first-class round trip ticket was $3,982, whereas an economy-class
airline ticket for the same trip cost $280.
GSA and DOD travel regulations specify stringent circumstances under
which premium-class travel (e.g., first-class, business-class) can be
authorized. For example, the Joint Travel Regulations (JTR)[Footnote
22] and the Joint Federal Travel Regulations (JFTR) limit the authority
to authorize first-class travel to the Secretary of Defense, his
Deputy, or another authority as designated by the Secretary of Defense.
Further, the delegation of authority to authorize and/or approve first-
class travel is to be held at "as high an administrative level as
practicable to ensure adequate consideration and review of the
circumstances necessitating the first-class accommodations." A DOD
directive[Footnote 23] on transportation and management specifically
states that the secretaries for personnel within the military services
and secretariats are the approving authorities for first-class travel.
The military service secretaries may delegate approval authority for
first-class travel to under secretaries, service chiefs of staff or
their vice and/or deputy chief of staff, and four-star major commanders
or their three-star vice and/or deputy commander. The directive
explicitly states that approving authority cannot be delegated to
anyone lower than these officials. DOD and GSA policies also require
that authorization for premium-class airline accommodations be made in
advance of the actual travel unless extenuating circumstances or
emergency situations make advance authorization impossible.
Specifically, JTR and JFTR require that first-class accommodation be
authorized only when:
* coach-class airline accommodations or premium-class other than first-
class airline accommodations are not reasonably available;
* first-class airline accommodations are necessary because the employee
and/or dependent is so handicapped or otherwise physically impaired
that other accommodations cannot be used, and such condition is
substantiated by competent medical authority; or:
* first-class airline accommodations are needed when exceptional
security circumstances require such travel.
JTR and JFTR allow the transportation officer, in conjunction with the
official who issued the travel order, to approve premium-class travel
(i.e. business-class) other than first-class travel. DOD restricts
premium-class travel to the following eight circumstances:
* Regularly scheduled flights between origin and destination provide
only premium-class accommodations and it is certified on the travel
voucher.
* Coach-class travel is not available in time to accomplish the purpose
of the official travel, which is so urgent it cannot be postponed.
* The traveler's disability or other physical impairment requires use
of other than first-class service and the condition is substantiated in
writing.
* Premium-class accommodations are required for security purposes or
because exceptional circumstances make the use essential to the
successful performance of the mission.
* Coach-class service on authorized and/or approved foreign carriers
does not provide adequate sanitation or meet health standards.
* Premium-class accommodations would result in overall savings to the
government because of subsistence costs, overtime, or lost productive
time that would be incurred while awaiting coach-class accommodations.
* Transportation is paid in full by a nonfederal source.
* Travel is to or from a destination outside the continental United
States, and the scheduled flight time (including stopovers) is in
excess of 14 hours. However, a rest stop is prohibited when travel is
authorized by premium-class accommodations.
Both GSA and DOD regulations allow a traveler to upgrade to premium-
class, other than first-class travel at personal expense, including
through redemption of frequent traveler benefits. GSA also identified
agency mission as one of the criteria for premium-class travel.
[End of section]
Appendix III: Comments from the Department of Defense:
PERSONNEL AND READINESS:
OFFICE OF THE UNDER SECRETARY OF DEFENSE 4000 DEFENSE PENTAGON
WASHINGTON, D.C. 20301-4000:
NOV 13 2003:
Ms. Sharon Pickup:
Director, Defense Capabilities and Management:
U.S. General Accounting Office Washington, DC 20548:
Dear Ms. Pickup:
This is the Department of Defense (DoD) response to the GAO draft
report, GAO-04-56, "DEFENSE MANAGEMENT: DoD Needs to Strengthen
Internal Controls Over Funds Used to Support USO Activities," dated
September 29, 2003 (GAO Code 350320).
The DoD concurs with recommendations one through four in the draft
report and is already taking action to correct the noted deficiencies.
Responses to the specific recommendations are provided in the
attachment. The Department partially concurs with recommendation five.
The fact that the USO's independent auditors will perform their annual
audit in accordance with the Single Audit Act would meet the
requirement to test internal controls over federal funds to assess
control risk. The DoD Inspector General will provide periodic oversight
of the Single Audits performed for the USO.
The Department appreciates the opportunity to comment on the draft
report.
Sincerely,
Signed by:
Charles S. Principal Deputy:
Enclosure: As stated:
GAO-04-56/GAO CODE 350320:
"DEFENSE MANAGEMENT: DOD NEEDS TO STRENGTHEN INTERNAL CONTROLS OVER
FUNDS USED TO SUPPORT USO ACTIVITIES":
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Personnel and Readiness, in
consultation with the Secretary of the Air Force, to develop and
implement a record keeping system capable of reporting all appropriated
and non-appropriated funds, including all in-kind goods, services, and
infrastructure provided by DoD in support of USO overseas tours and
operations. Among other things, this system should clearly identify
airlift services provided in support of USO tours. (Page 25/Draft
Report):
DoD RESPONSE: Concur, with comment.
* The DOD financial systems do not support an automated means for
reporting other support to USO tours, such as non-appropriated funds,
in-kind goods, services, infrastructure, and military airlift provided
with installation assets. However, Armed Forces Entertainment (AFE) has
implemented and continues to implement changes to existing AFE record-
keeping systems in order to clearly identify and report USO tour costs.
* AFE will establish a separate Bank of America centrally billed account
for all commercial transportation costs associated with USO celebrity
tours. Estimated Completion Date (ECD): 30 Nov 03:
* A separate purchase card account will be established for any visas or
other official travel permits, printing, shipping and miscellaneous
costs associated with USO celebrity tours. ECD: 30 Nov 03:
o AFE will work with Air Mobility Command (AMC) to establish accounting
lines in the AMC billing process to identify, where possible, military
airlift transportation costs associated with USO celebrity tours. ECD:
31 Jan 04:
* DODI 1330.13 Armed Forces Entertainment will be revised to require the
military Services to submit to AFE an annual report identifying
appropriated funds, non-appropriated funds, in-kind goods or services
provided to the USO. ECD: 30 Apr 04:
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Personnel and Readiness, in
consultation with the Secretary of the Air Force, to take steps to
ensure USO complies with the Single Audit Act as stipulated in its
grant and contractual agreements with DoD, which require an annual
audit that tests internal controls over federal funds to assess control
risk. (Page 25/Draft Report):
DoD RESPONSE: Concur.
* AFE, by letter on 2 Oct 03, requested that the 11tH Contracting
Squadron, Bolling Air Force Base ensure the USO complies with the
contract requirement to perform an annual audit in accordance with the
Single Audit Act and that USO provide a copy of the annual audit to
AFE. The USO has instructed their independent auditors to perform their
annual audit in accordance with the Act's requirements. Closed.
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Personnel and Readiness, in
consultation with the Secretary of the Air Force, to develop and
consistently implement supplemental guidance, in accordance with
contract terms, and federal travel and acquisition regulations, to
identify allowable expenses and reimbursements and appropriate
documentation for:
* travel-related USO expenses, including commercial air travel *
honoraria, and:
* services and equipment provided for USO. (Page 25/Draft Report):
DoD RESPONSE: Concur.
* Armed Forces Entertainment, on 10 Sep 03, requested that the 11tH
Contracting Squadron, Bolling Air Force Base, modify the contract with
USO to include detailed descriptions of authorized reimbursable items,
to include travel, honoraria, services and equipment. The modification
describes the appropriate documentation to be submitted with invoices
for reimbursement of USO tour expenses.
* AFE provided this detailed list of authorized reimbursable items to
the USO on 14 Jul 03 to incorporate into their billing process. Closed.
* AFE finalized an operating instruction on 10 October 2003 issued by
the Director of Services that provides clear, written guidance for what
are allowable reimbursable expenses and outlines AFE's internal
processes and procedures. Closed.
* AFE Chief or Deputy will periodically review the files to ensure
compliance with established guidance. Closed.
DODI 1330.13 Armed Forces Entertainment will be revised to reflect the
above guidance and also designate AFE as the single coordinating focal
point for all armed forces entertainment overseas. ECD: 30 Apr 04:
RECOMMENDATION 4: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Personnel and Readiness, in
consultation with the Secretary of the Air Force, to identify all the
expenses AFE inappropriately paid, that should have been paid by USO,
and request that USO fully reimburse AFE for the expenses. (Page 25/
Draft Report):
DoD RESPONSE: Concur.
* AFE has taken action to identify and recoup expenses inappropriately
reimbursed to the USO.
* Reimbursements for alcohol, celebrity honorarium, first-class travel
and Air Mobility Command airlift services have been received from the
USO. Closed.
* AFE will review files to identify any remaining unauthorized expenses
for meals, production support, duplicate billing for administrative
assistant and lodging and prepare a request for reimbursement from the
USO to be paid within 30 days of receipt. ECD: 15 Dec 03:
RECOMMENDATION 5: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Personnel and Readiness, in
consultation with the Secretary of the Air Force, to arrange for DoD's
Inspector General to perform internal control audits periodically to
determine if the control weaknesses we identified are resolved, and
report the results of these audits to the Secretary of Defense and the
Secretary of the Air Force. (Pages 25-26/Draft Report):
DoD RESPONSE: Partially concur.
* The fact that the USO's independent auditors will perform their annual
audit in accordance with the Single Audit Act would meet the
requirement to test internal controls over federal funds to assess
control risk. The DoD Inspector General will provide periodic oversight
of the Single Audits performed for the USO.
[End of section]
Appendix IV: Staff Acknowledgments:
Claudia J. Dickey, Stephen P. Donahue, Johnny R. Bowen, Wayne A,.
Ekblad, Kenneth E. Patton, M. Jane Hunt, Nancy L. Benco, and Julio A.
Luna made significant contributions to this report.
FOOTNOTES
[1] Honoraria are daily allowances paid for celebrity and noncelebrity
performers, as well as tour managers and producers.
[2] Pub. L. No. 96-165, § 8, 93 Stat. 1267 (1979) (codified as amended
at 36 U.S.C. § 220107 (2002)); DOD/USO Memorandum of Understanding,
November 9, 1987; DOD Directive 1330.12, United Services Organizations,
Inc., November 9, 1987; DOD Directive 1330.12, United Services
Organizations, Inc., November 1, 2000; and DOD Instruction 1330.13,
Armed Forces Professional Entertainment Program Overseas, September 8,
1985.
[3] Department of Defense Appropriations Act, 2000, Pub. L. No. 106-79,
§ 8143, 113 Stat. 1212, 1270 (1999); Department of Defense
Appropriations Act, 2001, Pub. L. No. 106-259, § 8112, 114 Stat. 656,
699 (2000); Department of Defense and Emergency Supplemental
Appropriations for Recovery From and Response to Terrorist Attacks on
the United States Act, 2002, Pub. L. No. 107-117, § 8111, 115 Stat.
2230, 2272 (2002); and Department of Defense Appropriations Act, 2003,
Pub. L. No. 107-248, § 8129, 116 Stat. 1519, 1567 (2002).
[4] This type of contract does not specify a firm quantity of supplies
or services (other than a minimum or maximum quantity) and provides for
the issuance of orders for the delivery of supplies or the performance
of tasks during the period of the contract.
[5] According to AFEO officials, USO generally does not produce
noncelebrity tours. However, USO provides the funds to pay those who
are not celebrities about 70 percent of their honoraria just prior to
tour commencement. USO requests reimbursement for the payments plus a
19 percent fee, after the tours are completed.
[6] 31 U.S.C. § 7501-7507; Office of Management and Budget (OMB)
Circular A-133, Audits of States, Local Governments, and Non-Profit
Organizations.
[7] Federal awards include grants, loans, loan guarantees, property,
cooperative agreements, interest subsidies, insurance, food
commodities, direct appropriations, and federal cost reimbursement
contracts.
[8] According to GAO standards, management and employees should
establish and maintain a control environment throughout the
organization that sets a positive and supportive attitude toward
internal control. See GAO's Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: Nov. 1999).
[9] Invitational travel orders are prepared for individuals not
employed by the U.S. government who are traveling for official
government business. Individuals taking part in the entertainment
program are authorized to tour based on these orders. These orders
contain guidance governing the conditions under which the individual or
group is touring.
[10] The Joint Federal Travel Regulations apply to uniformed service
members and the Joint Travel Regulations applies to DOD civilian
personnel.
[11] The monthly administrative fee was $3,647 from fiscal years 1999
through 2002. It increases incrementally through fiscal year 2007. The
fiscal year 2003 fee is $3,868 per month.
[12] The contractor performed additional tasks for USO, but her primary
role was to prepare invoice packages. According to USO, this comprised
the majority of the individual's work.
[13] DOD activities use centrally billed accounts for transportation
purchases such as airline tickets, train tickets, and other travel-
related items.
[14] The Joint Travel Regulations authorize travel and transportation
allowances for non-DOD employees on the same basis as DOD employees.
[15] 41 C.F.R. Parts 300-304.
[16] As part of the reconciliation process, AFEO includes the
travelers' itineraries to match the airline ticket transactions in the
summary statement. The itinerary document identifies the type of
airline fare taken by the traveler (i.e., first-class, business-class,
or coach).
[17] The commercial travel office is the travel agent contracted by
AFEO and is authorized to issue tickets for commercial transportation.
[18] Standards for Internal Control in the Federal Government (GAO/
AIMD-00-21.3.1).
[19] U.S. General Accounting Office, Department of Defense: Status of
Financial Management Weaknesses and Progress Toward Reform, GAO-03-931T
(Washington, D.C.: June 25, 2003); U.S. General Accounting Office, DOD
Financial Management: Important Steps Underway But Reform Will Require
a Long-term Commitment, GAO-02-784T (Washington, D.C.: June 4, 2002);
U.S. General Accounting Office, DOD Financial Management: Integrated
Approach, Accountability, Transparency, and Incentives Are Keys to
Effective Reform, GAO-02-537T (Washington, D.C.: Mar. 20, 2002).
[20] U.S. General Accounting Office, Travel Cards: Internal Control
Weaknesses at DOD Led to Improper Use of First and Business Class
Travel, GAO-04-88 (Washington, D.C.: Oct. 24, 2003); U.S. General
Accounting Office, Purchase Cards: Control Weaknesses Leave the Air
Force Vulnerable to Fraud, Waste, and Abuse, GAO-03-292 (Washington,
D.C.: Dec. 20, 2002); U.S. General Accounting Office, Travel Cards:
Control Weaknesses Leave Army Vulnerable to Potential Fraud and Abuse,
GAO-03-169 (Washington, D.C.: Oct. 11, 2002); U.S. General Accounting
Office, Purchase Cards: Navy Vulnerable to Fraud and Abuse but Is
Taking Action to Resolve Control Weaknesses, GAO-03-154T (Washington,
D.C.: Oct. 8, 2002).
[21] We derived the estimated coach fares from an online Web site,
www.expedia.com.
[22] JTR ¶2204 A3 - A5.
[23] DOD Directive 4500.9, December 29, 1993.
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