Defense Management: DOD Needs to Strengthen Internal Controls over Funds Used to Support USO Activities
Highlights
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.
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.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Defense | To improve financial and management controls over support provided to USO, the Secretary of Defense should 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 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. |
Closed – Implemented
DOD agreed with our recommendation and implemented the following changes to Armed Forces Entertainment (AFE) record-keeping systems to clearly identify USO tour costs: (1) AFE established a separate Bank of America centrally billed account for all commercial transportation costs associated with USO celebrity tours; (2) AFE established a separate purchase card account for visas, travel permits, printing, shipping and miscellaneous costs associated with USO celebrity tours; and (3) AFE worked with AMC to establish accounting lines in the AMC billing process to identify, where possible, military airlift transportation costs associated with USO celebrity tours. Also, DODI 1330.13 Armed Forces Entertainment was 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.
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| Department of Defense | To improve financial and management controls over support provided to USO, the Secretary of Defense should 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. |
Closed – Implemented
DOD concurred with GAO's recommendation. On October 3, 2003, AFE requested by letter that the 11th Contracting Squadron, Bolling Air Force Base ensure that USO complies with the contract requirement to perform an annual audit in accordance with the Single Audit Act. USO has instructed its independent auditor to perform the annual audit in accordance with the Act's requirements and will provide a copy of the annual audit to AFE.
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| Department of Defense | To improve financial and management controls over support provided to USO, the Secretary of Defense should 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 (1) travel-related USO expenses, including commercial air travel; (2) honoraria; and (3) services and equipment provided for USO. |
Closed – Implemented
DOD agreed with our recommendation and on September 10, 2003, Armed Forces Entertainment (AFE) requested that the 11th Contracting Squadron, Bolling Air Force Base, modify the contract with USO to include detailed descriptions of authorized reimbursable items including travel, honoraria, services and equipment. AFE provided this detailed list of authorized reimbursable items to USO for incorporation into their billing process. AFE finalized an operating instruction on October 10, 2003, that provides clear, written guidance for allowable reimbursable expenses and outlines AFE's internal processes and procedures. In addition, DODI 1330.13 Armed Forces Entertainment was revised and signed on 3/23/04 to reflect the above guidance and also designate AFE as the single coordinating focal point for all armed forces entertainment overseas. The above described requirements are included in paragraphs 4.2.2, 4.2.4, and 4.2.5.
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| Department of Defense | To improve financial and management controls over support provided to USO, the Secretary of Defense should direct the Under Secretary of Defense for Personnel and Readiness, in consultation with the Secretary of the Air Force, to identify all expenses AFEO inappropriately paid, which should have been paid by USO, and request that USO fully reimburse AFEO for the expenses. |
Closed – Implemented
DOD concurred with GAO's recommendation, and AFE has taken action to identify and recoup expenses inappropriately reimbursed to USO. Reimbursements for alcohol, celebrity honoraria, first-class travel and Air Mobility Command airlift services have been received from the USO. AFE reviewed files to identify any remaining unauthorized expenses for meals, production support, duplicate billing for administrative services, and lodging. AFE prepared a request for reimbursement from the USO. As of 01/09/04, all unauthorized expenses, save one, had been reimbursed and the final outstanding remittance from USO was received on 05/21/04.
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| Department of Defense | To improve financial and management controls over support provided to USO, the Secretary of Defense should 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. |
Closed – Implemented
DOD partially agreed with GAO's recommendation, but elects to rely on annual audits prepared by USO's independent auditors in accordance with the Single Audit Act to meet the requirement to test internal controls over federal funds to assess control risks. The DOD Inspector General will provide periodic oversight of the Single Audits performed for the USO.
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