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 
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. 

Examples of Improper, Questionable, or Unsupported Expenses Identified by GAO Based on 

Limited Testing (Fiscal Year 2002) 

Type of 

payment Description Reason 

Amount 

Identified 

Improper Food, liquor, lodging, and 

first- and business-class 

travel 

Unauthorized or not allowed by DOD 

or federal travel regulations 

$85,967 

Questionable Limousine service, airport 

VIP lounge 

No explanation indicating why 

needed for official government 

business 3,054 

Unsupported Production support, celebrity 

honorarium 

No explanation of or detailed 

support for expense 343,910 

Total $432,931 

Source: GAO analysis of DOD data. 

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. 

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. 

Highlights of GAO-04-56, a report to the 

Chairman, Committee on Appropriations, 

House of Representatives 

December 2003

DEFENSE MANAGEMENT 

DOD Needs to Strengthen Internal 

Controls over Funds Used to Support 

USO Activities 
Page i GAO-04-56 Defense Management 

Letter 1

Results in Brief 2

Background 3

DOD Provided Substantial Appropriated and Nonappropriated 

Support to USO, but Total Amount Cannot Be Determined 5

Sufficient Financial and Management Controls Did Not Exist to 

Assure Appropriate Use of Appropriated Funds 11

Conclusions 24

Recommendations for Executive Action 25

Agency Comments and Our Evaluation 25

Appendix I Scope and Methodology 28 

Appendix II Details of Improper First-Class and Business-Class 

Travel 32 

Appendix III Comments from the Department of Defense 36 

Appendix IV Staff Acknowledgments 40 

Tables 

Table 1: Appropriated Funds Provided by DOD to Support USO 

Activities for Fiscal Years 2000 through 2002 7

Table 2: Appropriated Funds Provided Via Direct Payments by 

DOD for USO Activities as Identified by GAO for Fiscal 

Year 2002 9

Table 3: Examples of Improper Payments for Items Reimbursed or 

Paid by AFEO for USO Tours for Fiscal Year 2002 17

Table 4: Examples of Questionable Payments for Items 

Reimbursed or Paid by AFEO for USO Tours for Fiscal 

Year 2002 20

Table 5: Examples of Unsupported Payments for Items Reimbursed 

by AFEO for USO Tours for Fiscal Year 2002 21

Contents 
Page ii GAO-04-56 Defense Management 

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 32

Figure 

Figure 1: Flow of DOD Funds to Support USO Activities during 

Fiscal Years 2000 through 2002 6

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 

This is a work of the U.S. government and is not subject to copyright protection in the 

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reproduce this material separately. 
Page 1 GAO-04-56 Defense Management 

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,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. 

 1

 Honoraria are daily allowances paid for celebrity and noncelebrity performers, as well as 

tour managers and producers. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-04-56 Defense Management 

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. 

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 

Results in Brief 
Page 3 GAO-04-56 Defense Management 

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. 

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 

Background 
Page 4 GAO-04-56 Defense Management 

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.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 upand-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 

 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. 
Page 5 GAO-04-56 Defense Management 

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. 

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. 

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. 

DOD Provided 

Substantial 

Appropriated and 

Nonappropriated 

Support to USO, but 

Total Amount Cannot 

Be Determined 

USO Received 

Appropriated and 

Nonappropriated Support 

from Many DOD Sources 
Page 6 GAO-04-56 Defense Management 

Figure 1: Flow of DOD Funds to Support USO Activities during Fiscal Years 2000 through 2002 

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. 

Appropriated Funds 
Page 7 GAO-04-56 Defense Management 

Table 1: Appropriated Funds Provided by DOD to Support USO Activities for Fiscal 

Years 2000 through 2002 

Dollars in millions 

Funding resource 

Fiscal year 

2000 

Fiscal year 

2001 

Fiscal year 

2002 Total

Grants $4.8 $7.5 $8.5 $20.8 

Contract reimbursements 4.3 3.5 4.3 12.1

Direct payments a a 1.8 1.8

Total appropriated 

funds $9.1 $11.0 $ 14.6 $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. 

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. 

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.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 

 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). 

Grants 
Page 8 GAO-04-56 Defense Management 

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. 

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. 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.5

 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. 

Contracts 
Page 9 GAO-04-56 Defense Management 

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 Fiscal year 2002

Direct payments—AFEO 

Centrally billed account $783,684

Purchase carda 2,466

Appropriated funds cite 602,212 

Direct payments—Air Mobility 

Command 

Appropriated funds cite 412,227 

Total direct payments $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. 

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. 

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. 

Direct Payments 

Nonappropriated Support 
Page 10 GAO-04-56 Defense Management 

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. 

Total Amount of Support 

Could Not Be Determined 

Because of Limitations in 

DOD’s and USO’s Recordkeeping Systems 
Page 11 GAO-04-56 Defense Management 

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. 

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. 

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) 

Sufficient Financial 

and Management 

Controls Did Not 

Exist to Assure 

Appropriate Use of 

Appropriated Funds 

DOD and USO Had 

Sufficient Procedures for 

Administering Grants, but 

USO Did Not Fully Comply 

with Audit Requirements 
Page 12 GAO-04-56 Defense Management 

Circular A-133, Audits of States, Local Governments, and Non-Profit 

Organizations, as revised June 1997, which implements the Single Audit 

Act, as amended.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.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.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 

 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). 
Page 13 GAO-04-56 Defense Management 

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. 

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. 

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 

Internal Control 

Weaknesses Led to 

Problem Expenditures for 

Contract Reimbursements 

and Direct Payments 

Lack of Clear and Current 

Written Supplemental 

Guidance 
Page 14 GAO-04-56 Defense Management 

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.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. 

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 

 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. 

Insufficient Management 

Oversight 
Page 15 GAO-04-56 Defense Management 

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 highdollar 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. 
Page 16 GAO-04-56 Defense Management 

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.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. 

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 businessclass 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 

 10 The Joint Federal Travel Regulations apply to uniformed service members and the Joint 

Travel Regulations applies to DOD civilian personnel. 

Payment of Improper, 

Questionable, and Unsupported 

Expenses 

Improper Expenses 
Page 17 GAO-04-56 Defense Management 

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 Reason item was improper Amount 

Alcoholic beverages Not allowed under DOD and federal travel regulations $ 56 

Hotel meals Per diem was not authorized for travelers 252 

Lodging for one individual No travel orders authorizing lodging expenses 61 

Celebrity honorarium Traveler did not participate in tour 600 

Production support Traveler did not participate in tour 300 

Duplicate billing for administrative services Expense already paid 8,894 

First-class travel First-class travel was not authorized or properly 

documented in accordance with DOD and federal travel 

regulations 29,586 

Business-class travel Justification for travel was not authorized or properly 

documented in accordance with DOD and federal travel 

regulations 37,153 

Air Mobility Command airlift services No travel orders authorizing payment of airlift services 9,065 

Total improper expenses identified $85,967 

Source: GAO analysis of DOD data. 

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.11 Contracting officials stated that the monthly administrative fee 

 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. 
Page 18 GAO-04-56 Defense Management 

included the cost for all accounting services, including those performed by 

the contractor.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 account13 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 Regulations14 and the Joint Federal Travel 

Regulations issued by DOD and the Federal Travel Regulation15 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. 

 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. 
Page 19 GAO-04-56 Defense Management 

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 transactions16 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. 

 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). 
Page 20 GAO-04-56 Defense Management 

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 Reason item was questionable Amount

Limousine services Appears to be excessive with no explanation or 

documentation showing why it was necessary $1,656

Miscellaneous hotel expenses for tour members No existing guidance consistent with DOD and GSA 

regulations 579

Airport VIP lounge Appears excessive with no explanation or documentation 

showing why it was necessary 375

USO dinner No existing guidance consistent with DOD and GSA 

regulations 330

USO tour producer meals No existing guidance consistent with DOD and GSA 

regulations 114

Total questionable expenses identified $3,054

Source: GAO analysis of DOD data. 

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. 

Questionable Expenses 
Page 21 GAO-04-56 Defense Management 

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 Reason item was unsupported Amount 

Production supporta Lack of detailed supporting 

documentation $260,660 

Production tour manager expense Lack of detailed supporting 

documentation 56,250 

Celebrity honorarium Lack of detailed supporting 

documentation 27,000 

Total unsupported expenses 

identified $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. 

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 

Unsupported Expenses 
Page 22 GAO-04-56 Defense Management 

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. 

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 

Actions Taken to Improve 

Controls over Support 

Provided to USO 
Page 23 GAO-04-56 Defense Management 

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.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. 

 17 The commercial travel office is the travel agent contracted by AFEO and is authorized to 

issue tickets for commercial transportation. 
Page 24 GAO-04-56 Defense Management 

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. 

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 

Conclusions 
Page 25 GAO-04-56 Defense Management 

control environment, an earnest commitment by DOD and USO 

management is also needed to ensure proper controls and use of DOD 

funds. 

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. 

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 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 
Page 26 GAO-04-56 Defense Management 

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 
Page 27 GAO-04-56 Defense Management 

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 
Appendix I: Scope and Methodology 

Page 28 GAO-04-56 Defense Management 

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 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 29 GAO-04-56 Defense Management 

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.

1

 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 

 1 Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1).
Appendix I: Scope and Methodology 

Page 30 GAO-04-56 Defense Management 

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.2

 Furthermore, our recent 

audits of DOD’s travel card and purchase card accounts identified 

weaknesses in the overall control environments and breakdowns in key 

 2

 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). 
Appendix I: Scope and Methodology 

Page 31 GAO-04-56 Defense Management 

controls relied on to manage these programs, leaving them vulnerable to 

fraud, waste, and abuse.3

We performed our audit from March 2003 through September 2003 in 

accordance with generally accepted government auditing standards. 

 3

 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). 
Appendix II: Details of Improper First-Class 

and Business-Class Travel 

Page 32 GAO-04-56 Defense Management 

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 

Type of 

tour Itinerary 

Class of tickets 

purchased 

Cost of 

tickets paid 

Estimated 

pretax cost of 

coach fare 

tickets

Reason travel 

was improper 

1 Celebrity Los Angeles to 

Washington, D.C., and 

back; San Francisco to 

Washington, D.C.; 

Philadelphia to 

Cincinnati; Philadelphia 

to Dallas 

8 first-class tickets $16,658 $1,680 First-class travel 

was not authorized. 

2 Celebrity Los Angeles to 

Washington, D.C., and 

back; San Francisco to 

Washington, D.C.; 

Philadelphia to 

Cincinnati; Philadelphia 

to Dallas 

6 first-class tickets 8,397 1,901 First-class travel 

was not authorized. 

3 Celebrity Washington, D.C., to 

Atlanta to Las Vegas; 

Dallas to Washington, 

D.C.; Boston to 

Washington, D.C., and 

back; and Albuquerque 

to Dallas 

7 business-class 

tickets 

13,488 1,400 Business-class 

was not authorized. 

4 Noncelebrity Washington, D.C., to 

Atlanta to Las Vegas; 

Dallas to Washington, 

D.C.; Boston to 

Washington, D.C., and 

back; and Albuquerque 

to Dallas 

3 business-class 

tickets 

2,193 2,193a

 Lacked specific 

documentation 

justifying businessclass travel. 

5 Celebrity Los Angeles to 

Washington, D.C., and 

back; Pittsburg to 

Washington, D.C. 

2 first-class tickets 1,556 720b Only businessclass was 

authorized. 

6 Celebrity Los Angeles to 

Washington, D.C.; 

Frankfurt, Germany; 

Cairo, Egypt, and back 

2 business-class 

tickets 

15,660 7,694 Lacked specific 

documentation 

justifying businessclass travel. 

Appendix II: Details of Improper First-Class 

and Business-Class Travel 
Appendix II: Details of Improper First-Class 

and Business-Class Travel 

Page 33 GAO-04-56 Defense Management 

Example 

number 

Type of 

tour Itinerary 

Class of tickets 

purchased 

Cost of 

tickets paid 

Estimated 

pretax cost of 

coach fare 

tickets

Reason travel 

was improper 

7 Celebrity Los Angeles to 

Vancouver, British 

Columbia; London, 

England; Doha, Qatar; 

Amman, Jordan, and 

back 

1 business-class 

ticket 

8,005 4,085 Lacked specific 

documentation 

justifying businessclass travel. 

8 Noncelebrity Cairo, Egypt, to Istanbul, 

Turkey, to Athens, 

Greece, to various cities 

in Italy 

4 business-class 

tickets 

5,052 4,863 Lacked specific 

documentation 

justifying businessclass travel. 

9 Noncelebrity Cairo, Egypt, to Istanbul, 

Turkey 

13 business-class 

tickets 

4,441c 3,650 Lacked specific 

documentation 

justifying businessclass travel. 

10 Celebrity Atlanta and Little Rock, 

to Washington, D.C.; 

New York and Chicago 

to Tulsa, Okla. 

2 first-class tickets 2,975d 1,402 First-class travel 

was not authorized. 

Total $78,425 $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. 

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 
Appendix II: Details of Improper First-Class 

and Business-Class Travel 

Page 34 GAO-04-56 Defense Management 

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 businessclass tickets amounted to $7201

 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)2

 and the Joint 

Federal Travel Regulations (JFTR) limit the authority to authorize firstclass 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 directive3

 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 firstclass 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 

 1

 We derived the estimated coach fares from an online Web site, www.expedia.com. 

2

 JTR ¶2204 A3 – A5. 

3

 DOD Directive 4500.9, December 29, 1993. 
Appendix II: Details of Improper First-Class 

and Business-Class Travel 

Page 35 GAO-04-56 Defense Management 

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 firstclass 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 premiumclass, 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. 
Appendix III: Comments from the Department 

of Defense 

Page 36 GAO-04-56 Defense Management 

Appendix III: Comments from the 

Department of Defense 
Appendix III: Comments from the Department 

of Defense 

Page 37 GAO-04-56 Defense Management 
Appendix III: Comments from the Department 

of Defense 

Page 38 GAO-04-56 Defense Management 
Appendix III: Comments from the Department 

of Defense 

Page 39 GAO-04-56 Defense Management 
Appendix IV: Staff Acknowledgments 

Page 40 GAO-04-56 Defense Management 

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. 

Appendix IV: Staff Acknowledgments 

(350320) 
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