USO is a congressionally chartered, nonprofit, nongovernmental, and charitable corporation whose mission is to enhance the quality of life for U.S. armed forces personnel and their families. The USO World Headquarters acts as the enabling body for the organization, sets overall policy and strategy, is responsible for the operation of overseas USO centers, and produces overseas celebrity entertainment tours in partnership with AFEO. From World War II through the Vietnam War, USO and DOD partnered to enhance troop morale and provide entertainment to military outposts worldwide. Following the Vietnam War, legislation establishing USO’s federal charter and various DOD directives and instructions formalized this close association and made DOD resources, including funds, available to the maximum extent possible to support USO’s mission. DOD uses both appropriated and nonappropriated resources to support USO’s operations. Appropriated support is derived from DOD’s O&M funds, and nonappropriated support is provided largely through DOD-donated goods, services, and infrastructure. DOD regulations designate (1) the Under Secretary of Defense for Personnel and Readiness as the official liaison between DOD and USO and (2) AFEO, a joint-service operation, as the DOD liaison office for USO. AFEO, established in 1951, administers DOD’s Armed Forces Entertainment Program in partnership with USO. The U.S. Air Force is the executive agent for AFEO, having assumed that role from the U.S. Army in 1997. AFEO’s mission is to provide free, high quality, live entertainment to U.S. military personnel and their families stationed overseas. AFEO supplies all noncelebrity entertainment, and USO is the primary provider of celebrity entertainment. Noncelebrity entertainment is made up of up- and-coming performers professionally managed by an agent; celebrity entertainment consists of well-known entertainers, listed in Billboard or with gold or platinum recordings. Under a contractual arrangement with AFEO, USO recruits celebrity performers for the Armed Forces Entertainment Program. AFEO reimburses USO for certain tour-related expenses such as honoraria, production support, and other direct costs. In some cases, AFEO and other DOD entities also make arrangements to support USO overseas tours and pay directly for these expenses, such as for commercial airfares, visas, passports, and military airlift services, from their respective O&M accounts. Also, USO has agreed to pay for certain tour-related costs, for example, paying the difference between the cost of business-class and first-class air travel and the travel costs for individuals accompanying performers whose costs are not covered under the contract with AFEO. Following the 1991 Gulf War, USO faced serious financial problems because of declining contributions and therefore became concerned about its continued ability to serve the military. To address these concerns, USO’s Board of Governors established the Spirit of Hope Endowment Fund in 1998. According to a former USO official, the intent of the fund was to infuse USO with funds to provide for the perpetuity of its programs and services. To assist USO, the Congress, beginning in fiscal year 2000, provided a total of $23.8 million in O&M funds in the form of grants for USO. As of September 2003, DOD had provided about $20.8 million to USO. USO used these funds as seed money for the endowment. 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. 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. 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. The funds, appropriated only for grants to USO, were first allocated to the Deputy Assistant Secretary of Defense for Personnel Support, Families and Education. In 1998, USO established the Spirit of Hope Endowment Fund and, after receiving the grants from DOD, transferred the funds into the endowment fund. According to USO policy, the USO Board of Governors established the Spirit of Hope Endowment Fund, which is a restricted account. Money placed into the fund is to be considered as principal and must remain in the account. USO can use the income (e.g. interest and dividends) that accrues on the balance held in the endowment fund to support its operations. USO used about $333,000 in investment income in calendar years 1999 and 2000 for its operations. 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. 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. 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. 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.