DOD Financial Management: More Reliable Information Key to Assuring
Accountability and Managing Defense Operations More Efficiently
(Testimony, 04/14/99, GAO/T-AIMD/NSIAD-99-145).

Pursuant to a congressional request, GAO discussed the steps needed to
improve financial management at the Department of Defense (DOD),
focusing on: (1) the impact of financial management weaknesses on DOD's
ability to efficiently and economically carry out its operations; (2)
efforts DOD has initiated, and additional actions that are necessary, to
improve financial management systems and controls in the short term; and
(3) enhancements needed in updating DOD's Biennial Financial Management
Improvement Plan--its long-term blueprint for financial management
reform.

GAO noted that: (1) DOD primarily relies on various logistical systems
to carry out its important stewardship responsibility over an estimated
$1 trillion in physical assets; (2) these systems are the primary source
of information for: (a) maintaining visibility over assets to meet
military objectives and readiness goals; and (b) financial reporting;
(3) however, these systems have material weaknesses that, in addition to
hampering financial reporting, impair DOD's ability to: (a) maintain
central visibility over its assets; (b) safeguard assets from physical
deterioration, theft, or loss; and (c) prevent the purchase of assets
already on hand; (4) these weaknesses can seriously diminish the
efficiency and economy of the military services' support operations; (5)
in response to this problem, the department initiated programs or
renewed its emphasis on implementing existing measures that would
improve asset visibility and tracking; (6) in addition, DOD renewed its
Total Asset Visibility initiative to provide department-level access to
timely, accurate information on the status, location, and movement of
its personnel, equipment and supplies--including weapon systems,
secondary inventory, and ammunition; (7) DOD Comptroller has been
developing and implementing short-term steps in collaboration with DOD's
functional and audit communities, the Office of Management and Budget,
and GAO; (8) several of the actions included in DOD's short-term plan,
along with additional short-term actions necessary to provide a solid
foundation for the department's financial management improvement
efforts, include: (a) ensuring feeder system data accuracy; (b)
implementing accounting policy procedures; (c) instilling fundamental
controls; and (d) training financial management personnel; (9) DOD's
Biennial Plan represents a significant landmark because it includes a
discussion of the importance of the programmatic functions of personnel,
acquisition, property management, and inventory management to the
department's ability to support consistent, accurate information flows
to all information users; (10) modifications to the plan are needed if
DOD is to achieve the full range of reforms needed; and (11) to
accomplish this, DOD's planned update should include: (a) a revised
concept of operations to reflect the full range of DOD's financial
management operations; (b) specific plans on shared servicing and
outsourcing strategies; and (c) concepts established in the
Clinger-Cohen Act for effectively implementing the technology
initiatives contained in the plan.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-AIMD/NSIAD-99-145
     TITLE:  DOD Financial Management: More Reliable Information Key to
	     Assuring Accountability and Managing Defense
	     Operations More Efficiently
      DATE:  04/14/99
   SUBJECT:  Financial management systems
	     Internal controls
	     Defense cost control
	     Logistics
	     Accountability
	     Military inventories
	     Inventory control systems
IDENTIFIER:  DOD Biennial Financial Management Improvement Plan
	     DOD Joint Defense Total Asset Visibility Program

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a499145t GAO United States General Accounting Office

Testimony Before the Subcommittee on Readiness and Management
Support, Committee on Armed Services, U. S. Senate

For Release on Delivery Expected at 2 p. m. Wednesday, April 14,
1999

DOD FINANCIAL MANAGEMENT

More Reliable Information Key to Assuring Accountability and
Managing Defense Operations More Efficiently

Statement of Gene L. Dodaro Assistant Comptroller General
Accounting and Information Management Division

GAO/ T- AIMD/ NSIAD- 99- 145

Page 1 GAO/ T- AIMD/ NSIAD- 99- 145

Mr. Chairman and Members of the Subcommittee: Thank you for the
opportunity to discuss the steps needed to improve financial
management at the Department of Defense (DOD). Having reliable,
timely financial information is important to ensure accountability
over DOD's extensive assets and resources in order to efficiently
and

economically manage the department. Accomplishing this goal is a
tremendous challenge given the worldwide scope of DOD's mission
and operations; the diversity, size, and culture of the
organization; its estimated trillion dollars of assets and
liabilities; and its hundreds of billions of dollars in annual
appropriations.

DOD has created and maintains the world's most powerful fighting
force and its effectiveness in protecting the safety and security
of our nation and national interests is unparalleled. Yet, without
more reliable financial and other management information, DOD
cannot ensure adequate accountability to the President, the
Congress, and the American public. In addition, decisionmakers and
managers are deprived of valuable tools to

control costs and address pressing management issues that drain
resources that could be better used to increase readiness and meet
other priorities, such as weapon system modernization.

Central to achieving accountability are effective financial
management operations. However, pervasive weaknesses in DOD's
financial management operations led us in 1995 to designate DOD
financial management as a high- risk area vulnerable to waste,
fraud, abuse and mismanagement-- a situation that continues today.
1 Also, taken together, the material weaknesses in DOD's financial
operations represent the single largest challenge to getting an
unqualified opinion on the U. S. government's

financial statements. While in the past we have questioned the
department's commitment to fixing these long- standing problems,
DOD has started to devote additional resources to correct its
financial management weaknesses. The

atmosphere of business as usual at DOD has changed to one of
marked effort at real reform. DOD is working on short- term
actions to improve financial reporting and to help support the
President's goal to obtain an

1 High- Risk Series: An Overview (

GAO/HR-95-1
, February 1995), High- Risk Series: Defense Financial Management (GAO/ HR- 97- 3, February 1997), and Major Management Challenges and Program Risks: A Governmentwide Perspective (GAO/ OCG- 99- 1, January 1999).
1 High- Risk Series: An Overview (  GAO/HR-95-1 , February 1995),
High- Risk Series: Defense Financial Management (GAO/HR-97-3,
February 1997), and Major Management Challenges and Program Risks:
A Governmentwide Perspective (GAO/OCG-99-1, January 1999).

Page 2 GAO/ T- AIMD/ NSIAD- 99- 145

unqualified opinion on the federal government's financial
statements. In addition, DOD has recently submitted to the
Congress its Biennial Financial Manageme't Improvement Plan. This
plan presents, for the first time, the department's strategies,
including a concept of operations for modernizing its financial
management activities. The plan, which DOD has now committed to
updating annually, is an ambitious undertaking that encompasses
over 900 pages and represents an important step toward longterm
improvements.

These initiatives are all very important steps in the right
direction, but it is essential to keep in mind the magnitude of
DOD's financial management problems. These problems are pervasive
and entrenched in an extremely large decentralized organization.
It will take considerable effort, time, and sustained top
management attention to turn reform efforts into day- to- day
management reality.

My comments today will focus on  the impact of financial
management weaknesses on DOD's ability to efficiently and
economically carry out its operations;  efforts DOD has initiated,
and additional actions that are necessary, to improve financial
management systems and controls in the short term;

and  enhancements needed in updating DOD's Financial Management
Improvement Plan-- its long- term blueprint for financial
management

reform. Impact of Financial Management Weaknesses on the Economy
and

Efficiency of DOD Operations

Recent audits of the fiscal year 1998 financial statements for DOD
and the individual military services, performed by the DOD
Inspector General (IG) and the service audit agencies, and our
report on the U. S. government's financial statements have
highlighted many critical DOD financial management problems. 2
These problems not only hamper the

department's ability to produce timely and accurate financial
management information, but also significantly impair efforts to
improve the economy and efficiency of its operations. Key areas of
concern relate to ineffective asset control and accountability,
which affects DOD's visibility over weapons systems and inventory,
and unreliable cost and budget

2 See appendix I for a complete list of DOD's 1998 financial
statement audit reports.

Page 3 GAO/ T- AIMD/ NSIAD- 99- 145

information, which affects DOD's ability to effectively measure
performance, reduce costs, and maintain adequate funds control.

Control and Accountability for Assets Impaired

DOD primarily relies on various logistical systems to carry out
its important stewardship responsibility over an estimated $1
trillion in physical assets, ranging from multimillion dollar
weapon systems to enormous inventories of ammunition, stockpile
materials, and other military items. These systems are the primary
source of information for (1) maintaining visibility over assets
to meet military objectives and readiness goals and (2) financial
reporting. However, these systems have material weaknesses that,
in addition to hampering financial reporting, impair DOD's ability
to (1) maintain central visibility over its assets,

(2) safeguard assets from physical deterioration, theft, or loss,
and (3) prevent the purchase of assets already on hand.

Overall, these weaknesses can seriously diminish the efficiency
and economy of the military services' support operations. For
example, DOD's lessons learned studies from Operation Desert Storm
highlighted combat

support problems associated with tracking the status and location
of personnel and supplies. In response to this problem, the
department initiated programs or renewed its emphasis on
implementing existing measures that would improve asset visibility
and tracking. For example, the Global Combat Support System

(GCSS), led by the Defense Information Systems Agency, was
established in September 1995 to reengineer processes and
procedures and provide a technological base, including a common
environment and shared infrastructure needed to rapidly deploy
support to the warfighter. In addition, DOD renewed its Total
Asset Visibility (TAV) initiative to provide department- level
access to timely, accurate information on the status,

location, and movement of units, personnel, equipment and
supplies- including weapon systems, secondary inventory, 3 and
ammunition.

The effectiveness of these programs in achieving their common
objectives of supporting the warfighter will depend on the
accuracy and timeliness of information provided by the underlying
systems. This includes the equipment and inventory data provided
by numerous logistic systems such 3 Secondary inventory includes
spare parts, clothing, and medical supplies to support DOD
operating forces worldwide.

Page 4 GAO/ T- AIMD/ NSIAD- 99- 145

as the Defense Logistics Agency's (DLA) Distribution Standard
System and the Army's Continuing Balance System (CBS- X). As
discussed in the following sections, information in these logistic
systems on DOD's weapon systems and inventories does not meet
accuracy objectives and unless substantive improvements in
producing reliable, timely data are made, it will be difficult for
efforts such as GCSS and TAV to achieve their objectives.

Weapon Systems Accountability While necessary to effectively
implement the department's overall objective to maintain
visibility over all deployable DOD weapon systems, many of the
military services' logistics systems used to track and support
weapon systems and support equipment were unable to be relied on
to accurately provide information to support DOD's asset
visibility and

reporting. Audits of this information in fiscal year 1997 included
specific tests to validate the data in the logistics systems
reporting military equipment. Because of the sensitive nature of
the equipment items selected for

existence testing, auditors' fiscal year 1997 financial audit
tests were designed to either pass or fail the accuracy of
logistical system information. For a number of critical systems
tested, it was agreed with the military leaders who used those
systems that a system would pass only where all assets selected
from the system were found. For other systems, which generally
carry information on less critical assets, it was agreed that up
to two errors could be identified with the system still receiving
a passing grade.

Auditors tested recorded information for 11 categories of Navy
military equipment. Fiscal year 1997 testing of critical Navy
logistics systems showed that the Navy's systems failed for 3 of
11 categories of military equipment tested. Specifically, auditors
determined that the Navy systems relied on for visibility or
accountability over active boats, service craft, and

uninstalled engines failed because the data were either incomplete
or included assets that no longer existed. For example, tests of
these mission critical systems found the following:

 Of 45 boats selected for examination, 2 were included in the
Combatant Craft and Boat Support System even though they had been
disposed of or sold.

 Of 79 inactive service craft reported in the Naval Vessel
Register (NVR) and tested by auditors, 6 could not be located.
Fifteen other service craft had been sold or disposed of but were
still included in the NVR as

Page 5 GAO/ T- AIMD/ NSIAD- 99- 145

inactive, indicating their availability to meet rapid mobilization
requirements.  Of 105 uninstalled engines sampled, 10 valued at up
to $4 million could

not be found. Because of the severity of these problems, a working
group was established in 1998 to address the issue. The Navy,
however, has not yet implemented any significant corrective
actions to address deficiencies that continue to impede the Navy's
accountability over these weapon systems. Since these problems
remained unaddressed, Navy auditors did not repeat these tests for
the 1998 audit.

For 1997, Air Force logistic systems tested, including those
supporting aircraft, missiles and uninstalled engines, passed
auditors' tests and auditors made recommendations to correct the
minimal number of inaccuracies found during the tests. However, as
part of the fiscal year 1998 financial statement audit work,
auditors were unable to verify the reported data on 8,387
uninstalled engines, with an estimated value in excess of $8
billion. This occurred because the Comprehensive Engine Management
System (CEMS) which is used to report data on these assets, could
not

separately identify additions and deletions of engines during the
fiscal year-- a basic control for ensuring accountability over
assets. Audit tests in 1997, using the pass- fail approach
previously discussed, found that the Army property books
maintained by the local units were generally accurate for major
equipment items held by those units. However, the CBS- X, which is
intended to provide Army leadership with worldwide

visibility over the Army's reportable equipment items, has
significant accuracy problems. For example, we have reported 4
that CBS- X was inaccurate because it (1) does not effectively
capture data on equipment transactions from all Army units, (2)
reflects software errors, and (3) contains transaction posting
errors. In addition, like the Air Force's CEMS, CBS- X does not
provide accountability and control over Army assets by tracking
additions and deletions to asset quantities on hand. Recognizing
that CBS- X could not provide effective visibility over equipment
maintained by Army units, the Army used a data call to complete
its financial reporting for fiscal year 1998 of this equipment and
to

4 Army Logistics Systems: Opportunities to Improve the Accuracy of
the Army's Major Equipment Item System (GAO/AIMD-98-17, January
23, 1998).

Page 6 GAO/ T- AIMD/ NSIAD- 99- 145

correct inaccuracies in CBS- X. The Army Audit Agency reported
that this data call and other procedures identified 1,837 items,
which included 10 Army reconnaissance aircraft, 81 Tow missile
launchers, and 174 Javelin

command- launch units that were not reported to CBS- X. Because
these results were based on only 78 percent of the units reporting
as of October 28, 1998, the Army continued to follow up with units
that had not reported and, by mid- December, 90 percent of the
units had reported. For

example, as a result of these additional units reporting, the Army
identified another 43 reconnaissance aircraft that were not
reported in CBS- X. Inventory Accountability Weaknesses

Audit work has shown that inventory 5 accountability data are
inaccurate and include omissions. Further, DOD has large
quantities of inventory beyond its requirements that may
contribute to its inability to maintain accurate inventory
quantity information. Incomplete and inaccurate data will hamper
the department's ability to meet and sustain the goals of TAV and
other DOD- wide asset visibility initiatives, as well as adversely
impact DOD's financial reports. In addition, inaccurate and
omitted data increase

the risk that responsible inventory item management may request
funds to obtain additional, unnecessary inventories of items that
are on hand but not reported. Finally, DOD is incurring
unnecessary holding costs.

DOD's 1999 Annual Report to the President and the Congress
incorporated the TAV initiative goals, including a target of 90-
percent visibility of DOD materiel assets by 2000. TAV's longer
term target is 100 percent visibility by 2004. The overall
objective of TAV is to use the information to improve DOD's
logistics practices, including sharing assets within component
commands and/ or among components. DOD cannot attain its overall
TAV

objective without both complete and accurate data. With regard to
incomplete inventory data, financial statement audits have found
that the department generally excludes information in several
inventory accountability systems from financial reports, including
reports provided to the Congress on inventory levels, and from
overall visibility systems. For example, Navy omissions, which
primarily relate to spare and repair parts, included an estimated
(1) over $9 billion in items warehoused on board ships, (2) over
$3 billion of inventory items held by engineering

5 DOD inventory includes ammunition (such as machine gun
cartridges, rocket motors, and grenades), consumables (such as
clothing, bolts, and medical supplies), repairable items (such as
navigational computers, landing gear, and hydraulic pumps), and
stockpile materials (such as industrial diamonds, rubber, and
tungsten).

Page 7 GAO/ T- AIMD/ NSIAD- 99- 145

and ordnance activities, and (3) $650 million of items at
redistribution centers. In addition, about $19 billion of
government owned material held by contractors is omitted from
inventory reports provided to the Congress.

With regard to accurate inventory data, financial audits have
repeatedly found large differences between on hand and recorded
inventory quantities. For example, in 1996 the DOD IG reported an
overall 24- percent error rate at DOD's primary storage locations.
In 1997, Navy auditors reported a 23- percent error rate for the
13 major storage locations they

visited. Finally, in 1998, for the 14 depots we visited holding 82
percent of depot inventory, the reported depot accuracy rates were
below DLA's targeted 95- percent accuracy mark, with only 2 depots
reporting inventory record accuracy rates above 90 percent.
Further, our preliminary observations over the physical inventory
count procedures and the accuracy of those rates show that
improvements are needed to strengthen controls over inventory. We
will soon be providing DOD with specific

recommendations on how it can improve these inventory controls.
The sheer size and volume of DOD's on- hand inventories also
impede the department's efforts to accumulate and report accurate
inventory data. We reported in our high- risk reports on defense
inventory management that the

department needs to avoid burdening its supply system with large
unneeded inventories. 6 In our soon to be released report, we
stated 7 that about 60 percent of on- hand items, or an estimated
$39. 4 billion of DOD's secondary inventory, exceeded DOD's
requirements. The DOD IG has also recently reported that about $3
billion of DLA's reported $9.8 billion of consumable inventory was
inactive and of uncertain future utility. DOD acknowledges the
need to reduce its inventories and has established goals to reduce
supply inventory by $12 billion by 2000.

Finally, inaccurate or incomplete data can result in unnecessary
purchases. In addition, unneeded inventory incurs holding costs.
For example, in February 1997, we reported that DOD had ordered
$11.3 million in items such as hydraulic pump valves and circuit
card assemblies that were

6 Major Management Challenges and Program Risks: Department of
Defense (GAO/OCG-99-4, January 1999). 7 Defense Inventory: Status
of Inventory and Purchases and Their Relationship to Current Needs
(GAO/NSIAD-99-60, April 16, 1999).

Page 8 GAO/ T- AIMD/ NSIAD- 99- 145

already in excess supply. 8 In addition, we estimated 9 that the
services could save about $382 million annually in inventory
holding costs by eliminating at nonmajor locations inventory that
is not needed to meet current requirements.

Reliable Cost Information Not Available

Reliable information on the cost of operations and the use of
budgetary resources is critical to provide accountability for, and
to efficiently and economically manage, DOD's vast resources. Both
cost and budgetary information are essential for making important
decisions, such as reallocating resources to our fighting forces
and considering whether to continue, modify, or discontinue
programs and activities. However, DOD's financial management
systems are not designed to capture the full cost of its
activities and programs. Also, as the next section discusses
further, certain information on DOD's budget resources is
unreliabe

To effectively, efficiently, and economically manage DOD's
programs, its managers need reliable cost information for (1)
evaluating programs (for example, measuring actual results of
management's actions against

expected savings or determining the effect of long- term
liabilities created by current programs), (2) making economic
choices, such as whether to outsource specific activities and how
to improve efficiency through technology choices, (3) controlling
costs for its weapon systems and business activities funded
through working capital funds, and (4) measuring performance. The
lack of reliable, cost- based information hampers DOD in each of
these areas, as discussed below.

Evaluating Programs Accurate cost information is needed to
evaluate the results of management's decisions, including
determining whether anticipated savings have been achieved. In
this regard, we recently reported 10 that DOD relied on budget
estimates and projections to determine its estimated savings from
base closure activities. We concluded that because of data and
record weaknesses, DOD's estimates should only be viewed as

8 Defense Logistics Much of the Inventory Exceeds Current Needs
(GAO/NSIAD-97-71, February 28, 1997). 9 Defense Inventory: Spare
and Repair Parts Costs Can be Reduced (GAO/NSIAD-97-47, January
17, 1997).

10 Military Bases: Review of DOD's 1998 Report on Base Realignment
and Closure (GAO/NSIAD-99-17, November 13, 1998).

Page 9 GAO/ T- AIMD/ NSIAD- 99- 145

providing a rough approximation of costs and savings rather than a
precise accounting. In addition, long- term liabilities that
affect program costs must be accurately measured and considered in
evaluating the status of programs. Without adequate cost data to
help determine liabilities, DOD may be over- or understating the
future resources that will be required to meet its

commitments. For example, inadequate cost data inhibit DOD's
ability to accurately estimate the projected costs of providing
health care benefits to future military retirees and their
beneficiaries. Currently, for financial reporting, DOD estimates
its liability using unaudited budget information, which does not
include the full cost of the program. For example, the costs of
the treatment facilities and some personnel costs such as pension
benefits may not be fully captured. As a result, the liability
could be substantially different from the reported balance.

Further, DOD's lack of reported cost data on the disposal of
weapon systems, including for example, aircraft, missiles, ships,
and submarines, was a significant factor contributing to our
conclusion that the liability for such costs on the federal
government's financial statements was

understated. 11 The liability for this disposal activity is a part
of the overall life cycle cost of these weapon systems and can
contribute to the ongoing dialogue on funding comparable weapon
systems.

Making Economic Choices DOD's decisions on whether to outsource
specific functions are undermined without supporting cost data.
Yet DOD, as well as other government agencies, has historically
been unable to provide actual data on the costs associated with
functions to be considered for outsourcing,

particularly with respect to overhead rates. Consequently, to ease
concerns about unfair competition, OMB selected a single overhead
rate (12 percent) for DOD and other federal agencies to use in A-
76 competitions. 11 Financial Management: Factors to Consider in
Estimating Environmental Liabilities for Removing Hazardous
Materials in Nuclear Submarines and Ships (GAO/AIMD-97-135R,
August 7, 1997), Financial Management: DOD's Liability for
Aircraft Disposal Can Be Estimated (GAO/AIMD-98-9, November 20,
1997), Financial Management: DOD's Liabilities for the Disposal of
Conventional Ammunition Can Be Estimated (GAO/AIMD-98-32, December
19, 1997), and Financial Management: DOD's Liabilities for

Missile Disposal Can Be Estimated (GAO/AIMD-98-50R, January 7,
1998).

Page 10 GAO/ T- AIMD/ NSIAD- 99- 145

We recommended 12 that DOD develop overhead rates that better
reflect actual overhead costs, which would promote fairer
competition between the government and private sector. Further,
DOD is unable to capture complete and reliable data on the capital
costs associated with its operations, which adversely affects its
ability to develop cost information to compare with the private
sector. Specifically, billions of dollars of existing DOD plant,
property, and equipment assets have been expensed and, as a
result, the costs associated with their acquisition and use may
not

be adequately considered. Further, inadequate cost information
diminishes DOD's ability to manage military health treatment in
areas such as allocating resources, deciding whether to provide
services internally or by outsourcing, setting third- party
billing rates, and benchmarking its health delivery system with
those of other providers. Specifically, the preliminary results of
our review of key

DOD data for estimating these costs identified inconsistent data
collection and reporting and incomplete accounting for all
relevant expenses and revenues.

Finally, the Clinger- Cohen Act mandates performance- based and
resultsoriented information for all major information technology
(IT) investments. As we have reported, 13 lack of cost information
prevents DOD

from properly compiling the total cost of its IT investments, as
required by the Clinger- Cohen Act. This impedes DOD in meeting
the act's requirement to establish goals for improving efficiency
through effective use of information technology and benchmarking
agency process performance against comparable processes in terms
of cost, benefits, and risk.

Controlling Costs Two of the most prominent areas where DOD has
stated a need for more accurate data to control costs are in its
weapon systems activities and its working capital fund operations.
Specifically, DOD acknowledges that the lack of a cost accounting
system is the single largest impediment to controlling and
managing weapon systems costs, including costs of acquiring,
managing, and disposing of weapon systems. Without accurate
information on the life- cycle costs of weapon systems, neither
DOD officials nor Congress can make fully informed decisions about
which

12 Defense Outsourcing: Better Data Needed to Support Overhead
Rates for A- 76 Studies (GAO/ NSIAD98- 62, February 27, 1998).

13 Defense Information Management: Continuing Implementation
Challenges Highlight the Need for Improvement (GAO/T-AIMD-99-93,
February 25, 1999).

Page 11 GAO/ T- AIMD/ NSIAD- 99- 145

weapons, or how many, to buy. DOD is developing, by 2000, a system
intended to provide management with improved insight into total
costs and the information necessary to make more informed
decisions.

DOD also has long- standing problems accumulating and reporting
the full costs associated with working capital fund operations
which provide goods and services in support of the military
services-- its primary customers. The foundation for achieving the
goals of these business- type funds is accurate cost data, which
is critical for them to operate efficiently.

DOD working capital funds charge their customers prices for the
support operations provided so that they can recover the full cost
of the goods and services provided, including administrative and
overhead costs. Every dollar that the military services spend
inefficiently on DOD working capital fund purchases results in
fewer resources available for other defense

spending priorities. Simply stated, working capital fund
overcharges could result in the military services using more
Operations and Maintenance appropriations in the current year than
anticipated; undercharges could

result in unanticipated future pricing increases and funding
requests. In recent financial audits of DOD working capital funds,
auditors found large adjustments to the value of inventory
balances. For example, the Air Force and the Army working capital
funds had gains and losses of $21 billion and approximately $3. 1
billion, respectively, resulting from physical inventory and
accounting adjustments. Such large inventory gains and losses,
which often were not investigated, are likely to have a
significant impact on the funds' costs of operations and the
prices charged to the funds' customers for goods and services
provided.

Finally, DOD working capital funds set sales prices based on
projected operating costs and cash flows. In recent years, there
have been large fluctuations in prices charged. For example, the
Navy surcharge increased from 14 percent in 1996 to 27 percent in
1997 and to 57 percent in 1998,

impacting the sales price to customers. For example, an item with
an acquisition cost to the working capital fund of $100 in 1996
would have been sold for $114 in 1996, $127 in 1997, and $157 in
1998. Fluctuations of this type make it difficult for the funds'
customers to budget the future costs of repairables and other
goods and services, leading to funding shortfalls that could
affect operations and readiness.

Measuring Performance DOD is unable to develop reliable, cost-
based performance indicators and measures across virtually the
entire spectrum of its operations. As part of

Page 12 GAO/ T- AIMD/ NSIAD- 99- 145

its Results Act Performance Plan for fiscal year 2000, DOD has
developed 43 unclassified performance measures and indicators to
measure a wide range of activities-- from force levels to asset
visibility, but these measures and indicators contain few
efficiency measures based on cost. 14 Most programs have some form
of associated cost consequences that can be

directly or indirectly measured and should be considered in
assessing program achievement.

Reliable Budgetary Data Essential

In addition to accurate cost data, reliable budget information is
essential to ensure that spending of appropriated funds complies
with the amount, purpose, and time frame designated by the
Congress. To help ensure that this occurs, DOD has implemented
systems and controls it relies on to (1) record obligations when
it orders goods and services and (2) liquidate the obligations by
disbursing funds when goods and services are received. Effective
obligation and disbursement practices are essential to ensure that
DOD's spending does not exceed appropriated amounts and other
spending limits imposed by the Congress.

As part of the DOD fiscal year 1998 financial statement audit,
auditors found several areas, however, in which the systems and
controls over the department's use of its budgetary resources were
ineffective. These control weaknesses have left DOD in a situation
where it does not know the true amount of funds that are available
to obligate and spend in each appropriation account. This
situation occurs because obligated balances are not always
correct, reconciliations between DOD and Treasury records are not
being adequately performed, and certain disbursements are not
being recorded promptly in DOD's accounting records. Either
overspending or cancellation of funding authority (not dispersing
funds

during the period they were made available for spending by
Congress results in cancellation of the authority) can result.

Some Recorded Obligations Are Incorrect

Auditors found that recorded obligations included amounts that
were no longer correct or were unsupported. Specifically, at the
Air Force-- the only DOD component performing a full financial
audit of its obligated balances- an estimated $4. 3 billion of a
$34 billion balance in obligations for its general funds were
found to be incorrect or unsupported. Further, review of
unliquidated Navy contract obligations showed that approximately
17 14 Results Act: DOD's Annual Performance Plan for Fiscal Year
1999 (GAO/NSIAD-98-188R, June 5, 1998).

Page 13 GAO/ T- AIMD/ NSIAD- 99- 145

percent of the amounts tested ($ 101 million of $592 million) were
no longer correct. Army auditors also found evidence of
unsupported obligations but were unable to quantify the extent of
the problem.

Reconciliations Not Adequately Performed

DOD's records on its available funds should be reconciled to
Treasury records just as an individual reconciles his or her
checkbook to a bank statement. However, comparison of the two
records resulted in unresolved differences amounting to $9. 6
billion. These unresolved differences could significantly affect
the status of budget authority available to be obligated and
expended.

Further, DOD's records show an estimated $823 million held in
suspense accounts at the end of fiscal year 1998 that have not
been properly reported to Treasury and are not reflected in the
differences noted above. Until these transactions are posted to
the proper appropriation account, the department will have little
assurance that the collections and adjustments recorded in these
accounts are proper DOD transactions and that its disbursements do
not exceed appropriated amounts. Moreover, this reported amount
represents netting of collections and adjustments against

disbursements, thus understating the magnitude of the problem. For
example, as part of our fiscal year 1997 financial audit, we found
that while the Navy had a net balance of $464 million in suspense
accounts recorded in its records, the individual transactions,
collections as well as

disbursements, totaled about $5.9 billion. Disbursements Not
Properly Recorded

The concerns the auditors raised with respect to the reliability
of the department's budget information are further exacerbated by
the department's problem disbursements-- disbursements that are
not properly matched to specific obligations recorded in the
department's records. DOD reported these problems at $17.3 billion
as of September 30, 1998. To the extent that these disbursements
cannot be matched to existing recorded

obligations, DOD would be required to record an obligation. This
obligation could create an Antideficiency Act violation if the
department's available unobligated balance was insufficient to
cover the amount of the obligation.

Overspending/ Cancellation of Funds Can Occur Recent audit reports
have described the consequences of the department's inability to
keep track of its obligations and expenditures. Specifically,
auditors found several instances in which the department may have
spent more than authorized amounts. For example, the Air Force's
Depot

Maintenance Activity-- a component of one of the department's
working capital funds-- may have incurred obligations of $1. 1
billion in excess of

Page 14 GAO/ T- AIMD/ NSIAD- 99- 145

available budgetary resources as of September 30, 1998. In
addition, as we previously reported, 15 according to Navy records,
as of September 30, 1997, obligations in 29 canceled and expired
appropriations may have exceeded available budget authority by a
total of $290 million.

The problems affected the reliability of both obligation and
disbursement data. As a result, the Congress cannot be assured
that DOD did not overexpend its budget authority or spend more for
specific programs for

which the Congress established spending limits. Conversely, these
fund control weaknesses also result in the department's inability
to properly identify and manage remaining budget authority, so
that funds the Congress intended for specific DOD programs may be
unused and eventually canceled. For example, at the end of fiscal
year 1998, the department had

$4. 3 billion in expired budget authority that was allowed to
cancel. Short- Term Financial Management Improvement Efforts
Essential

Fully resolving many of DOD's financial management deficiencies
will require long- term actions and technology improvements, as
discussed in the next section. In the interim, however, DOD must
work to improve its existing financial management systems through
short- term corrective actions. These efforts focus on improving
the credibility of DOD's financial information to improve the
reliability of year- end financial statements for DOD and the
government as a whole-- and on making efforts to strengthen

the integrity and controls over existing underlying financial and
logistical systems. On May 26, 1998, the President directed the
head of each agency designated by OMB to identify corrective
actions to resolve financial reporting deficiencies and to make
quarterly progress reports to OMB. The administration's goal is to
have individual agencies, as well as the government as a whole,
complete audits and gain unqualified opinions on their financial
statements. In response, the DOD Comptroller has been developing
and implementing short- term steps in collaboration with DOD's
functional and audit communities, OMB, and the GAO. Several of the
actions included in DOD's short- term plan, along with additional
short- term actions necessary to provide a solid foundation for
the department's financial management improvement efforts, are
highlighted below. These

include actions that are needed to (1) ensure feeder system data
accuracy, 15 Financial Management: Problems in Accounting for Navy
Transactions Impair Fund Control and Financial Reporting
(GAO/AIMD-99-19, January 19, 1999).

Page 15 GAO/ T- AIMD/ NSIAD- 99- 145

(2) implement accounting policy guidance, (3) instill fundamental
controls, and (4) train financial management personnel.

Ensuring Accuracy of Feeder System Data

About 80 percent of the data now relied on for financial
management comes from department program operating systems such as
logistics, acquisition and personnel. For example, the department
relies on data from its personnel systems to provide data to its
payroll systems. Effective controls to ensure that only valid and
accurate transactions are initially

entered into the department's feeder systems on a timely basis is
critical to obtaining reliable data through the department's
existing system structure. It also is necessary to achieve an
effective transition to the department's envisioned future
integrated system structure.

The department has acknowledged, and audit reports have confirmed,
that the data produced by many of these feeder systems are not yet
reliable. Specifically, auditors have identified problems in the
accuracy of the department's feeder systems data relied on to
provide information ranging from plant, property, and equipment to
the cost of military retiree health benefits to weapon and
inventory systems.

To help eliminate inaccurate payments in the department's military
payroll system, DOD has reported that an interface between its
military personnel systems and its military payroll system is
scheduled for completion in 2000. As part of their fiscal year
1998 financial audit, Army auditors continued to report major
mismatches between military personnel and payroll data, a
condition that was previously identified in 1993. The planned
interface should reduce some problems identified with
inappropriate payments to

military personnel; however, it will only do so to the extent that
data on personnel actions are entered to the interfaced personnel
system accurately and in a timely manner. Until this interface is
operational, the Army intends to compare and reconcile military
payroll and personnel data monthly.

DOD also has short- term plans calling for a number of actions by
high- level functional and financial personnel intended to improve
the accuracy of DOD's inventory, property, plant, and equipment,
and military retiree health

benefit feeder system data. Inventory Accountability Data The DOD
Comptroller and Under Secretary of Defense for Acquisition and

Technology are responsible for a set of actions intended to
improve the accuracy of data in its inventory accountability
systems. Specifically, they

Page 16 GAO/ T- AIMD/ NSIAD- 99- 145

plan to require inventory holders to evaluate how inventory
transactions (e. g., receipts and issues) are processed, determine
the sources and causes of processing errors, and develop a
remedial plan for correcting those errors. In addition, they
intend to improve the department's inventory sampling and physical
count procedures to provide more accurate and meaningful rates for
measuring the accuracy of inventory records. Plant, Property, and
Equipment Data

The DOD Comptroller and Under Secretary of Defense for Acquisition
and Technology are responsible for actions directed at developing
more credible valuation data for the department's plant, property,
and equipment by obtaining contractor support for testing the
validity of cost data currently in accountability systems. If the
current systems' cost data are found to be unsupportable, the
contractor will develop a methodology for approximating historical
cost and the required accumulated depreciation

for those assets. Military Retiree Health Benefit Data

The Under Secretary of Defense for Personnel and Readiness is
responsible for providing more reliable data for estimating the
future cost of military retiree health benefits. DOD has developed
a high- level data quality task force to ensure that financial,
labor utilization, and workload data in its primary health care
cost system are reconcilable to data in respective source
documents and support systems.

Implementing Accounting Policy Guidance

The department also has plans to implement new or revised federal
accounting policies in several areas. For instance, we have
reported that DOD is not following federal accounting standards
for accounting for

environmental and disposal liabilities associated with certain
major weapons systems such as aircraft, missiles, ships, and
submarines. To provide better information on these liabilities,
DOD is developing policies and procedures to estimate (1) the
expected restoration costs for

contaminated site and hazardous waste removal and (2) the disposal
costs for ammunition, chemical weapons, excess and obsolete
structures, and major weapons systems. Also, to better account for
inventory, DOD is improving procedures related to inventory gains
and losses, determining

the value of depot- level repairable inventory, and estimating the
cost of beginning inventory balances.

Instilling Fundamental Control

DOD has long- standing control deficiencies, including serious
computer security weaknesses. DOD's plans call for ensuring that
existing

Page 17 GAO/ T- AIMD/ NSIAD- 99- 145

rudimentary accounting and control policies and procedures are
followed, through such means as reconciliations of its Fund
Balance With Treasury accounts and its inventory asset accounts.
We have made a number of recommendations to DOD to instill greater
discipline by adhering to fundamental controls. For example, we
recently recommended that the

department better ensure that existing vendor payment controls are
followed, including limiting the number of personnel with access
to pay systems. DOD has begun a departmentwide initiative to
review access to such systems to identify individuals with
unneeded access.

Training Financial Management Personnel One of the key issues
facing DOD is the need to ensure that its financial

management staff has the knowledge and skills required to carry
out complex financial management operations. Our work 16 has shown
that state governments and private sector organizations place a
strong

emphasis on training as a means of upgrading financial workforce
knowledge of accounting and financial management requirements. In
contrast, the results of a survey we conducted of key DOD
financial managers showed that over half of those surveyed had
received no

financial management training during 1995 and 1996. DOD leadership
has acknowledged that it needs to improve the capabilities of its
financial managers, and DFAS is developing a program intended to
identify the kinds of skills and developmental activities needed
to improve the competencies of its financial personnel. We have
recommended that DOD modify its planned program to better ensure
that financial

management personnel throughout the department receive the
necessary training, including establishing minimum training
requirements emphasizing technical accounting and related
financial management courses. This recommended approach is similar
in scope to the program recently put in place to improve the
skills of the department's acquisition workforce.

16 Financial Management: Profile of Financial Personnel in Large
Private Sector Corporations and State Governments (GAO/AIMD-98-34,
January 2, 1988).

Page 18 GAO/ T- AIMD/ NSIAD- 99- 145

Updates to Long- Term Improvement Plan Need to Incorporate
Additional Elements

Completing short- term actions can improve DOD's financial
information and ultimately even result in auditable financial
statements. However, an unqualified audit opinion, while certainly
important, is not an end in itself.

For some agencies, the preparation of financial statements
requires considerable reliance on ad hoc programming and analysis
of data produced by inadequate systems that are not integrated or
reconciled, and often requires significant audit adjustments.
Efforts to obtain reliable yearend data that are not backed up by
fundamental improvements in underlying financial management
systems and operations to support ongoing program management and
accountability will not achieve the

intended results of the Chief Financial Officers Act-- reliable
financial management information to support day- to- day decision-
making over the long term. Thus, it is essential that DOD also
undertake and complete longterm efforts to improve financial
management systems and processes.

The National Defense Authorization Act for Fiscal Year 1998
(Public Law 105- 85) required the Secretary of Defense to
biennially submit to the Congress a strategic plan for the
improvement of financial management within DOD. The plans are to
address all aspects of financial management within DOD, including
the finance systems, accounting systems, and data feeder systems
that support its financial functions, including the

department's concept of operations for financial management.
Section 912 of the Strom Thurmond National Defense Authorization
Act for Fiscal Year 1999 (Public Law 105- 261) required GAO to
analyze DOD's Biennial Plan and discuss the extent to which it is
a workable plan for addressing DOD's financial management
problems.

DOD submitted its first Biennial Plan to the Congress on October
26, 1998. The department has committed to update the plan annually
rather than biennially as required by law. This first plan
presents DOD's concept of operations, the current environment, and
the transition plan intended to describe the goals of the
department for achieving the target financial management
environment and to identify the strategies and corrective

actions necessary to move through the transition. It also provides
information on the specific financial management improvement
initiatives intended to implement the transition plan.

Page 19 GAO/ T- AIMD/ NSIAD- 99- 145

We have analyzed DOD's first plan and, in January 1999, reported
17 the results of our analysis to the Senate and House Armed
Services Committees. As we said in our report, DOD's plan
represents a great deal of effort and provides a first- ever
vision of the department's future financial

management environment. In developing this overall concept of its
envisioned financial management environment, DOD has taken an
important first step in improving its financial management
operations. The department's plan also represents a significant
landmark because it includes, for the first time, a discussion of
the importance of the

programmatic functions of personnel, acquisition, property
management, and inventory management to the department's ability
to support consistent, accurate information flows to all
information users. In addition, DOD's plan includes an extensive
array of initiatives intended to move the department from its
current state to its envisioned financial management environment.

If effectively implemented, the initiatives discussed should
result in improving DOD's financial management operations.
However, modifications to the plan are needed if DOD is to achieve
the full range of reforms needed. To accomplish this, the
department's planned update should include  a revised concept of
operations to reflect, at a high level, the full range

of the department's financial management operations, including its
key asset accountability and budget formulation responsibilities;
specific plans on shared servicing and outsourcing strategies;
clarification in the transition plan of the role of each of the
described

initiatives in bridging the gap between the current environment
and the envisioned future concept of operations and the steps the
department will take to ensure that it will build reliability into
the data provided by its feeder systems; and

 concepts established in the Clinger- Cohen Act for effectively
implementing the technology initiatives contained in the plan.

Revised Concept of Operations

While the plan's discussion of how DOD's financial management
operations will work in the future-- its concept of operations--
is a good start, it is not complete. It does not address how (1)
it will support budget formulation

17 Financial Management: Analysis of DOD's First Biennial
Financial Management Improvement Plan (GAO/AIMD-99-44, January 29,
1999).

Page 20 GAO/ T- AIMD/ NSIAD- 99- 145

and (2) its financial management operations will effectively
support not only financial reporting but also asset accountability
and control. DOD stated that it intentionally excluded budget
formulation from its concept of operations because it is performed
as part of the department's Planning, Programming, and Budgeting
System (PPBS). However, budget formulation is one of the central
processes involved in any agency's financial management operations
and must be included in the department's concept of operations to
develop a fully integrated financial management

system that ensures that budgets consider financial implications
and that policy decisions are based on sound financial
information. To effectively support accountability and control,
DOD's systems need to share information. However, the flow of
information among functional areas, such as how acquisition will
share information with property management, is not clear in DOD's
plan. The figure below is a simplified example of how a financial
management system for asset acquisition

shares information to help achieve greater control and
accountability.

Figure 1: Example of How Systems Integration Helps Achieve Greater
Control

As shown in this figure, contract data are entered initially by
acquisition personnel when an asset is ordered. This information
would be available to accounting personnel to record the
obligation and to property management to recognize that an asset
is to be delivered. Upon asset receipt, property management
personnel enter the asset in property management records.

Page 21 GAO/ T- AIMD/ NSIAD- 99- 145

Those records are available for accounting personnel for payment
purposes, for acquisition personnel to monitor contract delivery,
and for property management personnel to monitor program results
and the use of budgetary resources. Greater asset control and
accountability is achieved because data associated with assets
acquired are available to accounting, property management, and
acquisition personnel.

Shared Servicing and Outsourcing Strategies

Many leading organizations have reduced the cost of, and increased
the control over, day- to- day accounting activities by processing
routine accounting functions at a reduced number of locations,
known as shared service centers. These shared service centers
provide common services such as accounts payable, fixed asset, and
payroll processing to operating locations and business units. In
this regard, the National Defense Authorization Act for fiscal
year 1998 required the department to address in its first biennial
Financial Management Improvement Plan the feasibility of
reorganizing DFAS along functional lines.

Preliminary results from a study we are completing on financial
management best practices indicate that many leading organizations
we identified, including the six we visited, used a shared
services strategy. While several different organizational
structures were used to apply the concept, many followed three
stages in implementing this strategy. The

first stage is consolidation and includes changing the
organizational structure and gaining control over the current
business processes. The second stage is standardization and
entails changing the current business processes and adopting a
common technology platform. The final stage is reengineering and
includes leveraging technology through the use of electronic
commerce, data warehousing, and document imaging.

To date, DFAS has consolidated the activities of 332 installation
finance and accounting offices at its headquarters, 5 centers, and
19 operating locations and intends to further consolidate
locations. The plan states that DFAS

processes are most efficiently performed at a minimal number of
locations. As the number of systems is reduced, the number of
separate operating locations necessary to operate the systems is
also reduced. However, the plan did not provide additional
information on the number or nature of the required locations. We
will continue to examine this area.

The fiscal year 1998 authorization act also required that the plan
address the feasibility of outsourcing DOD's accounting
operations. While DOD's plan identified certain functional areas,
such as commissaries and retired

Page 22 GAO/ T- AIMD/ NSIAD- 99- 145

annuitant pay, for outsourcing studies under A- 76, the plan needs
to more clearly articulate a competitive outsourcing strategy. For
example, our October 1997 report 18 on the results of our survey
of selected private sector and nonfederal public organizations'
use of outsourcing identified several factors associated with
successful outsourcing. One of the key factors was establishing a
competitive outsourcing policy that specifies what process and
criteria the organization will follow in making competitive
outsourcing decisions to achieve its overall goals. This policy at
DFAS might include (1) an outsourcing structure by which the

functional areas to be considered for outsourcing are identified
and (2) criteria to be used in determining whether or not to
outsource a specific function, such as personnel losses, decreased
costs, or economic impact to the community. In addition, a
schedule with specific time frames for

competitively bidding DFAS functions and deciding whether or not
to outsource them might be added later. Finally, after an
organization decides to outsource, it is key that effective
oversight controls be in place to ensure that vendors carry out
their responsibilities. Establishing a competitive outsourcing
policy that includes these elements as well as adequate oversight
controls is fundamental to achieving the projected cost savings,
process cycle time reductions, and other related financial
management

improvement goals established by the department. Clarification of
Transition Plan

In addition, the transition plan, while an ambitious statement of
DOD's planned improvement efforts, has two important limitations:
(1) links are not provided between the envisioned future
operations and the over 200 planned improvement initiatives to
determine whether the proposed transition will result in the
target financial management environment and (2) actions to ensure
feeder systems' data integrity are not addressed-- an acknowledged
major deficiency in the current environment. Without identifying
specific actions that will ensure ongoing feeder system data
integrity, it is unclear whether the department will be able to
effectively carry out not only its financial reporting, but also
its other financial management responsibilities.

18 Financial Management: Outsourcing of Finance and Accounting
Functions (GAO/ AIMD/ NSIAD- 98- 43, October 17, 1997).

Page 23 GAO/ T- AIMD/ NSIAD- 99- 145

Concepts of Clinger- Cohen Effective implementation of the
modernized systems outlined in the Biennial Plan will require
following well defined practices for managing

investments in information technology-- practices that have been
lacking in DOD and other agencies across government. Several
recent management reforms have introduced requirements emphasizing
the need for federal agencies to significantly improve their
management processes, including

how they select and manage IT resources. For instance, the
Clinger- Cohen Act requires agencies to have processes and
information in place to help ensure that IT projects are being
implemented at acceptable costs, within reasonable and expected
time frames and are contributing to tangible,

observable improvements in mission performance. We recently
testified 19 before the House Committee on Armed Services'
Subcommittee on Military Readiness about a number of serious
management challenges DOD faces regarding technology- driven
processes and business systems. Specifically, we highlighted DOD's
lack of effective fundamental management and oversight controls
for (1) assessing the costs and risks of proposed information
technology projects, (2) ensuring that projects follow
departmentwide technical and data standards, (3) measuring
performance, and (4) discontinuing projects shown to be
technically flawed or not cost effective. DOD has efforts underway
to implement required reforms but a great deal more effort is
needed. Unless DOD successfully implements

these broader information technology reforms, it will be limited
in its ability to achieve the financial management system goals
outlined in its Biennial Plan.

While there is a need to address these problems over the long
term, we recognize that in the short term the department still
must focus on the Year 2000 computing challenge. However, DOD has
a unique opportunity to capitalize on the valuable lessons it has
learned in its Year 2000 effort and

apply them to its overall management of financial management and
information technology. Doing so can enable the department to
acquire and deploy high performing, cost- effective systems and to
avoid repeating costly mistakes. Examples include the following:

 Without the continuing, active involvement of top- level
managers, major management reform efforts cannot succeed.

19 Defense Information Management: Continuing Implementation
Challenges Highlight the Need for Improvement (GAO/T-AIMD-99-93,
February 25, 1999).

Page 24 GAO/ T- AIMD/ NSIAD- 99- 145

 Maintaining a reliable, up- to- date system inventory is
fundamental to well- managed financial management and information
technology programs.  DOD has spent 3 years identifying system
interfaces and implementing controls at the system level that
should help prevent future data

exchange problems in its systems and resolve conflicts between
interface partners.  Once the Year 2000 effort is completed, DOD
can use the operational and functional evaluations to further
identify and retire duplicative or unproductive systems.

The Secretary of Defense has expressed the department's commitment
to financial management reform. He recently announced that he was
expanding his Defense Reform Initiatives to include financial
management. Achieving real reform will entail the involvement and
dedication of top management. Working through the Defense
Management Council or a similar structure of the department's
high- ranking leadership, such as that used to address the Year
2000 computing crisis, is a key factor in achieving major change
within the organization. In closing, Mr. Chairman, sustained
congressional attention on DOD's efforts to reform its long-
standing financial management weaknesses, provided in hearings
such as this one, will also be critical to ensuring that DOD is
able to provide accountability to the taxpayers and to meet its

operational goals as efficiently and effectively as possible. Mr.
Chairman, this concludes my statement, I will be glad to answer
any questions you or other Members may have at this time.

Page 25 GAO/ T- AIMD/ NSIAD- 99- 145

Page 26 GAO/ T- AIMD/ NSIAD- 99- 145

DOD Fiscal Year 1998 Financial Statement Audit Reports

Department of Defense Agency- wide Financial Statements (March 1,
1999, DOD IG 99- 097) Army General Fund Financial Statements
(February 18, 1999, AA 99- 158) Army Working Capital Fund
Financial Statements (February 19, 1999, AA 99- 160)

Army Corps of Engineers, Civil Works Financial Statements
(February 8, 1999, AA 99- 157) Air Force General Fund Financial
Statements (March 1, 1999, AFAA Project 98053002)

Air Force Working Capital Fund Financial Statements (March 1,
1999, AFAA Project 98068013)

Navy General Fund Financial Statements (February 10, 1999, NAS
024- 99) Navy Working Capital Fund Financial Statements (February
22, 1999, NAS 027- 99)

Defense Logistics Agency Working Capital Fund Financial Statements
(March 1, 1999, DOD IG 99- 089) Defense Finance and Accounting
Service Working Capital Fund Financial Statements (March 1, 1999,
DOD IG 99- 090)

Military Retirement Trust Fund Financial Statements (March 5,
1999, DOD IG 99- 104)

(918954) Lett er

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