AGENCY FINANCIAL

REPORT

FISCAL YEAR 2018
Department of Defense at a Glance www.defense.gov

BRIEF HISTORY

 The Army, Navy, and Marine Corps were 

established in 1775, in concurrence with the 

American Revolution. 

 The War Department was established in 1789, 

and was the precursor to what is now the 

Department of Defense.

 The Coast Guard (part of the Department of 

Homeland Security during peace time) was 

established in 1790.

 The Department of the Navy was established 

in 1798.

 The National Security Act of 1947 renamed 

the Department of War as the Department of 

the Army, created the Department of the Air 

Force, and unified command of the Military 

Departments under the “National Military 

Establishment” headed by a Secretary of 

Defense.

 The Department of Defense Reorganization 

Act of 1958 established the Combatant 

Commands.

MISSION

To provide the military forces needed to deter war 

and protect the security of our country.

HEADQUARTERS

The Department of Defense is headquartered at 

the Pentagon, located in Arlington, Virginia. The 

Pentagon is one of the world’s largest office 

buildings – it has 17.5 miles of hallways, three 

times the floor space of the Empire State 

Building, and houses about 26,000 employees. 

For Pentagon Tour information, click here. 

EMPLOYEES

The Department of Defense is the country’s 

largest employer, with more than 2.1 million 

Military Service members and over 770 thousand 

civilian employees.

For information on DoD Humanitarian Efforts, click 

here. 

Service members participate in a National POW/MIA Recognition Day ceremony at the Pentagon, Sept. 21, 2018

DoD photo by Army Sgt. Amber I. Smith

Connect with Us 

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i

About the Department of Defense Agency Financial Report

The United States Department of Defense (DoD) Agency Financial Report (AFR) for Fiscal Year (FY) 2018

provides an overview of the Department’s financial information as well as preliminary summary-level performance 

results. The AFR demonstrates to the Congress, the President, and the public the Department’s commitment to its mission 

and to accountability and stewardship over the resources entrusted to it. This report satisfies the reporting requirements 

contained in the following legislation:

 Federal Managers’ Financial Integrity Act (FMFIA) 

of 1982 – requires ongoing evaluations and reports 

of the adequacy of internal accounting and 

administrative controls;

 Chief Financial Officers (CFO) Act of 1990 –

established the position of Chief Financial Officer 

and requires audited financial statements for each

major executive agency; 

 Government Management Reform Act (GMRA) of 

1994 – delegates authority to the Director of the 

Office of Management and Budget to prescribe the 

form and content of the financial statements and to 

identify the components of executive agencies that 

will be required to have audited financial 

statements;

 Federal Financial Management Improvement Act 

(FFMIA) of 1996 – requires financial statement 

audits to assess the compliance of an agency’s 

financial management systems with Federal

requirements, Federal accounting standards, and the 

United States Government General Ledger;

 Reports Consolidation Act of 2000 – permits 

agencies to consolidate any statutorily required 

reports into a single annual report and requires 

certain information be contained in the consolidated 

report;

 Accountability of Tax Dollars Act (ATDA) of 2002 

– expands the requirement for audited financial 

statements to additional executive agencies;

 Improper Payments Information Act (IPIA) of 

2002, as amended by Improper Payments 

Elimination and Recovery Act (IPERA) of 2010 

and the Improper Payments Elimination and 

Recovery Improvement Act (IPERIA) of 2012 –

requires agencies to report on their efforts to 

identify, prevent, reduce, and recover improper 

payments;

 Fraud Reduction and Data Analytics Act of 2015 –

requires agencies to report on progress in 

implementing financial and administrative controls 

related to fraud, identifying risks and vulnerabilities 

to fraud, and establishing steps to curb fraud;

 Grants Oversight and New Efficiency (GONE) Act 

of 2016 – requires agencies to report on federal 

grant and cooperative agreement awards which 

have not yet been closed out and for which the 

period of performance, including extensions, 

elapsed for more than two years, the challenges 

leading to delays in closeout, and progress made in 

closing out the awards.

Pursuant to Office of Management and Budget (OMB) Circular No. A-136, Financial Reporting Requirements, 

the Department produces two separate annual reports in lieu of a combined Performance and Accountability Report 

(PAR):

 An AFR, published in November 2018, which focuses primarily on financial results and a high-level discussion of 

performance results, and

 An Annual Performance Report (APR), published in February 2019, which details DoD strategic goals and 

performance measures and results.

The estimated cost of this report or study for the 

Department of Defense is approximately $324,000

in Fiscal Years 2018 – 2019. This includes 

$149,000 in expenses and $175,000 in DoD labor. 

Generated on 2018Nov14 RefID: 7-B67A2D5
Face of Defense:

Each section cover of this report 

features a picture from the “Face 

of Defense” news series

available on Defense.gov.

Each “Face of Defense” news 

feature highlights a personal 

story behind the people who 

serve our nation.

For their full story, click the icon.
iii

Table of Contents

Message from the Secretary of Defense ..................................................... v

MANAGEMENT’S DISCUSSION & ANALYSIS

The Management’s Discussion and Analysis (MD&A) section provides a 

high-level overview of the Department’s programmatic and financial 

performance. This section includes a summary of the Department’s mission 

and structure, the current status of financial management systems, compliance 

with laws and regulations, and management assurances regarding internal 

controls.

Mission Overview............................................................................. 1

Organizational Structure................................................................... 2

Resources.......................................................................................... 8

Performance Overview ....................................................................14

Financial Highlights & Analysis......................................................21

Audit Overview ...............................................................................27

Statement of Assurance ...................................................................29

Management Assurances.................................................................30

Systems Compliance and Strategy...................................................33

Legal Compliance............................................................................37

FINANCIAL SECTION

Message from the Under Secretary of Defense (Comptroller)/Chief 

Financial Officer......................................................................41

Principal Financial Statements and Notes........................................43

Required Supplementary Stewardship Information....................... 116

Required Supplementary Information ........................................... 119

Independent Auditor’s Report ....................................................... 126

OTHER INFORMATION

Summary of Financial Statement Audit and 

Management Assurances.................................................. 143

Payment Integrity........................................................................... 164

Fraud Reduction Report................................................................. 191

Reduce the Footprint...................................................................... 193

Civil Monetary Penalty Adjustment for Inflation.......................... 194

Grants Oversight and New Efficiency Act Requirements............. 195

Management Challenges................................................................ 196

APPENDICES

Appendix A: Acronyms and Abbreviations................................... A-1

Appendix B: URL Index................................................................B-1

Appendix C: Index of Figures, Charts, and Tables........................C-1
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MESSAGE FROM THE SECRETARY OF DEFENSE

November 15, 2018

On behalf of our nation’s sentinels serving at home and around the world, I am honored to present 

the Department of Defense Agency Financial Report for FY 2018. This report provides the President, 

Congress, and the American people with information on the taxpayer resources entrusted to the Department 

in FY 2018, as well as the means to assess our management of those resources, our accomplishments, 

challenges, and vision for the future.

Our mission at the Department of Defense is to provide the combat-credible military forces needed 

to deter war and to ensure our national security. Should deterrence fail, the Joint Force is prepared to win. 

Reinforcing America’s traditional tools of diplomacy, the Department provides military options so the 

President and our diplomats always negotiate from positions of strength.

To guide our efforts, we released our new National Defense Strategy in January 2018, which 

implements the pillars of the President’s National Security Strategy – Protect the American People, the 

Homeland, and the American Way of Life; Promote American Prosperity; Preserve Peace through Strength; 

and Advance American Influence. In support of these pillars, the National Defense Strategy pursues three 

distinct lines of effort – rebuilding military readiness as we build a more lethal Joint Force, strengthening 

alliances as we attract new partners, and reforming the Department’s business practices for greater 

performance and affordability. The Management’s Discussion and Analysis section of this report provides 

additional information on the alignment of our efforts this year with the National Defense Strategy.

The Department underwent its first full-scope financial statement audit in FY 2018. As expected, 

the audit resulted in a Disclaimer of Opinion and multiple material weaknesses. The findings and 

recommendations of the auditors provide us with invaluable information that will help us target and 

prioritize corrective actions. The Management’s Discussion and Analysis section of this report provides 

my Statement of Assurance, which outlines the Department’s assessment of material weaknesses and 

compliance with relevant laws and regulations. The Financial Section of this report provides the 

independent auditor’s report, which details the results of the audit.

While we acknowledge the progress accomplished this year, we recognize that opportunities for 

continued improvement exist, and we embrace the challenges we must overcome. We worked closely with 

the Office of Inspector General to gain its perspective on our most serious management and performance 

challenges based on it its oversight work, research, and judgment. The Other Information section of this 

report provides the Office of Inspector General summary statement on the top ten challenges facing the 

Department. Our civilian employees and Military Service members are committed to working diligently to 

address and mitigate the concerns outlined. Bottom line: We are devoted to fixing every problem revealed 

by the first ever department-wide audit, building trust in our compact with the American people.

We in the Department of Defense are grateful to the Congress for its support and investment in us, 

which has allowed us to continue our vital work in protecting the American people and our interests. 

 James N. Mattis
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FY 2018

Mission Overview 1

Organizational Structure 2

Resources 8

Performance Overview 14

Financial Highlights & Analysis 21

Audit Overview 27

Statement of Assurance 29

Management Assurances 30

Systems Compliance & Strategy 33

Legal Compliance 37

Management’s Discussion & 

Analysis
Face of Defense: Marines React, Save Lives During Las Vegas Tragedy

For the full article, click icon
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

1

Mission Overview

The enduring mission of the Department of Defense (DoD or the Department) is to provide the

military forces needed to deter war and to protect the security of our country. The Department is committed 

to ensuring the United States (U.S.) military remains the best prepared and most lethal warfighting force in 

the world, and that the President and American diplomats negotiate from a position of strength. Should 

deterrence fail, the U.S. military is prepared to fight and win.

Today, the U.S. faces an increasingly dynamic and unpredictable security environment

characterized by a decline in the long-standing free and open international order that was established 

following World War II. Long-term strategic competition with China and Russia has re-emerged as a 

central challenge to U.S. prosperity and security as these nations seek to apply their authoritarian model

abroad. Nearly two decades of conflict have left the U.S. with narrowing military advantages that, if left 

unchecked, will undermine the ability to deter aggression and coercion. Rapid advances in commercial 

technologies such as big data analytics, artificial intelligence, robotics, and additive manufacturing (e.g.,

3D printing) present both 

important opportunities as 

well as threats and will shape 

the character of future wars. 

Additionally, non-state actors 

and rogue regimes remain a 

concern, enabled by 

increasingly sophisticated 

capabilities.

In response to this 

complex global security 

environment, the Department 

developed a new National 

Defense Strategy (NDS) in 

January 2018. The NDS 

builds on the December 2017 

National Security Strategy, and provides a thorough examination of the U.S. military’s capabilities, 

capacity, posture, and readiness as well as articulates an effective strategy to address global security 

challenges and to provide for the common defense. The NDS now serves as the key strategic document 

driving the Department’s priorities, investments, and programmatic decisions along three distinct lines of 

effort:

 Rebuilding military readiness and building a more lethal Joint Force,

 Strengthening alliances and attracting new partners, and

 Reforming the Department’s business practices for greater performance and affordability.

With the congressional support provided by the Bipartisan Budget Act of 2018, the National 

Defense Authorization Act (NDAA) for Fiscal Year (FY) 2018, and the DoD Appropriations Act of 2018,

the Department will receive the funds needed to implement the NDS and begin rebuilding the U.S.

military’s competitive advantage. Through the use of creative approaches, sustained investments, and 

disciplined execution in the field, the Department will foster a dominant Joint Force that can compete, deter, 

and win in this increasingly complex security environment.

Marines set up perimeter security around a V-22 Osprey aircraft after conducting fast-roping during vertical 

insertion during Exercise Forest Light at Camp Sendai, Sendai, Japan, Feb. 19, 2018.

Marine Corps photo by Lance Cpl. Damion Hatch Jr.
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Organizational Structure

The Department maintains and, when directed, uses armed forces to support and defend the 

Constitution; protect the security of the United States, its possessions, and areas vital to its interests; and 

deter war. In this era of inter-state strategic competition (e.g., from China and Russia), the DoD mission 

requires a lethal, resilient, and rapidly innovating Joint Force; strong relationships with allies and partners; 

and continued efforts to reform the Department’s business practices for performance and affordability. 

The Department is one of the nation’s largest employers, with approximately 1.3 million personnel

in the Active Component, nearly 800,000 personnel serving in the National Guard and Reserve forces, and 

approximately 770,000 civilians. DoD Military Service members and civilians operate globally and in all 

domains, including air, land, sea, space, and cyber space. In carrying out the Department’s mission to 

protect national security, Military Service members operate approximately 15,700 aircraft and over 280

Battle Force ships. 

The Department manages a worldwide real property portfolio that spans all 50 states, U.S.

territories, and many foreign countries. The Department's real property infrastructure includes more than 

585,000 facilities (buildings and structures) located on more than 4,700 sites worldwide. These sites 

represent nearly 26.9 million acres that individually vary in size from training ranges with over 3.5 million 

acres, such as the White Sands Missile Range, to single weather towers or navigational aids isolated on sites 

of less than one one-hundredth (0.01) of an acre. Only about 33 percent of the land managed by the 

Department is held in fee interest (i.e., owned by the U.S. Government) with the remainder controlled 

through other legal means, such as leases, licenses, permits, public land orders, treaties, and agreements. 

Beyond the mission-specific areas of installations, such as runways, training areas, and industrial 

complexes, DoD installations also contain many types of facilities and operations found in municipalities 

or on university campuses, such as hospital and medical facilities, public safety facilities, community 

support complexes, housing and dormitories, dining facilities, religious facilities, utility systems, and 

roadways.

A U.S. Air Force B-52 Stratofortress, F-15C Eagles and Moroccan air force F-16s fly in a formation in skies over Morocco, 

April 20, 2018, during African Lion, a U.S.-Moroccan military exercise. 

Air Force photo by Senior Airman Malcolm Mayfield
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Management’s Discussion and Analysis

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The Secretary of Defense is the principal assistant and advisor to the President in all matters relating 

to the Department, and exercises authority, direction, and control over the Department, in accordance with 

title 10, United States Code, section 113(b) (10 U.S.C. §113(b)). The Department is composed of the Office 

of the Secretary of Defense; Joint Chiefs of Staff; Joint Staff; DoD Office of the Inspector General; Military 

Departments; Defense Agencies; DoD Field Activities; Combatant Commands; and other offices, agencies, 

activities, organizations, and commands established or designated by law, the President, or the Secretary of 

Defense (see Figure 1).

The operational chain of command runs from the President to the Secretary of Defense to the 

Commanders of the Combatant Commands. The Chairman of the Joint Chiefs of Staff functions within the 

chain of command by transmitting the orders of the President and the Secretary of Defense to the 

Commanders of the Combatant Commands.

Figure 1. Department of Defense Organizational Structure
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Office of the Secretary of Defense

The function of the Office of the Secretary of Defense (OSD) is to assist the Secretary of Defense 

in carrying out his duties and responsibilities as prescribed by law. The OSD is composed of the 

Deputy Secretary of Defense, who also serves as the Chief Operating Officer of the DoD; the Chief 

Management Officer (CMO) of the DoD; the Under Secretaries of Defense (USDs); the General Counsel

(GC) of the DoD; the Assistant Secretaries of Defense (ASDs); the Inspector General of the DoD; and other 

staff offices within OSD established by law or by the Secretary of Defense.

The OSD Principal Staff Assistants are responsible for the oversight and formulation of defense 

strategy, policy, and resource allocation, as well as for overseeing and managing the Defense Agencies and 

DoD Field Activities (Figure 2) under their purview.

Figure 2. Office of the Secretary of Defense Principal Staff Assistants

The Joint Chiefs of Staff and the Joint Staff

The Joint Chiefs of Staff (JCS), supported by the Joint Staff under the direction of the Chairman, 

constitute the immediate military staff of the Secretary of Defense. The JCS consist of the Chairman 

(CJCS), the Vice Chairman (VCJCS), the Chief of Staff of the Army (CSA), the Chief of Naval Operations 

(CNO), the Chief of Staff of the Air Force (CSAF), the Commandant of the Marine Corps (CMC), and the 

Chief of the National Guard Bureau (CNGB). The JCS function as the military advisors to the President, 

the National Security Council, the Homeland Security Council, and the Secretary of Defense.
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Office of the Inspector General

The DoD Office of the Inspector General (DoD OIG) is an independent unit within the Department 

that conducts and supervises audits and investigations relating to the Department’s programs and 

operations. The DoD Inspector General serves as the principal advisor to the Secretary of Defense on all 

audit and criminal investigative matters relating to the prevention and detection of fraud, waste, and abuse 

in the programs and operations of the Department.

Military Departments

The Military Departments consist of the Departments of the Army, the Navy (of which the 

Marine Corps is a component), and the Air Force. Upon the declaration of war, if Congress so directs in 

the declaration or when the President directs, the Coast Guard becomes a special component of the Navy; 

otherwise, it is part of the Department of Homeland Security. The Army, Navy, Marine Corps, Air Force, 

and Coast Guard are referred to as the Military Services. The three Military Departments organize, train,

and equip the four Military Services (or five when including the Coast Guard). These trained and ready 

forces are assigned or allocated to a Combatant Command responsible for maintaining readiness to conduct 

military operations.

The Military Departments include both Active and Reserve Components. The Active Component 

is composed of units under the authority of the Secretary of Defense, manned by active duty Military 

Service members. The Reserve Component includes the National Guard and the Reserve Forces of each 

Military Service (Figure 3). The National Guard, which has a unique dual mission with both federal and 

state responsibilities, can be called into action during local, statewide, or other emergencies (such as storms, 

drought, civil disturbances) and in some cases to support federal purposes for training or other duty (nonfederalized service) when directed by the governor of each State or territory.

When ordered to active duty for national emergencies or other events, units of the National Guard 

or Reserve Forces of the Military Services are placed under operational control of the appropriate 

Combatant Commander or provide support to a Military Service. The National Guard and Reserve Forces 

are recognized as indispensable and integral parts of the Nation’s defense and fully part of the applicable 

Military Department.

Figure 3. Reserve Components – Reserve and National Guard
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Management’s Discussion and Analysis

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Defense Agencies and DoD Field Activities

Defense Agencies and DoD Field Activities (Figure 4) are established as DoD Components by law, 

the President, or the Secretary of Defense to provide, on a Department-wide basis, a supply or service 

activity common to more than one Military Department when it is more effective, economical, or efficient 

to do so. Although both Defense Agencies and DoD Field Activities fulfill similar functions, the former 

tend to be larger, normally provide a broader scope of supplies and services, and can be designated as 

Combat Support Agencies to support the Combatant Commands directly. Each of the 19 Defense Agencies 

and 8 DoD Field Activities operate under the authority, direction, and control of the Secretary of Defense 

through an OSD Principal Staff Assistant.

Figure 4. Defense Agencies and DoD Field Activities
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Management’s Discussion and Analysis

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Combatant Commands

The Commanders of the Combatant Commands (Figure 5) are responsible for accomplishing the 

military missions assigned to them. Combatant Commanders exercise command authority over assigned 

and allocated forces, as directed by the Secretary of Defense. The operational chain of command runs from 

the President to the Secretary of Defense to the Commanders of the Combatant Commands. The CJCS 

functions within the chain of command by transmitting the orders of the President or the Secretary of 

Defense to the Commanders of the Combatant Commands.

The U.S. Cyber Command (USCYBERCOM), U.S. Special Operations Command (USSOCOM), 

U.S. Strategic Command (USSTRATCOM), and U.S. Transportation Command (USTRANSCOM) are 

functional Combatant Commands, each with unique functions as directed by the President in the Unified 

Command Plan. Among Combatant Commands, the USSOCOM has additional responsibilities and 

authorities similar to a number of authorities exercised by the Military Departments and Defense Agencies, 

including programming, budgeting, acquisition, training, organizing, equipping, and providing Special 

Operations Forces (SOF), and developing SOF’s strategy, doctrine, tactics, and procedures. The 

USSOCOM is reliant upon the Military Services for ensuring combat readiness of the forces assigned to it.

In addition to supplying assigned and allocated forces and capabilities to the Combatant 

Commands, the Military Departments provide administrative and logistics support by managing the 

operational costs and execution of these commands.

Figure 5. Combatant Commands
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Resources

The DoD FY 2018 budget was the first full budget from the new administration and provided 

increases above the cap formally imposed by the Budget Control Act of 2011. The increases in the FY 2018 

budget continued the progress began by the FY 2017 Request for Additional Appropriations in addressing 

warfighting readiness shortfalls and restoring program imbalances caused by the budget cuts of previous 

fiscal years. In FY 2018, the Department had discretionary budget authority of $670.6 billion; Figure 6

displays FY 2018 DoD budget authority by appropriation category. The Department’s three lines of effort 

outlined in the NDS (rebuilding military readiness and a more lethal Joint Force, strengthening alliances, 

and reforming business practices) were further supported and sustained through the programs and resources

provided for in the FY 2018 budget.

Appropriation Categories 

Operation and Maintenance – The FY 2018 

budget featured major programmatic 

increases, including increased readiness 

funding for the Military Departments’ efforts 

to increase the frequency and quality of 

individual and collective training, and 

improve home station and depot maintenance 

of weapons systems and platforms. 

Additional benefits were realized from the 

increases in this category:

 Army increased flying hours and 

undergraduate flight training for pilot 

certification;

 Navy focused heavily on hiring and 

training its workforce in support of 

ship depot maintenance and 

improving flight-line aircraft 

readiness;

 Air Force invested in building their maintenance capability for the F-22 and F-35 aircraft as well 

as other platforms, and also made prudent investments in their training infrastructure, allowing for 

more institutional pilot training;

 Defense-wide activities increased their ability to validate, award, and audit contract actions, and

also sustained family assistance programs in the most critical locations. 

Procurement – The FY 2018 budget provided for the acquisition of equipment including unmanned aerial 

systems, air and missile defense systems across the operational force, additional aircraft to replace combatworn strike fighters, ammunition, spare parts for existing equipment to maintain combat readiness, and 

individual personal protective gear to support the warfighter. Additionally, the budget provided the Navy 

with necessary funding for the procurement of two Arleigh Burke-class guided missile destroyers and three

littoral combat ships. The increased funding in FY 2017 and FY 2018 has allowed for increased rates of 

procurement for new and replacement weapons systems, resulting in accelerated transition timelines from 

legacy platforms and increased lethality and efficiency across the Military Services.

Figure 6. FY 2018 DoD Budget Authority

Budget by Appropriation $ in Billions

Operation and Maintenance $273.2

Procurement 147.4

Military Personnel 144.0

RDT&E 91.7

Military Construction 10.4

Revolving Funds 2.5

Family Housing 1.4

Total $670.6
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Military Personnel – The FY 2018 budget provided for increases of over 20,000 in end strength levels 

across all of the Military Services. The increased end strength is designed to restore a larger, more capable,

and more lethal force to defeat emerging regional and global peer adversaries while addressing critical 

shortfalls in pilot and maintenance personnel and targeting special skills like those required for special 

operations, intelligence operations, electronic information, and cyber warfare. Appropriations in this 

category also supported the implementation of the new Blended Retirement System, which makes 

substantial changes to the military retirement system by adding a defined contribution Thrift Savings Plan

component – allowing the roughly 80 percent of Military Service members who serve for less than 20 years 

to accrue a retirement benefit that transitions with them. 

Research, Development, Test, and Evaluation (RDT&E) – The FY 2018 budget provided funding for basic

research and development efforts to ensure the U.S. maintains its technological edge, including the 

development of tools required by the USCYBERCOM Cyber Mission Force to accomplish its mission (see 

the DoD Cyber Strategy for more information). Additional funds were also provided for enhanced missile 

defense and the space enterprise along with other increases across the research and development arena. 

Military Construction – The FY 2018 budget included funding for the improvement of existing 

infrastructure as well as for the construction of new facilities for operational and training needs, barracks, 

and other buildings to support the DoD mission around the world. Appropriations in this category also 

included funding for European reassurance and deterrence initiatives (e.g., Operation Atlantic Resolve). In 

addition, Congress appropriated over $700 million to repair or replace DoD facilities in Texas, Florida, 

Puerto Rico, and the U.S. Virgin Islands that were damaged or destroyed by hurricanes Harvey, Irma, and 

Maria.

Revolving Funds – This category of the FY 2018 budget included direct appropriations to the Defense 

Commissary Agency that supported its commissary operations, including the cost of operating the 

commissaries, headquarters operations, and field operating activities.

Family Housing – The FY 2018 budget provided funding for the construction of new housing, 

improvements to existing housing units, operation and maintenance of government-owned housing, and the

leasing of housing facilities. Significant family housing construction efforts in FY 2018 include the Army’s 

projects at Camp Humphreys, South Korea and South Camp Vilseck, Germany, as well as the Navy’s 

project in Guam. 

Puerto Rico Army Reservists, Coast Guard Investigative Service agents, Coast Guard Tactical Law Enforcement 

team members, Puerto Rico Treasury Department agents and a Puerto Rico Ports Authority agent deliver food 

and water to those affected by Hurricane Maria in the mountains around Utuado, Puerto Rico, Oct. 12, 2017.

Air Force photo by Master Sgt. Joshua L. DeMotts
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Rebuilding Military Readiness and Building a More Lethal Joint Force

Prioritizing Preparedness for War

In line with the NDS, the FY 2018 budget provided funding to support fielding sufficient, capable 

forces that are prepared to defeat enemies and achieve sustainable outcomes that protect the American 

people as well as the Nation’s vital interests. The Department identified goals and metrics to gauge progress 

toward increasing warfighting readiness, which focuses on rebuilding individual Military Service readiness 

while also developing collective and joint capabilities.

Each Military Service has unique requirements for meeting its readiness goals, which are focused 

on similar objectives – training, equipment, sustainment, and installations. Readiness improvements 

enabled by the FY 2018 budget include:

 Army increased use of Combat Training Centers and home station training to help develop crucial 

anti-access and area-denial capabilities for full-spectrum warfare;

 Navy increased funding to its Ship Maintenance program, enabling the reduction of the backlog of

previously deferred maintenance while executing the requirement for current scheduled 

maintenance; 

 Air Force optimization of the Flying Hours Program and investment in rebuilding home station 

high-end training, which resulted in a reduced deployment-to-dwell ratio; and

 Marine Corps funded Integrated Combined Arms Exercises for all elements of the Marine AirGround Task Forces to recover full-spectrum readiness and maintain its role as the Nation’s crisis 

response force.

The FY 2018 budget also included funding for the Combatant Command Exercise and Engagement

and Training Transformation program to support the development of Military Service and Combatant 

Command joint capabilities and training to meet wartime requirements. These events improve the readiness 

of the force to conduct joint operations, highlight U.S. capabilities, deter potential adversaries, and build 

partner capacity. The funding provided supports over 100 major exercises annually that prepare U.S. forces 

to execute operational plans, train the Combatant Command staffs, provide presence and regional expertise 

to U.S. allies and partners, and build relationships and trust.

Modernizing Key Capabilities

The FY 2018 budget addressed resource gaps in the capabilities, readiness, and capacity needed to 

project power globally in contested environments, while emphasizing preparedness for future high-end 

security challenges. The Department must be able to address near-term threats while maintaining 

competitive military advantages in the future, particularly through anti-access and area denial capabilities, 

systems, and corresponding strategies. The increased funding in the FY 2018 budget was invested in 

advanced capabilities to reassert a technological edge over potential future adversaries, while shifting 

emphasis toward a more surge-capable posture for warfighting.

The Department’s FY 2018 RDT&E Program is focused on efforts that advance the technical 

superiority of the U.S. military’s ability to counter new and emerging threats. These areas include earlystage research and development; prototyping for technology incubation and transition; repurposing 

commercial and non-traditional technologies; advanced manufacturing techniques; technology 

demonstrations; and technology experimentation. The Department’s FY 2018 budget for the Science and 

Technology program of $13.2 billion, a 5.6 percent increase over FY 2017, included a Basic Research

program of $2.2 billion and the Defense Advanced Research Projects Agency (DARPA) budget of 
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

11

$3.1 billion to develop technologies for revolutionary, high-payoff military capabilities. The Department's 

increased efforts in prototyping under the RDT&E Advanced Component Development and Prototype

program and the System Development and Demonstration program will help drive down technical risk;

gain warfighter feedback to better inform requirements; and ensure that concepts going forward into 

acquisition programs provide the needed capability and are timely, robust, and affordable. In addition, the 

Department is addressing the erosion of technological superiority by identifying and investing in innovative 

technologies and processes to sustain and advance America’s military dominance.

The FY 2018 budget additionally enabled the Department to enhance the ability of its forces to 

operate in a cyber-contested environment through the fielding of 133 Cyber Mission Force teams. The 

Department has three primary missions in cyberspace: defend DoD networks, systems, and information; 

defend the U.S. and its interests against cyber-attacks of significant consequence; and provide Combatant 

Commands with integrated cyber capabilities to support military operations and contingency plans.

Strengthening Alliances 

The Department’s FY 2018 budget included $65.9 billion of Overseas Contingency Operations 

(OCO) funds (not including $5.8 billion in Emergency Supplemental funds) primarily to conduct Operation 

Freedom's Sentinel in Afghanistan, Operation Inherent Resolve in Iraq and Syria, increasing efforts to 

support European allies and deter aggression, and global counterterrorism operations. The budget provided 

for several activities including maintaining a U.S. presence to train, advise, and assist Afghan security 

forces as well as support counterterrorism efforts in Afghanistan; sustain personnel forward-deployed to 

the Middle East to conduct operations to defeat the Islamic State of Iraq and Syria (ISIS); building the 

capacity of the Iraqi security forces and Syrian opposition forces to counter ISIS in support of the U.S. 

comprehensive regional strategy; and enhancing U.S. assurance and deterrence activities in Eastern Europe 

to support North Atlantic Treaty Organization (NATO) allies and partners and deter aggressive actions.

UNDISCLOSED LOCATION, Iraq (Nov. 27, 2017) – U.S. Marines deployed in support of Combined Joint Task Force- Operation Inherent Resolve pose with Iraqi 

service members in Iraq. CJTF - OIR is the global Coalition to defeat ISIS in Iraq and Syria. Marines deployed in support of CJTF-OIR advice and assist Iraqi Security 

Forces as they liberate the country from ISIS. 

U.S. Marine Corps photo by Capt. Christian Lopez
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Reforming the Department’s Business Practices

As outlined in the NDS, the Department is committed to reforming its business practices and 

maintaining its responsibility to gain full value from every taxpayer dollar entrusted to it. Reform effort 

focus areas include acquisition reform, infrastructure and support activity reform, the Department’s audit 

remediation initiatives, and cost accounting. 

Acquisition reform in FY 2018 was mainly focused on the disestablishment of the Under Secretary 

of Defense for Acquisition, Technology, and Logistics; and the establishment of the Under Secretary of 

Defense for Research and Engineering and the Under Secretary of Defense for Acquisition and

Sustainment, as enacted by the NDAA for FY 2017. Additionally, FY 2018 reforms included the use of

cross-functional teams to improve effectiveness and maximize efficiencies across the Department with a 

focus on systems ownership cost and lifecycle management.

The FY 2018 budget included infrastructure and support activity reform efforts with a focus on 

business practices in the Fourth Estate (i.e., OSD, Defense Agencies, and DoD Field Activities) that were 

intended to provide immediate results as well as to improve the way the Department does business in the 

future. These included implementation of a policy requiring that the Office of the CMO approve any Fourth 

Estate business information technology (IT) investment of $1 million over the projected amount reflected 

in the Future Years Defense Program.

The Department’s audit remediation initiatives result from its efforts to achieve compliance with 

the Chief Financial Officers Act of 1990 and to support annual full-scope financial statement audits, the 

first of which took place in FY 2018. The focus of the audit remediation efforts is on improving the quality 

and timeliness of financial information through sustaining reliable and well-controlled business processes. 

The ongoing audits will provide valuable feedback that enhances the Department’s efforts to improve 

systems, processes, and internal controls across the organization. The Department is also developing 

processes and procedures to collect financial data to provide increased insight into the cost of operations 

and relationship to the mission. To support this effort the Department established the Cost Decision 

framework, which leverages commercial best practices adapted to DoD operations and will serve as the 

authoritative source for enterprise-level cost information.

Balancing FY 2018 Resources

The Military – Active, Reserve, and National Guard – and Civilian personnel are the foundation of 

the Department and constitute its premier asset. As such, they must have the full support of the Nation and 

the Department to ensure that they successfully accomplish the arduous mission of defending the U.S. and 

its interests. The Department’s commitment to a generous compensation package for those individuals 

willing to serve their country voluntarily is supported by the FY 2018 budget.

Combined, military and civilian personnel costs comprise roughly one third of the Department’s 

budget. The Department is vigilant in its efforts to ensure that these costs are appropriately balanced against 

the Department’s strategic goals. Specifically, the Department cannot allow its personnel costs to crowd 

out investments in readiness and modernization that are essential to providing the training and equipment 

needed to accomplish the vast array of missions undertaken around the globe. Balancing resources is 

essential as the Department reshapes the forces needed to remain effective in today’s complex security 

environment, while providing a robust pay and benefits package which must be sustained in order to execute 

the NDS.
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Management’s Discussion and Analysis

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To meet the needs of its diverse workforce and mission set, the Department’s FY 2018 efforts 

included a focus on developing cost savings through improved management of military compensation and 

managing the military compensation increases in basic pay, implementing the TRICARE Modernization 

Plan, strengthening military families, and supporting DoD civilians. The Department also manages the 

Military Health System (MHS), a complex system that incorporates health care delivery, medical education, 

public health, private sector partnerships, and cutting edge medical research and development. The MHS 

provides health care for 9.4 million eligible beneficiaries including all Military Service members, retirees 

and their families, dependent survivors, and certain eligible Reserve Component members and their 

families. 

Against the backdrop of a competitive military compensation and health benefit package, the 

Department has done a significant amount of work to explore how it can balance the rate of growth in 

military pay, benefit costs, and individual compensation incentives in a way that is both responsible and 

fair. Caring for the Department’s people remains a top priority for the Department.

The military life cycle is complex, dynamic, and key to military readiness. The Department must 

attract nearly 250,000 qualified new recruits to replenish the military workforce each year. However, nearly 

two decades of conflict have taken a toll on the military forces. Multiple deployments with less respite 

between them, extensive use of the Guard and Reserves, and force reductions have all contributed to a more 

complex and demanding environment. Declining budgets made it harder to reset the Joint Force while 

sustaining the readiness needed for requirements such as deterring ISIS. The increased resources received 

in FY 2017 and FY 2018 have begun to reverse those trends and have measurably increased readiness and 

lethality.

Also vital to readiness and lethality is the DoD civilian workforce, who help sustain the viability 

and capabilities of the Joint Force by providing a wide range of services including logistics and supply 

chain management, financial management, human resource management, cyber defense and IT 

management, health care management, and community services. Properly leveraging the right mix of 

Military Service members (in both the Active and Reserve Components), civilian personnel, and contract 

support is fundamental to ensuring efficient and effective execution of the DoD mission. The Department 

continues to assess and adjust this personnel mix, as necessary, and reinvests cost savings into force 

readiness and modernization efforts. 

Sailors operate on a patient aboard the hospital ship USNS Comfort in the Caribbean Sea near San Juan, Puerto 

Rico, Oct. 18, 2017, while supporting Hurricane Maria relief efforts. 

Navy photo by Petty Officer 2nd Class Stephane Belcher
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Performance Overview

As stated in the NDS, the Nation must focus on fielding a larger, more capable, and more lethal 

Joint Force to protect the American people and U.S. vital interests. To support this, the Department is 

dedicated to reforming its business operations for greater effectiveness and efficiency, thus freeing up funds 

for higher priority warfighting requirements. The FY 2018 – FY 2022 National Defense Business 

Operations Plan (NDBOP) addresses each of the lines of effort established in the NDS from a business 

operations and support perspective, and is aligned and structured to contribute directly to NDS priorities. 

The NDBOP fulfills requirements of the Government Performance and Results Act of 1993 (GPRA), the 

GPRA Modernization Act of 2010 (GPRAMA), and the Office of Management and Budget (OMB) 

Circular No. A-11. The NDS and the NDBOP focus on tracking performance goals and measures that 

support achievement of the Department’s major lines of effort to: 

 Rebuild military readiness and build a more lethal Joint Force; 

 Strengthen alliances and attract new partners; and, 

 Reform the Department’s business practices for greater performance and affordability.

This section provides an overview of performance results through Quarter 3, FY 2018, based on 

the FY 2019 Annual Performance Plan (which covers the FY 2018 budget execution year). Complete 

FY 2018 performance results will be published in the Annual Performance Report section of the 

Department’s FY 2020 President’s Budget Request in February 2019 which will be available on the Office 

of the Chief Management Officer’s website at https://cmo.defense.gov.

A soldier hoists a battle axe in the air to mark the finish line for paratroopers as they finish a 2.2-mile run and prepare their weapons for simulated 

battle during training in Italy, April 4, 2018.

Army Photo by Lt. Col. John Hall
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Rebuilding Military Readiness and Building a More Lethal Joint Force

Improving the Ability to Measure, Assess, and Understand Readiness

On May 30, 2018, the Under Secretary of Defense for Personnel and Readiness (USD(P&R)) 

submitted a 45-Day Readiness Review to the Deputy Secretary of Defense in accordance with the 

requirements of the Defense Planning Guidance. At the June 2018 meeting of the Readiness Management 

Group, the existing Readiness Recovery Framework (R2F) metrics were revalidated and aligned to the 

findings of the 45-Day Readiness Review. The Readiness Management Group will monitor, assess, and 

manage readiness recovery progress moving forward. The Readiness Management Group is also 

responsible for continued validation, refinement, and updates to the R2F as well as reporting on progress 

to the Deputy Secretary of Defense, Secretary of Defense, and Congress.

The metrics identified in the R2F measure the Military Services’ progress towards rebuilding

warfighting readiness by tracking key programs such as personnel accessions and retention, training, 

equipment availability, and maintenance shortfalls. Each metric is tailored to a specific challenge and 

readiness inhibitor and is designed to be a leading indicator of larger, systemic readiness recovery.

Improving Cybersecurity

Improving Cybersecurity – This effort consists of three focus areas: ensuring strong authentication, 

hardening devices, and reducing the attack surface within the cybersecurity domain. Performance measures 

related to these focus areas are measured across all DoD Components on a regular basis and are reported to 

OMB quarterly in accordance with OMB Memorandum M-18-02 and the Federal Information Security 

Modernization Act of 2014 (FISMA). At the end of Quarter 3, FY 2018, 100 percent of DoD quarterly 

performance measures were on track to meet the annual goals by the close of FY 2018.

Implementing Joint Regional Security Stack Capabilities – The goal of this effort is to provide 

network security capabilities (such as firewall functions, intrusion detection and prevention, and 

management) as an enterprise service deployed in regional architectures to replace legacy DoD Componentowned and -operated network security solutions. Joint Regional Security Stacks (JRSS) improve the 

Department's ability to protect against, detect, and respond to cyber threats and attacks; improve the 

effectiveness and efficiency of Department of Defense Information Network (DoDIN) operations; and 

enable the cybersecurity concept of the Joint Information Environment (JIE). At the end of Quarter 3, 

FY 2018, 100 percent of DoD quarterly performance measures for JRSS on the Non-Classified Internet 

Protocol Router Network (NIPRNet) are on track to meet the FY 2018 annual goals

Expanding and Refining Defense Industrial Base Cybersecurity Activities – The goal of this effort 

is to improve the protection of DoD unclassified information residing on or transmitting over Defense 

Industrial Base (DIB) information networks or systems. Successes for this effort in FY 2018 included the 

expansion of DIB Cybersecurity Program outreach to eligible companies and improvements to the DoD 

Cyber Crime Center’s (DC3) capabilities to respond to increased DIB participation and reporting. At the 

end of Quarter 3, FY 2018, 100 percent of DoD quarterly performance measures were on track to meet the 

annual goals by the close of FY 2018.

Implementing Initiatives to Recruit and Retain the Best Total Force to Bolster Capabilities and Readiness

The Department’s ability to replace the loss of skills and experience with new talent depends on 

the capability to efficiently (Time to Hire) and effectively (Quality of Hire) recruit, hire, and retain highperforming employees. The Department’s goal is not merely to hire individuals as quickly as possible, but 

to recruit and hire a diverse group of top-quality candidates with the right skills for the Department’s 
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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mission needs today and in the future. To date, the current federal hiring process can result in the loss of 

prime talent due to prolonged hiring times, thus leading to less qualified talent pools. In addition, the longer 

it takes to fill vacancies, the longer managers must operate with inadequate resources, which could strain 

existing resources or result in failure to accomplish the mission. The newly established Hiring 

Improvement Initiatives (HII) Working Group (WG) is overseeing execution of DoD Component-level 

Hiring Action Plans which are designed to decrease Time to Hire and measure/track Quality of Hire. In 

addition to regular data-driven performance reviews, the HII WG sponsored a Department-wide Hiring 

Improvement workshop to enable DoD Components to share their lessons learned and best practices as well

identify areas for enterprise-wide collaboration.

In support of this objective, the Department also implemented organizational initiatives to promote 

diversity and inclusion. On February 8, 2018, the Department issued a comprehensive harassment 

prevention and response policy (DoD Instruction 1020.03), which strengthens the Department’s 

commitment and accountability by establishing a Department-wide oversight framework. The policy 

bolsters prevention and response efforts, enhances oversight, and provides additional protections and 

requirements to better protect our Military Service members. The policy addresses all forms of harassment 

including hazing, bullying, sexual harassment, and harassment conducted via electronic communications. 

The policy sends a clear message that the Department will not tolerate any kind of harassment by any 

Military Service member. The policy also reassures current and prospective Military Service members that 

they will be treated with dignity and respect while serving their country. The Department will continue 

working with the Components to review and identify gaps in the current published policy.

Strengthening Alliances 

Reforming the Security Cooperation Enterprise

The Department made significant progress in implementing the reforms to Security 

Cooperation (SC) as enacted by the NDAA for FY 2017. These include adjusting planning and execution 

timelines to meet enhanced congressional notification requirements; creating a more transparent and 

consolidated budget request; and implementing a new assessment, monitoring, and evaluation (AM&E) 

framework to more rigorously evaluate the effectiveness of DoD efforts to achieve strategic ends through 

the use of SC tools. 

In FY 2018, the Department advanced the planning of DoD SC activities two full fiscal years 

forward, publishing both FY 2018 and FY 2019 planning orders; this facilitated the development of more 

comprehensive programs within eight congressional notification packages in FY 2018. As a result, the 

Department implemented over 174 capacity-building programs globally, totaling over $1.4 billion in 

acquisitions, training, and services for our allies and partners. These efforts have put the Department on 

pace to be fully aligned with the budget and global force management processes by the beginning of the 

FY 2021 budget planning process, which will result in greater transparency and more strategic investment 

of SC tools based on realistic force availability. The Department also submitted to Congress its first 

consolidated budget display for FY 2019, which displays the cumulative total of DoD SC investments in a 

manner that can be easily sorted by program, region, or functional mission area. 

Starting in FY 2019, the Department will commence strategic evaluations of DoD SC consistent 

with law and DoD policy regarding AM&E. These evaluations will provide valuable feedback to SC 

planners and additional insights to DoD leadership, Congress, and the American taxpayer. Additionally, 

the Department continues to consult with outside experts and to train and educate the SC workforce on 

AM&E.
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As the responsible organization for the administration and execution of DoD SC, the Defense 

Security Cooperation Agency (DSCA) worked to advance the professionalization of the SC workforce, most 

notably by issuing the first-ever DoD SC Workforce Development Program guidance for the DoD SC 

workforce (approximately 20,000 civilian and military positions). This included an inventory of DoD 

positions with SC responsibilities, developing a framework for the mandatory SC workforce certification 

program, identifying SC-specific competencies to help focus training and other developmental efforts, and 

establishing standards for the identification of key positions within the SC workforce. 

DSCA also continues to improve its management of the Foreign Military Sales (FMS) program in 

cooperation with the Office of the Under Secretary of Defense for Acquisition & Sustainment. With 

statutory responsibility for export control and FMS, DSCA has developed several new performance 

measures, including FMS milestones and performance targets, which are coordinated with the various 

implementing agencies and geographic Combatant Commands.

Reforming the Department’s Business Practices

The Secretary of Defense, the Executive Office of the President (including the OMB), and Congress 

continue to drive reform within the Department. While the Secretary of Defense has charged the Chief 

Management Officer to lead an enterprise-level business operations reform effort, DoD Components also 

are charged to identify and pursue opportunities to improve the performance and productivity of their 

business operations. 

To this end, the Secretary of Defense directed the establishment of the Reform Management Group, 

which consists of reform teams identifying and pursuing reforms across a number of lines of business: 

health care management, IT and IT business systems; financial management; logistics and supply chain; 

contract management; human resources management; real property; community services; and test and

evaluation. Cross functional coordination of reform activities is routine; for example, the contract 

management reform team works closely with other teams on category management, and the IT and IT 

business systems team coordinates consolidation of technology solutions associated with business process 

improvements across reform teams.

Defense Secretary James N. Mattis and British Defense Secretary Gavin Williamson speak to Marines during a 

Marine Corps parade at the Lincoln Memorial in Washington, D.C., Aug. 7, 2018. 

DoD photo by Tech. Sgt. Vernon Young Jr.
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Management’s Discussion and Analysis

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Results related to the third NDS line of effort of reforming the Department’s business practices for 

greater performance and affordability include: 

Health Care Management – The goals of this effort are to develop and maintain a medically ready 

force, resize the DoD-owned system to focus on warfighting needs, and provide quality health care for all

beneficiaries through the most cost-effective means. Major accomplishments to date include

implementation of a management framework to transfer authority, direction, and control of military 

treatment facility healthcare delivery and business operations to the Defense Health Agency and 

improvements to the TRICARE-2017 Managed Care Support Contracts administration fee structure.

IT and IT Business Systems – The goals of this effort are optimizing enterprise IT to improve 

business operations, eliminate duplication, reduce the Department's spend, and exploit information to 

deliver strategic value to the warfighter. Major initiatives include implementing changes to the 

Defense Travel System, data center modernization, Military Health System IT, and enterprise software 

licensing. 

Financial Management – Financial management (FM) reform is focused primarily on initiatives 

that will reduce operational costs within the DoD FM line of business by simplifying and standardizing

business processes and systems, while improving auditability and security. Major initiatives include 

standardizing financial data, system consolidation, reducing expiring and cancelling funds, and assessing 

the future role of the Defense Finance and Accounting Services (DFAS) within DoD financial management. 

The Department’s financial statement audit, Enterprise Costs Framework, and data analytics efforts are also 

foundational to achieving the target financial management end-state.

Additionally, the Office of the Under Secretary of Defense (Comptroller) sponsors a number of 

strategic initiatives which focus on strengthening the Department’s financial management workforce. In 

FY 2018 these initiatives included the development and publication of a DoD FM strategic workforce plan, 

an FM competency skills gap assessment, an automated individual development plan tool for the FM 

workforce, a new Department-wide developmental assignment program, and the continued maturation of 

the DoD FM Certification Program. These initiatives were all designed to build and maintain the technical 

and leadership competence of individual FM members in support of the Department’s strategic objective 

to reform business processes.

Logistics and Supply Chain – The goal of this effort is to identify and achieve business process 

improvements that enhance Joint Force readiness and lethality. Major initiatives include establishing 

metrics that enable better resource decision making and increased materiel availability, producing cost 

savings through increased financial and operational efficiencies, and improving governance structures.

Contract Management – The goals of this effort are to implement private-sector best practices to 

improve how the Department purchases common goods and services. Major initiatives include reviewing 

and updating requirements to optimize pricing and reducing unneeded, redundant, or low priority 

contracting requirements. 

Human Resources Management – The goal of this effort is to increase the productivity of human 

resources (HR) functions through the establishment of enterprise-level systems and solutions. Major 

initiatives include streamlining, standardizing, and modernizing the Department’s numerous hiring 

processes and compensation systems; implementing a Department-wide civilian performance management 

system; and executing a comprehensive Civilian Human Capital Operating Plan.
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Management’s Discussion and Analysis

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Real Property – The goals of this reform effort are to reduce the cost of lifecycle real property 

management through improved use of DoD-owned and leased facilities, improved productivity of real 

property operations through better use of data management, and holistic enterprise-wide facility asset 

management. Major initiatives of this effort include category management of facilities and construction;

best practices in project prioritization and scoping; reducing/optimizing the use of excess property on 

existing installations; and reducing/optimizing the use of leased space, focusing on those high-cost leases 

in close proximity to existing DoD facilities or to lower cost leased space.

Community Services – Community Services include key quality of life functions such as exchange, 

commissary, lodging, morale, welfare, recreation programs, and DoD schools. The goals of this reform 

effort include improving the quality and productivity of Community Services business operations, 

increasing the use of enterprise services, reducing the appropriated fund cost and liabilities of retail 

operations, and optimizing resale logistics and supply. A task force has been established to evaluate 

practical opportunities to implement these efforts as a means to achieving the goal of strengthening and 

preserving Community Services benefits provided to Military Service members and their families.

Test and Evaluation – The goals of this effort are to increase test productivity and move to 

enterprise management of test infrastructure to improve and expand test capabilities. Major initiatives 

include integrating and optimizing developmental and operational test activities to reduce test timelines, 

improving the design of experiments, and improving the effectiveness of test processes. 

Regulatory Burden – The goal of this effort is to reduce regulatory burden and the associated 

taxpayer cost in accordance with Executive Order (EO) 13777 and OMB Memorandum M-17-23. To 

accomplish this, the Department established the Regulatory Reform Task Force to conduct a review of all 

DoD regulations; reduce unnecessary, outdated, and/or ineffective regulations by 25 percent; ensure that 

all remaining regulations align with the NDS priorities; and identify opportunities to improve the business 

process of issuing regulations. 

Air Force Capt. Wale Lawal of the Air Force Research Laboratory teaches students about properties of metals during the USA Science & 

Engineering Festival in Washington, D.C., April 6, 2018. 

DoD photo by EJ Hersom
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Optimizing Organizational Structures 

The Department’s management structures and processes could inhibit or prevent the pursuit of 

lethality. This requires consolidating, eliminating, restructuring, and/or streamlining wherever possible to 

ensure that U.S. military forces can compete, deter, and win.

Until February 2018, the Deputy Secretary of Defense served as Chief Operating Officer (COO) 

and Chief Management Officer (CMO) of the Department of Defense. The NDAA for FY 2017 elevated 

the Deputy Chief Management Officer to the Chief Management Officer and the NDAA for FY 2018 further 

defined the role of the CMO to focus on a broad set of enhanced responsibilities, including enterprise 

business operations, shared business services, OSD and DoD organization and management, defense 

reform, and compliance. The CMO supports the Deputy Secretary of Defense in the role of COO to ensure 

that DoD leaders are unified and aligned appropriately across all assigned responsibilities and functions, 

through strong management practices, integrated processes, and best value business investments. 

The Office of the Under Secretary of Defense for Acquisition, Technology and Logistics was also 

reorganized into two separate organizations in accordance with the NDAA for FY 2017. This

reorganization refocused the OSD’s principal role from program oversight to that of directing major 

Department investments to ensure integrated, technically superior capability that consistently outpaces the 

threat. Further, Congress provided the Department with the impetus to significantly streamline the 

acquisition organization and assign greater responsibility and accountability to the Military Departments 

for program execution and performance.

In order to achieve the cost saving goal established by the NDAA for FY 2016, the Deputy Secretary 

of Defense directed a 25 percent reduction from the FY 2016 baseline across all appropriations for DoD 

Major Headquarters Activities in the Military Departments, OSD, the Joint Staff, Defense Agencies, DoD 

Field Activities, and Combatant Commands. In FY 2017 – FY 2018, the Department achieved savings of 

approximately $2 billion.

Looking Forward

The Department is a performance-based organization, and as such is committed to managing 

towards specific, measurable goals using performance data to continually improve operations and combat 

the erosion of the competitive edge of U.S. military power. In striving to accomplish these goals, the 

Department faces numerous challenges – ranging from strategic competition and aggression from other 

nations and the threat of terrorism to the concern of securing the funding necessary to accomplish the 

mission. However, the Department has outlined and analyzed these challenges and more in the NDS, as 

well as defined the path forward for overcoming them. As outlined in the NDS, the Department will 

continue its focus on modernizing and increasing the agility, lethality, and readiness of the Joint Force; 

strengthening and supporting our alliances while attracting new mutually beneficial partnerships; and 

installing a culture, centered on the importance of results and accountability, that supports the reformation 

and improvement of business processes. Through the pursuit of these efforts, the Department will ensure 

the Joint Force is ready to compete, deter, and (if necessary) win against any adversary; that the U.S can 

work with its allies and partners to advance its interests, maintain favorable balances of power, and support 

economic growth; and that DoD management can harness available opportunities and ensure effective 

stewardship of taxpayer resources. 
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Financial Highlights and Analysis

The principal financial statements are prepared to report the financial position and results of 

operations of the Department, pursuant to the requirements of 31 U.S.C. §3515(b). The statements are 

prepared from the accounting records of the Department in accordance with the formats prescribed by OMB

Circular No. A-136 and, to the extent possible, with U.S. Generally Accepted Accounting Principles for 

federal entities as prescribed by the Federal Accounting Standards Advisory Board (FASAB). The 

statements, in addition to supporting financial reports, are used to monitor and control budgetary resources. 

The statements should be read with the realization that they are for a component of the U.S. Government.

The consolidated financial statements and accompanying explanatory notes are located in the 

Financial Section of this report. The principal financial statements include:

 Statement of Budgetary Resources

 Balance Sheet

 Statement of Net Cost

 Statement of Changes in Net Position

Marines provide simulated security during a dive mission in Key West, Fla., Jan. 24, 2018. The Marines, assigned to Charlie Company, 2nd Reconnaissance Battalion, 

were preparing for an upcoming deployment. 

Marines Corps photo by Lance Cpl. Brennon A. Taylor
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Statement of Budgetary Resources

The Statement of Budgetary 

Resources (SBR) presents the 

Department’s total budgetary resources, 

their status at the end of the fiscal year, 

and the relationship between the 

budgetary resources and the outlays 

made against them. In accordance with 

federal statutes and related regulations, 

obligations may be incurred and 

payments made only to the extent that 

budgetary resources are available to 

cover such items. As depicted in 

Figure 7, the Department’s FY 2018 

total budget authority is $670.6 billion. 

Note: The “Actual” amounts shown for FY 2014 – FY 2017 align with the National Defense Budget 

Estimates for FY 2019 and differ from the amounts presented in prior years.

In FY 2018, the Department reported $1.3 trillion in total budgetary resources (as shown in 

Figure 8). The total amount of “Appropriations (Discretionary and Mandatory)” in the amount of 

$863.6 billion reported on the SBR consists of appropriations enacted for the Department, contributions for 

DoD military retirement and health benefits made by the Department of the Treasury (Treasury) from the

Treasury’s general fund, and appropriations to finance civil works projects managed by the U.S. Army 

Corps of Engineers (USACE). Current year Trust Fund Receipts, including those received into the Military 

Retirement Fund (MRF) and the Medicare Eligible Retiree Health Care Fund (MERHCF), are also included 

in the SBR line item amount. Trust Fund 

Resources Temporarily not Available represent 

budget authority that the Department will 

execute in future years to pay the current 

unfunded liabilities carried in these large funds. 

Additional budgetary resources include 

$181.0 billion of unobligated balances stemming 

from prior year budget authority, $119.4 billion 

in spending authority from offsetting collections, 

and $88.4 billion of contract authority.

Of the $1.3 trillion in total budgetary 

resources, $1.1 trillion was obligated and 

$944.0 billion of obligations were disbursed. 

The remaining unobligated budgetary resources 

balance relates primarily to appropriations 

available to cover multi-year investment 

projects. These projects require additional time 

for delivery of goods and services. Expired 

appropriations remain available for valid upward 

adjustments to prior year obligations but are not 

available for new obligations.

Figure 7. Trend in DoD Budget Authority

Figure 8. Composition of DoD Total Budgetary 

 Resources

DoD Budget Authority * $670.6

Treasury contribution for Military Retirement and 

Health Benefits 96.3 

Civil Works Projects executed by USACE 22.8 

Trust Fund Receipts 164.2 

Trust Fund Resources Temporarily not Available (90.3)

Appropriations (Discretionary and Mandatory) 

Reported on SBR $863.6

Unobligated Balances from Prior Year Budget 

Authority 181.0 

Spending Authority from Offsetting Collections 119.4 

Contract Authority 88.4 

Total Budgetary Resource $1,252.4

Description

* FY 2018 DoD Budget Authority from Figure 6 and Figure 7

FY 2018

($ in Billions)
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Balance Sheet

The Balance Sheet, which reflects the Department’s financial position as of September 30, 2018

and September 30, 2017, reports probable future economic benefits obtained or controlled by the 

Department (Assets), claims against those assets (Liabilities), and the difference between them (Net 

Position).

The $2.8 trillion in assets shown in Figure 9 represent amounts the Department owns and manages. 

Investments; General Property, Plant, and Equipment; and Fund Balance with Treasury represent 89% of 

the Department’s assets. General Property, Plant, and Equipment is largely comprised of military 

equipment and buildings, structures, and facilities used to support the Department’s mission requirements.

Figure 9. Summary of Total Assets

Total assets increased $183.9 billion (7%) from FY 2017, largely due to increases in Investments 

in Treasury Securities of $100.1 billion and Fund Balance with Treasury of $78.6 billion. The investments 

increase was primarily due to normal growth in the MRF. As displayed in Figure 9, the Department has 

realized growth in investments over the last several years. The growth results from investment of 

contributions from the Treasury and the Uniformed Services (i.e., the Military Services, National Oceanic 

and Atmospheric Administration, and the Public Health Service) to cover military retirement and other 

federal employment benefits. Under the Department’s current strategy, invested balances will continue to 

grow to cover unfunded portions of future benefits. Funds not needed to cover current benefits were 

invested in Treasury securities. The increase in Fund Balance with Treasury resulted from additional 

appropriations provided through the Bipartisan Budget Act of 2018 and the

Consolidated Appropriations Act of 2018 for procurement, research and development, operations and 

maintenance, and Hurricane Maria disaster relief. 
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

24

As seen in Figure 10, the Department’s total liabilities increased $66.1 billion during FY 2018, 

largely due to adjustments in the estimated actuarial liability associated with military retirement benefits. 

This change is primarily attributable to expected interest costs, normal costs, and changes in actuarial 

assumptions, net of benefit outlays. The Department’s $2.6 trillion of liabilities reported in FY 2018 are 

backed by the full faith and credit of the U.S. Government.

Figure 10. Summary of Total Liabilities

Figure 11 shows the amount of liabilities covered by budgetary resources and the amount that is 

not covered by budgetary resources. It also shows the composition of liabilities not covered by budgetary 

resources, which primarily consists of unfunded military retirement benefits funded by Treasury.

Figure 11. Liabilities Covered/Not Covered by Budgetary Resources
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Statement of Net Cost

The Statement of Net Cost presents the net cost of all the Department’s programs, including 

military retirement benefits. The statement reports total expenses incurred less revenues earned from 

external sources to finance those expenses. Generally, the resulting balance of Net Cost is equivalent to 

the outlays reported on the SBR, plus (minus) the change in accrued liabilities, less the amount of assets 

purchased and capitalized on the Balance Sheet during the fiscal year. The differences between reported 

outlays of the budgetary resources and reported net cost generally arise from when expenses are recognized.

The Department’s costs incurred relate primarily to Operations, Readiness, and Support activities; 

Military Personnel costs; and costs related to the Department’s Procurement programs. These costs were 

offset with investment earnings and contributions to support retirement and health benefit requirements, as 

well as earnings from reimbursed activities. This activity resulted in a Net Cost of Operations of

$661.4 billion during the fiscal year.

Figure 12. Summary of Net Cost of Operations

Statement of Changes in Net Position

The Statement of Changes in Net Position (SCNP) presents the total cumulative results of 

operations since inception and unexpended appropriations at the end of the fiscal year. The SCNP displays 

the components of Net Position separately to enable the financial statement user to better understand the 

nature of changes to Net Position as a whole. The statement focuses on how the Net Cost of Operations as 

presented on the Statement of Net Cost is financed and displays the other sources financing the 

Department’s operations. The Department’s ending net position increased $117.8 billion during FY 2018. 

The increase primarily reflects the increase in assets due to additional funding as reflected in Fund Balance 

with Treasury and the normal growth in investments in the MRF, offset by an increase in liabilities primarily 

attributable to military retirement benefits. The growth is attributable to investment of contributions from 

the Treasury and the Uniformed Services, net of benefits paid. Under the Department’s current strategy, 

invested balances are expected to continue growing to cover unfunded portions of future benefits. 

In addition, the Department adjusted the beginning Cumulative Results of Operations downward

by $2.5 billion through prior period adjustments. These adjustments were attributable to changes in 

accounting principles primarily related to establishing opening balances for land and buildings, which were

also reduced for the same amount, as the Department continued to implement FASAB Statement of Federal 

Financial Accounting Standards (SFFAS) 48 and SFFAS 50.
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Financial Performance Summary

The Department’s financial performance is summarized in Figure 13. This table represents the 

Department’s condensed financial position, results of operations, and budgetary resources, and includes 

comparisons of financial balances from the current year to the prior year. Though the Department has 

received a Disclaimer of Opinion on its financial statements, audit remediation efforts will continue to 

improve the Department’s financial information.

Figure 13. Financial Performance Summary

* Other Assets includes Other Assets, Cash and Other Monetary Assets, and Loans Receivable

** Other Liabilities includes Debt, Other Liabilities, and Loan Guarantee Liability

$ %

Total Financing Sources $ 709.7 $ 680.0 $ 29.7 4.4%

Less: Net Cost (661.4) (637.9) (23.5) 3.7%

Net Change of Cumulative Results of Operations $ 48.3 $ 42.1 $ 6.2 14.7%

Assets:

Fund Balance with Treasury $ 580.2 $ 501.6 $ 78.6 15.7%

Investments 1,095.3 995.2 100.1 10.1%

Accounts Receivable 7.6 7.3 0.3 4.1%

Other Assets * 32.0 33.1 (1.1) -3.3%

Inventory and Related Property, Net 275.7 266.8 8.9 3.3%

General Property, Plant and Equipment, Net 758.8 761.7 (2.9) -0.4%

Total Assets $ 2,749.6 $ 2,565.7 $ 183.9 7.2%

Liabilities:

Accounts Payable $ 31.1 $ 28.0 $ 3.1 11.1%

Other Liabilities ** 47.3 44.8 2.5 5.6%

Military Retirement and Other Federal Employment Benefits 2,415.3 2,356.9 58.4 2.5%

Environmental and Disposal Liabilities 70.4 68.3 2.1 3.1%

Total Liabilities $ 2,564.1 $ 2,498.0 $ 66.1 2.6%

Net Position (Assets minus Liabilities) $ 185.5 $ 67.7 $ 117.8 174.0%

COSTS

NET POSITION

Increase/(Decrease) FY 2018 FY 2017

Dollars in Billions
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Audit Overview

History 

31 U.S.C. §3515, as amended by the Chief Financial Officers Act of 1990, requires covered 

executive agencies to prepare audited financial statements which must be conducted in accordance with 

applicable generally accepted government auditing standards. To reinforce this requirement, the 

NDAA for FY 2014 mandated that the Secretary of Defense ensure that an annual full-scope audit be 

performed over the DoD financial statements beginning in FY 2018. The Department has achieved this 

goal by undergoing its initial full-scope financial statement audit and remains committed to the pursuit of 

continued, full auditability of its operations.

This commitment is enforced in the Department’s NDS – the financial statement audit directly 

supports this third line of effort to reform business practices and is an important component to improving 

the Department’s operations. As stated in the NDS, the Department will continue its plan to achieve full 

auditability of all its operations, improving its financial processes, systems, and tools to understand, 

manage, and improve cost. The Department will not wait for an unmodified audit opinion to derive benefits 

from the audit, but expects to leverage the audit’s notices of findings and recommendations (NFRs) to drive 

enterprise-wide improvements to standardize business processes and improve the quality of the 

Department’s data.

Size

With approximately $2.8 trillion in total assets (accounting for over 70 percent of the U.S. 

Government’s assets), the FY 2018 DoD consolidated audit is arguably one of the largest and most complex 

financial statement audit ever undertaken. The audit is comprised of over 20 standalone audits 

(representing 97 percent of the Department’s total assets) being conducted by independent public 

accounting firms and an overarching consolidated audit performed by the DoD OIG. Combined, this effort 

will engage the use of approximately 1,200 auditors. 

Sailors assigned to Los Angeles-class fast-attack submarine USS Olympia participate in a swim call at sea in the Pacific Ocean, 

July 31, 2018. 

Navy photo by Senior Chief Petty Officer Vien Nguyen
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Value

The Department is accountable to the American people. Taxpayers deserve a high level of 

confidence that the Department’s financial statements present a true and accurate picture of its financial 

condition and operations. Transparency, accountability, and business process reform are some of the 

benefits that will result from undergoing annual, full-scope financial statement audits:

 Transparency: audit remediation efforts in response to NFRs will improve the quality of the 

Department’s financial statements and underlying data available to the public, bolstering 

confidence that the financial statements present a reliable picture of assets, liabilities, and spending. 

 Accountability: the audit will highlight areas for improvement of accountability over assets and 

resources, allowing for a streamlined identification and prioritization process for remediation. 

 Business Process Reform: the combination of better data resulting from audit remediation, 

retirement of legacy systems, business process reengineering, and the use of modern data analytics 

directly supports the Department’s efforts to bring business reform to its operations. 

Measuring Progress

To increase the effectiveness of audit remediation efforts, the Department established the NFR 

Database, which is a tool to capture, prioritize, assign responsibility for, and develop corrective action plans

(CAPs) to address audit findings. This tool is used to consolidate and track the status of auditor-issued 

NFRs and CAPs resulting from both the standalone and consolidated audits. The NFR Database is expected 

to help the Department gain efficiencies by sharing best practices and successes as well as raising 

accounting challenges to the Department-wide level for the identification of solutions to be leveraged across 

the Department. As audit NFRs are issued, the Department will take into consideration the extent of the 

impact of the audit findings to operations. NFRs will then be prioritized to ensure resolution of findings in 

the most cost-effective manner possible. The Department will then measure and report progress toward 

closing reported NFRs and achieving an unmodified audit opinion.

In FY 2018, the Department’s audit remediation efforts have already paid dividends. For example:

 The Army created a computer application to store and analyze its transactional data for audit. This 

new application increased the Army’s transparency and visibility into its cost drivers and 

strengthened its leadership’s ability to commit resources to programs with the highest mission 

impact and strategic value.

 The Navy’s Commander, U.S. Pacific Fleet enhanced internal controls over its obligation 

management process. This initiative resulted in freeing up purchasing power to fund $4.4 million 

in ship repair costs for the USS Paul Hamilton (DDG 60).

 The Air Force improved its physical inventory procedures at Hill Air Force Base in Utah. The 

redesigned process for validating the condition of assets in property systems resulted in the accurate 

capture of approximately $53 million in assets that would have otherwise been misstated. 

These efforts demonstrate how the Department is leveraging the audit as a foundational element in 

support of the NDS line of effort to reform business practices for greater performance and affordability.
STATEMENT OF ASSURANCE

The Department’s leaders are responsible for establishing and maintaining effective internal controls to 

meet the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and the Federal Financial Management 

Improvement Act of 1996 (FFMIA). In FY 2018, as the Department underwent its first full-scope financial 

statement audit, a risk-based approach was implemented to prioritize remediation and implement corrective 

actions impacting material financial statement line items. As the Department’s audit posture matures, it will 

continue to improve its controls to support reliable financial reporting, effective and efficient programmatic 

operations, and compliance with applicable laws and regulations as well as increase the compliance of financial 

management systems with Federal financial management systems requirements. 

The Department assessed the effectiveness of its internal controls over financial reporting in accordance 

with FMFIA §2 and Office of Management and Budget (OMB) Circular No. A-123. Based on this assessment, 

the Department found that controls in place on September 30, 2018 to support reliable financial reporting were 

not effective to provide reasonable assurance. The Department’s deficiencies in the design or operation of internal 

controls over financial reporting include ineffective processes and controls over the posting of transactions to the 

general ledger and reconciling with the Department of the Treasury; ineffective processes and controls over 

compiling financial statements, reconciling data, and supporting entries (including journal vouchers); and

ineffective processes and controls over accounting for, valuing, and supporting Property, Plant, and Equipment. 

FMFIA §2 material weaknesses and corrective actions are further described in the Other Information section. 

The Department assessed the effectiveness of internal controls over operations and compliance with 

applicable laws and regulations in accordance with the FMFIA §2 and the OMB Circular No. A-123. Based on 

this assessment, the Department provides a modified statement of reasonable assurance of the effectiveness of

internal controls in place on September 30, 2018 to support effective and efficient programmatic operations and

compliance with applicable laws and regulations. The Department continues to address material weaknesses with 

specific concerns in the areas of acquisition, contract administration, resource management, and cyber security, 

as well as other areas. FMFIA §2 material weaknesses and corrective actions are further described in the Other 

Information section.

The Department realizes that properly planned and integrated systems, with strong internal controls, are 

critical to providing useful, timely, and complete financial information and achieving an unmodified audit opinion. 

FMFIA §4 and FFMIA §803(a) require agencies to implement and maintain financial management systems that 

comply with Federal financial management system requirements, applicable Federal accounting standards, and 

the United States Standard General Ledger at the transaction-level. The Department assessed the compliance of

its financial management systems in accordance with FMFIA §4, FFMIA §803(a), and OMB Circular No. A-123, 

Appendix D. While the Department continues to achieve progress implementing corrective actions to address 

various systems limitations, the assessment found that the Department’s financial management systems do not

fully conform to the requirements of FMFIA §4 and FFMIA §803(a) as of September 30, 2018. FMFIA §4 and 

FFMIA §803(a) material weaknesses and corrective actions are further described in the Other Information section.

The Department remains committed to significant and measureable improvements in its ability to provide 

reliable, timely, and useful financial and managerial information to support management decisions. The findings 

from the full-scope financial statement audit will provide the Department with valuable insight that is critical to 

achieving its goals and demonstrating its commitment to financial accountability and transparency. 

 James N. Mattis

 Secretary of Defense
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Management Assurances

Enterprise Risk Management and Internal Controls

The Department is committed to ensuring an effective system of internal controls in business 

processes to provide reasonable assurance that its mission is met and to support the objectives of the DoD 

Components. An effective system of internal controls is central to supporting the NDS line of effort to 

reform business practices for greater performance and affordability. By appropriately assessing internal 

controls, the Department can identify opportunities to improve business operations and processes and 

support effective financial stewardship.

The Federal Managers’ Financial Integrity Act of 1982 (FMFIA) requires federal agencies to 

evaluate and report on the effectiveness of the organization’s internal controls in supporting effective and 

efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. The 

Office of the Under Secretary of Defense (Comptroller), Office of the Deputy Chief Financial Officer

(ODCFO) and the Office of the CMO lead the Department’s effort in fulfilling Enterprise Risk Management 

(ERM) and Internal Control Program (ICP) responsibilities. The DoD ERM/ICP holds both operational 

and financial managers accountable for ensuring that they are effectively managing risks and internal 

controls in their areas of responsibility. In accordance with OMB Circular No. A-123, and the Government 

Accountability Office (GAO) Standards for Internal Control in the Federal Government (“Green Book”), 

the Department continuously strives to integrate proactive risk management and effective internal control 

into existing business activities. 

In accordance with DoD Instruction 5010.40, each DoD Component assesses key functional, 

operational, and financial areas that are essential to the completion of its mission and objectives. DoD 

Components rely upon appointed assessable unit managers for each key area to identify and report internal 

control opportunities for improvement as well as deficiencies for review and remediation. DoD 

Components that produce standalone financial statements are also required to assert to the effectiveness of

internal controls over reporting, operations, and financial management system requirements. The goal of 

the ERM/ICP is to support the Department’s mission by implementing appropriate controls to identify, 

prioritize, and mitigate risks before they can negatively impact the mission. Another objective of the 

ERM/ICP is to leverage the financial statement audit as a tool to identify high risk areas and integrate audit

and internal control remediation efforts.

In FY 2018, the Department made significant strides in maturing the ERM/ICP with the goal of 

integrating risk management and internal controls testing. The Department mandates each DoD Component

conduct a risk assessment to ensure significant risks are identified and addressed. This risk based approach 

assists DoD Components with prioritizing audit remediation corrective actions, internal control testing, and

risk mitigation. In addition, the ODCFO identifies Department-wide focus areas for testing based on the

Department-wide materiality level and possible impact on financial statement line items. This process 

leverages OMB Circular No. A-123 and the Green Book to ensure that the Department has the appropriate 

oversight to prioritize and mitigate systemic, operational, and financial risks.

The Department advocates a “tone-at-the-top” approach, with emphasis on the importance of the 

internal control program, which permeates the entire DoD culture. The Department established a 

governance model comprising a variety of stakeholders to serve as the mechanism to identify and prioritize 

enterprise-wide risks and drive cross-functional solutions to Department-wide financial management 

challenges. Core to the governance model are the Financial Improvement Audit Remediation (FIAR) 

Governance Board (FGB) and the Defense Business Council (DBC), each of which serves as a Senior 
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

31

Management Council, chartered to assess and monitor deficiencies in internal control. The FGB and the 

DBC include the Under Secretary of Defense (Comptroller)/Chief Financial Officer and the CMO; Senior 

Executives that cover acquisition, human capital, and information technology; and Senior Executives 

representing material (major) DoD Components. Additionally, Functional Councils were established to 

coordinate and facilitate the remediation of priority issues impacting the Department’s ability to obtain an

unmodified audit opinion. This governance framework supports decision-making and ensures that 

Department-wide deficiencies are reported in a timely manner and associated CAPs are monitored 

throughout the DoD Components.

FY 2018 Improvements in Internal Controls

Strong internal controls are essential to achieving and sustaining a cost-effective, efficient, and 

effective organization. Despite many challenges, the Department is steadily improving internal controls,

which resulted in cost savings and increases in efficiency and effectiveness. Some significant 

accomplishments to the internal control environment and resulting savings are highlighted below.

Advances in the Effectiveness of Internal Controls

Department of the Army

As a result of corrective actions, the Army’s independent auditor closed a material weakness

surrounding FM Improvements. These FM internal control improvements required a collaborative effort 

between the Army and its service provider, DFAS, to close multiple deficiencies that were reported over a 

course of two years related to the oversight of financial operations. 

In addition, the Army’s auditor downgraded a material weakness surrounding Service Provider 

Oversight. The auditor cited Army for not monitoring the various service providers who perform key 

activities on its behalf. By implementing a process to identify and evidence the review of the annual System

and Organization Controls (SOC) 1 reports, the auditor downgraded the material weakness to a significant 

deficiency.

A southern black racer snake slithers across the rifle barrel held by junior Army National Guard sniper Pfc. William Snyder as he practices woodland 

stalking in a camouflaged ghillie suit at Eglin Air Force Base, April 7, 2018. 

Army photo by Staff Sgt. William Frye
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Department of the Navy

The Navy developed a policy providing updated requirements and internal controls for classifying, 

documenting, and approving journal vouchers (JVs) that pose the greatest risk to producing reliable and 

accurate financial statements and reports. In FY 2018, many budget submitting offices took action to 

implement this JV policy to reduce, eliminate, and automate these manual entries. 

The Navy also produced a complete transaction universe from nine disparate accounting systems, 

which has allowed the Navy to collect financial data that was not previously available to support data 

analysis and compilation of financial reports across the Navy’s various commands. This transaction 

universe has aided the auditor’s ability to evaluate Navy’s transactional data and assess its internal controls.

Department of the Air Force

As of March 31, 2018, the Air Force Audit Agency resolved 74 (44%) of 167 open 

recommendations and addressed $8.8 billion in identified potential savings. Additionally, the Auditor 

General of the Air Force collaborated with Headquarters Air Force and Major Command leadership to 

obtain CAPs to resolve the remaining 93 recommendations, including $49 million in additional potential 

savings.

In response to an audit finding over incomplete and inadequate documentation of enterprise-level 

internal controls testing in accordance with OMB Circular No. A-123 standards, the Air Force made 

significant progress building the infrastructure to support a viable ERM/ICP program. The Air Force 

provided training as part of establishing the groundwork necessary to adequately document, test, and report 

on business processes. This accomplishment will assist with resolving material weaknesses surrounding 

the Financial Reporting and Oversight and Monitoring processes.

Defense Finance and Accounting Service (DFAS)

In FY 2018, DFAS implemented procedures for recording, reporting, and reconciling amounts 

between entitlement and accounting systems. This has resulted in the correction of $57 million in priorperiod beginning balance adjustments and $76 million in JVs, as well as the elimination of $58 million in 

an overstatement of Accounts Payable.

Defense Contract Management Agency (DCMA)

DCMA won the 2017 David Packard Excellence in Acquisition Award for their efforts in piloting 

new Quick Closeout (QCO) techniques that utilize standardized risk factors in the contract closeout process. 

DCMA deployed multiple initiatives throughout FY 2018 to encourage the use of the new QCO process

with subcontractors and across the Department, resulting in projected savings of $613.9 million.
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Systems Compliance and Strategy

The Department is engaged in a complex and challenging transformation to reform its FM

environment for enhanced mission effectiveness and auditability. This necessarily includes improving

business systems to be in compliance with the Federal Financial Management Improvement Act of 1996 

(FFMIA) and OMB Circular No. A-123, Appendix D. Modernization and improved interoperability of 

DoD business systems is critical to efficiently respond to warfighter needs and sustain public confidence in 

the Department’s stewardship of taxpayer funds.

After 10 U.S.C. §2222 was amended by the NDAA for FY 2012 to modify requirements for review 

of defense business system investments, the Department significantly changed the requirement structure 

and processes for investment reviews and the certification of defense business systems, which now must 

occur before funds are obligated (appropriated or non-appropriated). The Department’s investment review 

process ensures that decisions on investments in business systems align with the Department-wide 

integrated business strategy (Figure 14). These decisions also include retirement plans for legacy and nontarget financial systems and ensure that systems eliminate redundant activity and maximize operating 

efficiency through streamlining business processes and the availability of timely, accurate, and useful 

business information, enabling data driven decision-making. (A legacy system has a retirement plan and 

date; a target system does not.)

Figure 14. DoD Integrated Business Framework

The Department’s FM Functional Strategy provides the Department’s vision, initiatives, goals, 

target environment, and expected outcomes over five years. Rooted in fiscal accountability and financial 

improvement, the FM Functional Strategy for FY 2018 – FY 2022 will lead to strategic outcomes that are 

essential for the optimal utilization of the resources provided to the Department to carry out its mission.

The key components of the FM Functional Strategy include establishing data and data exchange 

standards, standard business processes, and system controls and enhancements that support improved 

processes, and leveraging technology across the Department’s end to-end processes. The primary objective

of the FM Functional Strategy is to achieve a fully integrated environment linked by standard processes 
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

34

and standard data with the fewest number of systems and interfaces. Ultimately, this strategy will lead to 

stronger internal controls, impacting financial reporting and auditability; improvements in end-to-end funds 

traceability; and linkage between budget and expenditures. Current enterprise-level initiatives include the

implementation of the Standard Financial Information Structure (SFIS), the Department’s standard line of 

accounting, which will improve funds traceability and financial reporting. The Department also participates 

in Federal Government-wide process improvement initiatives, such as the President’s transparency and 

open government initiatives as well as Treasury’s government-wide accounting and Direct-to-Treasury 

disbursing initiatives. The Department also promotes the use of business analytics and maximizing existing 

Enterprise Resource Planning (ERP) systems.

Figure 15. DoD FM Systems Improvement Initiatives

Enterprise Resource Planning Systems

The ERP systems are integral to implementing the strategic FM business process improvements, 

achieving the planned target environment and reductions in the number of legacy systems, and better 

enabling a sustainable audit environment. The ERPs provide a broad range of functionality to support DoD 

business operations in financial management, supply chain management, logistics, and human resource 

management. Some ERPs are fully fielded while others are in a state of development and deployment.

Army ERPs

General Fund Enterprise Business System (GFEBS) is the General Fund accounting, asset 

management, and financial system used to standardize, streamline, and share critical data across the active 

Army, Army National Guard, and Army Reserve. GFEBS is a web based ERP solution that uses 

commercial off-the-shelf (COTS) business enterprise software to compile and share accurate, up-to-date 

financial and accounting data.
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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The Logistics Modernization Program (LMP) is one of the world’s largest, fully integrated supply 

chain, maintenance, repair and overhaul, planning, execution, and financial management systems. The 

LMP mission is to sustain, monitor, measure, and improve the modernized, national-level logistics support 

solution. By modernizing both the systems and the processes associated with managing the Army’s supply 

chain at the national and installation levels, LMP will permit planning, forecasting, and rapid order 

fulfillment to supply lines. It will also improve distribution, reduce theater footprint, and ensure a 

warfighter who is equipped and ready to respond to present and future threats.

Global Combat Support System – Army (GCSS-A) is an acquisition system that provides enterprisewide visibility into various logistic areas and is a key enabler for the Army in achieving auditability. 

GCSS-A provides the tactical warfighter with supply, maintenance, property accountability, integrated 

materiel management center, management functionality, and support for tactical financial processes.

Integrated Personnel Pay System – Army (IPPS-A) is a hybrid solution using ERP software to 

deliver an integrated personnel and pay capability. IPPS-A will provide the Army with an integrated, multicomponent personnel and pay system that streamlines Army Human Resources processes, enhances the 

efficiency and accuracy of Army personnel and pay procedures, and supports soldiers and their families. 

IPPS-A will improve internal controls to prevent erroneous military payments and loss of funds.

Navy ERPs

Navy Enterprise Resource Planning (Navy ERP) is an integrated business system that provides 

streamlined financial, acquisition, and supply chain management to the Navy’s systems commands.

Global Combat Support System – Marine Corps (GCSS-MC) is the core web-enabled, centrally 

managed ERP for the Marine Corps. The GCSS-MC is focused on the acquisition and implementation of 

the initial set of logistics capabilities to deliver improved supply and maintenance management services. 

As the technology centerpiece of the Marine Corps’ overall logistics modernization effort, GCSS-MC will 

provide advanced expeditionary logistics capabilities to ensure future combat efficiency.

Soldiers fire the main weapon of an M1A2 Abrams tank during a gunnery qualification event at the Rodriguez live fire complex 

in South Korea, Nov. 28, 2017. The soldiers are assigned to the 1st Battalion, 8th Cavalry Regiment. 

Army photo by Sgt. Patrick Eakin
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Air Force ERPs

Defense Enterprise Accounting and Management System (DEAMS) is an automated accounting 

and financial management execution system for the Air Force and U.S. Transportation Command. DEAMS 

is the core accounting and financial management solution for the Transportation Working Capital Fund and 

General Fund. It serves as the financial foundation for all enterprise business system modernization across 

the Air Force. DEAMS provides accurate and timely financial information using standardized business 

processes and complies with applicable federal laws, regulations, and policies.

Air Force Integrated Personnel and Pay System (AF-IPPS) is a comprehensive, self-service, webbased solution currently in development that integrates personnel and pay processes into one system and 

maintains an official member record throughout the airman’s career. Designed to be an FFMIA-compliant 

system, AF-IPPS functionality will enhance general and application controls.

Other Defense Organization ERPs

Defense Agencies Initiative (DAI) is a system dedicated to address financial management 

improvements through standard end-to-end business processes delivered by COTS software. Currently 

DAI provides Budget to Report, Proposal to Reward, Cost Management, Order to Cash, Procure to Pay, 

Acquire to Retire, and Hire to Retire capabilities for Fourth Estate organizations.

Enterprise Business System (EBS) uses a COTS product to manage the Defense Logistics Agency’s 

(DLA) supply chain management business. EBS also includes Electronic Procurement, Real Property, 

Inventory Materiel Management and Stock Positioning, and Energy Convergence modules, providing DLA 

leadership with the tools to respond to new challenges and trends.

A member of the Air Force’s Wings of Blue Parachute Demonstration Team jumps out of an aircraft during the opening ceremony of Aviation 

Nation 2017 Nellis Air and Space Expo at Nellis Air Force Base, Nev., Nov. 10, 2017. 

Air Force photo by Senior Airman Kevin Tanenbaum
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

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Legal Compliance

Antideficiency Act (ADA)

The Antideficiency Act is codified in 31 U.S.C. §§1341(a)(1), 1342, and 1517(a). The ADA 

provides that federal agencies may not obligate or expend funds in excess of the amount available in an 

appropriation or fund or in advance of appropriations; accept voluntary services on behalf of the 

Government or employ personal services in excess of that authorized by law, except as it may be necessary 

in emergencies involving the safety of human life or the protection of property; or obligate, authorize, or 

expend funds that exceed an apportionment or amount permitted by a regulation prescribed for the 

administrative control of an appropriation. An ADA violation is a serious matter as it represents a violation 

of a federal statute. A federal employee who violates the ADA may be subject to administrative sanctions 

(such as suspension from duty without pay or removal from office) and/or penal sanctions (such as fines or 

imprisonment).

To improve compliance with and enhance knowledge of ADA requirements, the Department 

leveraged the DoD FM Certification Program, sponsored by the Office of the Under Secretary of Defense 

(Comptroller), which requires the FM workforce to complete competencies and other specific courses 

(including fiscal law training requirements) which relate to the ADA and various other FM topics. 

Additionally, in keeping with the reporting requirements for violations of the Act under 31 U.S.C §1351, 

the Department maintains a close cooperation with the Military Departments and Defense Agencies as they

investigate suspected ADA violations. Confirmed ADA violations are reported to the President through 

the Director of the OMB, Congress, and the Comptroller General of the United States.

During FY 2018, four ADA violations were reported totaling $13.7 million. The cause of the cases 

were:

 The Department violated the purpose rule by inappropriately paying salaries and benefits;

 The Department violated the purpose rule by inappropriately using funds to train foreign military 

students and to subsidize cafeteria costs; 

 The Department violated the purpose rule by inappropriately using funds to carry out a military 

construction project; and

 The Department failed to obtain certification and approval before obligating funds for the 

development of a Defense business system in violation of 10 U.S.C. §2222.

The Department has implemented several measures to prevent a recurrence of these type of 

violations such as issuing new policies and guidance and improving procedures and internal controls. 

Further information about each of the Department’s reported ADA violations and the remedial actions 

taken are included in GAO’s annual compilation of Antideficiency Act Reports.

Digital Accountability and Transparency (DATA) Act

The Digital Accountability and Transparency Act of 2014 (DATA Act) amended the Federal 

Funding Accountability and Transparency Act of 2006 (FFATA) to require the public reporting of 

additional financial data to supplement the current contract and financial assistance award data on 

USASpending.gov. The goal of the law is to improve the ability of the public to track and understand how 

the government is spending their tax dollars. The DATA Act requires Agencies to report/certify their 

financial and award data to the Treasury on a quarterly basis, for public consumption on USASpending.gov. 

This information includes how much funding the Department receives; where the funding comes from (e.g.,

appropriations, transfers, and carry-forward balances from prior fiscal years); how the department plans to 
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

38

spend the funding; and how the Department actually spent the funding, to include the disclosure of the 

entities or organization receiving federal funding via contract and grant awards.

In April 2017, the Department and USACE (whose DATA Act information is audited separately) 

began submitting the summary level appropriation and obligation information in response to the 

DATA Act. The Department currently has a statutory waiver, granted by OMB, allowing the Department

additional time to compile financial award information that ties together summary obligation data to 

contract and financial assistance information based on parent award identification. The Department is 

committed to pursuing every effort to comply with the DATA Act reporting requirements.

Federal Civil Penalties Inflation Adjustment Act

On November 2, 2015, the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 

2015 (the 2015 Act) was signed into law, which further amended the Federal Civil Penalties Inflation 

Adjustment Act of 1990 (Inflation Adjustment Act, 28 U.S.C. §2461, note), to improve the effectiveness of 

civil monetary penalties and to maintain their deterrent effect. The 2015 Act requires federal agencies to

report the most recently published inflationary adjustments to civil monetary penalties in order to ensure

that civil penalties under their cognizance are periodically adjusted. 

The Department is in compliance with the 2015 Act. Each year, by January 15, the Department 

publishes inflationary adjustments to civil penalties as a final rule in the Federal Register. The 

implementation of the 2015 Act deters violations of law, encourages corrective action(s) of existing 

violations, and prevents waste, fraud, and abuse within the Department.

Additional information regarding the types of civil penalties and their amounts is located in the 

Other Information section of this report.

Fraud Reduction and Data Analytics Act

The Fraud Reduction and Data Analytics Act of 2015 (FRDAA) was enacted on June 30, 2016 to 

help improve the ability of federal agencies to prevent, detect, and respond to fraud. Under the FRDAA, 

federal agencies are required to (1) conduct an evaluation of fraud risks and use a risk-based approach to 

design and implement financial and administrative control activities to mitigate identified fraud risks; 

(2) collect and analyze data on detected fraud to monitor fraud trends and use the data and information to 

continuously improve fraud controls; and (3) use the results of monitoring, evaluation, audits, and 

investigations to improve fraud prevention, detection, and response. In FY 2017, the Department conducted 

a coordinated fraud risk survey throughout the DoD Components (including the Military Departments) to 

assess the extent of control activities currently in place related to the prevention, detection, and response to 

fraud. The result of this survey provided the Department with an overview of each DoD Component’s 

knowledge of FRDAA, as well as their approach to identifying and mitigating fraud risks. 

In FY 2018, the Department furthered its FRDAA compliance efforts by developing a Departmentwide Fraud Risk Management framework to assist DoD Components with adopting the guidance and 

leading practices prescribed by the GAO, taking steps to align ERM/ICP policies and procedures with the 

updated OMB Circular No. A-123, and revising DoD internal control guidance documents to assist DoD 

Components with strengthening their internal controls. As these and other efforts progress, the Department 

will continue to assess the compliance and maturity of fraud risk management programs across the 

Department, including the evaluation of internal controls related to fraud risks; the use of data analytics in 

identifying, preventing, and responding to fraud (including improper payments); and the number of fraud 
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

39

risks identified and mitigated. Detailed information regarding the Department’s FY 2018 FRDAA 

compliance efforts is located in the Other Information section of this report.

Grants Oversight and New Efficiency (GONE) Act

The GONE Act was enacted in January 2016 to prompt improvements in the timely closeout of 

federal grant awards and to improve accountability and oversight in grants management. The GONE Act

requires the head of each federal agency to submit to Congress, in coordination with the Secretary of the 

Department of Health and Human Services a report on the grants and cooperative agreement awards that 

were not closed for which the period of performance has elapsed for more than two years. The

FY 2017 DoD Agency Financial Report included awards meeting this criteria with a period of performance 

end date of September 30, 2015 or earlier. A status update to the previously reported awards is included in 

the Other Information section of this report.

To assure compliance with OMB priorities, DoD Components increased staff dedicated to closing 

awards, including hiring additional experienced senior staff to review documentation and oversee the 

process; prioritized work schedules to assure timely closeout of the awards; and coordinated with grantees 

and DoD offices to resolve issues and obtain accurate reports.

Improper Payments Elimination and Recovery Act (IPERA)

DoD Financial Management Regulation Volume 4, Chapter 14, defines improper payments as any 

payment that should not have been made or that was made in an incorrect amount (i.e., overpayment or 

underpayment) to an eligible recipient. The definition also includes any payment that was made to an 

ineligible recipient or for an ineligible good or service, or payments for goods or services not received, or 

when an agency's review is unable to discern whether a payment was proper as a result of insufficient or 

lack of documentation.

In accordance with the Improper Payments Information Act of 2002 (IPIA), as amended by the 

Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments

Elimination and Recovery Improvement Act of 2012 (IPERIA), and OMB Circular No. A-123, Appendix C,

DoD Components are required to report the status and recovery of improper payments to the President and

Congress in the following program categories:

 Civilian Pay

 Commercial Pay

 Military Health Benefits

 Military Pay

 Military Retirement

 Travel Pay

The Department is committed to improving payment accuracy in all of its programs. Each DoD 

disbursing activity is committed to identifying the root causes of improper payments, establishing 

appropriate sampling methodologies, developing and implementing corrective action plans, and monitoring 

to ensure prevention of improper payments and compliance with IPERA. In FY 2018, DoD management 

increased the level of oversight on improper payments which resulted in the Department (1) reporting 

improper payment estimates below the IPERA statutory threshold of ten percent for each of its eight 

programs, (2) reducing the number of programs reporting over $100 million in improper payments from 

five to three, and (3) meeting its target rate of six percent for travel improper payments for the first time in 

six years.
U.S. Department of Defense Agency Financial Report for FY 2018

Management’s Discussion and Analysis

40

Several accomplishments during FY 2018 include chartering the DoD Improper Payments Senior 

Accountable Officials Steering Committee, which will proactively provide oversight to the DoD Payment 

Integrity Program, implement best practices, monitor performance, and drive action for compliance with 

IPERA; presenting three Department-wide webinars to communicate the major errors identified in the two 

highest error reporting programs and inform key stakeholders of specific actions to prevent and reduce 

improper payments; and implementing a standard corrective action plan within the DoD Payment Integrity 

Program to address noncompliance and advance the Department’s goal to fully comply with IPERA.

The Department has a robust improper payments estimation and reporting process that has been in 

place for many years, and has been iteratively improved by numerous corrective actions to prevent and 

reduce improper payments. Preventing and recovering improper payments are among the top financial 

management priorities of the Department. Detailed information regarding improper payments is located in 

the Other Information section of this report.

Prompt Payment Act

The Prompt Payment Act (PPA) requires federal agencies to pay vendors on a timely basis, to pay 

interest penalties when payments are made late, and to take early-payment discounts only when beneficial

to the government. DFAS complies with the PPA when applicable by statute and regulation and within the 

terms of the contract. DFAS is responsible for consolidating interest and discount data for the Department, 

however each DoD Component is responsible for capturing, validating, and explaining the results of their 

data. 

DFAS makes timely payments and has an established metric which tracks interest penalties for late 

payments to contractors and vendors. Avoidance of interest penalties indicates effective internal controls 

and efficient processes, and allows funds to be utilized for other mission requirements. The goal for this 

metric is to average $90 or less in interest dollars paid per million PPA dollars disbursed on a monthly basis 

across all applicable contracts. The Department has successfully achieved this by meeting or exceeding the 

average goal every month, with only one exception, since reporting of this metric began in December 2016. 

A separate metric tracks the amount of discounts offered within the terms of a contract but not 

exercised. Although discounts may be offered within a contract they will not be taken if not cost effective, 

meaning the discount rate offered does not exceed the Treasury Current Value of Funds Rate. The 

quarterly goal for this metric is to average 12 percent or less of Cost Effective Discount Dollars Lost across 

all applicable contracts. The Department has met or exceeded the average goal five of the last eight quarters.
FY 2018

Message from the Under Secretary of 

Defense (Comptroller)/Chief Financial 

Officer 41

Principal Financial Statements and 

Notes 43

Required Supplementary Stewardship 

Information 116

Required Supplementary 

Information 119

Independent Auditor’s Report 126

Financial Section
Face of Defense: Extended Family Trains Together at Fort Lee

For the full article, click icon
Message from the Under Secretary of Defense (Comptroller)/

Chief Financial Officer

November 15, 2018

It is my privilege to join the Secretary of Defense in presenting the 

Department of Defense financial statements for Fiscal Year (FY) 2018, 

which are an integral part of our Agency Financial Report (AFR). The

objective of the financial statements and accompanying information 

contained in the Financial Section of the AFR is to provide a comprehensive 

view of the financial activities undertaken in support of the Department’s 

mission to deter war and protect national security.

In FY 2018, the Department underwent its first full-scope financial 

statement audit. As anticipated, our independent auditor, the Department of 

Defense Office of Inspector General, issued a Disclaimer of Opinion as the 

result of the audit. Though we were unable to achieve a clean (unmodified) 

opinion, the audit provides us with a powerful additional method to identify accounting and financial 

reporting issues as well as their root causes, target and develop corrective actions, prioritize business 

process reforms, and verify the proper remediation of audit findings. 

To assist in driving change, we have established a Department-wide database tool for use in 

capturing, prioritizing, and assigning responsibility for auditor findings and the related corrective action 

plans. The wide visibility and use of this tool across the Department will reduce duplication of efforts, 

facilitate the sharing of lessons learned and best practices, and help maintain accountability. The tool will 

also help us to track the number of auditor findings closed, which will be the benchmark used to measure 

our progress towards achieving a clean audit opinion. 

I want to thank the civilian employees and Military Service members of our financial and functional 

communities for their hard work and dedication in addressing audit findings, seeking opportunities for 

greater efficiency, and improving our business processes. The progress we achieved to date and will 

achieve going forward would not be possible without their efforts. We look forward to working through 

future audits as we improve the quality and reliability of our financial information, as well as the efficiency 

and effectiveness of our operations.

 

David L. Norquist
This Page Intentionally Left Blank
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

43

PRINCIPAL FINANCIAL STATEMENTS AND NOTES

The principal financial statements are prepared to report the financial position and results of 

operations of the Department of Defense (DoD or the Department), pursuant to the requirements of title 31, 

United States Code, section 3515(b) (31 U.S.C. § 3515(b)). The statements are prepared from the 

accounting records of the Department in accordance with the formats prescribed by Office of Management 

and Budget (OMB) Circular No. A-136 and, to the extent possible, with U.S. Generally Accepted 

Accounting Principles for federal entities as prescribed by the Federal Accounting Standards Advisory 

Board (FASAB). The statements, in addition to supporting financial reports, are used to monitor and control 

budgetary resources. The statements should be read with the realization that they are for a component of 

the U.S. Government.

The principal financial statements of the Department include the four financial statements described 

in Table 1.

Table 1. Principal Financial Statements

Statement

Balance Sheet

Reflects the Department’s financial position as o f the statement date

(September 30, 2018). The assets reflect the amount o f future economic benefits

owned o r managed b y the Department. The liabilities reflect amounts owed b y

the Department. The net position is the difference between the assets and

liabilities.

Statement of Net Cost

Shows, b y major program, the components o f the net cost o f the Department’s

operations for the period. Net cost is equal t o the gross cost incurred b y the

Department less any exchange revenue earned from its activities.

Statement of Changes 

in Net Position

Presents the sum o f the unexpended appropriations provided t o the Department

that remain unused at the end o f the fiscal year and the cumulative results o f the

Department's operations since inception. The statement focuses o n how the

Department's net cost o f operations is financed. The resulting financial position

represents the difference between assets and liabilities as shown o n the

consolidated balance sheet.

Statement of Budgetary 

Resources

Provides information about how budgetary resources were made available as

well as their status at the end o f the period. It is the only financial statement

exclusively derived from the Department’s budgetary general ledger in

accordance with budgetary accounting rules. The Statement o f Budgetary

Resources is the only principal financial statement prepared o n a combined,

rather than consolidated, basis. A s such, all intra-entity transactions are

included in the balances reported on the statement. 

Information Provided
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

44

Department of Defense Agencywide

Consolidated Balance Sheet

As of September 30, 2018 and 2017

($ in millions)

Assets (Note 2)

Intragovernmental:

Fund Balance with Treasury (Note 3)

Investments (Note 4)

Accounts Receivable (Note 5)

Other Assets (Note 6)

Total Intragovernmental Assets

Cash and Other Monetary Assets (Note 7)

Accounts Receivable, Net (Note 5)

Inventory and Related Property, Net (Note 9)

Loans Receivable (Note 8)

General Property, Plant and Equipment, Net (Note 10)

Investments (Note 4)

Other Assets (Note 6)

Total Assets

Stewardship Property, Plant and Equipment (Note 10)

Liabilities (Note 11)

Intragovernmental:

Accounts Payable (Note 12)

Debt (Note 13)

Other Liabilities (Note 15 & 16)

Total Intragovernmental Liabilities

Accounts Payable (Note 12)

Loan Guarantee Liability (Note 8)

Military Retirement and Other Federal

 Employment Benefits (Note 17)

Environmental and Disposal Liabilities (Note 14)

Other Liabilities (Note 15 and Note 16)

Total Liabilities

Commitments and Contingencies (Note 16)

Net Position (Consolidated Totals)

Unexpended Appropriations - Dedicated

 Collections (Note 23)

Unexpended Appropriations - Other Funds

Cumulative Results of Operations - Dedicated

 Collections (Note 23)

Cumulative Results of Operations - Other Funds

Total Net Position

Total Liabilities and Net Position

(360,998.5)

185,526.5

$ 2,749,644.3

 -

529,746.6

16,778.4

$ 1,914.1

1,685.7

7,403.7

29,222.8

2,415,346.8

70,411.4

58.4

38,074.9

2,564,117.8

10,222.4

3,511.6

29,390.0

968.0

5,694.1

1,697.4

275,678.4

11,003.5

3,511.6

28,374.4

$ 2,749,644.3

$ 1,573.8

1,630.8

7,017.8

(406,258.7)

67,740.4

$ 2,565,714.4

16,149.7

26,426.8

2,356,869.6

68,318.1

65.2

 -

457,849.4

36,071.9

2,497,974.0

1,119.7

5,244.1

1,644.2

266,760.5

761,707.8

1,951.6

961.5

$ 2,565,714.4

758,829.1

2018 2017

1,496,336.5

(Unaudited) (Unaudited)

$ 501,620.4

991,733.9

2,055.0

927.2

1,674,891.3

$ 580,213.8

1,091,764.4

The accompanying notes are an integral part of these statements.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

45

Department of Defense Agencywide

Consolidated Statement of Net Cost

For the Years Ended September 30, 2018 and 2017

($ in millions)

Gross Program Costs:

Military Retirement Benefits

Civil Works

Military Personnel

Operations, Readiness & Support

Procurement

Research, Development, Test & Evaluation

Family Housing & Military Construction

Total Gross Program Costs

Less: Earned Revenue

Net Program Costs Before Losses/(Gains) from Actuarial 

 Assumption Changes for Military Retirement Benefits

Losses/(Gains) from Actuarial Assumption Changes for

 Military Retirement Benefits

Net Cost of Operations

 (114,295.5)

$ 661,371.6

 644,636.6

 16,735.0

$ 637,891.2

 24,069.0

 139,512.6

 302,022.8

 112,506.4

 613,822.2

 85,881.3

 88,386.3

 11,714.5

 735,092.9

 145,255.3

 259,653.5

 (90,456.3)

 84,380.8

 10,521.9

 728,117.7

$ 96,630.1

 9,168.2

$ 104,973.1

 12,603.8

2018 2017

(Unaudited) (Unaudited)

The accompanying notes are an integral part of these statements.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

46

Department of Defense Agencywide

Consolidated Statement of Changes in Net Position

For the Years Ended September 30, 2018 and 2017

($ in millions)

Unexpended Appropriations

Beginning Balance 

Prior Period Adjustments:

Changes in Accounting Principles

Corrections of Errors

Beginning Balance, as adjusted (Includes Funds from Dedicated Collections

 of $0.0 in FY 2018 and $0.0 in FY 2017) - (Note 23)

Budgetary Financing Sources:

Appropriations Received

Appropriations Transferred In/Out

Other Adjustments

Appropriations Used

Total Budgetary Financing Sources (Includes Funds from Dedicated Collections

 of $0.0 in FY 2018 and $0.0 in FY 2017) - (Note 23)

Total Unexpended Appropriations (Includes Funds from Dedicated Collections of

 $0.0 in FY 2018 and $0.0 in FY 2017) - (Note 23)

Cumulative Results of Operations

Beginning Balance 

Prior Period Adjustments:

Changes in Accounting Principles

Corrections of Errors

Beginning Balance, as adjusted (Includes Funds from Dedicated Collections

 of $16,149.7 in FY 2018 and $15,493.7 in FY 2017) - (Note 23)

Budgetary Financing Sources:

Other Adjustments

Appropriations Used

Nonexchange Revenue

Donations and Forfeitures of Cash and Cash Equivalents

Transfers In/Out Without Reimbursement

Other 

Other Financing Sources (Nonexchange):

Donations and Forfeitures of Property

Transfers In/Out Without Reimbursement

Imputed Financing

Other

Total Financing Sources (Includes Funds from Dedicated Collections of

 $2,010.0 in FY 2018 and $1,251.4 in FY 2017) - (Note 23)

Net Cost of Operations (Includes Funds from Dedicated Collections of

 $1,381.3 in FY 2018 and $595.4 in FY 2017) - (Note 23)

Net Change

Cumulative Results of Operations (Includes Funds from Dedicated Collections of

 $16,778.4 in FY 2018 and $16,149.7 in FY 2017) - (Note 23)

Net Position $ 67,740.4

 3,673.9

 (5,390.9)

 680,010.1

 637,891.2

 42,118.9

 (390,109.0)

 (680,590.0)

 139.7

 612.5

 680,590.0

 1,460.8

 179.1

 1,286.4

 (2,543.8)

 2.4

 (432,227.9)

 7,823.3

$ 185,526.5

 48,350.6

 (344,220.1)

 (392,570.7)

 19.8

 709,722.2

 661,371.6

 487.7

 (22,779.7)

 (3,490.4)

 5,309.1

 2,328.7

 (734.2)

 702,236.6

 2,223.5

 480.3

 1,325.0

 -

 37,345.0

 -

 457,849.4

 (469,572.9)

 23.8

 (2,461.7)

 221.8

 (20,876.0)

 (702,236.6)

 71,897.2

 529,746.6

 (390,109.0)

(Unaudited) (Unaudited)

 794,788.0

2018 2017

$ 457,849.4

 -

 -

 457,849.4

 710,705.3

 450,026.1

$ 450,026.1

 -

 -

The accompanying notes are an integral part of these statements.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

47

Department of Defense Agencywide

Combined Statement of Budgetary Resources

For the Years Ended September 30, 2018 and 2017

($ in millions)

Budgetary Resources

Unobligated Balance from Prior Year Budget 

 Authority, Net (Discretionary and Mandatory)

Appropriations (Discretionary and Mandatory)

Borrowing Authority (Discretionary and Mandatory)

Contract Authority (Discretionary and Mandatory)

Spending Authority from Offsetting Collections

 (Discretionary and Mandatory)

Total Budgetary Resources

Memorandum (Non-Add) Entries

Net Adjustments to Unobligated Balances Brought 

 Forward, Oct 1

Status of Budgetary Resources

New Obligations and Upward Adjustments (Total)

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts

Exempt from Apportionment, Unexpired

 Accounts

Unapportioned, Unexpired Accounts

Unexpired Unobligated Balance, End of Year

Expired Unobligated Balance, End of Year

Unobligated Balance, End of Year (Total)

Total Budgetary Resources

Outlays, Net

Outlays, Net (Total) (Discretionary and Mandatory)

Distributed Offsetting Receipts (-)

Agency Outlays, Net (Discretionary and Mandatory)

 (101,973.1) - (97,963.0) -

$ 661,242.9 $ 71.2 $ 633,955.9 $ (5.0)

$ 763,216.0 $ 71.2 $ 731,918.9 $ (5.0)

 27,712.2 - 33,611.0 -

 198,223.9 69.0 158,730.3 85.0

$ 1,252,433.2 $ 202.1 $ 1,140,211.8 $ 214.4

 1,933.2 69.0 1,910.5 85.0

 170,511.7 69.0 125,119.3 85.0

 165,702.9 - 116,449.6 -

 2,875.6 - 6,759.2 -

$ 1,054,209.3 $ 133.1 $ 981,481.5 $ 129.4

$ 22,300.3 $ - $ 25,361.8 $ -

 119,413.9 61.6 105,705.9 76.6

$ 1,252,433.2 $ 202.1 $ 1,140,211.8 $ 214.4

 88,428.1 - 76,540.2 -

 863,583.0 - 776,981.7 -

 - 55.4 - 58.1

$ 181,008.2 $ 85.1 $ 180,984.0 $ 79.7

2018 2017

(Unaudited) (Unaudited)

Non-Budgetary

Credit Reform

Financing 

Account

Budgetary Budgetary

Non-Budgetary

Credit Reform

Financing 

Account

The accompanying notes are an integral part of these statements.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

48

Notes to the Financial Statements (Unaudited)

Note 1. Significant Accounting Policies.................................................................................................49

Note Disclosures Related to the Balance Sheet

Note 2. Non-Entity Assets ......................................................................................................................59

Note 3. Fund Balance with Treasury ......................................................................................................60

Note 4. Investments and Related Interest................................................................................................62

Note 5. Accounts Receivable, Net ..........................................................................................................64

Note 6. Other Assets...............................................................................................................................65

Note 7. Cash and Other Monetary Assets...............................................................................................66

Note 8. Direct Loans and Loan Guarantees............................................................................................67

Note 9. Inventory and Related Property..................................................................................................72

Note 10. General PP&E, Net ..................................................................................................................76

Note 11. Liabilities Not Covered by Budgetary Resources....................................................................80

Note 12. Accounts Payable .....................................................................................................................82

Note 13. Debt..........................................................................................................................................83

Note 14. Environmental and Disposal Liabilities...................................................................................84

Note 15. Other Liabilities .......................................................................................................................87

Note 16. Commitments and Contingencies.............................................................................................91

Note 17. Military Retirement and Other Federal Employment Benefits................................................92

Note 18. General Disclosures Related to the Statement of Net Cost.....................................................98

Note 19. Disclosures Related to the Statement of Changes in Net Position .......................................100

Note 20. Disclosures Related to the Statement of Budgetary Resources............................................102

Note Disclosures Not Pertaining to a Specific Statement

Note 21. Reconciliation of Net Cost of Operations to Budget..............................................................106

Note 22. Disclosures Related to Incidental Custodial Collections........................................................108

Note 23. Funds from Dedicated Collections.........................................................................................109

Note 24. Fiduciary Activities................................................................................................................113

Note 25. Other Disclosures...................................................................................................................114

Note 26. Disclosure Entities and Related Parties..................................................................................115

Required Supplementary Stewardship Information ...........................................................................116

Required Supplementary Information..................................................................................................119
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

49

Note 1. Significant Accounting Policies

A. Mission of the Reporting Entity

The Department was established by the National Security Act of 1947. The enduring mission of 

the Department is to provide the military forces needed to deter war and protect the security of our country. 

Since the creation of America’s first army in 1775, the Department and its predecessor organizations have 

evolved into a global presence with a worldwide infrastructure dedicated to defending the United States

(U.S.) by deterring and defeating aggression and coercion in critical regions. 

The Department includes the Office of the Secretary of Defense (OSD), Joint Chiefs of Staff (JCS), 

DoD Office of the Inspector General (DoD OIG), Military Departments, Defense Agencies, DoD Field 

Activities, and Combatant Commands, which are considered, and may be referred to as, DoD Components. 

The Military Departments consist of the Departments of the Army, the Navy (of which the Marine Corps is 

a component), and the Air Force.

B. Basis of Presentation

The financial statements have been prepared to report the financial position and results of DoD 

operations, as required by the Chief Financial Officers Act of 1990, as amended and expanded by the 

Government Management Reform Act of 1994 and other applicable legislation. The financial statements 

have been prepared from statements from the accounting records of the Department in accordance with the 

formats prescribed by OMB Circular No. A-136 and, to the extent possible, with U.S. Generally Accepted 

Accounting Principles (GAAP) for federal entities as prescribed by the Federal Accounting Standards 

Advisory Board (FASAB). The financial statements account for all resources for which the Department is 

responsible, unless otherwise noted. Accounting standards require all reporting entities to disclose that 

accounting standards allow certain presentations and disclosures to be modified, if needed to prevent the 

disclosure of classified information.

The Department is unable to fully comply with all elements of U.S. GAAP and OMB 

Circular No. A-136 due to the limitations of financial and non-financial processes and systems that support 

the financial statements. The Department derives reported values and information for major asset and 

liability categories largely from non-financial systems, such as inventory and logistics systems. These 

systems were designed to support reporting requirements for maintaining accountability over assets and 

reporting the status of federal appropriations rather than preparing financial statements in accordance with 

U.S. GAAP. The Department continues to implement process and system improvements addressing these 

limitations. 

In accordance with FASAB Statement of Federal Financial Accounting Standards (SFFAS) 47, the 

Department is disclosing its relationships with Department-sponsored Federally Funded Research and 

Development Centers and DoD Nonappropriated Fund Instrumentalities. This disclosure is available at 

Note 26, Disclosure Entities and Related Parties.

C. Use of Estimates

The Department’s management makes assumptions and reasonable estimates in the preparation of 

financial statements based on current conditions which may affect the reported amounts. Actual results 

could differ materially from the estimated amounts. Significant estimates include such items as 

environmental liabilities, year-end accruals of accounts payable, and actuarial liabilities related to workers’ 

compensation.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

50

D. Appropriations and Funds

Appropriated Fund Types

The Department receives appropriations and funds as general, working capital (revolving), trust, 

and special funds. The Department uses these appropriations and funds to execute its missions and 

subsequently report on resource usage.

General funds are used for financial transactions funded by congressional appropriations, including 

personnel, operations and maintenance, research and development, procurement, and military construction. 

Working capital funds (WCF) receive funding to establish an initial corpus through an 

appropriation or a transfer of resources from existing appropriations or funds. The corpus finances 

operations and transactions flowing through the fund. Each WCF obtains the goods and services sold to 

customers on a reimbursable basis and maintains the corpus. Reimbursable receipts fund future operations 

and generally are available in their entirety for use without further congressional action. At various times, 

Congress provides additional appropriations to supplement the WCF as an infusion of cash when revenues 

are inadequate to cover costs within the corpus.

Trust funds contain receipts and expenditures of funds held in trust by the government for use in 

carrying out specific purposes or programs in accordance with the terms of the donor, trust agreement, or 

statute. Special fund accounts are used to record government receipts reserved for a specific purpose. 

Certain trust and special funds may be designated Funds from Dedicated Collections. Funds from 

Dedicated Collections are financed by specifically identified revenues; are required by statute to be used 

for designated activities, benefits, or purposes; and remain available over time. In accordance with 

SFFAS 27, as amended by SFFAS 43, the Department separately accounts for and reports on the receipt, 

use, and retention of revenues and other financing sources for Funds from Dedicated Collections in Note 23, 

Funds from Dedicated Collections.

Deposit funds are used to record amounts held temporarily until paid to the appropriate government 

or public entity. They are not DoD funds and, as such, are not available for the Department’s operations. 

The Department is acting as an agent or custodian for funds awaiting distribution.

Nonappropiated Funds

The Department's nonappropriated fund instrumentalities (NAFIs) are fiscal entities supported in 

whole or in part by nonappropriated funds (NAFs). Generally, NAFs are generated from sales and user 

fees. The Department's NAFIs are established by DoD policy, controlled by the Department, and governed 

by sections of title 10, U.S.C.. NAFIs, primarily consisting of the Military Services’ exchanges and morale, 

welfare, and recreation (MWR) entities, are intended to enhance the quality of life for members of the 

Uniformed Services, retired members, and dependents of such members, and to support military readiness,

recruitment, and retention.

The Under Secretary of Defense for Personnel and Readiness (USD(P&R)) exercises overall policy 

direction for and oversight of DoD NAF activities. The Under Secretary of Defense (Comptroller)/Chief 

Financial Officer (USD(C)/CFO) and the Defense Finance and Accounting Service (DFAS), in coordination 

with the USD(P&R), are responsible for NAF accounting policy. DoD policy requires the DoD 

Components to appoint advisory groups for NAFIs. The advisory groups ensure the NAFIs are responsive 

to authorized patrons and to the purposes for which the NAFIs were created. Additionally, the NAFIs are 

subject to DoD policy requirements for financial reporting to USD(P&R) and financial audits conducted 
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by independent public accounting firms. However, NAFI financial activity is not included in the DoD 

consolidated financial statements.

Allocation Transfers

The Department is a party to allocation transfers with other federal agencies as a transferring 

(parent) entity or receiving (child) entity. An allocation transfer is an entity’s legal delegation of authority 

to obligate budget authority and outlay funds on its behalf. Generally, all financial activity related to 

allocation transfers (e.g., budget authority, obligations, outlays) is reported in the financial statements of 

the parent entity. Exceptions to this general rule apply to specific funds for which OMB has directed that 

all activity be reported in the financial statements of the child entity. 

The Department receives allocation transfers from the following agencies: Departments of 

Agriculture, Interior, Energy, and Transportation; the Appalachian Regional Commission; and the Federal 

Highway Administration.

Additionally, the Department also receives allocation transfers from certain funds meeting the 

OMB exception and all related activity is included in the Department’s financial statements. These funds 

include South Dakota Terrestrial Wildlife Habitat Restoration, Inland Waterways, and Harbor Maintenance. 

As a parent, the Department reports in these financial statements funds allocated to the Departments 

of Transportation and Agriculture.

E. Basis of Accounting

The Department’s financial statements and supporting trial balances are compiled from the 

underlying financial data and trial balances of the DoD Components and their sub-entities. The underlying 

data is largely derived from budgetary transactions (e.g., obligations, disbursements, and collections), from 

non-financial feeder systems, and accruals made for major items such as payroll expenses, accounts 

payable, and environmental liabilities.

The Department presents the Balance Sheet, Statement of Net Cost, and Statement of Changes in 

Net Position on a consolidated basis, which is the summation of the DoD Components less the eliminations

of intradepartmental activity. The Statement of Budgetary Resources is presented on a combined basis,

which is the summation of the DoD Components. The financial transactions are recorded on a proprietary 

accrual and a budgetary basis of accounting. Under the accrual basis, revenues are recognized when earned 

and expenses are recognized when incurred, without regard to the timing of receipt or payment of cash. 

Under the budgetary basis, the legal commitment or obligation of funds is recognized in advance of the 

proprietary accruals and in compliance with legal requirements and controls over the use of federal funds.

The Department’s continued effort towards full compliance with U.S. GAAP for the accrual 

method of accounting is encumbered by various systems limitations and the sensitive nature of 

Departmental activities.

F. Revenues and Other Financing Sources

The Department receives congressional appropriations as financing sources for general funds, and 

on occasion, will also receive congressional appropriations for WCFs. These funds either expire annually, 

on a multi-year basis, or do not expire. When authorized by legislation, these appropriations are 

supplemented by revenues generated by sales of goods or services. The Department recognizes revenue as 

a result of costs incurred for goods and services provided to other federal agencies and the public. Full-
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cost pricing is the Department’s standard policy for services provided as required by OMB

Circular No. A-25. In some instances, revenue is recognized when invoices are issued. 

Depot Maintenance and Ordnance WCF activities recognize revenue according to the percentage 

of completion method. Supply Management WCF activities recognize revenue from the sale of inventory 

items.

The Department does not include non-monetary support provided by U.S. allies for common 

defense and mutual security in amounts reported in the Statement of Net Cost. The U.S. has cost sharing 

agreements with countries, through mutual or reciprocal defense agreements, where U.S. troops are 

stationed or where the U.S. Fleet is in a port.

In accordance with SFFAS 7, the Department recognizes nonexchange revenue when there is a 

specifically identifiable, legally enforceable claim to the cash or other assets of another party that will not 

directly receive value in return.

G. Recognition of Expenses

For financial reporting purposes, the Department’s policy requires the recognition of operating 

expenses in the period incurred. Estimates are made for major items such as payroll expenses, accounts 

payable, environmental liabilities, and unbilled revenue. 

In the case of Operating Materials and Supplies (OM&S), operating expenses are generally 

recognized when the items are purchased. The Department has issued guidance under which DoD 

Components may expense OM&S using the purchase method of accounting rather than the consumption 

method if certain operational and other criteria, as applicable, are met, as set forth under U.S. GAAP. Under 

the consumption method, OM&S would be expensed when consumed. 

H. Accounting for Intragovernmental and Intergovernmental Activities

Treasury Financial Manual, Volume I, Part 2, Chapter 4700, provides guidance for reporting and 

reconciling intragovernmental balances. Accounting standards require an entity to eliminate intra-entity 

activity and balances from consolidated financial statements to prevent overstatement caused by the 

inclusion of business activity between entity components. Generally, seller entities within the Department 

provide summary seller-side balances for revenue, accounts receivable, and unearned revenue to the buyerside internal accounting offices. The Department is implementing replacement systems and a standard 

financial information structure incorporating the necessary elements to enable the Department to correctly 

report, reconcile, and eliminate intragovernmental balances. 

Imputed financing represents the cost paid on behalf of the Department by another federal entity. 

In accordance with SFFAS 55 (which rescinded SFFAS 4, SFFAS 30, and Interpretation of Federal 

Financial Accounting Standards (Interpretation) 6), the Department recognizes imputed costs only for

business-type activities and other costs specifically required by OMB, including (1) employee pension, 

post-retirement health, and life insurance benefits; (2) post-employment benefits for terminated and 

inactive employees, to include unemployment and workers compensation under the Federal Employees’ 

Compensation Act (FECA); and (3) losses in litigation proceedings.

The Department’s proportionate share of public debt and related expenses of the Federal 

Government is not included. The Federal Government does not apportion debt and related costs to federal 

agencies. The Department’s financial statements do not report public debt, interest, or sources of public 

financing, whether from issuance of debt or tax revenues. 
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Generally, financing for the construction of the Department facilities is obtained through 

appropriations. To the extent this financing ultimately may have been obtained through the issuance of 

public debt, interest costs have not been capitalized since the Department of the Treasury (Treasury) does 

not allocate such costs to the Department.

I. Transactions with Foreign Governments and International Organizations

The Department is implementing the administration’s foreign policy objectives under the 

provisions of the Arms Export Control Act of 1976 by selling U.S. Government-approved defense articles 

and services to foreign partners and international organizations. The cost of administering these sales must 

occur at no cost to the Federal Government. Payment in U.S. dollars is required in advance for each sale.

J. Funds with the Department of the Treasury

The Department’s monetary resources of collections and disbursements are maintained in Treasury 

accounts. The disbursing offices of DFAS, the Military Departments, the U.S. Army Corps of Engineers 

(USACE), and the Department of State’s financial service centers process the majority of the Department’s 

cash collections, disbursements, and adjustments worldwide. Each disbursing station reports to the 

Treasury on checks issued, electronic fund transfers, interagency transfers, and deposits.

In addition, DFAS and the USACE Finance Center report to the Treasury by appropriation on 

interagency transfers, collections received, and disbursements issued. The Treasury records these 

transactions to the applicable Fund Balance with Treasury account. 

K. Cash and Other Monetary Assets

Cash is the total of cash resources under the control of the Department, including coins, paper 

currency, negotiable instruments, and amounts held for deposit in banks and other financial institutions. 

Foreign currency consists of the total U.S. dollar equivalent of both foreign currency exchanged for U.S. 

dollars and foreign currency received as payment for goods or services. Foreign currency is valued using 

the Treasury prevailing rate of exchange.

The majority of cash and all foreign currency is classified as “non-entity” and is restricted. 

Amounts reported consist primarily of cash and foreign currency held by disbursing officers to carry out 

their paying, collecting, and foreign currency accommodation exchange missions.

The Department conducts a significant portion of its operations overseas. Congress established a 

special account to handle the gains and losses from foreign currency transactions for five general fund 

appropriations: (1) operations and maintenance, (2) military personnel, (3) military construction, (4) family 

housing operations and maintenance, and (5) family housing construction. The gains and losses are 

calculated as the difference between the exchange rate current at the date of payment and a budget rate 

established at the beginning of each fiscal year. Foreign currency fluctuations related to other 

appropriations require adjustments to the original obligation amount at the time of payment. The 

Department does not separately identify foreign currency fluctuation transactions.

L. Accounts Receivable

Accounts receivable from other federal entities or the public include accounts receivable, claims 

receivable, and refunds receivable. Allowances for uncollectible accounts due from the public are based 

upon factors such as aging of accounts receivable, debtor’s ability to pay, and payment history. The 

Department does not recognize an allowance for estimated uncollectible amounts from other federal 

agencies, as receivables from other federal agencies are considered to be inherently collectible. Claims for 
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accounts receivable from other federal agencies are to be resolved between the agencies in accordance with 

the business rules published in Appendix 10 of Treasury Financial Manual, Volume I, Part 2, Chapter 4700.

The Department has fuel exchange agreements with foreign countries. These agreements allow the 

Department to periodically offset the accounts receivable by the amount the Department owes to the same 

foreign country. 

M. Direct Loans and Loan Guarantees

The Department operates a direct loan and loan guarantee program authorized by the National 

Defense Authorization Act (NDAA) for FY 1996, which includes a series of authorities allowing the 

Department to work with the private sector to renovate military housing. The Department’s goals are to 

obtain private capital to leverage government dollars, make efficient use of limited resources, and use a 

variety of private sector approaches to build and renovate military housing faster and at a lower cost to

taxpayers.

The NDAA for FY 1996 also provides the Department with a variety of authorities to obtain private 

sector financing and expertise to improve military housing. The Department uses these authorities 

individually or in combination. They include guarantees (both loan and rental), conveyance/leasing of 

existing property and facilities, differential lease payments, investments (both limited partnerships and 

stock/bond ownership), and direct loans. 

The NDAA for FY 2005 provided permanent authorities to the Military Housing Privatization 

Initiative (MHPI).

N. Inventories and Related Property

The Department values approximately 99 percent of resale inventory using the moving average 

cost method. Additionally, the Department reports the remaining one percent of resale inventories at an 

approximation of historical cost using latest acquisition cost adjusted for holding gains and losses. The 

Department, when applicable, will continue to adopt SFFAS 48, which permits alternative methods in 

establishing opening balances. 

The Department manages only military or government-specific materiel under normal conditions. 

Materiel is a unique term that relates to military force management, and includes items such as ships; tanks;

self-propelled weapons; aircraft; and related spares, repair parts, and support equipment. Items commonly 

used in and available from the commercial sector are not managed in the Department’s materiel 

management activities. Operational cycles are irregular and the military risks associated with stock-out 

positions have no commercial parallel. The Department holds materiel based on military need and support 

for contingencies. 

Related property includes OM&S and stockpile materiel. OM&S, including munitions not held for 

sale, are valued using various methods including moving average cost, standard price, historical cost, 

replacement price, and direct method. The Department uses both the consumption method and the purchase 

method of accounting for OM&S. Centrally managed and stored items, such as ammunition and engines, 

are generally recorded using the consumption method and are reported on the Balance Sheet as OM&S. 

Under this method, materiel and supplies are expensed when consumed. Many high-dollar items, such as 

aircraft engines, are categorized as OM&S rather than General Equipment. The Department determined 

the recurring high dollar-value of OM&S in need of repair is material to the financial statements and 

requires a separate reporting category, see Note 9, Inventory and Related Property. 
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Excess, obsolete, and unserviceable (EOU) inventory and OM&S is recognized at net realizable 

value through the use of an allowance account. For EOU transferred to the Defense Logistics Agency 

(DLA) Disposition Services, the net realizable value will generally be zero. The net realizable value of 

EOU disposed of through a Qualified Recycling Program or by other means other than a transfer to DLA 

is estimated based on prior disposal proceeds for comparable EOU, buyer quotes, or other reasonable 

means.

Inventory available and purchased for resale includes consumable spare and repair parts, and 

repairable items owned and managed by the Department. This inventory is retained to support military or 

national contingencies. Inventory held for repair is damaged inventory requiring repair to make it suitable 

for sale. Often, it is more economical to repair these items rather than to procure them. The Department 

often relies on weapon systems and machinery no longer in production. As a result, the Department 

supports a process encouraging the repair and rebuilding of certain items. This repair cycle is essential to 

maintaining readiness for a lethal joint force. 

Inventory Work-in-Process balances include (1) costs related to the production or servicing of 

items, including direct material, labor, and applied overhead; (2) the value of finished products or 

completed services yet to be placed in service; and (3) munitions in production and depot maintenance work 

with associated costs incurred in the delivery of maintenance services.

O. Investments in Treasury Securities

The Department reports investments in Treasury securities at cost, net of amortized premiums or 

discounts. Premiums or discounts are amortized over the term of the investments using the effective interest 

rate method or another method yielding similar results. The Department’s intent is to hold investments to 

maturity unless they are needed to finance claims or otherwise sustain operations. Consequently, a 

provision is not made for unrealized gains or losses on these securities.

The Department invests in non-marketable, market-based Treasury securities issued to federal 

agencies by Treasury’s Bureau of the Fiscal Service. These securities are not traded on any financial 

exchange but are priced consistently with publicly traded Treasury securities.

The Department’s net investments are held by various trust and special funds. These funds include 

the Military Retirement Fund; Medicare-Eligible Retiree Health Care Fund; Support for U.S. Relocation to 

Guam Activities; donations (gift funds); and Treasury managed trust funds reported by USACE including 

the South Dakota Terrestrial Habitat Restoration, Inland Waterways, and Harbor Maintenance Trust Fund 

accounts.

Other investments represent joint ventures with private developers constructing or improving 

military housing on behalf of the Department under the authority of MHPI, authorized by the

NDAA for FY 2005.

P. General Property, Plant and Equipment

The Department generally records General Property, Plant and Equipment (PP&E) at the estimated 

historical cost. However, when applicable, the Department will continue to adopt SFFAS 50, which permits

alternative methods in establishing opening balances. The opening balance asset valuations were 

established using expenditure, acquisition, and disposal information. Land and land rights recognized in 

the prior year for certain DoD Components are excluded from General PP&E opening balances in FY 2018.
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General PP&E assets are capitalized when an asset has a useful life of two or more years and when 

the acquisition costs equal or exceed the relevant capitalization threshold. The costs of 

modifications/improvements to existing General PP&E assets are capitalized if they (1) extend the asset’s 

useful life or increase the asset’s size or capacity and (2) equal or exceed the relevant capitalization 

threshold. The capitalization threshold for General PP&E assets is $250 thousand for real property and 

General Equipment, with the following exceptions: 

 The capitalization threshold for Department of the Navy General Fund and Department of the Air 

Force General Fund general equipment assets is $1 million;

 The capitalization threshold for USACE Civil Works General PP&E assets, other than buildings 

and structures related to hydropower projects, is $25 thousand; and

 USACE Civil Works buildings and structures related to hydropower projects are capitalized 

regardless of cost.

Except for those related to USACE Civil Works, these capitalization thresholds apply to General 

PP&E asset acquisitions and modifications/improvements placed into service after September 30, 2013;

General PP&E assets acquired prior to October 1, 2013 were capitalized at prior thresholds ($100 thousand 

for general equipment and $20 thousand for real property). The Department depreciates all General PP&E

assets, other than land, on a straight-line basis.

The Department provides government property to contractors to complete contract work, for which 

the contractors assume the responsibility for asset control and accountability. The Department either owns 

or leases such property, or it is purchased directly by the contractor for the government based on contract 

terms. When the value of contractor-procured General PP&E assets meet or exceed the relevant

capitalization threshold, federal accounting standards require it to be reported on the Department’s Balance 

Sheet.

Q. Advances and Prepayments

Payments made in advance of the receipt of goods and services are reported as an asset on the 

Balance Sheet. The Department expenses and properly classifies assets when the related goods and services 

are received. 

R. Leases

Lease payments for the rental of equipment and operating facilities are classified as either capital 

or operating leases. When a lease substantially transfers all the benefits and risks of ownership to the 

Department (a capital lease) and the value equals or exceeds the relevant capitalization threshold, the 

Department records the applicable asset as though purchased, with an offsetting liability, and records 

depreciation on the asset. The Department records the asset and liability at the lesser of the present value 

of the rental and other minimum lease payments during the lease term (excluding portions representing 

executory costs paid to the lessor) or the asset’s fair market value. The discount rate for the present value 

calculation is either the lessor’s implicit interest rate or the government’s incremental borrowing rate at the 

inception of the lease. The Department, as the lessee, receives the use and possession of leased property 

(e.g., real estate or equipment) from a lessor in exchange for payments of funds. 

An operating lease does not substantially transfer all the benefits and risks of ownership to the 

Department. Payments for operating leases are expensed over the lease term. Office space leases entered 

into by the Department are the largest component of operating leases.
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S. Other Assets

Other assets include those assets, such as military and civil service employee pay advances, travel 

advances, and certain contract financing payments not reported elsewhere on the Department’s Balance 

Sheet.

The Department conducts business with commercial contractors under two primary types of 

contracts – fixed price and cost reimbursable. The Department may provide financing payments to 

contractors to alleviate the potential financial burden from long-term contracts. Contract financing 

payments are defined in the Federal Acquisition Regulation (FAR), Part 32, as authorized disbursements 

to a contractor prior to acceptance of supplies or services by the Government. Contract financing payment 

clauses are incorporated in the contract terms and conditions and may include advance payments, 

performance-based payments, commercial advances and interim payments, progress payments based on 

cost, and interim payments under certain cost-reimbursement contracts. 

The Defense Federal Acquisition Regulation Supplement (DFARS) authorizes progress payments 

based on a percentage or stage of completion only for construction of real property, shipbuilding and ship 

conversion, alteration, or repair. Progress payments based on percentage or stage of completion are 

reported as Construction in Progress. Contract financing payments do not include invoice payments, 

payments for partial deliveries, lease and rental payments, or progress payments based on a percentage or 

stage of completion. 

T. Contingencies and Other Liabilities

The Department recognizes contingent liabilities when past events or exchange transactions occur, 

a future loss is probable, and the loss amount can be reasonably estimated.

When conditions for liability recognition on the financial statements are not met, there may still be 

a requirement for disclosure in the notes to the financial statements if there is at least a reasonable possibility 

of incurring a loss or additional losses. The Department’s risk of loss and resultant contingent liabilities 

arise from pending or threatened litigation or claims and assessments due to events such as aircraft, ship,

and vehicle accidents; medical malpractice; property or environmental damages; and contract disputes.

The Department is evaluating treaties and other international agreements that may give rise to 

contingent liabilities and that should be recognized and disclosed in accordance with SFFAS 5 as amended 

by SFFAS 12. 

Other liabilities also arise as a result of anticipated disposal costs for the Department’s assets. 

Consistent with SFFAS 6, recognition of an anticipated environmental disposal liability begins when the 

asset is placed into service. Based on the Department’s policy, and in accordance with SFFAS 5, nonenvironmental disposal liabilities are recognized when management decides to dispose of an asset. In 

addition, the Department recognizes non-environmental disposal liabilities for nuclear-powered military 

equipment when placed into service. These amounts are not easily distinguishable and are developed in 

conjunction with environmental disposal costs.

U. Accrued Leave

The Department reports liabilities for military leave and accrued compensatory and annual leave 

for civilians. Sick leave for civilians is expensed when taken. The liabilities are based on current pay rates. 

Under general funds, military leave and civilian annual leave liabilities are typically recorded as unfunded 
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until the leave is taken or otherwise becomes due and payable; under working capital funds, leave is funded 

as earned.

V. Treaties for Use of Foreign Bases

The Department has the use of land, buildings, and other overseas facilities obtained through 

various international treaties and agreements negotiated by the Department of State. The Department 

purchases capital assets overseas with appropriated funds; however, the host country retains title to the land 

and capital improvements. Treaty terms generally allow the Department continued use of these properties 

until the treaties expire. In the event treaties or other agreements are terminated, use of the foreign bases is 

prohibited and losses are recorded for the value of any irretrievable capital assets. The settlement due to 

the United States or host nation is negotiated and takes into account the value of capital investments and 

may be offset by environmental cleanup costs, if applicable.

W. Fiduciary Activities

Fiduciary activities are the collection or receipt, and the management, protection, accounting, 

investment, and disposition by the Department of cash and other assets in which non-federal individuals or 

entities have an ownership interest that the Department must uphold. Fiduciary cash and other assets are 

not assets of the Department and are not recognized on the Balance Sheet. Fiduciary activities are reported 

in Note 24, Fiduciary Activities.

X. Military Retirement and Other Federal Employment Benefits

The Department applies SFFAS 33 in selecting the discount rate and valuation date used in 

estimating actuarial liabilities. In addition, gains and losses from changes in long-term assumptions used 

to estimate the actuarial liability are presented separately on the Statement of Net Cost. Refer to Note 17, 

Military Retirement and Other Federal Employment Benefits and Note 18, General Disclosures Related to 

the Statement of Net Cost, for additional information.

Y. Subsequent Events

Subsequent events have been evaluated from the balance sheet date through November 15, 2018,

which is the date the financial statements were available to be issued. Management is in the process of 

assessing the financial impact of Hurricane Michael, which occurred during the month of October 2018.
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Note 2. Non-Entity Assets

Non-entity assets are not available for use in the Department’s normal operations. The Department 

has stewardship accountability and reporting responsibility for non-entity assets.

Table 2. Non-Entity Assets

As of September 30

($ in millions)

Intragovernmental Assets

Fund Balance with Treasury

Accounts Receivable

Total Intragovernmental Assets

Non-Federal Assets

Cash and Other Monetary Assets

Accounts Receivable

Total Non-Federal Assets

Total Non-Entity Assets

Total Entity Assets

Total Assets

 856.3

2018 2017

$ 2,849.2

 0.5

 2,849.7

$ 2,749,644.3

$ 2,895.1

 55.8

 2,950.9

 2,205.7

 3,062.0

 5,911.7

 2,743,732.6 2,559,478.4

$ 2,565,714.4

 946.2

 2,338.9

 3,285.1

 6,236.0

Intragovernmental Assets

Fund Balance with Treasury (FBWT) consists primarily of deposit funds and receipt accounts. 

Deposit funds represent amounts held temporarily until paid to the appropriate party. Receipt accounts 

represent amounts collected on behalf of the Treasury General Fund.

Accounts Receivable are primarily amounts necessary to cover surcharge liabilities to be collected 

on behalf of others. In FY 2018, the Department improved its business practices for capturing Military 

Housing Privatization Initiative-related intragovernmental activity between business units. This 

improvement resulted in more accurate reporting of Intragovernmental Accounts Receivable for FY 2018;

the Intragovernmental Accounts Receivable amount for FY 2017 is overstated. 

Non-Federal Assets

Cash and Other Monetary Assets consist primarily of cash held by disbursing officers to carry out 

payment, collection, and foreign currency exchanges. 

Accounts Receivable consists of amounts associated with canceled year appropriations, and 

interest, fines, and penalties due on debt. Generally, the Department cannot use the proceeds and must 

remit them to the Treasury unless permitted by law.
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Note 3. Fund Balance with Treasury

The Treasury records cash receipts and disbursements on the Department’s behalf; funds are 

available only for the purposes for which they were appropriated. The Department’s Fund Balances with 

Treasury consist of appropriation accounts, revolving funds, trust accounts, special funds and other fund 

types. 

Table 3. Status of Fund Balance with Treasury

As of September 30

($ in millions)

Unobligated Balance

Available

Unavailable

Obligated Balance Not Yet Disbursed

Non-Budgetary FBWT

Non-FBWT Budgetary Accounts

Total FBWT

2018 2017

$ 501,620.4

 (987,703.5)

$ 580,213.8

$ 123,203.5

 924,233.1

 438,931.2

 (1,101,346.8)

$ 168,578.4

 1,009,258.6

 500,397.7

 3,325.9 2,956.1

The Status of FBWT, as presented in Table 3, reflects the reconciliation between the budgetary 

resources supporting FBWT (largely consisting of Unobligated Balance and Obligated Balance Not Yet 

Disbursed) and those resources provided by other means. The Total FBWT reported on the Balance Sheet

reflects the budgetary authority remaining for disbursements against current or future obligations.

Unobligated Balance is classified as available or unavailable and represents the cumulative amount 

of budgetary authority set aside to cover future obligations. The available balance consists primarily of the 

unexpired, unobligated balance that has been apportioned and available for new obligations. The 

unavailable balance consists primarily of funds invested in Treasury securities and are temporarily 

precluded from obligation by law. Certain unobligated balances are restricted for future use and are not 

apportioned for current use. Unobligated balances for trust fund accounts are restricted for use by public 

laws establishing the funds.

Obligated Balance Not Yet Disbursed represents funds obligated for goods and services but not 

paid.

Non-Budgetary FBWT includes accounts without budgetary authority, such as deposit funds, 

unavailable receipt accounts, clearing accounts, and Non-Entity FBWT.

Non-FBWT Budgetary Accounts reduce the Status of FBWT and consist of investments in

Treasury securities, unfilled customer orders without advance, contract and borrowing authority, and 

receivables.

Total FBWT does not include funds held as a result of allocation transfers received from other 

federal agencies and fiduciary activities. The Department received allocation transfers from other federal 

agencies for execution on their behalf in the amount of $399.2 million in FY 2018 and $288.8 million in 

FY 2017. In addition, the Department held cash and cash equivalents for fiduciary activities in the amount 

of $77.9 million in FY 2018 and $77.8 million in FY 2017; these amounts are not reported in FBWT in 

accordance with SFFAS 31.
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The FBWT reported in the financial statements has been adjusted to reflect the Department’s 

balance as reported by Treasury. The difference between FBWT in the Department’s general ledgers and 

FBWT reflected in the Treasury accounts is attributable to transactions that have not been posted to the

individual detailed accounts in the DoD Components’ general ledgers as a result of timing differences or 

the inability to obtain valid accounting information prior to the issuance of the financial statements. When 

research is completed, these transactions will be recorded in the appropriate individual detailed accounts in 

the DoD Components’ general ledger accounts.
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Note 4. Investments and Related Interest

Table 4. Investments and Related Interest

As of September 30

($ in millions)

Intragovernmental Securities

Non-Marketable, Market-Based

Military Retirement Fund

Medicare Eligible Retiree

 Health Care Fund

U.S. Army Corps of Engineers

Other Funds

Total Non-Marketable, Market-Based

Accrued Interest

Total Intragovernmental Securities

Other Investments

Legend for Amortization Methods: Eff. Int. = Effective Interest Method

 7,877.2 Eff. Int. N/A 7,877.2 7,877.2

1,133,592.9 (49,705.7) 1,083,887.2 1,127,385.8

$ 3,511.6 $ - $ 3,511.6 N/A

1,141,470.1 (49,705.7) 1,091,764.4 1,135,263.0

$ 842,584.2 Eff. Int. $ (34,499.7) $ 808,084.5 $ 831,172.6

 278,981.1 Eff. Int. (15,090.3) 263,890.8 284,354.3

 2,663.4 Eff. Int. (78.2) 2,585.2 2,564.7

 9,364.2 Eff. Int. (37.5) 9,326.7 9,294.2

Amortized

(Premium) /

Discount

Investments,

Net

Market Value

Disclosure

2018

Cost Amortization

Method

As of September 30

($ in millions)

Intragovernmental Securities

Non-Marketable, Market-Based

Military Retirement Fund

Medicare Eligible Retiree

 Health Care Fund

U.S. Army Corps of Engineers

Other Funds

Total Non-Marketable, Market-Based

Accrued Interest

Total Intragovernmental Securities

Other Investments

Legend for Amortization Methods: Eff. Int. = Effective Interest Method

 7,370.2 Eff. Int. N/A 7,370.2 7,370.3

1,029,243.1 (44,879.4) 984,363.7 1,072,479.5

$ 3,511.6 $ - $ 3,511.6 N/A

1,036,613.3 (44,879.4) 991,733.9 1,079,849.8

$ 755,224.4 Eff. Int. $ (31,092.9) $ 724,131.5 $ 779,882.2

 262,142.0 Eff. Int. (13,604.4) 248,537.6 280,882.8

 2,619.5 Eff. Int. (114.8) 2,504.7 2,530.4

 9,257.2 Eff. Int. (67.3) 9,189.9 9,184.1

Amortized

(Premium) /

Discount

Investments,

Net

Market Value

Disclosure

2017

Cost Amortization

Method

The Department invests primarily in non-marketable, market-based Treasury securities. The value 

of these securities fluctuates in tandem with the selling price of the equivalent marketable security.

Securities are purchased with the intent to hold until maturity; thus, balances are not adjusted to market 

value. 

The Treasury securities are issued to authorized funds and are an asset to the Department and a 

liability to the Treasury. The Federal Government does not set aside assets to pay future benefits or other 

expenditures associated with these funds. Cash generated (e.g., from bond dividends, proceeds from bond 

sales, and proceeds from sureties reaching maturity) is deposited in the Treasury and used for general 

Government purposes. Since the Department and the Treasury are both part of the Federal Government, 

these assets and liabilities offset each other from the standpoint of the Federal Government as a whole. For 

this reason, they do not represent an asset or a liability in the U.S. Government-wide financial statements. 
U.S. Department of Defense Agency Financial Report for FY 2018

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63

The Treasury securities provide the Department with authority to access funds to make future 

benefit payments or other expenditures. When the Department requires redemption of securities to make 

expenditures, the Federal Government will meet the requirement by using accumulated cash balances, 

raising taxes or other receipts, borrowing from the public or repaying less debt, or curtailing other 

expenditures. The Federal Government uses the same method to finance all of its other expenditures. 

The U.S. Army Corps of Engineers balance in Intragovernmental Securities consists primarily of 

$9.1 billion and $9.0 billion in Harbor Maintenance and Related Funds for FY 2018 and FY 2017, 

respectively.

In FY 2018, Other Funds consists primarily of $1.3 billion in investments of the Support for U.S. 

Relocation to Guam Activities Trust Fund and $1.1 billion in investments of the DoD Education Benefits 

Trust Fund. In FY 2017, Other Funds consists primarily of $1.2 billion in investments of the Support for 

U.S. Relocation to Guam Activities Trust Fund and $1.1 billion in investments of the DoD Education 

Benefits Trust Fund.

Other Investments consists of Military Housing Privatization Initiative limited partnerships. The 

Department invests in non-governmental entities involved in the acquisition or construction of family 

housing and supporting facilities at Army, Air Force, Navy, and Marine Corps installations. The 

Department provides cash, land, or facilities as equity, but has no management role. A limited partnership 

arrangement operates purely as a private business and does not require Market Value Disclosure.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

64

Note 5. Accounts Receivable, Net

Table 5. Accounts Receivable

As of September 30

($ in millions)

Intragovernmental 

 Receivables

Non-Federal Receivables

 (From the Public)

Total Accounts Receivable

 5,694.1

$ 7,645.7

2018

 6,474.0

$ 8,425.6

N/A

 (779.9)

$ (779.9)

Gross Amount

Due

Allowance for 

Estimated 

Uncollectibles

Accounts 

Receivable, Net

$ 1,951.6 $ 1,951.6

As of September 30

($ in millions)

Intragovernmental 

 Receivables

Non-Federal Receivables

 (From the Public)

Total Accounts Receivable

 5,244.1

$ 7,299.1

2017

 6,061.9

$ 8,116.9

N/A

 (817.8)

$ (817.8)

Gross Amount

Due

Allowance for 

Estimated 

Uncollectibles

Accounts 

Receivable, Net

$ 2,055.0 $ 2,055.0

Accounts receivable represent the Department’s claim for payment from other entities. Claims 

with other federal agencies are resolved in accordance with the business rules published in Appendix 10 of 

Treasury Financial Manual, Volume I, Part 2, Chapter 4700. The Department only recognizes an 

allowance for uncollectible amounts from the public. Allowances for uncollectible accounts are based on 

an estimation methodology using three years of historical collection data and is calculated on consolidated 

receivable balances.

The gross amount due for Non-Federal Receivables (From the Public) for FY 2018 includes 

criminal restitution orders of $1.1 billion. Restitution receivables and associated payments are pursued by 

the courts handling those cases. The Department establishes the receivables based on the court documents 

received and posts payments received through the courts. Since the allowance for estimated uncollectible

amounts is calculated for non-federal receivables at a summary level, the exact amount of allowance related 

to the criminal restitution orders cannot be determined. At two years delinquent, criminal restitution 

receivables are considered 100 percent uncollectible; however, the Department is only authorized to write 

off or close accounts with approval from the Department of Justice. 
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

65

Note 6. Other Assets

Table 6. Other Assets

As of September 30

($ in millions)

Intragovernmental Other Assets

Advances and Prepayments

Other Assets

Total Intragovernmental Other Assets

Non-Federal Other Assets

Outstanding Contract Financing Payments

Advances and Prepayments

Other Assets (With the Public)

Total Non-Federal Other Assets

Total Other Assets $ 30,317.2

 29,390.0

$ 29,335.9

$ 798.6

 128.6

 927.2

 28,374.4

$ 838.1

 123.4

 961.5

 41.5 12.7

2018 2017

 2,316.3 3,980.0

 26,016.6 25,397.3

Intragovernmental Other Assets

Advances and Prepayments are amounts advanced or prepaid to other federal agencies.

Other Assets are largely related to the Department’s right to approximately 6.4 million barrels of 

crude oil (net book value of $123.3 million in FY 2018 and FY 2017), held by the Department of Energy. 

In accordance with the Department of Defense Appropriations Act of 1993, these assets are maintained as 

a Strategic Petroleum Reserve for national defense purposes.

Non-Federal Other Assets

In FY 2018, Outstanding Contract Financing Payments includes $21.7 billion in contract financing 

payments and an additional $4.3 billion in payments of estimated future amounts due to contractors upon 

delivery and government acceptance. In comparison, FY 2017 Outstanding Contract Financing Payments 

included $20.0 billion in contract financing payments and an additional $5.4 billion in payments of 

estimated future amounts due to contractors upon delivery and government acceptance. The Contract 

Financing Payment asset is related to the Contingent Liabilities reported in Note 15, Other Liabilities.

Advances and Prepayments are contract financing payments related to contract terms and 

conditions that convey rights to the Department, protecting the contract work from state or local taxation;

liens or attachment by contractors’ creditors; transfer of property; or disposition in bankruptcy. These rights 

do not transfer ownership of contractors’ work to the Department. The Department does not have the right 

to take the work, except as provided for in contract clauses related to termination or acceptance. The 

Department is not obligated to make payment to contractors until delivery and acceptance.

In FY 2018, Other Assets (With the Public) consisted primarily of General PP&E permanently 

removed but awaiting disposal. In FY 2017, Other Assets (With the Public) consisted of General PP&E 

permanently awaiting disposal; liquidated damages used to compensate the Department for untimely 

delivery or for nonperformance of contracts; and asset donations received through voluntary non-reciprocal 

transfer, such as gifts of capital assets.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

66

Note 7. Cash and Other Monetary Assets

Table 7. Cash and Other Monetary Assets

As of September 30

($ in millions)

Cash

Foreign Currency

Total Cash and Other Monetary Assets

2018 2017

$ 968.0 $ 1,119.7

 523.8 657.0

$ 444.2 $ 462.7

The majority of Cash and Foreign Currency represent non-entity assets and are restricted and 

unavailable to fund the Department's mission. In FY 2018 and FY 2017, cash includes unrestricted entity 

assets of $108.9 million and $172.3 million, respectively, comprised of undeposited collections and other 

cash.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

67

Note 8. Direct Loans and Loan Guarantees

Military Housing Privatization Initiative

The Department operates loan guarantee programs for MHPI. The MHPI includes both direct loan 

and loan guarantee programs. The programs are authorized by the NDAA for FY 2005, which includes a 

series of authorities allowing the Department to work with the private sector to renovate and build military 

family housing. The MHPI accelerates the construction of new housing built to market standards and 

obtains private sector capital to leverage government funds. The Department provides protection to private 

sector partners against specific risks, such as base closure or member deployment.

The Federal Credit Reform Act of 1990 governs all new and amended direct loan obligations and 

loan guarantee commitments made after FY 1991. 

Loans Receivable

Direct loans are reported at the net present value (NPV) of the following projected cash flows:

 Loan disbursements;

 Repayments of principal; and 

 Payments of interest and other payments over the life of the loan after adjusting for estimated 

defaults, prepayments, fees, penalties, and other recoveries.

Table 8A. Direct Loans Obligated After FY 1991

As of September 30

($ in millions)

Military Housing Privatization Initiative

Loans Receivable Gross

Allowance for Subsidy Cost (Present Value)

Value of Assets Related to Direct Loans, Net

Total Loans Receivable $ 1,697.4 $ 1,644.2

$ 1,759.6 $ 1,704.6

$ 1,697.4 $ 1,644.2

2018 2017

 (62.2) (60.4)

Total Loans Receivable does not represent proceeds the Department would expect to receive from 

selling the loans. Interest is calculated using the interest earned method.

Table 8B. Total Amount of Direct Loans Disbursed

As of September 30

($ in millions)

Military Housing Privatization Initiative

2018 2017

$ 75.8 $ 56.3
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

68

Table 8C. Subsidy Expense for New Direct Loans Disbursed

As of September 30

($ in millions)

Military Housing Privatization Initiative

Fees and 

Other 

Collections

Other Total

2018

Interest

Differential Defaults

$ 8.8 $ 9.0 $ - $ - $ 17.8

As of September 30

($ in millions)

Military Housing Privatization Initiative

Fees and 

Other 

Collections

Other Total

2017

Interest

Differential Defaults

$ 1.0 $ 11.8 $ - $ - $ 12.8

Table 8D. Direct Loan Modifications and Reestimates

As of September 30

($ in millions)

Military Housing Privatization Initiative

2018

Total 

Modifications

Interest Rate 

Reestimates

$ - $ (5.0) $ (7.4) $ (12.4)

Technical 

Reestimates

Total 

Reestimates

As of September 30

($ in millions)

Military Housing Privatization Initiative

2017

Total 

Modifications

Interest Rate 

Reestimates

$ - $ 6.1 $ (20.3) $ (14.2)

Technical 

Reestimates

Total 

Reestimates

Table 8E. Total Direct Loan Subsidy Expense

As of September 30

($ in millions)

Military Housing Privatization Initiative

2018 2017

$ 5.4 $ (1.4)

Table 8F. Budget Subsidy Rates for Direct Loans for the Current Year

As of September 30

($ in millions)

Military Housing Privatization Initiative

Fees and 

Other 

Collections

Other Total

2018

Interest

Differential Defaults

0% 0% 0% 0% 0%

Subsidy rates pertain to loan agreements contracted during the current fiscal year. There were no 

new loan agreements in FY 2018 and FY 2017; disbursements and expenses relate to agreements existing 

at the beginning of the respective fiscal years. 
U.S. Department of Defense Agency Financial Report for FY 2018

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69

The rates in Table 8F cannot be applied to direct loans disbursed during the current reporting year 

to yield the subsidy expense. Subsidy expense for new loans disbursed in the current year results from 

disbursements of loans from current year (when applicable) and prior year loan agreements. Subsidy 

expense reported in the current year also includes reestimates.

Table 8G. Schedule for Reconciling Subsidy Cost Allowance Balances

For the years ended September 30

($ in millions)

Beginning Balance of the Subsidy Cost Allowance

Add: Subsidy Expense for Direct Loans Disbursed

 During the Reporting Years by Component:

Interest Rate Differential Costs

Default Costs (Net of Recoveries)

Total of the Above Subsidy Expense Components

Adjustments:

Subsidy Allowance Amortization

Ending Balance of the Subsidy Cost Allowance 

 Before Reestimates

Add or Subtract Subsidy Reestimates by Component:

Interest Rate Reestimates

Technical/Default Reestimates

Total of the Above Reestimates Components

Ending Balance of the Subsidy Cost Allowance 

 8.8 1.0

2018 2017

$ 62.2 $ 60.4

 17.8 12.8

 9.0 11.8

$ 60.4 $ 63.5

 (12.4) (14.2)

 (5.0) 6.1

 (7.4) (20.3)

 (3.6) (1.7)

 74.6 74.6

Loan Guarantee Liability

Loan guarantee liabilities are reported at the NPV. The cost of the loan guarantee is the NPV of 

the estimated projected cash flows of payments by the Department to cover defaults and delinquencies, 

interest subsidies, or other payments offset by payments to the Department including origination and other 

fees, penalties, and recoveries.

There were no defaulted loan guarantees in FY 2018 or FY 2017.

Table 8H. Guaranteed Loans Outstanding

As of September 30

($ in millions)

Military Housing Privatization Initiative $ 1,008.8 $ 1,008.8 $ 1,074.2 $ 1,074.2

2018 2017

Outstanding 

Principal,

Face Value

Amount of 

Outstanding 

Principal 

Guaranteed

Outstanding 

Principal,

Face Value

Amount of 

Outstanding 

Principal 

Guaranteed
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

70

Table 8I. New Guaranteed Loans Disbursed

As of September 30

($ in millions)

Military Housing Privatization Initiative $ 52.9 $ 52.9 $ 115.3 $ 115.3

2018 2017

Outstanding 

Principal,

Face Value

Amount of 

Outstanding 

Principal 

Guaranteed

Outstanding 

Principal,

Face Value

Amount of 

Outstanding 

Principal 

Guaranteed

Table 8J. Liability for Loan Guarantees

As of September 30

($ in millions)

Military Housing Privatization Initiative

Total Loan Guarantee Liability

2018 2017

$ 58.4 $ 65.2

$ 58.4 $ 65.2

Table 8K. Subsidy Expense for New Loan Guarantees

As of September 30

($ in millions)

Military Housing Privatization Initiative $ - $ 2.0 $ - $ - $ 2.0

Fees and 

Other 

Collections

Other Total

2018

Interest

Supplements Defaults

As of September 30

($ in millions)

Military Housing Privatization Initiative

Fees and 

Other 

Collections

Other Total

2017

Interest

Supplements Defaults

$ - $ 12.0 $ - $ - $ 12.0

Table 8L. Guaranteed Loan Modifications and Reestimates

As of September 30

($ in millions)

Military Housing Privatization Initiative

2018

Total 

Modifications

Interest Rate 

Reestimates

$ - $ (2.1) $ (8.5) $ (10.6)

Technical 

Reestimates

Total 

Reestimates

As of September 30

($ in millions)

Military Housing Privatization Initiative

2017

Total 

Modifications

Interest Rate 

Reestimates

$ - $ (3.3) $ (16.5) $ (19.8)

Technical 

Reestimates

Total 

Reestimates
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

71

Table 8M. Total Loan Guarantee Subsidy Expense

As of September 30

($ in millions)

Military Housing Privatization Initiative

2018 2017

$ (8.6) $ (7.8)

Table 8N. Budget Subsidy Rates for Loan Guarantees for the Current Year

As of September 30

($ in millions)

Military Housing Privatization Initiative 0% 0% 0% 0% 0%

Fees and 

Other 

Collections

Other Total

2018

Interest

Supplements Defaults

Subsidy rates pertain to loan agreements contracted during the current fiscal year. There were no 

new loan agreements in FY 2018 and FY 2017; disbursements and expenses relate to agreements existing 

at the beginning of the respective fiscal years. 

These rates cannot be applied to loan guarantees disbursed during the current reporting year to yield 

the subsidy expense. Subsidy expense reported in the current year also includes reestimates. The subsidy 

expense for new loan guarantees reported in the current year results from both current year (when 

applicable) and prior year agreements.

Table 8O. Schedule for Reconciling Loan Guarantee Liability Balances

For the years ended September 30

($ in millions)

Beginning Balance of the Loan Guarantee Liability

Add: Subsidy Expense for Guaranteed Loans Disbursed

 During the Reporting Years by Component:

Default Costs (Net of Recoveries)

Adjustments:

Interest Accumulation on the Liability Balance

Ending Balance of the Loan Guarantee Liability

Before Reestimates

Add or Subtract Subsidy Reestimates by Component:

Interest Rate Reestimates

Technical/Default Reestimates

Total of the Above Reestimate Components

Ending Balance of the Loan Guarantee Liability

2018 2017

$ 58.4 $ 65.2

 2.0 12.0

$ 65.2 $ 70.9

 (10.6) (19.8)

 (2.1) (3.3)

 (8.5) (16.5)

 1.8 2.1

 69.0 85.0
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

72

Note 9. Inventory and Related Property

Table 9A. Inventory and Related Property

As of September 30

($ in millions)

Inventory, Net

Operating Materials & Supplies, Net

Stockpile Materiel, Net

Total Inventory and Related Property, Net

2018 2017

$ 266,760.5

806.6

$ 275,678.4

818.3

 171,087.6 171,049.9

$ 103,772.5 $ 94,904.0

Inventory

Table 9B. Inventory Categories

As of September 30

($ in millions)

Held for Sale

Held in Reserve for Future Sale

Held for Repair

Raw Material

Work-in-Process

Excess, Obsolete and Unserviceable

Total

Legend for Valuation Methods:

LAC = Latest Acquisition Cost, adjusted for holding gains and losses MAC = Moving Average Cost

NRV = Net Realizable Value

$ 109,222.2 $ (5,449.7) $ 103,772.5

 2,106.4 - 2,106.4

 809.2 (443.0) 366.2 NRV

2018

$ 66,309.9 $ 62.2 $ 66,372.1 LAC, MAC

Inventory, 

Gross Value

Revaluation 

Allowance

Inventory, 

Net

Valuation 

Method

 1,156.1 - 1,156.1 LAC, MAC

MAC

 37,668.8 (5,068.9) 32,599.9 LAC, MAC

 1,171.8 - 1,171.8 MAC,LAC

As of September 30

($ in millions)

Held for Sale

Held in Reserve for Future Sale

Held for Repair

Raw Material

Work-in-Process

Excess, Obsolete and Unserviceable

Total

Legend for Valuation Methods:

LAC = Latest Acquisition Cost, adjusted for holding gains and losses MAC = Moving Average Cost

NRV = Net Realizable Value

 869.3 (388.6) 480.7 NRV

 - - - LAC, MAC

 1,083.4 MAC,LAC

2017

$ 61,251.2 $ (49.2) $ 61,202.0 LAC, MAC

Inventory, 

Gross Value

Revaluation 

Allowance

$ 99,815.2 $ (4,911.2) $ 94,904.0

Inventory, 

Net

Valuation 

Method

 1,560.0 - 1,560.0 MAC

 35,051.3 (4,473.4) 30,577.9 LAC, MAC

 1,083.4 -

General Composition of Inventory

Inventory is tangible personal property such as raw materials to be consumed in the production of 

goods for sale or in the provision of service for a fee, the value of inventory used in the production process, 

finished goods held for sale, and goods held for repair and eventual sale. Inventory includes spare and 

repair parts, clothing and textiles, and fuels held for sale. The Department assigns inventory items to a 

category based on asset type and condition.
U.S. Department of Defense Agency Financial Report for FY 2018

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73

Inventory Restrictions

The following types of inventory are subject to restrictions on use, sale, or disposition: 

 Inventories maintained as war reserve materiel in accordance with DoD Instruction 3110.06 with 

a recorded value of $2.5 billion in FY 2018 ($2.6 billion in FY 2017), consisting of stocks such as 

bulk petroleum, subsistence items, and other goods managed and positioned to reduce reaction time 

in response to contingencies and to sustain military forces; 

 Defense Commissary Agency inventory with a recorded value of $386.4 million in FY 2018 

($365.8 million in FY 2017), consisting of grocery, meat, and produce items, limited for resale to 

authorized commissary patrons; and 

 Dispositions pending litigation or negotiation (related to issues including inventory condition, 

pricing disputes, and product specifications) with a recorded value of $129.6 million in FY 2018 

($134.3 million in FY 2017). 

There are no known restrictions on inventory disposition related to environmental or other 

liabilities.

Operating Materials & Supplies

Table 9C. OM&S Categories

As of September 30

($ in millions)

Held for Use

Held in Reserve for Future Use

Held for Repair

In Development

Excess, Obsolete and Unserviceable

Total

Legend for Valuation Methods:

DM = Direct Method HC = Historical Cost MAC = Moving Average Cost

NRV = Net Realizable Value RP = Replacement Price SP = Standard Price

$ 174,021.0 $ (2,933.4) $ 171,087.6

OM&S, 

Net

Valuation Method

 2,933.4 (2,933.4) - NRV

 4,466.3 - 4,466.3

 13,562.7 - 13,562.7 DM, HC, MAC, RP, SP 

DM, HC, MAC, RP, SP 

 31,996.8 - 31,996.8 DM, HC, MAC, RP, SP 

2018

$ 121,061.8 $ - $ 121,061.8 DM, HC, MAC, RP, SP 

OM&S,

Gross Value

Revaluation 

Allowance

As of September 30

($ in millions)

Held for Use

Held in Reserve for Future Use

Held for Repair

In Development

Excess, Obsolete and Unserviceable

Total

Legend for Valuation Methods:

LAC = Latest Acquisition Cost, adjusted for holding gains and losses MAC = Moving Average Cost

NRV = Net Realizable Value

2017

$ 130,343.1 $ - $ 130,343.1 LAC, MAC

OM&S,

Gross Value

Revaluation 

Allowance

LAC, MAC

LAC, MAC

 30,749.5 - 30,749.5 LAC, MAC

$ 173,508.2 $ (2,458.3) $ 171,049.9

OM&S, 

Net

Valuation 

Method

 2,458.3 (2,458.3) - NRV

 - - -

 9,957.3 - 9,957.3
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

74

General Composition of OM&S

OM&S include spare and repair parts, ammunition, tactical missiles, aircraft configuration pods, 

and centrally managed aircraft engines held for consumption. The Department assigns OM&S items to a 

category based on asset type and condition. 

OM&S Restrictions

Restricted munitions are considered obsolete or unserviceable when they cannot meet performance 

requirements based on condition. However, obsolete and unserviceable OM&S may be used in emergency 

combat situations when no other suitable munitions are immediately available.

Other Disclosures

The FASAB issued SFFAS 48, permitting alternative methods in establishing opening balances,

effective for periods beginning after September 30, 2016 with early implementation allowed. Some DoD 

Components used the deemed cost measures from this standard for FY 2016; additional DoD Components 

used the deemed cost measures from the standard in FY 2017 using a combination of standard price (selling 

price), latest acquisition cost, estimated historical cost, and actual historical cost as the basis for valuation.

The Department identified assets previously reported as OM&S Held for Repair and reclassified 

the assets as OM&S Held for Use during Quarter 4, FY 2017. This correction, along with other adjustments 

(including a prior period adjustment recorded in FY 2017 of $24.4 billion to the noted OM&S balances), 

resulted in a decrease to OM&S Held for Repair of $30.3 billion and an increase to OM&S Held for Use of 

$55.0 billion at that time.

Effective FY 2018, certain assets previously reported under General Equipment Construction-inProgress are now reported as OM&S In Development.

Stockpile Materiel

Table 9D. Stockpile Materiel Categories

As of September 30

($ in millions)

Held for Sale

Held in Reserve for Future Sale

Total

Legend for Valuation Methods:

AC = Actual Cost LCM = Lower of Cost or Market

AC, LCM

$ 818.3 $ - $ 818.3

 786.2 - 786.2

2018

$ 32.1 $ - $ 32.1 AC, LCM

Stockpile 

Materiel

Gross Value

Allowance 

for Gains 

(Losses)

Stockpile 

Materiel, 

Net

Valuation 

Method

As of September 30

($ in millions)

Held for Sale

Held in Reserve for Future Sale

Total

Legend for Valuation Methods:

AC = Actual Cost LCM = Lower of Cost or Market

2017

$ 19.6 $ - $ 19.6 AC, LCM

Stockpile 

Materiel

Gross Value

Allowance 

for Gains 

(Losses)

Stockpile 

Materiel, 

Net

Valuation 

Method

AC, LCM

$ 806.6 $ - $ 806.6

 787.0 - 787.0
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

75

General Composition of Stockpile Materiel

Due to statutory requirements, the Department holds strategic and critical stockpile materiel for use 

in national defense, conservation, or national emergencies. The estimated market price of stockpile materiel 

as of September 30, 2018, is $1.3 billion ($1.1 billion in FY 2017).

Stockpile Materiel Restrictions

Materiel held by the National Defense Stockpile is restricted unless released by congressional 

action and made available for sale on the open market. Stockpile materiel may not be disposed except for

(1) necessary upgrading, refining, or processing; (2) necessary rotation to prevent deterioration; 

(3) determination as excess with potential financial loss if retained; or (4) authorization by law. 

Before selling any materiel, Congress must enact specific enabling legislation (e.g., the National 

Defense Authorization Act). When authorized to offer materiel for sale, the National Defense Stockpile

reclassifies the materiel from Held in Reserve to Held for Sale.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

76

Note 10. General PP&E, Net

Table 10A. Major General PP&E Asset Classes

As of September 30

($ in millions)

Land

Buildings, Structures, and Facilities

Leasehold Improvements

Software

General Equipment

Assets Under Capital Lease

Construction in Progress

Other

Total General PP&E

* Estimated useful service life is 35 years for structures, 40 years for linear structures, and 45 years for buildings

Legend for Depreciation/Amortization Methods: S/L = Straight Line Method

$ 1,702,567.3 $ (943,738.2) $ 758,829.1

Acquisition 

Value

(Accumulated 

Depreciation / 

Amortization)

Net Book 

Value

2018

Depreciation / 

Amortization 

Method

Service Life

N/A N/A 12,477.3 (12,123.1) 354.2

N/A N/A 103,695.4 N/A 103,695.4

S/L Various 1,134,083.5 (660,634.5) 473,449.0

S/L Lease Term 353.7 (257.5) 96.2

N/A N/A $ 9,076.7 N/A $ 9,076.7

S/L 35, 40, or 45 * 432,389.3 (265,377.3) 167,012.0

S/L Lease Term 551.2 (292.6) 258.6

S/L 2 - 5 or 10 9,940.2 (5,053.2) 4,887.0

As of September 30

($ in millions)

Land

Buildings, Structures, and Facilities

Leasehold Improvements

Software

General Equipment

Assets Under Capital Lease

Construction in Progress

Other

Total General PP&E

* Estimated useful service life is 35 years for structures, 40 years for linear structures, and 45 years for buildings

Legend for Depreciation/Amortization Methods: S/L = Straight Line Method

S/L 2 - 5 or 10 9,069.5 (4,787.3) 4,282.2

S/L Lease Term 560.2 (293.2) 267.0

S/L 35, 40, or 45 * 407,135.0 (248,252.3) 158,882.7

N/A N/A $ 10,615.4 N/A $ 10,615.4

S/L Lease Term 353.7 (242.7) 111.0

S/L Various 1,103,474.6 (637,223.7) 466,250.9

N/A N/A 109,992.1 N/A 109,992.1

N/A N/A 11,306.8 (0.3) 11,306.5

Acquisition 

Value

(Accumulated 

Depreciation / 

Amortization)

Net Book 

Value

2017

Depreciation / 

Amortization 

Method

Service Life

$ 1,652,507.3 $ (890,799.5) $ 761,707.8

The Department’s General PP&E consists primarily of buildings and structures, furniture and 

fixtures, equipment, vehicles, internal use software, and land.

Other Disclosures

The Department has use of overseas land, buildings, and other facilities obtained through 

international treaties and agreements negotiated by the Department of State. Treaty covenants restrict the 

Department’s use and disposal of real property (land and buildings) located outside the United States.

The Department uses several cost methodologies to provide General PP&E values for financial 

statement reporting purposes. The FASAB issued SFFAS 50, permitting alternative methods in establishing 

opening balances for General PP&E, effective for periods beginning after September 30, 2016. Some DoD 

Components used the alternative valuation methods from this standard based on historical records such as 

expenditure data, contracts, budget information, and engineering documentation. Land and land rights 

recognized in the prior year for certain DoD Components are excluded from General PP&E opening 
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balances in FY 2018, as permitted under SFFAS 50. The total acreage of land and land rights excluded in

this manner was 20,926,485 as of September 30, 2018. See Note 19, Disclosures Related to the Statement 

of Changes in Net Position, for additional details about the Department’s implementation of SFFAS 50. 

Other General PP&E includes Real Property held in Caretaker Status. Caretaker Status is defined 

as the Department’s property, such as Base Realignment and Closure assets, awaiting further disposition, 

sale, or transfer to another entity.

Heritage Assets and Stewardship Land

SFFAS 29 provides guidance on accounting and note disclosures for Heritage Assets and 

Stewardship Land. The Department’s policy is to preserve its heritage assets, which are items of historical, 

cultural, educational, or artistic importance. 

As the Department’s mission to provide the military forces needed to deter war and protect the 

security of our country has been executed, the Department has become a large scale owner of historic 

buildings, structures, historical artifacts, art, stewardship land, and other cultural resources. Protection of 

these elements of the nation’s heritage assets and stewardship land is an essential part of the Department’s 

mission. 

The Department, with minor exceptions, uses the buildings and stewardship land in its daily 

activities and includes the buildings on the Balance Sheet as multi-use heritage assets. 

Heritage assets receive such designation, and have such designation withdrawn, through the 

accessioning and deaccessioning procedures for collections or through evaluation in compliance with the 

National Historic Preservation Act. Designation is in accordance with the standards articulated with the 

collection scopes and collecting plans, or by application of the criteria of the National Register of Historic 

Places.

Heritage assets within the Department consist of buildings and structures, archeological sites, and 

museum collections. The Department defines these as follows in accordance with the National Historic 

Preservation Act:

 Buildings and Structures listed, or eligible for listing, on the National Register of Historic Places, 

including multi-use heritage assets;

 Archeological Sites listed, or eligible for listing, on the National Register of Historic Places; and

 Museum Collection Items considered unique due to historical, natural, cultural, educational, 

artistic, technical, or architectural significance.

The Department continues to progress towards identifying heritage assets and stewardship land 

added through donation or devise (e.g., a clause in a will leaving real estate to the Department). Differences 

in heritage asset quantities between the FY 2017 ending unit counts and the FY 2018 beginning unit counts 

resulted from periodic reviews.
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Table 10B. Heritage Assets

For the year ended September 30, 2018

(physical unit count)

Categories:

Buildings and Structures

Archeological Sites

Museum Collection Items (Objects, 

 Not Including Fine Art)

Museum Collection Items (Objects, 

 Fine Art)

 1,255,279 11,798 (2,774) 1,264,303

 96,960 390 (123) 97,227

Additions (Deletions) Ending Balance Beginning 

Balance

 45,314 1,467 (3,515) 43,266

 25,385 350 (12,583) 13,152

Stewardship land represents land and land rights owned by the Department, but not acquired for, 

or in connection with items of General PP&E. All land provided to the Department from the public domain 

at no cost, regardless of its use, is classified as Stewardship Land.

The Department uses Stewardship Land for military bases, installations, training ranges, or other 

military mission related functions.

Stewardship land is categorized and reported in acres based on the predominant use of the land.

Table 10C. Stewardship Land

For the year ended September 30, 2018

(acres in thousands)

 -

Total Stewardship Lands 10,391 101

(Deletions) Ending 

Balance

 - -

 (652) 8,263

 1,572

 (4) 1

 (656) 9,836

Facility Title Beginning 

Balance

Additions Facility

Code

9110 Government Owned Land 1,561 11

Withdrawn Public Land 8,825 90

9140 Public Land 5 -

9111 State Owned Land - -

9120

The four categories of Stewardship land– Government Owned Land; State Owned Land; 

Withdrawn Public Land (not available for settlement, sale, location, or entry); and Public Land (held by 

local governments) – are held in public trust.

The Department’s methods of acquisition and withdrawal of stewardship land are as follows: 

 Acquiring additional land through donation or withdrawals from public domain,

 Identifying missing land records,

 Disposing of Base Realignment and Closure (BRAC) sites or transferring land to another DoD 

Component,

 Identifying cemeteries and historical facilities,

 Disposing of BRAC property or excess installations, and

 Privatizing residential community initiatives programs.
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Assets Under Capital Lease

Table 10D. Assets Under Capital Lease

As of September 30

($ in millions)

Land and Buildings

Equipment

Accumulated Amortization

Total Assets Under Capital Lease

2018 2017

$ 111.0

(242.7)

$ 96.2

(257.5)

 353.0 353.0

$ 0.7 $ 0.7

The Department is reporting capital lease equipment and related amortization related to an 

arrangement for Indefeasible Right of Use agreements, allowing the Department access to portions of fiber 

optic, undersea cables. In addition, the Department has a 50 year agreement for use of property in which

no future lease payments are due; however, improvements made to the property as a tenant are reported as 

a capital asset.
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Note 11. Liabilities Not Covered by Budgetary Resources

Table 11. Liabilities Not Covered by Budgetary Resources

As of September 30

($ in millions)

Intragovernmental Liabilities

Accounts Payable

Debt

Other

Total Intragovernmental Liabilities

Non-Federal Liabilities

Accounts Payable

Military Retirement and Other Federal Employee

 Benefits

Environmental and Disposal Liabilities

Other Liabilities

Total Non-Federal Liabilities

Total Liabilities Not Covered by Budgetary Resources

Total Liabilities Covered by Budgetary Resources

Total Liabilities Not Requiring Budgetary Resources

Total Liabilities

 1,467.7

2018 2017

$ -

 0.6

 1,762.8

 1,763.4

$ 2,564,117.8

$ -

 0.8

 1,875.0

 1,875.8

 67,100.1

 13,454.8

 1,522,831.1

 1,524,594.5

 - -

$ 2,497,974.0

 1,150.2

 65,032.9

 14,971.8

 1,558,657.1

 1,560,532.9

 1,440,808.5 1,477,502.2

 1,039,523.3 937,441.1

Intragovernmental Liabilities

Debt consists primarily of borrowing from the Treasury for capital improvements to the 

Washington Aqueduct Project expected to be completed by 2023. The related reimbursement to the 

Department from Arlington County, Virginia and Falls Church, Virginia, is recorded as Non-Federal 

Accounts Receivable.

Other Liabilities consists primarily of unfunded liabilities for Federal Employees’ Compensation 

Act, Judgment Fund, and Unemployment Insurance. 

Non-Federal Liabilities

Accounts Payable primarily represents liabilities in canceled appropriations, which if paid, will be 

disbursed using current year funds.

Military Retirement and Other Federal Employment Benefits consists of various employee 

actuarial liabilities not due and payable during the current fiscal year. In FY 2018, these liabilities primarily 

consist of $886.0 billion in pension liabilities and $547.4 billion in health benefit liabilities. In FY 2017, 

the Department reported $913.6 billion in pension liabilities and $556.2 billion in health benefit liabilities. 

Refer to Note 17, Military Retirement and Other Federal Employment Benefits, for additional details.

Environmental and Disposal Liabilities represents the Department’s liability for existing and 

anticipated environmental clean-up and disposal. Refer to Note 14, Environmental and Disposal 

Liabilities, for additional details. 

Other Liabilities consists primarily of unfunded annual leave, contingent liabilities, and expected 

expenditures for disposal of conventional munitions.
U.S. Department of Defense Agency Financial Report for FY 2018

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Total Liabilities

Budgetary resources include (1) new budget authority, (2) unobligated balances of budgetary 

resources at the beginning of the year or net transfers of prior year balances during the year, (3) spending 

authority from offsetting collections, and (4) recoveries of unexpired budget authority through downward 

adjustments of prior year obligations. Additionally, liabilities are covered by budgetary resources if they 

are to be funded by permanent indefinite appropriations, provided that the resources may be apportioned 

by OMB without further action by Congress and without contingency having to be met first.

 Liabilities Not Covered by Budgetary Resources require congressional action before budgetary 

resources can be provided. 

 Liabilities Not Requiring Budgetary Resources have not in the past and will not in the future require 

the use of budgetary resources.
U.S. Department of Defense Agency Financial Report for FY 2018

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Note 12. Accounts Payable

Table 12. Accounts Payable

As of September 30

($ in millions)

Intragovernmental 

 Payables

Non-Federal Payables

 (To the Public)

Total Accounts Payable

 29,222.8

$ 31,136.9

2018

 29,221.7

$ 31,135.8

N/A

 1.1

$ 1.1

Accounts Payable

Interest, Penalties, 

and Administrative 

Fees

Accounts Payable, 

Net

$ 1,914.1 $ 1,914.1

As of September 30

($ in millions)

Intragovernmental 

 Payables

Non-Federal Payables

 (To the Public)

Total Accounts Payable

 26,426.8

$ 28,000.6

2017

 26,402.8

$ 27,976.6

N/A

 24.0

$ 24.0

Accounts Payable

Interest, Penalties, 

and Administrative 

Fees

Accounts Payable, 

Net

$ 1,573.8 $ 1,573.8

Accounts Payable include amounts owed to federal and non-federal entities for goods and services 

received by the Department. 
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Note 13. Debt

Table 13. Debt

($ in millions)

Agency Debt (Intragovernmental)

Debt to Treasury

Total Debt

$ 1,630.7 $ 0.1 $ 1,630.8 $ 54.9 $ 1,685.7

2017

Ending

Balance

2018

Net

Borrowing

2018

Ending

Balance

2017

Beginning

Balance

2017

Net

Borrowing

$ 1,630.7 $ 0.1 $ 1,630.8 $ 54.9 $ 1,685.7

The Department’s debt consists of interest and principal payments due to the Treasury. The 

Department borrows funds from the Treasury for the Military Housing Privatization Initiative and the 

Washington Aqueduct Capital Improvements Project. See Note 8, Direct Loan and Loan Guarantees, for 

more information pertaining to MHPI.
U.S. Department of Defense Agency Financial Report for FY 2018

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Note 14. Environmental and Disposal Liabilities

Table 14. Environmental and Disposal Liabilities

As of September 30

($ in millions)

Accrued Environmental Restoration Liabilities

Active Installations - Installation Restoration Program (IRP)

 and Building Demolition and Debris Removal (BD/DR)

Active Installations - Military Munitions Response

 Program (MMRP)

Formerly Used Defense Sites - IRP and BD/DR

Formerly Used Defense Sites - MMRP

Other Accrued Environmental Liabilities - Non-BRAC

Environmental Corrective Action

Environmental Closure Requirements

Environmental Response at Operational Ranges

Asbestos

Non-Military Equipment

Other

BRAC Installations

IRP

MMRP

Environmental Corrective Action/Closure Requirements

Asbestos

Environmental Disposal for Military Equipment/Weapons Program

Nuclear Powered Military Equipment/Spent Nuclear Fuel

Non-Nuclear Powered Military Equipment

Other Weapon Systems

Chemical Weapons Disposal Program

Chemical Demilitarization - Chemical Materials Agency

Chemical Demilitarization - Assembled Chemical Weapons

 Alternatives (ACWA)

Total Environmental and Disposal Liabilities

 2,576.8 2,671.4

 240.7 251.6

 16,439.6 15,807.0

 137.0

 2,942.1

2018 2017

$ 13,621.0

 3,476.6

 4,381.7 3,732.9

 766.0 713.5

 10.1 9.7

$ 70,411.4

$ 13,063.8

 3,354.3

 126.1

 383.7

$ 68,318.1

 2,967.8

 4,510.4

 5.5

 1,786.5

 917.9

 3,916.7

 76.1

 7,683.0 7,968.3

 5,604.0 6,073.1

 3,972.2

 24.4

 2,078.9

 1,902.3

 4,089.8

 92.4

 354.6

The Department has cleanup requirements for the Defense Environmental Restoration Program 

(DERP) for active installations, BRAC installations, and Formerly Used Defense Sites. The Department 

has additional cleanup requirements for active installations not covered by DERP, weapon systems 

programs, and chemical weapons disposal programs. The weapons systems program consists of chemical 

weapons disposal, nuclear powered aircraft carriers, nuclear powered submarines, and other nuclear ships. 

All cleanup efforts are performed in coordination with regulatory agencies, other responsible parties, and 

current property owners, as applicable.

Other Accrued Environmental Liabilities, Non-BRAC, Other consists primarily of Formerly 

Utilized Sites Remedial Action Program (FUSRAP) remediation of radiological contamination. The 

FUSRAP is a shared program between the Department and the Department of Energy’s U.S. Atomic Energy 

and Weapons Program.
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Sources for Cleanup Requirements

The Department is required to clean up contamination from past waste disposal practices, leaks, 

spills, and other activity resulting in public health or environmental risk. The Department accomplishes 

this effort in coordination with regulatory agencies and, if applicable, other responsible parties and current 

property owners. The Department is also required to recognize closure and post-closure costs for its 

General PP&E and environmental corrective action costs for current operations. Each of the Department's 

major reporting entities is responsible for tracking and reporting all required environmental information 

related to environmental restoration costs, other accrued environmental costs, disposal costs of weapon 

systems, and environmental costs related to BRAC actions.

The Department follows the Comprehensive Environmental Response, Compensation, and 

Liability Act (CERCLA), Superfund Amendments and Reauthorization Act of 1986 (SARA), Resource 

Conservation and Recovery Act (RCRA) or other applicable federal or state laws to clean up contamination. 

The CERCLA and RCRA require the Department to clean up contamination in coordination with regulatory 

agencies, current owners of property damaged by the Department, and third parties with partial 

responsibility for environmental restoration. Failure to comply with agreements and legal mandates puts 

the Department at risk of incurring fines and penalties.

Laws concerning cleanup requirements for nuclear-powered naval vessels govern the Department’s 

environmental policy and regulations for these vessels. The Atomic Energy Act of 1954, as amended, 

assures the proper management of source, special nuclear, and byproduct materiel. The Department 

coordinates nuclear power actions with the Department of Energy. The Nuclear Waste Policy Act of 1982, 

as amended, requires owners and generators of high-level nuclear waste and spent nuclear fuel to pay their 

share of the cost of the program. The Low-Level Radioactive Waste Policy Amendments Act of 1985, as 

amended, provides for the safe and efficient management of low-level radioactive waste.

The Chemical Weapons Disposal Program is based on the NDAA for FY 1986, directing the 

Department to destroy the unitary chemical stockpile in accordance with the Chemical Weapons 

Convention Treaty.

Methods for Assigning Total Cleanup Costs to Current Operating Periods

The Department uses engineering estimates and independently validated models to project 

environmental costs. The models include the Remedial Action Cost Engineering Requirements (RACER)

application and the Normalization of Data System. The Department validates the models in accordance 

with DoD Instruction 5000.61 and estimates liabilities based on data received during preliminary 

assessment and site investigation. The Department primarily uses engineering estimates after obtaining 

extensive data during the remedial investigation/feasibility phase of the environmental project.

Once the environmental cost estimates are complete, the Department complies with accounting 

standards to charge costs to current and/or future operating periods. The Department expensed cleanup 

costs for General PP&E placed into service prior to October 1, 1997, unless costs are to be recovered 

through user charges. As costs are recovered, the Department expenses cleanup costs associated with the 

asset life that has passed since the General PP&E was placed into service. The Department systematically 

recognizes the remaining cost over the life of the assets.

For General PP&E placed into service after September 30, 1997, the Department expenses 

associated environmental costs using two methods – (1) physical capacity for operating landfills and (2) life 

expectancy in years for all other assets. The Department expenses the full cost to clean up contamination 
U.S. Department of Defense Agency Financial Report for FY 2018

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for Heritage Assets and Stewardship Land and certain other General PP&E when the asset is placed into 

service.

The unrecognized portion of the estimated total cleanup costs associated with disposal of General 

PP&E as of September 30, 2018 was $4.8 billion; this amount was unknown as of September 30, 2017.

Nature and Possible Changes in Estimated Cleanup Costs 

Environmental liabilities are subject to changes in laws and regulations, agreements with regulatory 

agencies, and advances in technology. The Department is unaware of pending changes affecting its 

estimated cleanup costs.

The Department revised estimates resulting from previously unknown contaminants, re-estimation 

based on different assumptions, and other changes in project scope.

Uncertainty Regarding Accounting Estimates 

The accounting estimates used to calculate the reported environmental liabilities use reasonable 

judgments and assumptions based on available information. Actual results may materially vary if 

agreements with regulatory agencies require remediation to a different degree than anticipated when 

calculating the estimates. Liabilities can be further affected if investigation of the environmental sites 

reveals contamination levels differing from estimate parameters.

The Department is responsible for environmental restoration and corrective action for buried 

chemical munitions and agents; however, a reasonable estimate is indeterminable because the extent of the 

buried chemical munitions and agents is unknown. 

The Department has ongoing studies for FUSRAP and will update its estimate as additional 

information is identified. 

The Department may incur costs for restoration initiatives in conjunction with returning overseas 

Defense facilities to host nations. The Department continues its efforts to reasonably estimate required 

restoration costs. 

Asbestos-Related Cleanup Costs:

The Department maintains structures and facilities that may contain asbestos material in the 

construction or renovation. At this time, the Department is working towards assessing a reasonable estimate 

for the total cleanup costs related to asbestos.
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Note 15. Other Liabilities

Table 15. Other Liabilities

As of September 30

($ in millions)

Intragovernmental

Advances from Others

Deposit Funds and Suspense Account Liabilities

Disbursing Officer Cash

Judgment Fund Liabilities

FECA Reimbursement to the Department of Labor

Custodial Liabilities

Employer Contributions and Payroll Taxes Payable

Other Liabilities

Total Intragovernmental Other Liabilities

Non-Federal

Accrued Funded Payroll and Benefits

Advances from Others

Deposit Funds and Suspense Accounts

Non-Environmental Disposal Liabilities

Military Equipment (Non-Nuclear)

Conventional Munitions Disposal

Accrued Unfunded Annual Leave

Capital Lease Liability

Contract Holdbacks

Employer Contribution and Payroll Taxes Payable

Contingent Liabilities

Other Liabilities

Total Non-Federal Other Liabilities

Total Other Liabilities

 6.0

$ 45,478.6

2018

$ 37,369.8

 6.0

$ 8,108.8

Current 

Liability

Non-Current

Liability Total

 -

 536.2

 105.9 - 105.9

 1,166.6 60.5 1,227.1

 2,986.8 - 2,986.8

 867.6 - 867.6

$ 1,739.8 $ - $ 1,739.8

 242.0 - 242.0

 573.8 - 573.8

 485.5 604.0 1,089.5

 183.6 2,065.3 2,248.9

 5,696.5 (2.0) 5,694.5

 4,734.4 2,669.3 7,403.7

 10,146.3 - 10,146.3

 536.2 -

 232.3 - 232.3

 32,635.4 5,439.5 38,074.9

 10,589.6 - 10,589.6

 695.6 5,347.6 6,043.2

 - - -

 534.9 27.4 562.3

 586.8 - 586.8
U.S. Department of Defense Agency Financial Report for FY 2018

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As of September 30

($ in millions)

Intragovernmental

Advances from Others

Deposit Funds and Suspense Account Liabilities

Disbursing Officer Cash

Judgment Fund Liabilities

FECA Reimbursement to the Department of Labor

Custodial Liabilities

Employer Contributions and Payroll Taxes Payable

Other Liabilities

Total Intragovernmental Other Liabilities

Non-Federal

Accrued Funded Payroll and Benefits

Advances from Others

Deposit Funds and Suspense Accounts

Non-Environmental Disposal Liabilities

Military Equipment (Non-Nuclear)

Conventional Munitions Disposal

Accrued Unfunded Annual Leave

Capital Lease Liability

Contract Holdbacks

Employer Contribution and Payroll Taxes Payable

Contingent Liabilities

Other Liabilities

Total Non-Federal Other Liabilities

Total Other Liabilities

 27,775.1 8,296.8 36,071.9

 10,433.7 - 10,433.7

 619.5 8,215.1 8,834.6

 - - -

 540.2 6.2 546.4

 629.9

 519.7 -

 295.9 - 295.9

 - 629.9

 4,277.9 2,739.9 7,017.8

 5,961.9 - 5,961.9

 562.1

 518.2 620.6 1,138.8

 191.1 2,119.3 2,310.4

 1,136.7 58.5 1,195.2

 3,007.5 - 3,007.5

 5,149.8 11.0 5,160.8

 519.7

 201.0 - 201.0

 1,009.2 - 1,009.2

$ 1,418.0 $ - $ 1,418.0

 (141.4) - (141.4)

 562.1 -

 6.0

$ 43,089.7

2017

$ 32,053.0

 6.0

$ 11,036.7

Current 

Liability

Non-Current

Liability Total

 -

Intragovernmental Other Liabilities

Advances from Others represent liabilities for collections received to cover future expenses or 

acquisition of assets.

Deposit Funds and Suspense Accounts represent liabilities for receipts held in suspense temporarily 

for distribution to another fund or entity or held as an agent for others and paid at the direction of the owner.

Disbursing Officers Cash represents liabilities for currency on hand; cash on deposit at designated 

depositories; cash in the hands of deputy disbursing officers, cashiers, and agents; negotiable instruments 

on hand; and similar notes advanced from the Treasury under various authorities. Disbursing Officers Cash 

is non-entity, restricted cash.

For information on Judgement Fund Liabilities, see Note 16, Commitments and Contingencies.

Federal Employees’ Compensation Act (FECA) Reimbursement to the Department of Labor 

represents liabilities for billed amounts payable in FY 2018 and FY 2019 and unbilled amounts, including 

both incurred and an estimated accrual. Refer to Note 17, Military Retirement and Other Federal 

Employment Benefits, for the estimated FECA actuarial liability. 
U.S. Department of Defense Agency Financial Report for FY 2018

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Custodial Liabilities represents liabilities for collections reported as nonexchange revenues where 

the Department is acting on behalf of another federal entity.

Employer Contributions and Payroll Taxes Payable represents the employer portion of payroll taxes 

and benefit contributions for health benefits, retirement, life insurance and voluntary separation incentive 

payments.

Other Liabilities primarily consists of unemployment compensation liabilities.

Non-Federal Other Liabilities

In FY 2018, Advances from Others includes an abnormal balance for the non-current portion of the 

liability. The Department is currently researching and working to resolve this.

Military Equipment (Non-Nuclear) is a part of the Non-Environmental Disposal liability related to 

the final disposition of equipment, munitions, and other national defense weapon systems that are 

considered non-nuclear. Disposal measurements involve the use of cost estimates that consider the 

anticipated level of effort required to dispose of the item.

The Department currently has no capital lease liability, but it is reporting capital lease assets. The 

Department is part of an arrangement for Indefeasible Right of Use agreements allowing the Department 

access to portions of fiber optic, undersea cables. These agreements called for an upfront payment which 

cannot be refunded. There are no future minimum lease payments, therefore no liability is required. 

However, payments are due annually for operating and maintenance expenses. If the Department 

discontinues the agreement in accordance with the contract terms, it would no longer be responsible for 

future annual maintenance expenses. In addition, the Department has a 50 year agreement for use of 

property in which no future lease payments are due; however, improvements made to the property as a 

tenant are reported as a capital asset. Refer to Note 10, General PP&E, Net, for additional information on 

Assets under Capital Lease.

Contract Holdbacks are amounts earned by contractors or suppliers during the production period 

but not yet paid to the contractor/supplier to ensure future performance.

Contingent Liabilities in FY 2018 and FY 2017 include $4.3 billion and $5.4 billion, respectively, 

related to contracts authorizing progress payments based on cost as defined in the Federal Acquisition 

Regulation (FAR). In accordance with contract terms, specific rights to contractors’ work vests with the 

Federal Government when a specific type of contract financing payment is made. This action protects 

taxpayer funds in the event of contract nonperformance. These rights should not be misconstrued as rights 

of ownership. The Department is under no obligation to pay contractors amounts in excess of progress 

payments until delivery and government acceptance. The Department has recognized a contingent liability 

for the estimated unpaid costs that are considered conditional for payment pending delivery and government 

acceptance, due to the probability the contractors will complete their efforts and deliver satisfactory 

products, and because the amount of contractor costs incurred but yet unpaid are estimable.

Total contingent liabilities for progress payments based on cost represent the difference between 

the estimated costs incurred to date by contractors and amounts authorized to be paid under progress 

payments based on cost provisions within the FAR. Estimated contractor-incurred costs are calculated by 

dividing the cumulative unliquidated progress payments based on cost by the contract-authorized progress 

payment rate. The balance of unliquidated progress payments based on cost is deducted from the estimated 

total contractor-incurred costs to determine the contingency amount.
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Other Liabilities consist primarily of estimated costs for services provided; accrued liabilities which 

offset inventory owned and managed on behalf of foreign governments; and undistributed international 

tariff receipts.
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Note 16. Commitments and Contingencies

Legal Contingencies

The Department is a party in various administrative proceedings and legal actions related to claims 

for environmental damage, equal opportunity matters, and contractual bid protests. The Department has 

accrued contingent liabilities for material legal actions which the DoD Office of General Counsel 

(DoD OGC) considers an adverse decision probable and the amount of loss is measurable. Claims below 

the DoD consolidated materiality threshold but above the individual DoD Components’ materiality 

threshold have the potential to be material in the aggregate; however, at this time in the judgement of the 

DoD OGC, those amounts are not included as contingent liabilities. In the event of an adverse judgment 

against the Government, some of the liabilities may be payable from the Treasury Judgment Fund. The 

Department records contingent liabilities in Note 15, Other Liabilities.

Table 16. Summary of Legal Contingent Liabilities

As of September 30

($ in millions)

DoD Consolidated Materiality Threshold

Total Claims Exceeding Materiality Threshold:

Probable

Reasonably Possible

Unable to Determine Possibility of Loss *

Remote

Total Claims Exceeding Materiality Threshold

Total Claims Above DoD Component Materiality

 Threshold, But Below the DoD Consolidated

 Materiality Threshold

* Cases in which legal counsel is unable to express an opinion concerning the outcome should be considered as 

 "Reasonably Possible" for financial reporting disclosure purposes.

 43

Dollars Number of 

Legal Actions

 3,193,826.0 22 1,365,416.9

Dollars Number of 

Legal Actions

$ 5,265,253.8 42 $ 1,472,468.0

 30

 2,058,255.0 8 99,965.6 6

$ 1,256.5 4

 12,237.7 8 5,829.0 3

2018 2017

$ 7,144.1 108 $ 6,598.6 119

$ 160.4 $ 152.3

$ 935.1 4

Other Commitments and Contingencies

The Department is a party in numerous individual contracts that contain clauses, such as price 

escalation, award fee payments, or dispute resolution, potentially resulting in a future outflow of budgetary 

resources. Contingencies considered both measurable and probable have been recognized as liabilities. 

Refer to Note 15, Other Liabilities, for additional details. In addition, the Department may have 

contingencies arising from treaties and other international agreements. Presently, the Department has 

limited capability to capture these potential liabilities. 

In FY 2018, the Department has $1.5 billion in obligations related to canceled appropriations for 

which it has a contractual commitment for payment ($1.5 billion in FY 2017), $950.4 million for 

contractual arrangements related to loan guarantees ($1,009.0 million in FY 2017), and $5.2 billion related 

to non-cancelable operating leases which may require future financial obligations ($4.2 billion in FY 2017). 

See Note 8, Direct Loan and Loan Guarantees, and Note 25, Other Disclosures, for additional information.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

92

Note 17. Military Retirement and Other Federal Employment Benefits

The Department complies with SFFAS 33, which requires the separate presentation of gains and

losses from changes in long-term assumptions used to estimate liabilities associated with pensions, other 

retirement and postemployment benefits. SFFAS 33 also provides a standard for selecting the discount rate 

and valuation date used in estimating these liabilities.

Table 17A. Military Retirement and Other Federal Employment Benefits Liability

As of September 30

($ in millions)

Pension and Health Benefits

Military Retirement Pensions

Military Pre Medicare-Eligible Retiree Health Benefits

Military Medicare-Eligible Retiree Health Benefits

Total Pension and Health Benefits

Other Benefits

FECA

Voluntary Separation Incentive Programs

DoD Education Benefits Fund

Other

Total Other Benefits

Total Military Retirement and Other Federal

Employment Benefits

Actuarial Cost Method Used for Pension and Health Benefits: Aggregate Entry-Age Normal Method

Market Value of Investments in Non-Marketable, Market Based Securities

 included in Assets Available to Pay Benefits: $1.1 trillion

2018

$ 2,415,346.8 $ (974,538.3)

Liabilities

(Assets 

Available to 

Pay Benefits)

Unfunded

Liabilities

$ 1,440,808.5

 535,318.1 (237,646.7) 297,671.4

$ 1,616,398.1 $ (730,405.6) $ 885,992.5

 249,694.0 - 249,694.0

 2,401,410.2 (968,052.3) 1,433,357.9

 5,858.0 - 5,858.0

 13,936.6 (6,486.0) 7,450.6

 6,886.0 (5,455.7) 1,430.3

 270.9 (108.6) 162.3

 921.7 (921.7) -
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

93

As of September 30

($ in millions)

Pension and Health Benefits

Military Retirement Pensions

Military Pre Medicare-Eligible Retiree Health Benefits

Military Medicare-Eligible Retiree Health Benefits

Total Pension and Health Benefits

Other Benefits

FECA

Voluntary Separation Incentive Programs

DoD Education Benefits Fund

Other

Total Other Benefits

Total Military Retirement and Other Federal

Employment Benefits

Actuarial Cost Method Used for Pension and Health Benefits: Aggregate Entry-Age Normal Method

Market Value of Investments in Non-Marketable, Market Based Securities

 included in Assets Available to Pay Benefits: $1.1 trillion

2017

$ 2,356,869.6 $ (879,367.4)

Liabilities

(Assets 

Available to 

Pay Benefits)

Unfunded

Liabilities

$ 1,477,502.2

 526,986.1 (223,306.2) 303,679.9

$ 1,567,689.2 $ (654,078.5) $ 913,610.7

 252,512.9 - 252,512.9

 2,347,188.2 (877,384.7) 1,469,803.5

 5,936.0 - 5,936.0

 9,681.4 (1,982.7) 7,698.7

 2,425.2 (853.6) 1,571.6

 321.5 (130.4) 191.1

 998.7 (998.7) -

Table 17B. Reconciliation of Beginning and Ending Liability Balances for Military Retirement and Other 

Federal Employment Benefits

For the year ended September 30

($ in millions)

Beginning Actuarial Liability

Expense:

Normal Cost

Interest on the Liability Balance

Plan Amendments

Experience Losses (Gains)

Other Factors

Expenses Before Losses (Gains) from

 Actuarial Assumption Changes

Actuarial Losses (Gains) due to:

Changes in Trend Assumptions

Changes in Assumptions Other

 Than Trend

Losses (Gains) from Actuarial

 Assumption Changes

Total Expenses

Less: Benefit Outlays

Total Changes in Actuarial Liability

Ending Actuarial Liability

 105,681.6 8,500.3 4,035.2 9.1 179.3

 - - - - -

 9,610.0 (8,729.9) (8,492.0) 3.0 6.9

 8,932.0 (2,678.3) (18,195.0) - -

 57,466.1 9,772.8 20,223.9 6.1 33.6

 29,673.5 10,135.7 10,498.3 - 138.8

 -

 2,069.7 3,525.9 21,547.6 1.9 (7.0)

 48,708.9 (2,818.9) 8,332.0 (50.6) (77.0)

 59,042.4 11,040.1

$ 1,616,398.1 $ 249,694.0 $ 535,318.1 $ 270.9 $ 921.7

Military 

Medicare 

Eligible Retiree 

Health Benefits

Voluntary 

Separation 

Incentive 

Programs

DoD Education 

Benefits Fund

Military 

Retirement 

Pensions

Military Pre 

Medicare 

Eligible Retiree 

Health Benefits

$ 1,567,689.2 $ 252,512.9 $ 526,986.1 $ 321.5 $ 998.7

 2,069.7

 10,652.7 61.6 249.3

2018

 (279.1) 14,949.5 1.9 (7.0)

 107,751.3 8,221.2 18,984.7 11.0 172.3

 - (3,805.0) (6,598.1) -
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

94

For the year ended September 30

($ in millions)

Beginning Actuarial Liability

Expense:

Normal Cost

Interest on the Liability Balance

Plan Amendments

Experience Losses (Gains)

Other Factors

Expenses Before Losses (Gains) from

 Actuarial Assumption Changes

Actuarial Losses (Gains) due to:

Changes in Trend Assumptions

Changes in Assumptions Other

 Than Trend

Losses (Gains) from Actuarial

 Assumption Changes

Total Expenses

Less: Benefit Outlays

Total Changes in Actuarial Liability

Ending Actuarial Liability

 82,489.9 12,861.7 19,388.3 6.8 103.8

 27,428.0 9,384.3 11,152.7 - 144.4

 (1,610.8) (6,274.1) (14,310.7) (1.8) (81.3)

 (858.2) - - - -

 (32.6)

 57,530.9 9,751.5 22,546.3 8.6 40.7

 - - - - -

 77,396.7 12,778.2 (30,820.1) (58.9) (217.2)

 58,003.7 10,768.5 10,709.6 70.6 288.4

 135,400.4 23,546.7 (20,110.5) 11.7 71.2

$ 1,567,689.2 $ 252,512.9 $ 526,986.1 $ 321.5 $ 998.7

Military 

Medicare 

Eligible Retiree 

Health Benefits

Voluntary 

Separation 

Incentive 

Programs

DoD Education 

Benefits Fund

Military 

Retirement 

Pensions

Military Pre 

Medicare 

Eligible Retiree 

Health Benefits

$ 1,490,292.5 $ 239,734.7 $ 557,806.2 $ 380.4 $ 1,215.9

 52,910.5

2017

 10,685.0 (39,498.8) 4.9 (32.6)

 - 1,109.1 (53,632.9) - -

 52,910.5 9,575.9 14,134.1 4.9

Pension and Health Benefits

Military Retirement Pensions 

The Military Retirement Fund is a defined benefit plan authorized by the NDAA for FY 1984 to 

provide funds used to pay annuities and pensions to retired military personnel and their survivors. The 

DoD Board of Actuaries approves the long-term economic assumptions for inflation, salary, and interest.

The actuaries calculate the actuarial liabilities annually using economic assumptions and actual experience 

(e.g., mortality and retirement rates). The Blended Retirement System (BRS) is a new retirement benefit 

merging aspects of both a defined benefit annuity with a defined contribution account, through the Thrift 

Savings Plan (TSP). Military personnel with a start date on or after January 1, 2018 are automatically 

enrolled in BRS. Although all members serving as of December 31, 2017 are grandfathered under the 

existing retirement system, Active Duty, National Guard, and Reserve personnel meeting established 

criteria may opt into BRS during calendar year 2018. Retiring members are given the option to receive a 

portion of their retired pay annuity in the form of a lump sum distribution.

The actuaries used the assumptions listed in Table 17C to calculate the FY 2018 actuarial liability.
U.S. Department of Defense Agency Financial Report for FY 2018

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95

Table 17C. Actuarial Assumptions for Military Retirement Pension Liability

(actual) (actual)

(estimated) (estimated)

Actuarial Cost Method Used: Aggregate Entry-Age Normal Method

Market Value of Investments in Market-Based and Marketable Securities: $786.9 billion

Assumed Interest Rate: 3.5%

Long Term 1.5% 2.0% 3.5%

FY 2019 2.8% 2.6% 3.5%

Inflation 

(COLA)

Projection Year Salary Interest

FY 2018 2.0% 2.4% 3.7%

Historically, the initial unfunded liability of the program was amortized over a 50 year period. 

Effective FY 2008, the initial unfunded liability is amortized over a 42 year period to ensure annual 

payments cover interest on the unfunded actuarial liability, with the last payment expected October 1, 2025. 

All subsequent gains and losses experienced by the system are amortized over a 30 year period. 

Military Retirement Health Benefits (MRHB) 

The MRHB are post-retirement benefits the Department provides to non-Medicare-eligible military 

retirees and other eligible beneficiaries through private sector health care providers and the Department’s 

medical treatment facilities. The actuaries calculate actuarial liabilities annually using assumptions and 

actual experience. 

For the FY 2018 actuarial liability calculation, actuaries used the assumptions listed in Table 17D.

Table 17D. Actuarial Assumptions for MRHB Liability

Actuarial Cost Method Used: Aggregate Entry-Age Normal Method

Assumed Interest Rate: 3.6%

MRHB Medical Trend FY 2017 - FY 2018 Ultimate Rate FY 2042

Non-Medicare Inpatient (Direct Care) 4.45% 4.00%

Non-Medicare Outpatient (Direct Care) 6.00% 4.00%

Non-Medicare Prescriptions (Direct Care)

Non-Medicare Prescriptions (Purchased Care) 3.28% 4.00%

U.S. Family Health Plan (USFHP) (Purchased Care) 3.95% 4.00%

Non-Medicare Outpatient (Purchased Care) 3.30% 4.00%

6.00% 4.00%

Non-Medicare Inpatient (Purchased Care) 1.95% 4.00%

Medicare-Eligible Retiree Health Care Fund (MERHCF) Benefits

In accordance with NDAA for FY 2001, MERHCF accumulates funds to finance the health care 

program liabilities of Medicare-eligible retirees for all the Uniformed Services and specific Medicareeligible beneficiaries. The Department Board of Actuaries approves the long-term assumptions for medical 

trends and interest. The actuaries calculate the actuarial liabilities annually using actual experience (e.g., 

mortality and retirement rates, direct care costs, purchased care). 

The actuaries used the assumptions listed in Table 17E to calculate the FY 2018 actuarial liability.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

96

Table 17E. Actuarial Assumptions for MERHCF Liability

Actuarial Cost Method Used: Aggregate Entry-Age Normal Method

Market Value of Investments in Market-Based and Marketable Securities: $286.7 billion 

Assumed Interest Rate: 3.6%

MERHCF Benefits - Medical Trend FY 2017 - FY 2018 Ultimate Rate FY 2042

Medicare Inpatient (Direct Care) 2.50% 4.00%

Medicare Outpatient (Direct Care) 4.00% 4.00%

Medicare Prescriptions (Direct Care)

Medicare Prescriptions (Purchased Care) 3.12% 4.00%

Medicare USFHP (Purchased Care) 2.52% 4.00%

Medicare Outpatient (Purchased Care) 3.00% 4.00%

3.80% 4.00%

Medicare Inpatient (Purchased Care) 1.00% 4.00%

The FY 2018 MERHCF liability includes Medicare liabilities for all Uniformed Services. The 

$535.3 billion liability includes $522.5 billion for the Department, $11.4 billion for the Coast Guard, 

$1.3 billion for the Public Health Service, and $0.1 billion for the National Oceanic and Atmospheric 

Administration (NOAA). The FY 2017 $527.0 billion liability included $514.5 billion for the Department, 

$11.1 billion for the Coast Guard, $1.3 billion for the Public Health Service, and $0.1 billion for NOAA. 

The FY 2018 contributions from each of the Uniformed Services were $8.1 billion from the 

Department, $204.1 million from the Coast Guard, $32.0 million from the Public Health Service, and 

$1.6 million from NOAA. The FY 2017 contributions from each of the Uniformed Services were 

$7.0 billion from the Department, $175.5 million from the Coast Guard, $27.9 million from the Public 

Health Service, and $1.4 million from NOAA.

Federal Employees’ Compensation Act (FECA) 

The Department of Labor (DOL) annually determines the liability for future workers’ 

compensation benefits including the expected liability for death, disability, medical, and miscellaneous 

costs for approved compensation cases, plus a component for incurred-but-not-reported claims. The 

liability is determined using historical benefit payment patterns related to a specific incurred period to 

predict the final payment related to that period. Consistent with past practice, these projected annual benefit 

payments have been discounted to present value based on interest rate assumptions on the Treasury’s Yield 

Curve for Treasury Nominal Coupon Issues (TNC Yield Curve) to reflect the average duration of income 

payments and medical payments. An interest rate for wage benefits of 2.72% was assumed for year one 

and years thereafter. An interest rate for medical benefits of 2.38% was assumed for year one and years 

thereafter. 

The DOL calculates this liability using wage inflation factors (cost of living adjustments or 

COLAs) and medical inflation factors (consumer price index medical or CPIM). The actual rates for these 

factors for charge back year (CBY) 2018 were also used to adjust the methodology’s historical payments 

to current year constant dollars. The compensation COLAs and CPIMs used in the projections for various 

charge back years are provided in Table 17F.
U.S. Department of Defense Agency Financial Report for FY 2018

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97

Table 17F. Actuarial Assumptions for FECA Liability

1.51% 3.48%

COLA CPIM

1.31% 3.21%

CBY

2019

2020

1.89% 3.68%

2.16% 3.71%

2.21% 4.09%

2021

2022

2023+

To test the reliability of the model discussed, DOL made comparisons between projected payments 

in the last year to actual amounts, by agency. Changes in the liability from last year’s analysis to this year’s 

analysis were also examined by agency, with any significant differences by agency inspected in greater 

detail. DOL concluded that the model has been stable and has accurately projected the actual payments by 

agency.

Voluntary Separation Incentive (VSI) Program 

The VSI Program was established by NDAA for FYs 1992 and 1993 to reduce the number of 

military personnel on active duty. The DoD Board of Actuaries approved the assumed annual interest rate 

of 1.9% used to calculate the actuarial liability. Since VSI is no longer offered, the actuarial liability 

calculated annually is expected to continue to decrease with benefit outlays and increase with interest cost.

The Market Value of Investments in Market-based and Marketable Securities is $137.8 million for 

FY 2018 and $138.6 million for FY 2017.

DoD Education Benefits Fund (EBF) 

The EBF was established by NDAA for FY 1985 to recruit and retain military members and aid in 

the readjustment of military members to civilian life. The actuaries calculate the actuarial liability annually 

based on the assumed interest rate of 3.25% as approved by the DoD Board of Actuaries. 

The Market Value of Investments in Market-based and Marketable Securities is $1.1 billion for 

both FY 2018 and FY 2017.

Other Federal Employment Benefits 

Other Federal Employment Benefits primarily consists of an estimated liability for incurred-butnot-reported medical claims not processed prior to fiscal year-end and accrued pensions and annuities

related to certain life insurance and pension plans.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

98

Note 18. General Disclosures Related to the Statement of Net Cost

Table 18. Costs and Exchange Revenue by Major Program

For the years ended September 30

($ in millions)

Military Retirement Benefits

Gross Cost

Less: Earned Revenues

Losses (Gains) from Actuarial Assumption Changes

 for Militray Retirement Benefits

Net Program Costs

Civil Works

Gross Cost

Less: Earned Revenues

Losses (Gains) from Actuarial Assumption Changes

 for Militray Retirement Benefits

Net Program Costs

Military Personnel

Gross Cost

Less: Earned Revenues

Losses (Gains) from Actuarial Assumption Changes

 for Militray Retirement Benefits

Net Program Costs

Operations, Readiness & Support

Gross Cost

Less: Earned Revenues

Losses (Gains) from Actuarial Assumption Changes

 for Militray Retirement Benefits

Net Program Costs

Procurement

Gross Cost

Less: Earned Revenues

Losses (Gains) from Actuarial Assumption Changes

 for Militray Retirement Benefits

Net Program Costs

Research, Development, Test & Evaluation

Gross Cost

Less: Earned Revenues

Losses (Gains) from Actuarial Assumption Changes

 for Militray Retirement Benefits

Net Program Costs

Family Housing & Military Construction

Gross Cost

Less: Earned Revenues

Losses (Gains) from Actuarial Assumption Changes

 for Militray Retirement Benefits

Net Program Costs

Total Net Cost

 - -

 78,480.8 75,778.8

 11,714.5 10,521.9

 (1,234.9) (5,133.5)

 -

 7,576.3

 9,168.2

 (1,591.9)

 -

 7,787.6

 12,603.8

 (4,816.2)

2018 2017

 13,411.6

 (24,396.2)

 80,681.4

 (57,810.7)

 80,535.5

 139,512.6

 (1,294.0)

 -

$ 96,630.1

 (29,360.3)

$ 104,973.1

 (41,456.8)

 17,019.2

 145,255.3

 (1,349.3)

 -

 143,906.0 138,218.6

 (284.2) 10,657.4

 234,973.1 254,869.5

 - -

 112,506.4 85,881.3

 (7,297.4) (10,503.1)

 - -

 10,479.6 5,388.4

$ 661,371.6 $ 637,891.2

 259,653.5 302,022.8

 105,209.0 75,378.2

 88,386.3 84,380.8

 (9,905.5) (8,602.0)
U.S. Department of Defense Agency Financial Report for FY 2018

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99

The Statement of Net Cost (SNC) represents the net cost of programs and organizations of the 

Department supported by appropriations or other means. The intent of the SNC is to provide gross and net 

cost information related to the amount of output or outcome for a given program or organization 

administered by a responsible reporting entity. The Department’s current processes and systems capture 

costs based on appropriation groups as presented in Table 18. The lower level costs for major programs 

are not presented as required by the Government Performance and Results Act of 1993 (GPRA). The 

Department is in the process of reviewing available data and developing a cost reporting methodology 

required by SFFAS 4, as amended by SFFAS 55.

The Department’s military retirement and postemployment costs are reported in accordance with 

SFFAS 33. As required by the standard, the Department separately presents on the SNC gains and losses 

from changes in long term assumptions used to estimate liabilities associated with pensions, other 

retirement benefits, and other postemployment benefits.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

100

Note 19. Disclosures Related to the Statement of Changes in Net Position

Cumulative Results of Operations – Prior Period Adjustments

The FASAB issued SFFAS 48 and SFFAS 50, which permit alternative methods in establishing 

opening balances and are effective for periods beginning after September 30, 2016 with early 

implementation allowed. Some DoD Components used the principles of these standards for FY 2017; 

additional DoD Components used the principles of these standards in FY 2018.

During FY 2018, the Department decreased the beginning Cumulative Results of Operation by 

$2.5 billion through prior period adjustments, General PP&E for land and buildings. As a result, the 

FY 2017 ending balance of $390.1 billion adjusted to an FY 2018 beginning balance of $392.6 billion. This 

entry also adjusted downward the ending balance of General PP&E by $2.5 billion.

During FY 2017, the Department increased the beginning Cumulative Results of Operations by 

$37.3 billion through prior period adjustments, from an FY 2016 ending balance of $469.5 billion to an 

FY 2017 beginning balance of $432.2 billion. The Department increased the ending balance of Operating 

Materiel and Supplies by $24.4 billion and of General PP&E by $12.9 billion.

Reconciliation Differences 

Statement of Budgetary Resources to the Statement of Changes in Net Position

Appropriations (Discretionary and Mandatory) reported on the Statement of Budgetary Resources 

exceed Appropriations Received on the Statement of Changes in Net Position by $68.8 billion in FY 2018 

and $66.3 billion in FY 2017. A reconciliation of these amounts is presented in Table 19A.

Table 19A. Reconciliation of Appropriations on the Statement of Budgetary Resources to Appropriations 

Received on the Statement of Changes in Net Position

For the year ended September 30

($ in millions)

Appropriations, Statement of Budgetary Resources (SBR)

Permanent and Temporary Reductions

Trust and Special Fund Receipts

Miscellaneous Items

Total Difference

Appropriations Received, Statement of Changes in Net Position

2017

$ 863.6

 87.6

$ 777.0

 95.8

2018

 (0.8)

 (164.2) (153.1)

 (0.4)

 (66.3)

$ 794.8

 (68.8)

$ 710.7

Permanent and Temporary Reductions primarily includes the amount of prior year balances and 

current year budget authority permanently reduced by enacted legislation; receipts upon collection not 

immediately available for obligation, but awaiting legislation; and authority currently unavailable, awaiting 

specific legal requirements to be met. 

Miscellaneous Items primarily includes the current year authority transfers in, authority made 

available from receipt or appropriation balances previously precluded from obligation, non-allocation 

transfers of invested balances, re-estimated loan subsidy appropriation, and current year authority transfers 

out.
U.S. Department of Defense Agency Financial Report for FY 2018

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101

Funds from Dedicated Collections Information to the Balance Sheet and Statement of Changes in Net 

Position

Funds from Dedicated Collections information is presented on a combined basis in Note 23, Funds 

from Dedicated Collections. Table 19B summarizes the elimination of intradepartmental activity between 

Funds from Dedicated Collections and all Other Fund types to arrive at the consolidated Net Position 

amounts presented on the DoD Agencywide Balance Sheet and Statement of Changes in Net Position.

Table 19B. Reconciliation of Combined Unexpended Appropriations and Cumulative Results of Operations

to Consolidated Unexpended Appropriations and Cumulative Results of Operations 

As of September 30

($ in millions)

Unexpended Appropriations - Dedicated Collections

Unexpended Appropriations - Other Funds

Cumulative Results of Operations - Dedicated Collections

Cumulative Results of Operations - Other Funds

Total Net Position

$ -

 (2,163.8) 16,778.4

 (358,834.7) 2,163.8 (360,998.5)

2018

$ 185,526.5

$ -

$ -

Combined Consolidating

Eliminations Consolidated

$ -

$ 185,526.5

 529,746.6 - 529,746.6

 14,614.6

As of September 30

($ in millions)

Unexpended Appropriations - Dedicated Collections

Unexpended Appropriations - Other Funds

Cumulative Results of Operations - Dedicated Collections

Cumulative Results of Operations - Other Funds

Total Net Position

2017

$ 67,740.4

$ -

$ -

Combined Consolidating

Eliminations Consolidated

$ -

$ 67,740.4

 457,849.4 - 457,849.4

 14,618.9

$ -

 (1,530.8) 16,149.7

 (404,727.9) 1,530.8 (406,258.7)
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

102

Note 20. Disclosures Related to the Statement of Budgetary Resources

The Statement of Budgetary Resources is presented on a combined basis in accordance with OMB 

Circular No. A-136; thus, intra-entity transactions have not been eliminated from the amounts presented. 

This presentation differs from that of the other principal financial statements, which are presented on a 

consolidated basis.

Budgetary Resources Obligated for Undelivered Orders

Table 20A. Budgetary Resources Obligated for Undelivered Orders at the End of the Period

As of September 30

($ in millions)

Intragovernmental

Unpaid

Prepaid / Advanced

Total Intragovernmental

Non-Federal

Unpaid

Prepaid / Advanced

Total Non-Federal

Budgetary Resources Obligated for Undelivered

 Orders at the End of the Period

* FY 2017 presentation not required

 343,783.9 *

2018 2017

 3,285.7 *

$ 467,272.3 $ 417,855.6

$ 120,202.7 *

 123,488.4 *

 319,795.6 *

 23,988.3 *

The breakout of total Budgetary Resources Obligated for Undelivered Orders at the End of the 

Period between (1) Intragovernmental and Non-Federal and (2) paid and unpaid amounts is a new 

presentation requirement for FY 2018; the FY 2017 presentation is not required in accordance with OMB 

Circular No. A-136. 

Available Borrowing / Contract Authority

Table 20B. Available Borrowing / Contract Authority at the End of the Period

As of September 30

($ in millions)

Available Borrowing and Contract Authority,

 End of the Period $ - $ -

2018 2017

The Department utilizes borrowing authority for the Military Housing Privatization Initiative. 

Borrowing authority is used in compliance with OMB Circular No. A-129. There was no remaining 

borrowing authority available at the end of the period for FY 2018 or FY 2017.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

103

Apportionment Categories for New Obligations and Upward Adjustments

Table 20C. Apportionment Categories of New Obligations and Upward Adjustments, Budgetary and NonBudgetary Credit Reform Financing Account

As of September 30

($ in billions)

Direct

Reimbursable

New Obligations and Upward Adjustments

 205.6

2018

Apportionment

Category A

Apportionment

Category B

$ 451.8 $ 445.9 $ 156.6 $ 1,054.3

Exempt from

Apportionment Total

$ 424.1 $ 268.0 $ 156.6 $ 848.7

 27.7 177.9 -

As of September 30

($ in billions)

Direct

Reimbursable

New Obligations and Upward Adjustments $ 425.3 $ 394.9 $ 161.4 $ 981.6

Exempt from

Apportionment Total

$ 409.1 $ 237.9 $ 153.0 $ 800.0

 16.2 157.0 8.4 181.6

2017

Apportionment

Category A

Apportionment

Category B

Apportionment Category A relates to appropriations for a specific period of time (e.g., Military 

Personnel appropriation) and Category B relates to appropriations for a specific project (e.g., Military 

Construction appropriation).

Permanent Indefinite Appropriations

The following permanent indefinite appropriations cover a wide variety of purposes to help the 

Department accomplish its missions. These purposes primarily include (1) military retirees’ health care 

benefits, retirement and survivor pay, and education benefits for veterans; (2) wildlife habitat restoration 

and water resources maintenance; (3) relocation of armed forces within a host nation; (4) separation 

payments for foreign nationals; and (5) upkeep of libraries and museums.

The Department received the following permanent indefinite appropriations in FY 2018 and 

FY 2017: 

Department of the Army General Gift Fund (10 U.S.C. §2601(c)(1)) 

Department of the Navy General Gift Fund (10 U.S.C. §2601(c)(2)) 

Department of the Air Force General Gift Fund (10 U.S.C. §2601(c)(3)) 

Department of Defense General Gift Fund (10 U.S.C. §2601) 

Disposal of Department of Defense Real Property (40 U.S.C. §572(b)(5)(A)) 

Lease of Department of Defense Real Property (40 U.S.C. §485(h)) 

Foreign National Employees Separation Pay Account, Defense (10 U.S.C. §1581) 

United States Naval Academy Gift and Museum Fund (10 U.S.C. §§6973, 6974) 

Ship Stores Profits, Navy (10 U.S.C §7220, 31 U.S.C. §1321) 

Burdensharing Contributions (10 U.S.C. §2350j) 
U.S. Department of Defense Agency Financial Report for FY 2018

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104

Forest Program (10 U.S.C. §2665) 

Medicare-Eligible Retiree Health Care Fund (10 U.S.C. §1111) 

Military Retirement Fund (10 U.S.C. §1461) 

Education Benefits Fund (10 U.S.C. §2006) 

Host Nation Support for U.S. Relocation Activities (10 U.S.C. §2350k) 

Hydraulic Mining Debris Reservoir (33 U.S.C. §683) 

Maintenance and Operation of Dams and Other Improvements of Navigable Waters (16 U.S.C. §810(a)) 

Payments to States (33 U.S.C. §701c-3) 

Wildlife Conservation (16 U.S.C. §§670-670f) 

Ainsworth Bequest (31 U.S.C. §1321) 

DoD Family Housing Improvement Fund (10 U.S.C. §2883(a)) 

DoD Military Unaccompanied Housing Improvement Fund (10 U.S.C. §2883(a)) 

Voluntary Separation Incentive Fund (10 U.S.C. §1175(h)) 

Rivers & Harbors Contributed Funds (33 U.S.C. §§560, 701h) 

Concurrent Receipt Accrual Payments to the Military Retirement Fund (10 U.S.C. §1466(b)(1)) 

Rocky Mountain Arsenal, Restoration (United States Statutes at Large, Volume 100, page 4003,

section 1367 (100 Stat. 4003 §1367))

Homeowners Assistance Fund (42 U.S.C. §3374(d), Public Law 111-5) 

Payments to Military Retirement Fund, Defense (10 U.S.C. §1466) 

Payment to Department of Defense Medicare-Eligible Retiree Health Care Fund (10 U.S.C. §1116(a)) 

Medicare-Eligible Retiree Health Fund Contribution, Navy (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, Marine Corps (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Navy (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Marine Corps (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, Army (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Army (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Army (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, Air Force (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Air Force (10 U.S.C. §1116) 

Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Air Force 

(10 U.S.C. §1116) 

Department of Defense Vietnam War Commemoration Fund, Defense (Public Law 110-181, 

122 Stat. 141 §598)
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

105

Legal Arrangements Affecting the Use of Unobligated Balances

A portion of the Department’s unobligated balances represent trust fund receipts collected in the 

current fiscal year exceeding the amount needed to pay benefits or other valid obligations. These receipts 

are temporarily precluded from obligation by law due to a benefit formula or other limitation. The receipts, 

however, are assets of the funds and are available for obligation in the future. The Department operates 

within the constraints of fiscal law and has no additional legal arrangements affecting the use of unobligated 

balances.

Explanation of Differences Between the Statement of Budgetary Resources and the Budget of the 

U.S. Government

Table 20D presents a reconciliation between the budgetary resources, obligations incurred, 

distributed offsetting receipts, and net outlays in the FY 2017 column on the Combined Statement of 

Budgetary Resources (SBR) to the actual amounts for FY 2017 from the “Analytical Perspectives – Federal 

Budget by Agency and Account” and “Appendix – Detailed Budget Estimates by Agency” sections of the 

FY 2019 President’s Budget. The FY 2020 Budget will display the FY 2018 actual values and is expected 

to be published in February 2019 at https://www.whitehouse.gov/omb/budget.

Table 20D. Explanation of Differences Between the SBR and the Budget of the U.S. Government

For the year ended September 30

($ in billions)

Combined Statement of Budgetary Resources

Expired Accounts that are Excluded from

 the Budget of the U.S. Government

Adjustments to the SBR * *

Permanent Reporting Differences ** **

Other

Budget of the U.S. Government

* The $(0.1) billion difference reported for Budgetary Resources and New Obligations and Upward Adjustments is

due to a FY 2017 adjustment to the SBR which had been reported on the Budget of the U.S. Government in the 

prior year.

** The $(0.1) billion difference reported for Budgetary Resources and New Obligations and Upward Adjustements is 

due to different reporting requirements on the SBR versus the Budget of the U.S. Government.

 -

$ 1,140.4

$ 1,086.3 $ 961.1 $ 98.0 $ 731.8

 - -

 (0.1) (0.1) - -

 - (0.1)

 (0.1) (0.1) -

$ 981.6 $ 98.0 $ 731.9

FY 2017 Actual

Budgetary 

Resources

New 

Obligations & 

Upward 

Adjustments 

 (53.9) (20.3) - -

Distributed 

Offsetting 

Receipts

Net 

Outlays

Other Disclosures

In compliance with OMB guidance, $123.0 billion of FY 2018 and $119.0 billion of FY 2017

General Fund appropriations received by the Department are also recognized on the SBR as appropriations 

received for trust and special funds. This duplicate reporting on the SBR relates to amounts from the 

Military Services’ contributions and Treasury’s payments to the Military Retirement Trust Fund and 

Medicare-Eligible Retiree Health Care Fund.

The Department received additional funding of $65.9 billion in FY 2018 and $82.8 billion in 

FY 2017 to cover obligations incurred above baseline operations in support of contingency operations.
U.S. Department of Defense Agency Financial Report for FY 2018

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106

Note 21. Reconciliation of Net Cost of Operations to Budget

The Reconciliation of Net Cost of Operations to Budget reconciles the cost (proprietary) reflected 

on the Statement of Net Cost to the budgetary information on the Statement of Budgetary Resources. This 

is accomplished by aligning budgetary obligations and non-budgetary resources available with the cost of 

the Department’s operations.

Table 21. Reconciliation of Net Cost of Operations to Budget

For the years ended September 30

($ in millions)

Resources Used to Finance Activities

Budgetary Resources Obligated

Obligations Incurred

Less: Spending Authority from Offsetting Collections

 and Recoveries ( - )

Obligations Net of Offsetting Collections and Recoveries

Less: Offsetting Receipts ( - )

Net Obligations

Other Resources

Donations and Foreitures of Property

Transfers In/Out Without Reimbursement ( +/- )

Imputed Financing from Costs Absorbed by Others

Other ( +/- )

Net Other Resources

Total Resources Used to Finance Activities

Resources Used to Finance Items Not Part of the Net Cost 

 of Operations

Change in Budgetary Resources Obligated for Goods, Services,

 and Benefits Ordered but Not Yet Provided

Undelivered Orders ( - )

Unfilled Customer Orders

Resources That Fund Expenses Recognized in Prior Periods ( - )

Budgetary Offsetting Collections and Receipts that Do Not 

 Affect Net Cost of Operations

Resources that Finance the Acquisition of Assets ( - )

Other Resources or Adjustments to Net Obligated Resources

 that Do Not Affect Net Cost of Operations

Less: Trust or Special Fund Receipts Related to Exchange

 in the Entity's Budget ( - )

Other ( +/- )

Total Resources Used to Finance Items Not Part of the Net

 Cost of Operations

Total Resources Used to Finance the Net Cost of Operations

 (170,722.8) (145,074.8)

 (15,889.4)

 3,327.5

 (31,928.9)

 559.3

 (106,271.6)

 (255.7)

 5,384.0

 (220.2)

 (2,918.4)

 (24,039.3)

 2,021.4

 (108,594.2)

 (49,416.7)

 12,444.6

 719,065.2 659,952.3

 (240,985.5) (222,120.7)

 813,356.9 759,490.2

 19.8 2.4

 7,681.4 (1,574.9)

2018 2017

$ 1,054,342.4 $ 981,610.9

 548,342.4 514,877.5

 (101,973.1) (97,963.0)

 711,383.8 661,527.2

 23.8 139.7

 5,309.1 3,673.9

 2,328.7 (5,390.9)
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

107

Table 21. Reconciliation of Net Cost of Operations to Budget (continued)

For the years ended September 30

($ in millions)

Components of Net Cost of Operations that Will Not Require

 or Generate Resources in the Current Period

Components Requiring or Generating Resources in Future Periods

Increase in Annual Leave Liability

Increase in Environmental and Disposal Liability

Upward/Downward Reestimates of Credit Subsidy ( +/- ) 

Increase in Exchange Revenue Receivable from the Public ( - )

Other ( +/- )

Total Components Requiring or Generating Resources in Future 

 Periods

Components that Will Not Require or Generate Resources

Depreciation and Amortization

Reevaluation of Assets or Liabilities ( +/- )

Other ( +/- )

Trust Fund Exchange Revenue

Cost of Goods Sold

Operating Materials and Supplies Used

Other

Total Components that Will Not Require or Generate Resources 

Total Components of Net Cost of Operations that Will Not 

 Require or Generate Resources in the Current Period

Net Cost of Operations

 (195.3) (16.9)

 75,916.6 97,606.6

 70,045.1 63,126.6

 54,021.6 14,885.1

 (65,225.4) (51,990.0)

2018 2017

 1,154.9 244.5

 1,677.2 1,644.9

 (50.9) (8.7)

 78,502.5 99,470.4

 1,754.3 2,170.2

 31,350.5

 (57,419.4)

 34,526.7

 113,029.2

$ 661,371.6

 39,100.3

 (43,748.9)

 23,543.3

 123,013.7

$ 637,891.2

Resources Used to Finance Other Activities, Other Resources, Other primarily consists of 

nonexchange gains and losses to revalue assets, as well as reconcile the proprietary and budgetary amounts. 

Resources Used to Finance Items Not Part of the Net Cost of Operations, Other Resources or 

Adjustments to Net Obligated Resources that Do Not Affect Net Cost of Operations, Other primarily 

consists of nonexchange gains and losses to revalue assets, as well as reconcile the proprietary and 

budgetary amounts. 

Components of Net Cost of Operations that Will Not Require or Generate Resources in the Current 

Period, Components Requiring or Generating Resources in Future Periods, Other consists primarily of 

future funded expenses.

Components of Net Cost of Operations that Will Not Require or Generate Resources in the Current 

Period, Components that Will Not Require or Generate Resources, Other primarily consists of cost 

capitalization offsets and other expenses not requiring budgetary resources.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

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Note 22. Disclosures Related to Incidental Custodial Collections

In FY 2018 and FY 2017, the Department collected $11.8 million and $1.5 million, respectively, 

of incidental custodial revenues generated primarily from forfeitures of unclaimed money and property. 

These funds are not available for use by the Department; the accounts are closed and relinquished to the 

Treasury at the end of the fiscal year.
U.S. Department of Defense Agency Financial Report for FY 2018

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Note 23. Funds from Dedicated Collections

The Department’s Funds from Dedicated Collections are financed by specifically identified 

revenues and other financing sources provided by non-federal sources. These specifically identified 

revenues and other financing sources are required by statute to be used for designated activities, benefits,

or purposes and must be accounted for separately from the Department’s general revenues. There has been 

no legislation in FY 2018 or FY 2017 which has significantly altered the purposes of the Department’s 

Funds from Dedicated Collections.

The disclosures in this note are made in accordance with SFFAS 27, as amended by SFFAS 43.

Table 23A. Combined Balance Sheet – Funds from Dedicated Collections

As of September 30

($ in millions)

Assets

Fund Balance with Treasury

Investments

Accounts and Interest Receivable

Other Assets

Total Assets

Liabilities and Net Position

Accounts Payable and Other Liabilities

Total Liabilities

Unexpended Appropriations

Cumulative Results of Operations

Total Liabilities and Net Position

2018

Harbor 

Maintenance 

and Related 

Funds

Rivers and 

Harbors 

Contributed and 

Advance Fund

 9,231.6 - 1,391.8 10,623.4

Other

Funds

Combined

Total

$ 297.4 $ 1,598.2 $ 2,172.6 $ 4,068.2

 6.9 517.5

$ 26.2 $ 1,645.0 $ 72.1 $ 1,743.3

$ 10,166.6 $ 1,901.0 $ 4,290.3 $ 16,357.9

 133.5 296.3 719.0 1,148.8

 504.1 6.5

$ 10,166.6

 1,645.0

 -

 256.0

$ 1,901.0

 26.2

 -

 10,140.4

$ 4,290.3

 1,743.3

 -

 14,614.6

$ 16,357.9

 72.1

 -

 4,218.2

As of September 30

($ in millions)

Assets

Fund Balance with Treasury

Investments

Accounts and Interest Receivable

Other Assets

Total Assets

Liabilities and Net Position

Accounts Payable and Other Liabilities

Total Liabilities

Unexpended Appropriations

Cumulative Results of Operations

Total Liabilities and Net Position

2017

Harbor 

Maintenance 

and Related 

Funds

Rivers and 

Harbors 

Contributed and 

Advance Fund

 9,095.3 - 1,279.3 10,374.6

Other

Funds

Combined

Total

$ 118.7 $ 1,279.5 $ 2,087.2 $ 3,485.4

 9.5 525.1

$ 6.1 $ 1,324.5 $ 63.6 $ 1,394.2

$ 10,320.6 $ 1,574.4 $ 4,118.1 $ 16,013.1

 597.4 288.5 742.1 1,628.0

 509.2 6.4

$ 10,320.6

 1,324.5

 -

 249.9

$ 1,574.4

 6.1

 -

 10,314.5

$ 4,118.1

 1,394.2

 -

 14,618.9

$ 16,013.1

 63.6

 -

 4,054.5
U.S. Department of Defense Agency Financial Report for FY 2018

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110

Table 23B. Combined Statement of Net Cost – Funds from Dedicated Collections

For the year ended September 30

($ in millions)

Gross Program Costs

Less: Earned Revenues

Net Cost of Operations $ 85.6 $ (84.0) $ 1,502.5 $ 1,504.1

Other

Funds

Combined

Total

$ 85.6 $ 316.5 $ 1,811.3 $ 2,213.4

2018

Harbor 

Maintenance 

and Related 

Funds

Rivers and 

Harbors 

Contributed and 

Advance Fund

 - (400.5) (308.8) (709.3)

For the year ended September 30

($ in millions)

Gross Program Costs

Less: Earned Revenues

Net Cost of Operations

2017

Harbor 

Maintenance 

and Related 

Funds

Rivers and 

Harbors 

Contributed and 

Advance Fund

 - (439.5) (282.9) (722.4)

$ 64.8 $ (120.8) $ 796.4 $ 740.4

Other

Funds

Combined

Total

$ 64.8 $ 318.7 $ 1,079.3 $ 1,462.8

Table 23C. Combined Statement of Changes in Net Position – Funds from Dedicated Collections

For the year ended September 30

($ in millions)

Net Position, Beginning of Period

Budgetary Financing Sources

Other Financing Sources

Less: Net Cost of Operations

Change in Net Position

Net Position, End of Period

2018

Harbor 

Maintenance 

and Related 

Funds

Rivers and 

Harbors 

Contributed and 

Advance Fund

 (174.1) 6.1 163.7 (4.3)

 1,502.5 1,504.1

 373.4 - 1,584.5 1,957.9

$ 10,140.4 $ 256.0 $ 4,218.2 $ 14,614.6

Other

Funds

Combined

Total

$ 10,314.5 $ 249.9 $ 4,054.5 $ 14,618.9

 (461.9) (77.9) 81.7 (458.1)

 85.6 (84.0)

For the year ended September 30

($ in millions)

Net Position, Beginning of Period

Budgetary Financing Sources

Other Financing Sources

Less: Net Cost of Operations

Change in Net Position

Net Position, End of Period $ 10,314.5 $ 249.9 $ 4,054.5 $ 14,618.9

Other

Funds

Combined

Total

$ 9,972.2 $ 232.9 $ 3,733.5 $ 13,938.6

 - (103.8)

 1,430.4

2017

Harbor 

Maintenance 

and Related 

Funds

Rivers and 

Harbors 

Contributed and 

Advance Fund

 342.3 17.0 321.0 680.3

 94.1 (9.7)

 64.8 (120.8) 796.4 740.4

 407.1 - 1,023.3

Tables 23A, 23B, and 23C are presented on a combined basis and relate solely to Funds from 

Dedicated Collections. The Net Position amounts related to Funds from Dedicated Collections reflected 

on Tables 23A and 23C will not equal those reflected on the DoD Agencywide Balance Sheet and Statement 

of Changes in Net Position, as those statements are presented on a consolidated basis. Refer to Note 19, 
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

111

Disclosures Related to the Statement of Changes in Net Position, for additional information on reconciling 

the combined Funds from Dedicated Collections Net Position amounts to the consolidated Funds from 

Dedicated Collections Net Position amounts.

Purpose, Source of Revenue, and Authority for Funds from Dedicated Collections

Harbor Maintenance and Related Funds

Harbor Maintenance Trust Fund (26 U.S.C. §9505) – The United States Army Corps of Engineers 

(USACE) Civil Works mission is funded by the Energy and Water Development Appropriations Acts. The 

Water Resources Development Act of 1986 covers a portion of USACE operations and maintenance costs 

for deep draft navigation. The Harbor Maintenance Trust Fund is available for making expenditures to 

carry out the functions specified in the Act and for the payment of all administrative expenses incurred by 

the Treasury, USACE, and the Department of Commerce. Taxes collected from imports, domestics, 

passengers, and foreign trade are deposited into the Trust Fund. The Bureau of the Fiscal Service manages 

and invests for the Trust Fund.

Coastal Wetlands Restoration Trust Fund and Coastal Wetlands Planning, Protection, and 

Restoration Act (16 U.S.C. §§3951-3956) – USACE, Environmental Protection Agency, and Fish and 

Wildlife Service are authorized to work with the State of Louisiana to achieve a goal of "no net loss of 

wetlands" in coastal Louisiana. USACE is also responsible for allocating funds. Federal contributions are 

75 percent of project costs, or 85 percent if the state has an approved Coastal Wetlands Conservation Plan. 

This Trust Fund receives funding from the Sport Fish Restoration and Boating Trust Fund.

Inland Waterways Trust Fund (26 U.S.C. §9506) – Excise taxes from the public are used by 

USACE for navigation, construction, and rehabilitation projects on inland waterways. The Bureau of the 

Fiscal Service manages and invests for the Trust Fund.

Rivers and Harbors Contributed and Advance Funds

Rivers and Harbors Contributed and Advance Funds (33 U.S.C. §§701h, 702f, and 703) –

Whenever any state or political subdivision offers to advance funds for a flood control project authorized 

by law, the Secretary of the Army (executed by USACE) may accept such funds and expend them in the 

immediate performance of such work. The funding is used to construct, improve, and maintain levees, 

water outlets, flood control, debris removal, rectification, enlargement of river channels, and similar work, 

in the course of flood control and river and harbor maintenance.

Other Funds from Dedicated Collections

Other funds from dedicated collection have been aggregated in accordance with SFFAS 43.

Special Recreation Use Fees (16 U.S.C. §§460l-6a and 6812(e)(1)) – The USACE charges and 

collects Special Recreation Use Fees at campgrounds located at lakes and reservoirs under their jurisdiction. 

Allowable fees include daily use fees, admission fees, recreational fees, annual pass fees, and other permit 

type fees. Receipts cover operation and maintenance of recreational sites.

Hydraulic Mining in California, Debris (33 U.S.C. §683) – Operators of hydraulic mines allowing 

debris to flow to a body restrained by a dam or other work erected by the California Debris Commission 

are required to pay an annual tax as determined by the Commission. USACE collects taxes and expends 

funds under the direction of the Department of the Army. Funds repay advances by the Federal Government 

or other agencies for construction, restraining works, settling reservoirs, and maintenance.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

112

Payments to States, Flood Control Act of 1954 (33 U.S.C. §701c-3) – USACE collects receipts for 

the leasing of lands acquired by the U.S. for flood control, navigation, and allied purposes (including the 

development of hydroelectric power). Funds received are appropriated and made available for use in the 

following fiscal year with 75 percent of funds provided to the state where the property is located. States 

may expend the funds for the benefit of public schools and public roads of the counties where the property 

is located, or for defraying county government expenses.

Maintenance and Operation of Dams and Other Improvements of Navigable Waters 

(16 U.S.C. §§803(f) and 810) – The Federal Energy Regulatory Commission (FERC) assesses charges 

against licensees when a reservoir or other improvement is constructed by the U.S. All proceeds from 

Indian reservations are credited to the Indians of the reservations. All other proceeds arising from licenses, 

except those established by the FERC for administrative reimbursement, are paid to the Treasury and 

allocated for specific uses. The Department of the Army is allocated 50 percent of charges from all licenses, 

except licenses for the occupancy and use of public lands and national forests. These funds are deposited 

in a special fund and used for maintenance, operation, and improvement of dams, and other navigation 

structures owned by the U.S., or in construction, maintenance, or operation of headwater, or other 

improvements to navigable waters of the U.S.

Fund for Non-Federal Use of Disposal Facilities (for dredged material) (33 U.S.C. §2326) – Nonfederal interests may use dredged material disposal facilities under the jurisdiction of, or managed by, the 

Secretary of the Army if the Secretary determines use will not reduce the availability of the facility for 

project purposes. Fees may be imposed to recover capital, operation, and maintenance costs of the disposal 

facility from which the fees were collected.

Defense Commissary Agency Surcharge Trust Fund (10 U.S.C. §2685) – Surcharge on sales of 

commissary goods finance the Commissary System operating expenses and capital purchases, precluded 

by law from being paid with appropriated funds. Revenue is generated through a five percent surcharge 

applied to each sale. These funds finance commissary-related information technology investments, 

equipment, advance design modifications to prior year construction projects, and maintenance and repair 

of facilities and equipment.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

113

Note 24. Fiduciary Activities

Table 24A. Schedule of Fiduciary Activity

For the years ended September 30

($ in millions)

Fiduciary Net Assets, Beginning of Year

Fiduciary Revenues

Contributions

Investment Earnings

Gain (Loss) on Disposition of Investments, Net

Administrative and Other Expenses

Distibutions To and On Behalf Of Beneficiaries

Increase / (Decrease) in Fiduciary Net Assets

Fiduciary Net Assets, End of Year

 -

$ 77.8

 0.3

$ 77.9

2018 2017

$ 77.8 $ 80.1

 0.1 (2.3)

 - -

 - -

 (42.7) (76.1)

 -

 42.5 73.5

 0.3

Table 24B. Schedule of Fiduciary Net Assets

As of September 30

($ in millions)

Cash and Cash Equivalents

Less: Liabilities

Total Fiduciary Net Assets

2018 2017

$ 77.9 $ 77.8

 - -

$ 77.9 $ 77.8

Fiduciary activities exist when the Department has collected, received, held, or made disposition 

of assets on behalf of an individual or non-Federal entity. Fiduciary assets are not recognized on the 

Balance Sheet.

Public Law 89-538 authorized the Department, through the Savings Deposit Program (SDP), to 

collect voluntary contributions from members of the Armed Forces serving in designated areas, up to 

$10,000 per deployment per member. These contributions and earned interest (10% per year, paid 

quarterly) are deposited in the Treasury on behalf of the members and kept as a separate fund. Military 

members have access to SDP statements for viewing deposits and other activity. Funds are returned to a 

military member upon request after leaving the designated area; however, at 120 days if a request is not 

made, the funds are returned to the member via direct deposit by the Department. Funds in excess of 

$10,000 may be withdrawn quarterly. Otherwise, while in the designated area, a withdrawal of deposit may 

only be made in limited situations.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

114

Note 25. Other Disclosures

Table 25. Future Payments Due for Non-Cancelable Operating Leases 

As of September 30

($ in millions)

Intragovernmental

Fiscal Year

2019

2020

2021

2022

2023

After 5 Years

Total Intragovernmental

 Future Lease Payments

Non-Federal

Fiscal Year

2019

2020

2021

2022

2023

After 5 Years

Total Non-Federal Future

 Lease Payments

Total Future Lease Payments

 148.8 0.5 18.2 167.5

$ 4,622.9 $ 23.5 $ 587.5 $ 5,233.9

 778.6 2.4 114.6 895.6

 70.6 0.1 22.7 93.4

2018

Land and 

Buildings

Equipment

$ 711.0 $ 3.2 $ 110.6 $ 824.8

Asset Category

 486.2 2.6 14.2 503.0

Other Total

 499.4 3.2 106.4 609.0

 500.5 3.2 107.2 610.9

 500.1 2.5 109.1 611.7

 1,147.1 6.4 25.4 1,178.9

 3,844.3 21.1 472.9 4,338.3

 220.4 0.8 18.2 239.4

 96.6 0.2 18.4 115.2

 61.0 0.1 18.7 79.8

 181.2 0.7 18.4 200.3

The future lease payments due presented on Table 25 are for non-cancelable operating leases only. 

Unlike capital leases, operating leases do not transfer the benefits and risks of ownership; rather, payments 

for operating leases are expensed over the life of the lease. Future year cost projections use the Consumer 

Price Index. Office space is the largest component of land and building leases. Other leases are primarily 

commercial leases with the general public and include automobile leases.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

115

Note 26. Disclosure Entities and Related Parties

In accordance with SFFAS 47, the Department is disclosing its relationship with its Departmentsponsored DoD Nonappropriated Fund Instrumentalities (NAFIs) and Federally Funded Research and 

Development Centers (FFRDCs). The financial position and results of operations of NAFIs and FFRDCs 

are not reported in the DoD consolidated financial statements.

The Department has a special relationship with NAFIs, which are fiscal entities supported in whole 

or in part by nonappropriated funds (NAFs). For the most part, NAFs are generated from sales and user 

fees. NAFIs are established by Department policy, controlled by the Military Departments, and governed 

by sections of title 10, United States Code. NAFIs, consisting primarily of the Military Services exchanges 

and morale, welfare, and recreation (MWR) entities, are intended to enhance the quality of life of members 

of the uniformed services, retired members, and dependents of such members, and to support military 

readiness, recruitment, and retention.

The Under Secretary of Defense for Personnel and Readiness (USD(P&R)) exercises overall policy 

direction for and oversight of DoD NAF activities. The Under Secretary of Defense (Comptroller)/Chief 

Financial Officer (USD(C)/CFO) and the Defense Finance and Accounting Service (DFAS), in coordination 

with the USD(P&R), are responsible for NAF accounting policy. DoD policy requires DoD Components 

to appoint advisory groups for NAFIs. The advisory group ensures that the NAFI is responsive to 

authorized patrons and to the purposes for which the NAFI was created. Additionally, the NAFIs are subject 

to the Department’s policy requirements for financial reporting to USD(P&R) and financial audits 

conducted by independent public accounting firms.

Similarly, the Department maintains long-term contractual relationships with the parent 

organizations of ten Department-sponsored FFRDCs to meet research or development needs that cannot be 

met as effectively by existing government or contractor resources. There are three categories of FFRDCs 

that provide support to the Department – (1) research and development laboratories, (2) systems 

engineering and integration centers, and (3) study and analysis centers. All DoD funding for FFRDC work 

is provided through the Department’s contract with the parent organization that operates each FFRDC. 

Federal Acquisition Regulation (FAR) Part 35.017 provides federal policy for the establishment and use of 

FFRDCs. 

The FFRDC relationships are defined through a bi-lateral sponsoring agreement between each DoD 

sponsoring organization and the university or private-sector non-profit parent organization that operates 

each FFRDC. While the Department does not control the day-to-day operations of the FFRDCs, the parent 

organization must agree that the FFRDC will conduct its business in a manner befitting its special 

relationship with the Department, operate in the public interest with objectivity and independence, and be 

free from organizational conflicts of interest. An FFRDC may be used only for work that is within its 

purpose, mission, and general scope of effort, as established in the sponsoring agreement. 

The FFRDCs provide significant benefits to the Department, which are critical to national security. 

Congress restricts the amount of support that the Department may receive from Department-sponsored 

FFRDCs through a limitation that it sets annually on the staff years of technical effort that may be funded. 

The Department has not identified any related party relationships that meet the disclosure 

requirements of SFFAS 47.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

116

Required Supplementary Stewardship Information

The stewardship objective of federal financial reporting requires the Department to report on its 

stewardship of certain resources entrusted to it and on certain responsibilities assumed by it that cannot be 

reflected in traditional financial measures. These resources and responsibilities do not meet the criteria for 

assets and liabilities but are important to understanding the operations and financial condition of the 

Department.

Costs of stewardship-type resources are treated as expenses in the year the costs are incurred. 

However, the costs and associated resources are intended to provide long-term benefits to the public.

The Department’s stewardship investments are measured by expensed for (1) federally-financed, 

but not federally owned physical property (Non-Federal Physical Property) and (2) federally-financed 

Research and Development (R&D).

Non-Federal Physical Property

Table RSSI-1. Non-Federal Physical Property Investments

As of September 30

($ in millions)

Transferred Assets

National Defense Mission Related

Funded Assets

National Defense Mission Related

Total Non-Federal Phsical Property

 Investments

2018 2017 2016 2015 2014

$ 1,178.8 $ 1,026.9 $ 1,282.4 $ 1,319.9 $ 1,125.6

 16.4 15.5 17.2 12.7 12.4

$ 1,162.4 $ 1,011.4 $ 1,265.2 $ 1,307.2 $ 1,113.2

The Non-Federal Physical Property investments support the purchase, construction, or major 

renovation of physical property owned by state and local governments. In addition, Non-Federal Physical 

Property investments include federally-owned physical property transferred to state and local governments. 

The Department participates in cost-sharing agreements with non-federal sponsors which are governed 

under numerous Water Resources Development Acts. The Department’s transferred assets include 

expenditures supporting the design, build, and construction services/management for the missions of 

commercial navigation, flood/storm damage reduction, hydropower, regulatory, environmental, recreation,

and water supply.

Investments in Research and Development

Investment values included in this report are based on R&D expenditures. The R&D programs are 

classified in the following categories: Basic Research, Applied Research, and Development. The amounts 

reported in Table RSSI-2 present the expenditures from FY 2014 to FY 2018 for all DoD Components. 
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

117

Table RSSI-2. Investments in Research and Developments

As of September 30

($ in millions)

Basic Research

Applied Research

Development

Advanced Technology Development

Advanced Component Development

 and Prototypes

System Development and Demonstration

Research, Development, Test and

 Evaluation Management Support

Operational Systems Development

Total

 6,393.6 6,988.6 6,307.5 5,744.7 5,500.6

 24,776.1 21,611.1 20,428.8 20,441.9 20,334.3

 13,241.3

$ 75,721.0 $ 66,938.8 $ 63,260.0 $ 61,004.2 $ 60,705.6

2018 2017 2016 2015 2014

$ 2,321.1 $ 1,960.3 $ 2,106.8 $ 1,958.0 $ 1,948.2

 5,862.9 5,736.5 5,525.8 5,007.6 5,253.3

 12,517.9 11,954.9 10,947.0

 6,882.3 5,189.3 5,335.5 5,163.3 5,262.5

 11,487.3 11,037.7 10,733.8 11,459.7

 16,243.7 13,965.7

Basic Research is the systematic study to gain knowledge or understanding of the fundamental 

aspects of phenomena and of observable facts without specific applications, processes, or products in mind.

Basic Research involves the gathering of knowledge or better understanding of the subject under study. 

Major outputs are scientific studies and research papers.

Applied Research is the systematic study to gain knowledge or understanding necessary for 

determining the means by which a recognized and specific need may be met. It is the practical application 

of such knowledge or understanding for the purpose of meeting a recognized need. This research points 

toward specific military needs with a view toward developing and evaluating the feasibility and 

practicability of proposed solutions and determining their parameters. Major outputs are scientific studies, 

investigations, research papers, hardware components, software codes, or limited construction of a weapon 

system component, to include non-system-specific development efforts. 

Development takes what has been discovered or learned from basic and applied research and uses 

it to establish technological feasibility, assessment of operability, and production capability. Development 

consists of the five stages:

 Advanced Technology Development is the systematic use of the knowledge or understanding 

gained from research and directed toward proof of concept and feasibility rather than directed 

toward the development of hardware for service use. It employs demonstration activities intended 

to test a technology or method.

 Advanced Component Development and Prototypes evaluates integrated technologies in an 

operating environment as realistic as possible to assess the performance or cost reduction potential 

of advanced technology. Programs in this phase are generally system-specific. Major outputs of 

Advanced Component Development and Prototypes are hardware and software components and 

complete weapon systems ready for operational and developmental testing and field use.

 System Development and Demonstration concludes the program or project and prepares it for 

production. It consists primarily of preproduction efforts, such as logistics and repair studies. 

Major outputs are weapons systems finalized for complete operational and developmental testing.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

118

 Research, Development, Test, and Evaluation Management Support bolsters installations and 

operations for general research and development use. This category includes costs associated with 

test ranges, military construction maintenance support for laboratories, operation and maintenance 

of test aircraft and ships, and studies and analyses furthering the Research and Development 

program.

 Operational Systems Development funding finances projects, programs, or upgrades in engineering 

and manufacturing development stages which have received approval for production, including 

production funds that have been budgeted in subsequent fiscal years.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

119

Required Supplementary Information

This section providesthe deferred maintenance and repairs disclosures, required in accordance with 

SFFAS 42, and the Combining Statement of Budgetary Resources, which disaggregates the information 

aggregated for presentation on the DoD Agencywide Combined Statement of Budgetary Resources.

Real Property Deferred Maintenance and Repairs

Maintenance and repairs are activities directed toward keeping real property assets in an acceptable 

condition. Activities include preventive maintenance; replacement of parts, systems, or components; and

other activities needed to preserve or maintain the asset. Maintenance and repairs, as distinguished from 

capital improvements, exclude activities directed towards expanding the capacity of an asset or otherwise 

upgrading it to serve needs different from, or significantly greater than, its current use.

Deferred Maintenance and Repairs (DM&R) are maintenance and repairs that were not performed 

when needed or were scheduled to be and are delayed for a future period. DM&R are identified through 

condition assessment surveys in accordance with the September 10, 2013 Under Secretary of Defense for 

Acquisition Technology and Logistics policy memorandum, Standardizing Facility Condition Assessments. 

The real property record is the data source for obtaining the reported total deferred maintenance and repairs. 

Facility Categories are:

 Category 1: Buildings, Structures, and Linear Structures that are enduring and required to support 

an ongoing mission, including multi-use Heritage Assets;

 Category 2: Buildings, Structures, and Linear Structures that are Heritage Assets; and

 Category 3: Buildings, Structures, and Linear Structures that are excess to requirements or planned 

for replacement or disposal, including multi-use Heritage Assets.

Table RSI-1. Real Property Deferred Maintenance and Repairs (excluding Military Family Housing)

As of September 30

($ in millions)

Property Type

Category 1

Category 2

Category 3

Total

2018

$ 1,235,640.3

$ 95,815.9

$ 110,816.6

Plant Replacement Value Required Work (Deferred 

Maintenance & Repair) Percentage

9%

9%

 94,998.7 10,903.7 11%

$ 1,122,340.6

 18,301.0 4,097.0 22%

As of September 30

($ in millions)

Property Type

Category 1

Category 2

Category 3

Total

2017

$ 1,219,072.5

$ 100,054.3

$ 115,175.9

Plant Replacement Value Required Work (Deferred 

Maintenance & Repair) Percentage

9%

9%

 85,461.0 10,420.6 12%

$ 1,111,711.7

 21,899.8 4,701.0 21%
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

120

Table RSI-2. Real Property Deferred Maintenance and Repairs (Military Family Housing only)

As of September 30

($ in millions)

Property Type

Category 1

Category 2

Category 3

Total

2018

$ 25,474.0

$ 1,451.0

$ 1,685.0

Plant Replacement Value Required Work (Deferred 

Maintenance & Repair) Percentage

6%

7%

 531.0 123.0 23%

$ 24,560.0

 383.0 111.0 29%

As of September 30

($ in millions)

Property Type

Category 1

Category 2

Category 3

Total

2017

$ 22,330.0

$ 1,428.0

$ 1,599.0

Plant Replacement Value Required Work (Deferred 

Maintenance & Repair) Percentage

7%

7%

 536.0 116.0 22%

$ 21,466.0

 328.0 55.0 17%

As of the end of FY 2018, the Department estimates deferred facility maintenance cost of more 

than $112.5 billion for facilities with replacement cost of $1.3 trillion. The totals include $2.2 billion in 

USACE Civil Works-related maintenance needs with replacement cost of more than $267.1 billion.

Maintenance and Repair Policies

The Department is migrating to the Sustainment Management System (SMS), to perform a cyclical 

assessment of real property facilities and assign a facility condition index (FCI), which considers an asset’s 

key life-cycle attributes such as age and material.

Maintenance and Repair Prioritization and Acceptable Condition Standards

The Department considers mission, health and safety, and quality of life when assigning priority to 

maintenance needs and assessing whether a facility is in acceptable condition. Generally, an asset is 

considered acceptable when it is in good condition with an assigned FCI of 90 percent or above.

Deferred Maintenance and Repair Exclusions

The deferred maintenance and repair information presented relates to all DoD facilities and is not 

restricted to capitalized assets.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

121

Equipment Deferred Maintenance and Repairs

Table RSI-3. Equipment Deferred Maintenance and Repairs

As of September 30

($ in millions)

Major Categories

Aircraft

Automotive Equipment

Combat Vehicles

Construction Equipment

Electronics and Communications Systems

Missiles

Ships

Ordnance Weapons and Munitions

Other Items Not Identified Above

Total

 47.3

$ 2,777.8

 5.7

$ 1,611.4

 221.2 249.4

2018 2017

$ 583.7 $ 1,003.6

 74.3 298.4

 113.9 351.3

 123.9 127.7

 65.8 50.2

 432.7

 372.6 258.8

 8.7

Maintenance and Repair Policies

Depot maintenance requirements for equipment are developed during the annual budget process 

and updated based on work completion, shifts in priorities, work stoppages, or additional requirements. 

Not all unfunded depot maintenance requirements are deferred. In support of the Planning, Programming,

Budgeting, and Execution (PPBE) process, each Military Service has fairly detailed and methodical 

processes for determining their depot maintenance requirements. During this process, and as more 

information becomes available, depot requirements are adjusted and refined, and the amount of funding is

determined, based on Military Service priorities and assessment of risk.

Ultimately, Military Service depot maintenance requirements and funding amounts are included in 

the baseline budget. In the year of execution, the Military Services may take steps to either mitigate, or 

exacerbate the levels of deferred maintenance depending upon the availability of resources and Military 

Service priorities. The Military Services may take steps to mitigate deferred maintenance through the 

reprogramming of resources from cancelled programs, or from those of a lesser priority, or utilize 

supplemental funding. The Military Services may also cancel requirements, direct maintenance be 

performed at the field-level, or even reduce force structure and reprogram those operation and maintenance

funds.

Maintenance and Repair Prioritization and Acceptable Condition Standards

The Department prioritizes maintenance and repair requirements based on mission and health and 

safety. In addition, emerging requirements and real world events drive review and reprioritization of 

maintenance and repair requirements. The Department employs risk-based methodologies in determining 

acceptable levels of equipment operational risk.

Deferred Maintenance and Repair Exclusions

The deferred maintenance and repair information presented relates to all DoD equipment and is not 

restricted to capitalized assets.
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

122

Significant Changes in Deferred Maintenance and Repair

The Department’s deferred maintenance and repair work for equipment, platforms, and weapon 

systems decreased by $1.2 billion during FY 2018. The decrease was driven by the United States Special 

Operations Command (USSOCOM) paying for all maintenance and repairs during the current fiscal year; 

therefore it did not have to defer maintenance and repair work. 
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

123

Combining Statement of Budgetary Resources

Table RSI-4. Combining Statement of Budgetary Resources (Budgetary)

For the year ended September 30

($ in millions)

Budgetary Resources

Unobligated Balance from Prior Year Budget 

 Authority, Net (Discretionary and Mandatory)

Appropriations (Discretionary and Mandatory)

Borrowing Authority (Discretionary and Mandatory)

Contract Authority (Discretionary and Mandatory)

Spending Authority from Offsetting Collections

 (Discretionary and Mandatory)

Total Budgetary Resources

Memorandum (Non-Add) Entries

Net Adjustments to Unobligated Balances Brought 

 Forward, Oct 1

Status of Budgetary Resources

New Obligations and Upward Adjustments (Total)

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts

Exempt from Apportionment, Unexpired

 Accounts

Unapportioned, Unexpired Accounts

Unexpired Unobligated Balance, End of Year

Expired Unobligated Balance, End of Year

Unobligated Balance, End of Year (Total)

Total Budgetary Resources

O utlays, Net

Outlays, Net (Total) (Discretionary and Mandatory)

Distributed Offsetting Receipts (-)

Agency O utlays, Net (Discretionary and Mandatory)

Operations, 

Readiness & 

Support

$ 61,171.2

 374,282.8

 -

 88,428.1

 76,215.3

$ 442.5

$ 26,937.2

 30,618.9

Civil Works

$ 11,986.6

 25,087.7

 -

 -

 20,516.2

Military 

Retirement 

Benefits

$ -

 69,065.7

 -

 -

 -

$ 151,921.1 $ 216,995.5 $ 125,734.6 $ 31,028.4 $ 69,065.7 $ 57,590.5 $ 600,097.4 $1,252,433.2

 1,385.9 3,771.0 11,324.3 6,201.2 119,413.9

 - - - - 88,428.1

 - - - - -

 144,017.0 147,080.9 93,807.9 10,241.0 863,583.0

$ 6,518.2 $ 66,143.6 $ 20,602.4 $ 14,586.2 $ 181,008.2

$ 2,777.7 $ 5,318.7 $ 1,427.8 $ 245.9 $ - $ 12,087.7 $ 22,300.3

$ 69,065.7

 -

 -

$ 553,827.7

 22,505.9

 (894.3) 3,769.9

2018

$ 140,398.4 $ 101,647.5 $ 13,553.1 $1,054,209.3

Research, 

Development, 

Test & 

Evaluation

Family 

Housing & 

Military 

Contstuction

Combined

Military 

Personnel Procurement

 2,912.6 1,578.0 - 19,009.4

 228.8 73,438.6 22,509.1 16,428.7

$ 148,779.7

 - - - -

 228.8

 - 984.5

 73,423.7 22,497.8

 170,511.7

 - 14.9 11.3 0.9

 3,141.4 24,087.1 - 46,269.7

 1,933.2

 2,875.6

 16,427.8 165,702.9

 -

 921.6

 30,646.2 27,260.3

$ 151,921.1

$ 138,990.3

 -

$ 138,990.3

 3,158.5

 76,597.1

$ 216,995.5

$ 111,904.0

 -

$ 111,904.0

$ 125,734.6

$ 78,315.2

 (7.8)

$ 78,307.4

 1,046.6

 17,475.3

$ 31,028.4

$ 6,338.1

 -

$ 6,338.1

$ 69,065.7

$ 64,541.9

 (98,904.2)

$ (34,362.3)

 7.1

 30,653.3

$ 57,590.5

$ 5,932.9

 (860.2)

$ 5,072.7

$ 600,097.4

$ 357,193.6

 (2,200.9)

$ 354,992.7

 27,712.2

 198,223.9

$1,252,433.2

$ 763,216.0

 (101,973.1)

$ 661,242.9
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

124

For the year ended September 30

($ in millions)

Budgetary Resources

Unobligated Balance from Prior Year Budget 

 Authority, Net (Discretionary and Mandatory)

Appropriations (Discretionary and Mandatory)

Borrowing Authority (Discretionary and Mandatory)

Contract Authority (Discretionary and Mandatory)

Spending Authority from Offsetting Collections

 (Discretionary and Mandatory)

Total Budgetary Resources

Memorandum (Non-Add) Entries

Net Adjustments to Unobligated Balances Brought 

 Forward, Oct 1

Status of Budgetary Resources

New Obligations and Upward Adjustments (Total)

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts

Exempt from Apportionment, Unexpired

 Accounts

Unapportioned, Unexpired Accounts

Unexpired Unobligated Balance, End of Year

Expired Unobligated Balance, End of Year

Unobligated Balance, End of Year (Total)

Total Budgetary Resources

O utlays, Net

Outlays, Net (Total) (Discretionary and Mandatory)

Distributed Offsetting Receipts (-)

Agency O utlays, Net (Discretionary and Mandatory)

$ 568,587.3

$ 339,272.8

 (1,027.4)

$ 338,245.4

 33,611.0

 158,730.3

$1,140,211.8

$ 731,918.9

 (97,963.0)

$ 633,955.9

$ 67,652.2

$ 67,676.3

 (96,285.9)

$ (28,609.6)

 5.1

 11,544.1

$ 29,805.4

$ 7,087.5

 (649.2)

$ 6,438.3

$ 105,335.8

$ 69,329.3

 (0.5)

$ 69,328.8

 1,437.4

 14,339.9

$ 27,335.7

$ 6,272.7

 -

$ 6,272.7

$ 147,903.6

$ 137,936.4

 -

$ 137,936.4

 3,740.1

 61,019.6

$ 193,591.8

$ 104,343.9

 -

$ 104,343.9

 125,119.3

 - (422.4) 9.6 206.7

 3,667.5 19,173.2 - 48,986.0

 1,910.5

 6,759.2

 12,695.8 116,449.6

 -

 0.1

 11,539.0 26,455.6

 3,311.3 2,586.7 - 22,530.4

 356.2 57,279.5 16,586.5 12,902.5

$ 144,236.1

 - - - -

 356.2

 - 2,116.5

 57,701.9 16,576.9

2017

$ 132,572.2 $ 86,162.6 $ 12,995.8 $ 981,481.5

Research, 

Development, 

Test & 

Evaluation

Family 

Housing & 

Military 

Contstuction

Combined

Military 

Personnel Procurement

$ 67,652.2

 -

 -

$ 519,601.3

 19,380.5

 1,800.6 4,958.6

$ 3,026.3 $ 4,351.5 $ 4,199.9 $ 778.6 $ - $ 12,667.6 $ 25,361.8

 139,378.1 124,108.8 75,852.3 6,818.8 776,981.7

$ 7,237.0 $ 66,103.3 $ 19,865.4 $ 15,528.9 $ 180,984.0

 - - - - 76,540.2

 - - - - -

 1,288.5 3,379.7 9,618.1 4,988.0 105,705.9

$ 147,903.6 $ 193,591.8 $ 105,335.8 $ 27,335.7 $ 67,652.2 $ 29,805.4 $ 568,587.3 $1,140,211.8

Military 

Retirement 

Benefits

$ -

 67,652.2

 -

 -

 -

Civil Works

$ 10,249.9

 7,625.7

 -

 -

 11,929.8

$ 337.9

$ 18,261.3

 9,738.3

Operations, 

Readiness & 

Support

$ 61,999.5

 355,545.8

 -

 76,540.2

 74,501.8
U.S. Department of Defense Agency Financial Report for FY 2018

Financial Section

125

Table RSI-5. Combining Statement of Budgetary Resources (Non-Budgetary Credit Reform Financing Account)

For the year ended September 30

($ in millions)

Budgetary Resources

Unobligated Balance from Prior Year Budget 

 Authority, Net (Discretionary and Mandatory)

Appropriations (Discretionary and Mandatory)

Borrowing Authority (Discretionary and Mandatory)

Contract Authority (Discretionary and Mandatory)

Spending Authority from Offsetting Collections

 (Discretionary and Mandatory)

Total Budgetary Resources

Memorandum (Non-Add) Entries

Net Adjustments to Unobligated Balances Brought 

 Forward, Oct 1

Status of Budgetary Resources

New Obligations and Upward Adjustments (Total)

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts

Exempt from Apportionment, Unexpired

 Accounts

Unapportioned, Unexpired Accounts

Unexpired Unobligated Balance, End of Year

Expired Unobligated Balance, End of Year

Unobligated Balance, End of Year (Total)

Total Budgetary Resources

Outlays, Net

Outlays, Net (Total) (Discretionary and Mandatory)

Distributed Offsetting Receipts (-)

Agency Outlays, Net (Discretionary and Mandatory)

 - - - -

$ 71.2 $ 71.2 $ (5.0) $ (5.0)

 71.2 71.2 (5.0) (5.0)

 - - - -

 69.0 69.0 85.0 85.0

 202.1 202.1 214.4 214.4

 69.0 69.0 85.0 85.0

 69.0 69.0 85.0 85.0

 - - - -

 - - - -

 133.1 133.1 129.4 129.4

 - - - -

 61.6 61.6 76.6 76.6

 202.1 202.1 214.4 214.4

 - - - -

 - - - -

 55.4 55.4 58.1 58.1

$ 85.1 $ 85.1 $ 79.7 $ 79.7

2018 2017

Combined

Operations, 

Readiness & 

Support

Operations, 

Readiness & 

Support

Combined
















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FY 2018

Summary of Financial Statement 

Audit and Management Assurances 143

Payment Integrity 164

Fraud Reduction Report 191

Reduce the Footprint 193

Civil Monetary Penalty Adjustment 

for Inflation 194

Grants Oversight and New Efficiency 

Act Requirements 195

Management Challenges 196

Other Information
Face of Defense: Sailor from Humble Beginnings Achieves Excellence

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U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

143

Summary of Financial Statement Audit and Management Assurances

Department of Defense (DoD or the Department) management has a fundamental responsibility to 

develop and maintain effective internal controls to ensure that its programs operate, and federal resources 

are used, efficiently and effectively to achieve the DoD mission. As discussed in Management’s Discussion 

and Analysis, managers throughout the Department are accountable for ensuring effective internal controls 

in their areas of responsibility. All DoD Components are required to establish and assess internal controls 

over financial reporting, mission-essential operations, and financial management systems.

Management-identified weaknesses are determined by assessing internal controls, as required by 

the Federal Managers’ Financial Integrity Act of 1982 (FMFIA), the Federal Financial Management 

Improvement Act of 1996 (FFMIA), and Office of Management and Budget (OMB) Circular No. A-123, 

and fall into one of the following categories:

 FMFIA Section 2, Effectiveness of Internal Control over Financial Reporting;

 FMFIA Section 2, Effectiveness of Internal Control over Operations; or

 FMFIA Section 4, Compliance with Federal Financial Management Systems Requirements / 

FFMIA Section 803(a), Implementation of Federal Financial Management Improvements.

Marines march in formation during the Sunset Parade at the Lincoln Memorial in Washington, D.C., July 17, 2018. The Marines are assigned to Marine Barracks 

Washington.

Marine Corps photo by Staff Sgt. John A. Martinez Jr.
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

144

Summary of Financial Statement Audit

Exhibit 1 lists the 20 areas of material weaknesses in the Department’s financial statement 

reporting as identified by the DoD Inspector General (DoD IG) in the Independent Auditor’s Report. The 

material weakness areas identified by DoD IG in the Independent Auditor’s Report are consistent with those 

identified by DoD management (which are identified using the assessable unit categories as defined by the 

DoD Enterprise Risk Management and Internal Control Program) with three exceptions: Environmental

and Disposal Liabilities, Entity Level Controls, and Oversight and Monitoring. The Department concurs 

with DoD IG’s conclusions and will focus on implementing the necessary corrective actions to address each 

of the material weaknesses noted by the DoD IG in the Independent Auditor’s Report.

Environmental Liabilities

The Department assessed Environmental and Disposal Liabilities (E&DL) in FY 2018 and 

concluded material weaknesses reported by the Department of the Army and the Department of the Air 

Force were resolved due to the implementation of an E&DL methodology framework used to produce 

auditable E&DL estimates and standardize the business practices of reporting active E&DLs. However, 

the DoD IG identified additional deficiencies within the DoD E&DL approach. The Department concurs

with DoD IG’s conclusions and will initiate further efforts to substantiate the completeness and valuation 

of Environmental Liabilities. 

Entity Level Controls

During FY 2018, the Department enhanced and updated enterprise-wide guidance documents and 

tools to assist DoD Components with the establishment and testing of entity-level internal controls; 

however, implementation of these resources was not completed in FY 2018. The Department concurs with 

DoD IG’s conclusions and will continue to prioritize the implementation of entity-level controls at the DoD 

Component level to mitigate the risk of material misstatements on the DoD Components’ and the 

Agencywide principal financial statements.

Oversight and Monitoring

Although some DoD Components did not report corrective action plans (CAPs) in FY 2018 for all 

of their material weaknesses, the Department develops enterprise-wide CAPs through the use of subject 

matter experts to support the coordination of remediation efforts to address auditor-issued notices of 

findings and recommendations (NFRs). The Department concurs with the DoD IG’s conclusions and will 

continue to use the NFR Database to track the status of CAPs and validate that they are designed to 

implement timely and effective corrective actions to remediate all DoD material weaknesses. The status of 

DoD CAPs will continue to be regularly reported to the Financial Improvement and Audit Remediation 

Governance Board and the Defense Business Council.
U.S. Department of Defense Agency Financial Report for FY 2018

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Exhibit 1. Summary of Financial Statement Audit

Audit Opinion: Disclaimer

Restatement: No

Material Weakness Beginning 

Balance New Resolved Consolidated Ending Balance

Accounting Entries1 1 (1) 0

Financial Management Systems and 

Information Technology2, 3 1 1

Universe of Transactions4 0 1 1

Financial Statement Compilation 0 1 1

Fund Balance with Treasury 1 1

Accounts Receivable5 1 1

Operating Materials & Supplies 1 1

Inventory and Related Property 1 1

General Property, Plant, and

Equipment6

1 1

Government Property in Possession of 

Contractors7

1 1

Accounts Payable8 1 1

Environmental and Disposal Liabilities 1 1

Legal Contingencies9 0 1 1

Beginning Balances9 0 1 1

Journal Vouchers10 0 1 1

Intragovernmental Eliminations8 1 1

Statement of Net Cost9 1 1

Reconciliation of Net Cost of 

Operations to Budget9 1 1

Budgetary Resources10 0 1 1

Entity Level Controls 0 1 1

Oversight and Monitoring 0 1 1

Total Material Weaknesses 13 8 0 (1) 20
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Exhibit 1 Footnotes:

1 The Accounting Entries material weakness identified by the DoD IG in the DoD Agency Financial Report 

for FY 2017 was consolidated into the Journal Vouchers material weakness identified by the DoD IG in 

FY 2018.

2 The Financial Management Systems and Information Technology material weakness identified by the 

DoD IG was titled Financial Management Systems by the DoD IG in the DoD Agency Financial Report for 

FY 2017.

3 The Financial Management Systems and Information Technology material weakness identified by the 

DoD IG is included within the Federal Financial Management Systems Requirements material weakness 

identified by DoD management in Exhibit 6.

4 The Universe of Transactions material weakness identified by the DoD IG is included within the Federal 

Financial Management Systems Requirements material weakness identified by DoD management in 

Exhibit 6.

5 The Accounts Receivable material weakness identified by the DoD IG is included within the 

Reimbursable Work Orders material weakness identified by DoD management in Exhibit 2.

6 The General Property, Plant, and Equipment material weakness identified by the DoD IG includes the 

Equipment Assets and Real Property Assets material weaknesses identified by DoD management in 

Exhibit 2.

7 The Government Property in Possession of Contractors material weakness identified by the DoD IG is 

included within the Accountability and Management of Property Furnished to Contractors for the 

Performance of a Contract material weakness identified by DoD management in Exhibit 2.

8 The Accounts Payable and Intragovernmental Eliminations material weaknesses identified by the DoD IG 

are included within the Health Care Liabilities, Military Pay, Contract/Vendor Pay, Reimbursable Work 

Orders, and Transportation of Things material weaknesses identified by DoD management in Exhibit 2.

9 The Legal Contingencies, Beginning Balances, Statement of Net Cost, and Reconciliation of Net Cost of 

Operations to Budget material weaknesses identified by the DoD IG are included within the Financial 

Reporting Compilation material weakness identified by DoD management in Exhibit 2.

10 The Journal Vouchers and Budgetary Resources material weaknesses identified by the DoD IG are 

included within the Fund Balance with Treasury material weakness identified by DoD management in 

Exhibit 2.
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Summary of Management Assurances

FMFIA Section 2, Effectiveness of Internal Controls over Financial Reporting

Under the oversight of the DoD Financial Improvement Audit Remediation Governance Board, the 

Department’s assessment of the effectiveness of it internal controls over financial reporting resulted in the 

downgrade of three previously reported material weaknesses in FY 2018. Exhibit 2 lists the FY 2018 

material weaknesses in internal controls over financial reporting, captured by end-to-end process and 

assessable unit, and reports the changes from the material weaknesses disclosed in the DoD Agency 

Financial Report (AFR) for FY 2017.

Exhibit 2. FY 2018 Effectiveness of Internal Control over Financial Reporting (FMFIA §2)

Statement of Assurance: No Assurance

End-to-End 

Process Assessable Unit Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

Budget-to-Report

Fund Balance with 

Treasury (FBWT) 3 3

Financial Reporting 

Compilation 6 6

Hire-to-Retire

Health Care Liabilities 2 2

Military Pay 3 3

Procure-to-Pay

Contract/Vendor Pay 6 6

Reimbursable Work Orders 3 3

Transportation of Things1 2 (2) 0

Acquire-to-Retire

Equipment Assets 2 2

Real Property Assets2 1 1 2

Environmental Liabilities3 1 (1) 0

Accountability and 

Management of Property 

Furnished to Contractors 

for the Performance of a 

Contract

1 1

Internal Use Software 

(IUS) 1 1

Plan-to-Stock

Inventory 4 4

Operating Materials & 

Supplies (OM&S) 3 3

Requisitioning Process 

(Customer Orders) 2 2

Total Material Weaknesses 40 0 0 0 (2) 38

 

1

In FY 2018, Transportation of Things was reassessed and is no longer reported as a Department-wide area of material weakness.

2

In FY 2018, the descriptions for Real Property Assets were divided into two areas so that material weaknesses have increased 

visibility of corrective actions and alignment with notifications of findings and recommendations.

3

In FY 2018, Environmental Liabilities was reassessed and is no longer reported as a Department-wide area of material weakness.
U.S. Department of Defense Agency Financial Report for FY 2018

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Exhibit 3. Internal Control over Financial Reporting Corrective Action Plans

Areas of Material Weakness Year 

Identified

DoD 

Components Corrective Actions

Target 

Correction 

Year

Fund Balance with Treasury FY 2005 Departmentwide FY 2019

 Ineffective processes and controls to 

reconcile transactions posted to the 

Department’s Fund Balance with Treasury 

(FBWT) accounts with the Treasury’s 

records.

 Track and reconcile 

collection/disbursement activity from the 

core financial systems and associated 

feeder systems to the Department’s general 

ledgers and to Treasury accounts.

 Collections and disbursements are reported to 

Treasury but are not recorded in the 

Department’s general ledger.

 Develop an auditable FBWT reconciliation 

process, to include implementation of 

internal controls that ensure reconciling 

differences are accurate, documented, and 

resolved in a timely manner.

 Ineffective processes for providing sufficient 

and accurate documentation to support 

FBWT transactions and reconciling items.

 Analyze and resolve transactions posted to 

budget clearing accounts (“suspense” 

accounts).

 Analyze and resolve transactions reported 

on Treasury’s Statement of Differences 

(e.g., deposit in-transit, IntraGovernmental Payment and Collection, 

and check issue differences).

 Perform aging analysis of appropriations 

received and apply reconciliations back to 

at least FY 2013.

 Obtain Statement on Standards for 

Attestation Engagements (SSAE) 16/ 

SSAE 18, Reporting on Controls on Fund 

Balance with Treasury – Transaction 

Distribution which includes Defense Cash 

Accountability Systems.

Financial Reporting Compilation FY 2005 Departmentwide FY 2002

 Ineffectively designed processes and controls 

to prepare accurate financial statements 

supported by general ledger balances that 

align with strategic performance plans to 

ensure compliance with Generally Accepted 

Accounting Principles (GAAP) and the DoD 

Financial Management Regulation (FMR).

 Revise standard operating procedures and 

control descriptions to incorporate the 

requirements of OMB-A-136, and improve 

variance analysis and annual financial 

report review procedures. Implement 

Standard Financial Information Structure 

(SFIS) to standardize financial reporting 

that aligns with the Department’s mission.

 Inability to reconcile detail-level transactions 

with the general ledgers and provide 

adequate supporting documentation for 

adjusting entries.

 Obtain population of feeder system 

transactional data and perform 

reconciliations from feeder systems to the 

general ledgers and financial statements.

 Accounting balances are unsupported due to 

inadequate financial management systems 

and related processes and procedures.

 Establish process to govern posting logic 

changes within DoD accounting systems; 

consolidate, categorize, document, and 

prioritize system requirements for changes 

to enable correct posting logic compliance 

issues.

 Inconsistency between documented 

processes and procedures versus actual 

procedures performed in practice regarding 

reconciliations and resolving differences.

 Obtain supporting documentation at the 

transaction level to support adjustments; 

complete root cause analysis to identify 

true source of errors, and correct 

transactions at the source. Track, 

maintain, and analyze adjustments to 

verify materiality at the individual and 

aggregate levels to assist with addressing 

underlying root causes.
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 Lack of developed approach for performing 

reconciliations and retaining data for 

sensitive activities.

 Establish guidelines for reconciliation 

variances that need to be resolved and 

require relevant service providers to post

corrections in a timely manner.

 Inconsistent procedures for recording Journal 

Vouchers and Standard Business 

Transactions. Supporting documentation 

retention procedures also pose a significant 

risk to producing accurate and complete 

financial statements and reports.

 Develop approach for performing 

reconciliations and retaining data for 

sensitive activities.

Health Care Liabilities FY 2003 Departmentwide FY 2025

 Insufficient financial reporting and 

accounting for all health care costs and the 

lack of processes to reconcile Medical 

Expense and Performance Reporting System 

data.

 Develop and implement methodology for 

patient itemized bills to address the 

auditor-identified weakness related to 

direct care. Itemized patient bills for all 

patients provided care will be attainable 

with the deployment of the new Electronic 

Health Record scheduled for full 

deployment across the Military Health 

Services by close of FY 2025.

 Inability to obtain sufficient documentation 

from compliant transaction-based accounting 

systems to support the costs of direct care 

provided by DoD-managed military 

treatment facilities.

Military Pay FY 2011 Departmentwide FY 2020

 Ineffective processes and controls to record 

military pay transactions and personnel 

actions in a timely, complete, and accurate 

manner.

 Develop and implement a plan for an 

integrated pay and personnel system 

designed to determine pay and 

entitlements, report ad hoc financial 

management data, and capture and store 

key supporting documentation.

 Unreliable and/or lack of supporting 

documentation for personnel actions.

 Outdated military pay and financial 

management information technology systems 

lack modern capabilities to support required 

auditability framework. Current deficiencies 

require unsustainable manual activities to 

support auditability.

Contract/Vendor Pay FY 2003 Departmentwide FY 2025

 Lack of standard data structure governing 

purchase request format prevents traceability 

and use of electronic transactions from 

initiation of funding through contract 

execution.

 Establish and publish DoD Instruction 

setting policies, procedures, and data 

standards for purchase requests.

 Need to implement standard processes for 

recording contract obligations electronically 

in financial systems.

 Develop and implement automated preaward funds validation to ensure 

accounting systems can accurately record 

proposed contract award structure.

 Insufficient policies governing the recording 

of accruals related to contracts.

 Monitor all accounting and entitlement 

systems to track progress toward 

compliance with standard procedures.

 Inability to reconcile contract data to 

financial data. Unable to reconcile buyer and 

seller intragovernmental and 

intergovernmental transactions.

 Design and implement controls to ensure 

contract data can be accurately matched to 

recorded accounting data for public posting.
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 Current systems and processes do not enable 

matching the contract award to accounting 

data for public transparency, (e.g., Data Act).

 Develop department-wide contract closeout 

standard operating procedures to ensure 

financial systems are in balance and deobligation of funds occur, returning 

available funds back to programs in a 

timely manner.

 Lack of timely contract closeout and deobligation of funds limits the Department’s 

access to capital.

 Expand the use of accrual recording based 

on Wide Area Work Flow acceptance data 

to additional accounting systems.

 Develop policies, procedures, and data 

standards for electronic intergovernmental / 

intragovernmental transactions. Pilot 

capability to obtain contract source data and 

source documentation for reconciliations to 

the financial records.

Reimbursable Work Orders FY 2011 Departmentwide FY 2022

 Lack of evidence of performance, 

acknowledgement of receipt of 

intragovernmental goods and services, and 

validity of open obligations.

 Treasury has identified G-Invoicing as a 

solution to intragovernmental transaction 

differences and will develop an online 

portal for conducting Buy/Sell transactions 

to manage the processing and approval of 

general terms and conditions (GT&C) 

Agreements, Orders, and Invoices.

 Inability to verify the timeliness and accuracy 

of disbursements and validate recorded 

reimbursable agreements.

 Reporting entities will perform gap 

analyses on key processes, build and enter 

GT&C’s agreements in G-Invoicing 

system, participate in G-Invoicing training, 

and build orders in accordance with data 

standards.

 Ineffective process to collect, exchange and 

reconcile buyer and seller intragovernmental 

transaction.

 Reporting entities will fund, design, and 

build all accounting system interfaces in 

alignment with Treasury’s G-Invoicing 

release schedule.

 Reporting entities and the Defense Finance 

and Accounting Service will implement 

training, guidance, and management 

oversight of periodic reviews, and identify 

and implement standard enterprise 

reconciliations that provide for validation 

of the seller/buyer-side balances and input 

of supported journal vouchers for timing 

differences.

Equipment Assets FY 2006 Departmentwide FY 2022

 Ineffective processes and controls to account 

for the quantity and value of military and 

general equipment.

 Implement Federal Accounting Standards 

Advisory Board Technical Bulletin 2017-2 

and the associated DoD General Equipment 

(GE) Financial reporting responsibilities 

policy memo to align financial reporting of 

GE assets with the accountability of the 

assets.

 Insufficient internal controls and supporting 

documentation requirements to ensure timely 

recording, accuracy and transfer from 

Construction in Progress (CIP) to the general

equipment account.

 Publish and leverage results of the goforward equipment valuation study which 

provides a consistent and streamlined 

methodology for balance sheet reporting of 

GE assets across the department.

 DoD Components are continuing to 

develop and implement aspects of their “go 

forward” approach for valuing Equipment 

and sustaining these values (including CIP) 

in accordance with GAAP; as well as 

modifying their Accountable Property 
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System of Records (APSR) to ensure they 

capture the required data.

 Continue to leverage the Defense Audit 

Remediation Working Group for expedited 

policy guidance and update the DoD 

Financial Management Regulation chapters 

for accounting for military and general 

equipment, as required.

 DoD Components to continue to validate 

asset listings for completeness and accuracy 

and document process and control 

environments.

 DoD Components to continue to apply 

controls and procedures to manage property 

accountability, including adequate 

documentation to support acquisition and 

disposal processes throughout the year.

 Continue to convene the GE Working 

Group and DoD Component Property Lead 

property accountability workshops to 

highlight policy and guidance gaps 

impacting the valuation of GE, report on 

quarterly progress in establishing 

accountable records, and use as a forum for 

sharing lessons learned.

Real Property Assets FY 2000 Departmentwide

Existence and Completeness FY 2019

 Real property processes, controls and 

supporting documentation do not 

substantiate that (1) all existing assets are 

recorded in an APSR, (2) all assets recorded 

in the APSR properly reflect DoD’s legal 

interest in the asset.

 Implement and regularly conduct a 

lifecycle process for a real property 

physical inventory:

o Include validation of information for 

those data elements required in the 

calculation of Plant Replacement 

Value for alternative valuation in 

accordance with Statement of 

Federal Financial Accounting 

Standards 50.

o Ensure adequate documentation is 

available to support existence and 

completeness and placed in service 

dates.

 Complete floor-to-book and book-to-floor 

baseline reconciliation of real property 

assets with adequate documentation to 

support existence and completeness.

Valuation, Rights & Obligations, Presentation, 

and Disclosure FY 2021

 Real property processes, controls and 

supporting documentation do not 

substantiate that, (1) all real property assets 

are properly valued and, (2) documentation 

for all real property assets properly support 

rights and obligations, and are appropriately 

presented and consistently reported in the 

financial statements. DoD has insufficient 

internal controls and supporting 

documentation to ensure timely recording, 

accuracy and the transfer of Construction in 

Progress (CIP) to the appropriate real 

property account upon completion of 

construction or improvements.

 Implement processes and controls to 

support DoD policies related to financial 

reporting of real property.

 Document and implement go-forward 

processes and control environment for all 

lifecycle processes to include: acquisition 

(and CIP); inventory; reconciliation of CIP 

and APSR with financial statements and 

tenant agreements and records and 

disposal.
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 Establish systems to properly account for 

and value real property assets, including 

CIP. Ensure adequate documentation is 

available to support rights and obligations 

for financial statement reporting, 

specifically real property use agreements 

outlining responsibilities of each party, to 

include but not limited to, responsibility for 

financial reporting.

Accountability & Management of Property 

Furnished to Contractors for the Performance 

of a Contract

FY 2011 Departmentwide FY 2020

 In FY 2011, the Department did not have 

clear guidance and had not properly trained 

Program Office staff, contract specialists, 

and accountable property officers regarding 

policies and procedures for appropriately 

managing property provided to a contractor 

(this includes both contractor acquired 

property (CAP) and Government Furnished 

Property (GFP). As a result, DoD’s 

accountability records are incomplete. Audit 

reports have consistently identified a lack of 

accountability concerning GFP and CAP, for 

which DoD has title but not immediate 

physical control.

 Continue to roll out and leverage the 

electronic DoD enterprise solutions for 

standard GFP transactions via Defense 

Logistics Management Standards within 

the Wide Area Work Flow /Procurement 

Integrated Enterprise Environment 

applications.

 Continue to review metrics such as GFP 

contract clause compliance, assertion 

packages, and APSRs for each component 

and provide analysis of progress towards 

accountability.

 Components are evaluating current 

execution and improving guidance and 

business processes to ensure accountability 

of GFP and CAP. Components are also 

continuing to review existing contracts and 

establish accountability over legacy GFP.

 Continue to hold GFP Working Group 

meetings to share lessons learned, discuss 

Notice of Findings and Recommendations 

(NFRs) and corrective action plans (CAPs), 

resolve identified problems, and promote 

usage of new electronic GFP transaction 

solutions.

Internal Use Software FY 2015 Departmentwide FY 2022

 The Department has not properly addressed 

the management and financial reporting of 

Internal Use Software (IUS), which is 

required by Statement of Federal Financial 

Accounting Standards (SFFAS 10) and must 

be addressed through updated guidance in the 

Financial Management Regulation

 DoDI 5000.76, Accountability and 

Management of Internal Use Software, was 

signed March 2, 2017, and FMR Vol4, 

Chapter Internal Use Software was issued 

in August 2018 to provide accountability of 

an accounting for IUS.

 OSD IUS Tiger Team was established to 

document all WHS IUS and collect lessons 

learned to be used Department-wide.

 Components are continuing to identify and 

establish accountability over existing IUS 

and identifying new acquisitions to ensure 

capital IUS costs are captured and reported 

appropriately in accordance with Generally 

Accepted Accounting Principles.

 Components are continuing to develop and 

implement processes and system changes 

to APSRs to properly capture and sustain 

proper accountability and accounting of 

IUS.

 Evaluate DoD-wide compliance for IUS 

APSR requirements via data calls and 
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leverage results to drive IUS APSR 

requirement and policy changes.

 Continue to convene the IUS working 

group to highlight policy and guidance gaps 

impacting the accountability and 

accounting of IUS, report on progress in 

establishing IUS accountable records and 

implementing sustainable processes for 

IUS, and use as a forum for sharing lessons 

learned.

 Validate corrective actions in conjunction 

with DoD Chief Information Officer 

through results of standalone audits, DoDwide audit, agency Statement of 

Assurance’s, and information presented by 

Components at IUS working group.

Inventory FY 2005 Departmentwide FY 2022

 DoD does not have sufficient policies and 

procedures in place to support inventory 

transactions and related journal vouchers 

(JV).

 Develop methodology and inventory 

condition code reports to support a monthly 

JV related to inventory, including retention 

of supporting documentation for all 

inventory transactions and related JVs.

 Lack of controls to provide assurance that 

inventory recorded in the financial 

statements exist and is complete.

 Conduct periodic inventories and 

reconciliation of inventory accounts to 

validate systems of record are performed. 

Draft revisions to DoDM 4140.01 Volume 

5. Implement methodology to value 

inventory in the absence of historical costs 

(for baseline of asset inventory).

 Lack of clear audit trails to trace transactions 

from source documentation to the reported 

total dollar values on the inventory line item 

on the financial statements.

 Improve assurance that inventory recorded 

in the financial statements exist and is 

complete through publication of ADC 

1244 “Establishing Visibility of Unique 

Item Tracking Program Items for ServiceOwned Assets Stored at DLA Distribution 

Centers and Corresponding Revisions to 

Inventory Procedures Related to Capital 

Equipment” In June 2018.

 Material-in-transit is reported at the summary 

level instead of detail level and there is a lack 

of adequate processes and controls to assure 

the amount reported is correct.

 Develop and implement processes and 

controls to support the valuation of 

inventory on a “go-forward” basis.

 Modify systems to account for Material-intransit at the detailed level.

Operating Materials & Supplies (OM&S) FY 2005 Departmentwide FY 2022

 Historical cost data is not maintained; 

therefore, inventory values cannot be 

reported as required by Generally Accepted 

Accounting Principles.

 Draft revisions to DoDM 4140.01 V5 to 

support the initiatives to require 100% 

Annual Inventory (to establish a baseline 

and/or as a corrective measure); and 

address issues with co-mingling.

 Inability to perform and document annual 

physical inventories of OM&S and maintain 

clear audit trails to permit the tracing of 

transactions from source documentation.

 Integrated Process Team (IP) migrating 

weaknesses associated with the lack of 

Material Receipt Acknowledgements and 

developing methodology and inventory 

condition code reports supporting monthly 

inventory related JVs; , including retention 

of key supporting documentation (KSDs) 

for all inventory transactions and related 

JVs.

 Government-owned / Contractor managed 

and Government Furnished Material 

 Identify and document the current 

inventory reconciliation processes, 
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inventories are not accounted for in DoD 

accountable property systems.

including key controls and financial 

transactions.

 Establish GAAP-compliant valuation 

methodologies that include appropriate 

acquisition cost approaches to support all 

audit assertions of OM&S.

Requisitioning Process (Customer Orders) FY 2013 DepartmentwideFY 2020

 Off-line requisition systems lack interfaces 

with the supply and financial automated 

systems to ensure timely recording of 

obligations.

 Implement system interfaces based on 

approved Defense Logistics Management 

Standards for requisitioning and internal 

ordering.

 The Component’s supply and financial 

systems do not interface with DLA and GSA 

offline requisition systems.

 Conduct testing to validate system 

interfaces.

Navy Seaman Tarron Finn handles mooring line on the fantail of the aircraft carrier USS Theodore Roosevelt during a port visit to Singapore, April 2, 2018.

Navy photo by Seaman Michael Colemanberry
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FMFIA Section 2, Effectiveness of Internal Control over Operations

DoD Components use an entity-wide, risk-based, self-assessment approach to establish and assess 

internal controls for mission-essential operations. Exhibit 4 lists the FY 2018 material weaknesses in the 

internal controls over operations, captured by operational area, and reports the changes from the material 

weaknesses disclosed in the DoD AFR for FY 2017.

Exhibit 4. FY 2018 Effectiveness of Internal Controls over Operations (FMFIA §2)

Statement of Assurance: Modified Assurance

Assessable Unit Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

Acquisition 4 2 (1) 1

Comptroller and/or Resource 

Management 1 1

Communication 0 1 1

Contract Administration 3 3

Information Technology 2 2

Force Readiness 1 1

Manufacturing, Maintenance, 

and Repair 0 1 1

Personnel and/or Organizational 

Management 5 6

2 4 (1) 5

Operations 0 1 1

Security 1 1

Support Services 2 2

Supply Operations 1 1

Total Material Weaknesses 15 7 0 0 (2) 20

 

4

In FY 2018, Acquisition reassessed a material weakness (MW) for DoD acquisition program oversight, which was determined 

not to be a systemic issue and was downgraded.

5

In FY 2018, Personnel and/or Organizational Management split an existing MW into five MWs and added information to include 

hiring process deficiencies.

6

In FY 2018, Personnel and/or Organizational Management reassessed and downgraded a MW for Adjudicating personnel matters 

of up to >18 Months.
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Exhibit 5. Effectiveness of Internal Controls over Operations Corrective Action Plans

Areas of Material Weakness Year 

Identified

DoD 

Components Corrective Actions

Target 

Correction 

Year

Acquisition FY 2017

Defense 

Health 

Agency, 

Defense 

Threat 

Reduction 

Agency

Reassessed 

annually

 Lack of Program Executive Office 

Program Manager acquisition lifecycle 

oversight mandated by the DoD 5000 

series of policies and regulations. 

Additionally, the organizational 

structure is non-compliant with the 

DoD 5000 series. Lack of effective 

process to support mission by 

identifying, assessing, and providing 

oversight of development and 

Procurement solutions. Inadequate 

documentation and filing of acquisition 

records.

 Develop and implement Procedural Instruction 

for Acquisition Approval and Governance. 

Create supporting tools to aid and inform 

decisions, reduce the staff effort to review the 

programs, and improve the monitoring and 

forecasting of potential trouble or risk areas.

 Conduct Systems Reviews, Capability Portfolio 

Reviews, Configuration Steering Boards and 

Cost Reviews to identify process inefficiencies 

and improve the acquisition management 

process.

 Develop additional procedures to establish 

oversight controls for programs, including 

procedures to report cost, schedule and 

performance variances, and to address reported 

variances.

 Establish a system of tracking to report 

acquisition program performance and highlight 

variances.

Comptroller and/or Resource 

Management FY 2013 Departmentwide FY 2019

 Ineffective internal controls and 

management oversight for processes 

such as management of improper 

payments and use of Internal Use 

Software and property furnished to 

contractors.

 Brief leadership, appoint and train staff, develop 

risk profiles, conduct initial, quarterly and 

annual validation and assessment, and automate 

as appropriate.

Communication FY 2018 Department of 

the Air Force FY 2023

 The Department of the Air Force (AF) 

has identified a systemic issue in 

communication of security information 

between installations and appropriate 

external entities (e.g., the Federal 

Bureau of Investigation).

 Identify digital fingerprinting hardware and 

software.

 Identify partnering solution with AF Office of 

Special Investigations.

 Security Forces Management Information 

System Replacement.

 Long-term software solution for case 

management.

Contract Administration FY 2009 Departmentwide

Reassessed 

annually

 The Department must strategically 

manage Services Acquisition, define 

outcomes, and capture data to facilitate 

strategic management of the acquisition 

function.

 Continue to track and monitor training 

requirements for Acquisition workforce 

including new training for Mid / High Level 

Requirements and Contracting Professionals.

 The Department continues to face 

challenges meeting fiscal year 

competition goals and needs to address 

 Publication of a revised DoDI 5000.74, 

“Acquisition of Services” as required by the 

National Defense Authorization Act (NDAA)

for FY 2017, Sec. 803, projected for FY 2019.
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ill- suited contract arrangements and 

utilize incentives.

 The acquisition workforce is not 

appropriately sized, trained, nor 

equipped to meet the Department’s 

needs.

 Continue publication of DoD quarterly 

competition achievement; continue to 

implement the April 2016 DoD publication, 

“Guidance on Using Incentive and Other 

Contract Types” when selecting and 

negotiating a contract type.

Information Technology FY 2010 Departmentwide

 DoD financial and business 

management systems and processes do 

not provide reliable, timely, nor 

accurate information.

 Expand review and analysis of proposed 

information technology (IT) systems. Update 

the DoD Instruction (DoDI) 5000.75 and 

increase Investment Review Board oversight. 

The target date to correct this material weakness 

coincides with the full deployment schedule of 

the core business systems.

FY 2020

 Systemic shortfalls in implementing 

cybersecurity measures to guard the 

data protection environment. Gaps in 

cybersecurity access controls including 

privileged user authentication and 

public key infrastructure and device 

hardening / encryption contribute to 

data protection vulnerabilities. Issues 

exist in policy compliance with 

cybersecurity measures, oversight, and 

accountability.

 Establish processes to ensure stakeholder 

participation in the Cybersecurity Scorecard 

meetings and alignment of service scorecard 

metrics to audit findings.

 Revise current user system access policy to 

include clear guidance on requirements for 

privileged user access authorization and 

credential revocation, user access and control 

training certification, user monitoring and 

Public Key Infrastructure-based 

authentication/credentials.

Reassessed 

annually

 Revise current acquisition and IT purchase 

contracts and policy to require the adoption of 

established user access controls and 

encryption/hardening standards.

 Revise current policy on shared file and drive 

protection, to include requirements for 

encryption use and stringent password 

protection that, at a minimum, meets password 

requirements specified in DoDI 8520.03 for 

stronger authentication.

Force Readiness FY 2016

Departmentwide Nuclear 

Enterprise

Reassessed 

annually

 Independent and internal reviews of 

DoD's nuclear enterprise identified 

problems and recommendations needed 

for a safe, reliable, and credible nuclear 

deterrent. These included internal 

control related items such as a need for 

increased managerial oversight, for an 

improved self-assessment program, for 

increased oversight capability, and for 

useful nuclear inspection reports. The 

reviews also made recommendations to 

address these problems.

 Develop corrective action plans that align with 

the recommendations from the independent 

reviews.

Manufacturing, Maintenance, and Repair FY 2016 Department of 

the Navy FY 2020

 Multiple audits and studies identified a 

wide range of control issues that 

cumulatively create material 

weaknesses in ship depot maintenance. 

Policies for defining, costing, and 

executing maintenance all require 

improvement to correctly predict both 

cost and duration of depot maintenance.

 Q1 FY 2018 – Identified obstacles to execution 

performance.

 Q2 FY 2018 – Identified variance between 

Execution Year Guidance (EYG) to President’s 

Budget and developed mitigations.
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 Q4 FY 2018 – Integrated depot maintenance in 

assessable units Managers’ Internal Control 

Program.

 Q4 FY 2018 – Established the President’s 

Budget as the baseline for execution year 

variance tracking.

Personnel and Organizational 

Management FY 2018 Departmentwide

 Average civilian time-to-hire in the 

Department increased by 40% (from 70 

to 106 days) between FY 2013 and 

FY 2017.

 In FY 2018 the Department required all 

components to develop and execute data-based 

Action Plans to reduce time to hire. The 

Department’s initial goal is to reduce average 

time to hire from 106 to 85 days or less by the 

end of FY 2019. 

FY 2019

 The Department does not 

systematically collect data on hiring 

manager satisfaction with process or 

with quality of candidates for civilian 

positions. 

 In FY 2019 the Department will start collecting 

hiring quality and satisfaction data; after 

determining baseline measures, the Department 

will establish future quality / satisfaction goals 

consistent with results achieved by other large 

federal agencies. Expect initial results in 

FY 2020.

FY 2020

 The Department manages its civilian 

workforce under 66 personnel systems, 

over 60 pay systems, and scores of 

special Human Resource (HR) 

authorities and flexibilities. This has 

caused excessive complexity and 

variability in HR processes. 

 The Department is undertaking procedures to 

simplify, streamline, and standardize its HR 

processes and to provide more cost-effective HR 

services. The Department intends to pursue 

legislative relief where necessary to reduce 

complexity and increase efficiency of HR 

processes. Expect initial results in FY 2020.

FY 2020

 DoD HR specialists and managers lack 

training and tools to master the complex 

civilian federal hiring process. 

 The DoD HR Functional Community was 

formally organized in FY 2018 to define and 

assess HR competencies, establish learning 

standards, and develop career paths. Expect 

initial results in FY 2021.

FY 2021

 The Department has multiple civilian 

personnel HR service providers 

operating within and across 

components but no systems to define, 

collect, monitor, or analyze their 

performance or cost data, nor to 

monitor and control the types of 

services provided.

 Execute HR Service Delivery project (HR 

Reform lead) to define, monitor, and evaluate 

key performance and efficiency measures for 

Defense Agency Field Agency (DAFA) HR 

Service providers; identify and remedy 

instances of fragmentation, overlap, and 

duplication; and address inefficiencies and 

implement reforms. Transition to single 

SaaS/Cloud civilian human capital management 

system initially for core HR transactions (mid2019), and eventually for integrated talent 

management (i.e., performance management, 

learning, compensation, awards, workforce and 

succession planning). (Joint IT, HR, FM 

Reform project continuing through FY 2023.)

FY 2023

Operations FY 2018 Department of 

the Navy FY 2019

 The Department of the Navy 

experienced an unacceptable number of 

tragic surface fleet incidents in the first 

8 months of 2017, and conducted two 

reviews (the Comprehensive Review 

(CR) and the Strategic Readiness 

Review (SRR) in early FY 2018 to 

determine root causes. 

 Re-establish readiness as a priority.

 Match supply and demand.

 Establish clear command and control 

relationships.

 Promote a learning culture that learns from 

experience, following root cause analysis, and 

trains personnel to avoid future accidents.
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 Address broader recommendations focused on 

the force and the overall culture of operational 

risk management, training and department 

organization.

 The Department of the Navy established a 

Readiness Reform and Oversight Council (cochaired by the Under Secretary of the Navy and 

the Vice Chief of Naval Operations) to oversee 

comprehensive CR/SRR corrective action 

encompassing 117 specific recommendations 

identified in the CR/SRR playbook.

Security FY 2017 Department of 

the Navy

Reassessed 

annually

 DoD facilities may not have sufficient 

trained / qualified physical security 

personnel and infrastructure funding 

resources necessary to adequately 

protect assets, facilities, personnel, and 

mission. Issues regarding policy / 

contract sufficiency and compliance 

regarding security force training and 

accountability are involved.

 Revise security personnel contracts to include 

clear guidance on training completion, 

monitoring, and documentation requirements, 

including weapons qualifications.

 Revise current security policy to include 

documentation retention and training 

requirements.

 Revise security policy to require the completion 

and maintenance of security plans at the 

regional level.

 Review access to approved DoD weapons 

qualification facilities and opportunities, require 

planning requirements and ensure policy 

compliance enforcement and accountability.

Support Services FY 2005 Departmentwide FY 2020

 Insufficient Component / assessable 

unit (AU) audit or review of internal 

operations: Lack of evidence showing 

sufficient leadership actions regarding 

internal audit or review results. 

Excessive Government Accountability 

Office and DoD Inspector General 

(DoD IG) findings. DoD IG report 

indicates 37% of DoD internal audit 

organizations have deficiencies or fail 

in effectively monitoring Component /

AU activities, several DoD 

Components / AUs do not seem to have 

an internal audit/review function. 

Systemic deficiencies exist across the 

audit and review services.

 Generate requirements for internal audit / 

review of the performance of operations and 

their compliance with laws, regulations, and 

policies and document in the DoD Instruction.

 Generate and deliver training in audit objectives 

and techniques to Department leadership and 

entire global DoD audit/review and 

managements’ internal control program 

communities.

 Form Office of the Secretary of Defense-level 

audit function reviewing the audit performance 

of DoD entity audit / review functions and 

reporting to DoD senior leadership routinely.

 Business Transformation: The 

Department spends billions of dollars 

each year to maintain key business 

functions intended to support the 

warfighter. Lack of support for 

transformation. The Department 

continues to confront decades-old 

management weaknesses related to its 

business functions that support these 

forces.

 Adopt a reorganization under the new Chief 

Management Officer in accordance with the 

NDAA for FY 2018. Initiate expanded 

Department-wide continuous process 

improvement (CPI) training, develop CPI 

experts, and promote continuous and visible 

leadership support for transformation.
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Supply Operations FY 2011 Departmentwide

Reassessed 

annually

 Government Accountability Office 

identified several Department-wide 

weaknesses in the areas of asset 

visibility and materiel distribution.

 Established plans of actions and milestones to 

address service chain management (SCM) 

operations through better asset visibility and 

distribution processes.

 Published and now executing the 2017 Strategy 

for improving DoD Asset Visibility. The 

Strategy provides the framework for DoD 

Components to work collaboratively to provide 

accurate, reliable, and timely data to enhance 

visibility of assets throughout their lifecycle, 

thereby transforming asset data into actionable 

information in support of logistics decision 

making and improved customer confidence.

 Published and implemented the 2016 Materiel 

Distribution Improvement Plan focused on 

performance measures, data reliability, policy, 

and governance.

 Progress is monitored quarterly by the Logistics 

Executive Steering Committee.

A U.S. sniper fires his weapon from a combat rubber raiding craft at targets placed across a lake while a Canadian sniper watches during the Europe Best Sniper Team 

Competition at Grafenwoehr training area, Germany, July 28, 2018.

Army photo by Kevin S. Abel
U.S. Department of Defense Agency Financial Report for FY 2018

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161

FMFIA Section 4, Compliance with Federal Financial Management Systems Requirements

In accordance with FMFIA section 4, the Department requires that all DoD financial systems 

comply with federal financial management systems requirements. In FY 2018, the Department reported 

three instances of pervasive non-conformance related to these requirements. Exhibit 6 lists the number of 

instances of non-conformance with federal financial management systems requirements and reports the 

changes from the instances of non-conformance disclosed in the DoD AFR for FY 2017.

Exhibit 6. FY 2018 Compliance with Federal Financial Management System Requirements (FMFIA §4)

Statement of Assurance: No Assurance

Non-Conformance Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

Federal Financial Management 

Systems Requirements 3

Total Non-Conformances 3 0 0 0 0 3

FFMIA Section 803(a), Implementation of Federal Financial Management Improvements

Section 803(a) of the FFMIA requires each federal agency to implement and maintain financial 

management systems that comply substantially with (1) federal financial management systems 

requirements, (2) applicable federal accounting standards, and (3) the United States Government Standard 

General Ledger (USSGL) at the transaction level. Exhibit 7 lists the instances of non-compliance with 

federal financial management systems requirements.

Exhibit 7. FY 2018 Implementation of Federal Financial Management Improvements (FFMIA §803(a))

Agency Auditor

Federal Financial Management Systems 

Requirements Lack of Compliance Noted Lack of Compliance Noted

Applicable Federal Accounting 

Standards Lack of Compliance Noted Lack of Compliance Noted

USSGL at Transaction Level Lack of Compliance Noted Lack of Compliance Noted
U.S. Department of Defense Agency Financial Report for FY 2018

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162

Exhibit 8. Compliance with Federal Financial Management System Requirements Corrective Action Plans

Non-Conformance Year 

Identified

DoD 

Components Corrective Actions

Target 

Correction 

Year

Business System Modernization FY 2001 Departmentwide

Business System Modernization and FFMIA 

Compliance FY 2028

 Ineffective processes and controls to 

reconcile transactions posted to the 

Department’s Fund Balance with Treasury 

(FBWT) accounts with the Treasury’s 

records.

 In calendar years 2019 through 2022, the 

Department is scheduled to reduce the 

number of legacy IT audit relevant systems 

by 26. 

 To date, a total of 22 of 25 Other Defense 

Organizations (ODOs) have been migrated 

to a common ERP system, the Defense 

Agencies Initiative (DAI). There are three 

additional ODOs scheduled for deployment 

in FY 2019 through FY 2021. The DAI 

application and the data center hosting 

location Defense Information System 

Agency (DISA) both received unmodified 

SOC 1 reports for FY 18. DAI is an FFMIA 

compliant Oracle ERP COTS solution.

 With the assistance of the Joint 

Interoperability Test Command, OUSD(C) 

worked with the Department financial 

system owners to complete SFIS compliance 

assessments for 28 systems through 

FY 2018. Assessments for an additional 

26 systems are currently planned through 

FY 2020. The SFIS requirements are aligned 

to and consistent with FFMIA requirements. 

Currently, the Department is assessing which 

systems require SFIS compliance 

assessments.

 OUSD(C) updated the Internal Control 

Guide in April 2018 to include additional 

guidance related to identifying relevant 

financial and non-financial systems and 

performing FFMIA assessments. System 

owners record the FFMIA compliance status 

for their applications in the FIAR Systems 

Database (FSD) concurrent with audit 

readiness status.

FFMIA Compliance FY 2001 Departmentwide

 The Department’s financial systems 

currently do not provide the capability to 

record financial transactions in compliance 

with FFMIA, current federal financial 

management requirements, applicable 

federal accounting standards, and the 

Treasury USSGL at the transaction level.

General & Application Controls FY 2001 Departmentwide FY 2025

 The DoD IT systems environment includes 

numerous legacy systems, core enterprise 

systems that support the major end-to-end 

processes, and nine Enterprise Resource 

Planning (ERP) systems. Most of the 

business legacy systems were originally 

designed to support functional purposes, 

such as human resource management, 

property management, and logistics 

management. These systems were not 

originally created for auditable financial 

statement reporting. The current systems 

environment is made up of many legacy, 

core, and newly implemented (feeder and 

general ledger) systems that lack 

integration and are not in line with the 

Federal Information System Controls Audit 

Manual (FISCAM) requirements with 

regards to entity-level technology general 

controls, application-level general controls 

 OUSD(C) has established a database, FSD, 

to identify applications and hosting locations 

that impact DoD financial statement audits 

and track the auditor feedback regarding 

system controls reliance. As of 

June 30, 2018, DoD Reporting Entities and 

Service Organizations had identified a total 

of 246 systems relevant to financial 

statement audit. This number is expected to 

change as the system environment evolves 

and the financial statement audits mature.

 The MILDEPS continue to deploy ERP 

solutions to their Commands along with 

software upgrades, implement System 

Change Requests (SCRs) and standup formal 

enterprise monitoring programs for 

transitioning to a Risk Management 

Framework (RMF). In addition, the 

Department is integrating audit relevant IT 
U.S. Department of Defense Agency Financial Report for FY 2018

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163

and automated application controls 

(including security management, access, 

segregation of duties, configuration 

management, system interfaces, master 

data, and audit trails).

controls into the RMF system accreditation 

process (for systems that impact financial 

statement audits) and the target date for 

incorporating this as a requirement is

FY 2019. 

 In 2005, DoD service organizations began to 

obtain System and Organization Control 

(SOC 1) Reports for systems and hosting 

services. For FY 2018, DoD Service 

Organizations have obtained 14 unmodified 

opinions and 6 modified opinions. This 

includes two new SOC 1 reports and scope 

expansions to existing SOC 1 reports in 

FY 2018. Reporting entities and their 

auditors have been instructed to provide 

feedback on the SOC 1 reports and service 

organizations have also been instructed to 

provide plans for SOC1 scope expansions 

and additional SOC 1 reports.

 OUSD(C) has implemented a database to 

track auditor NFRs and associated corrective 

action plans. A CFO IT Functional Council 

was established in April 2018 to report on the 

status of IT NFRs and associated CAPs, 

identify common IT issues, share solutions, 

and identify instances where common 

solutions are needed.

Air Force Capt. Leland Quinter wears night vision goggles during a C-130J Super Hercules training flight over Poland, Aug. 2, 2018. Quinter is a pilot assigned 

to the 37th Airlift Squadron.

Air Force photo by Senior Airman Joshua Magbanua
U.S. Department of Defense Agency Financial Report for FY 2018

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164

Payment Integrity

The reduction of improper payments7and compliance with the Improper Payments Elimination and 

Recovery Act of 2010 (IPERA) continue to be top financial management priorities for the Department. In 

FY 2018, the Department identified $574 billion in payments subject to testing under IPERA and an 

improper payment rate less than 1%. Given the large dollar amount of DoD payments, this percentage 

represents over a billion dollars in overpayments and underpayments. 

As shown in Exhibit 9, the Department identified approximately $1 billion (0.21% of total outlays

subject to testing under IPERA) as improper payments based on statistically projected testing results. Of 

this improper payment amount, $665 million (0.12% of total outlays subject to testing under IPERA) was 

estimated to be monetary losses to the Department. Payments identified as improper do not always 

represent a monetary loss. For instance, an otherwise legitimate payment that lacks sufficient supporting 

documentation or approval is reported as improper. Moreover, based on the improper payment testing 

results in FY 2018, the Department’s estimated proper payments were $573 billion.

The Department complies with the requirements of federal improper payments legislation8through 

the activities of its Payment Integrity Program. This program is comprised of eight separate programs that 

report improper payments for six categories of pay/benefits (civilian pay, commercial pay, military health 

benefits, military pay, military retirement, and travel pay). These programs collectively encompass the 

majority of payments made by the Department annually. Of the eight programs reporting improper 

payments in FY 2018, five programs (Military Health Benefits, DoD Travel Pay9, Commercial Pay, U.S. 

Army Corps of Engineers (USACE) Travel Pay, and USACE Commercial Pay) met their self-imposed 

improper payment target rates and three programs (Military Pay, Civilian Pay, and Military Retirement) 

did not. However, all eight programs reported improper payment estimates below the IPERA statutory 

threshold of 10%.

When improper payments are identified by the Department as a result of sampling and testing 

payments within the eight programs, DoD Components conduct evaluations to identify their root causes. 

Corrective action plans (CAPs) are then developed by the DoD Components to remediate the root causes. 

The CAPs include milestones or actions that are to be completed by specific dates. Depending on the 

complexity of the CAPs, execution of the plan may occur over multiple fiscal years until the root causes 

are fully remediated. 

The Department continues to improve payment accuracy in all of its programs to ensure the billions 

of dollars in federal funds it disburses annually reach intended recipients in the right amount and for the 

right purpose. Through responsible stewardship and accountability, the Department is committed to earning

the trust and confidence of Congress and the American people.

 

7 OMB Circular No. A-123, Appendix C defines an “improper payment” as any payment that should not have been made or that 

was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements. Incorrect 

amounts are overpayments or underpayments made to eligible recipients (including inappropriate denials of payment or service, 

any payment that does not account for credit for applicable discounts, payments that are for an incorrect amount, and duplicate 

payments). An improper payment also includes any payment that was made to an ineligible recipient or for an ineligible good or 

service, or payments for goods or services not received (except for such payments authorized by law). Additionally, when an 

agency's review is unable to discern whether a payment was proper as the result of insufficient or lack of documentation, the 

payment must be considered an improper payment.

8

Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments Elimination and Recovery 

Act of 2010 (IPERA) and the Improper Payment Elimination and Recovery Improvement Act of 2012 (IPERIA)

9

In FY 2018, the DoD Travel Pay program met its self-imposed improper payment target rate for the first time in six consecutive 

fiscal years.
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165

Exhibit 9. FY 2018 Estimated Proper and Improper Payments

The FY 2018 estimated proper payments presented in Exhibit 9 represent total outlays subject to 

testing under IPERA ($574 billion) less estimated improper payments. The estimated improper payments 

increased from $957 million in FY 2017 to $1.2 billion in FY 2018, an increase of $243 million or 25%. 

The $665 million estimated total monetary loss represents the amount that should not have been paid by 

the Department and in theory should/could be recovered. The $528 million estimated total non-monetary 

loss represents the amount that was paid by the Department, but lacked sufficient and/or appropriate 

supporting documentation or approvals, and did not result in a loss of funds.

In FY 2018, the Department reported improper payments of $1.2 billion for the following eight 

programs (see Exhibit 10):

1. Military Health Benefits – Payments made by the Defense Heath Agency (DHA) to private sector 

contractors for delivery of health care services to TRICARE–eligible beneficiaries.

2. Military Pay – Payments made by the Defense Finance and Accounting Service (DFAS) to Active, 

Reserve, and National Guard Military Service members for salary, benefits, and other 

compensation entitlements.

3. Civilian Pay – Payments made by DFAS to civilian employees for salary, benefits, and other 

compensation entitlements.

4. Military Retirement – Payments made by DFAS to military retirees and their surviving spouses and 

other family members for pension and/or disability entitlements.

5. DoD Travel Pay – Payments made by DFAS, the Army, the Navy, the Air Force, and the 

Marine Corps to Active, Reserve, and National Guard Military Service members and civilian 

employees for temporary and permanent travel- and/or transportation-related expenses.

6. Commercial Pay – Payments made by DFAS, the Army, and the Navy to vendors and contractors 

for goods and services. This program does not include payments for “transportation of things” or 

payments related to government purchase cards.

7. USACE Travel Pay – Payments made by USACE to Active, Reserve, and National Guard Military 

Service members and civilian employees for temporary and permanent travel- and/or

transportation-related expenses.
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166

8. USACE Commercial Pay – Payments made by USACE to vendors and contractors for goods and 

services.

Exhibit 10. FY 2018 Total Improper Payments Reported by Program

The information reported in this section complies with the guidance provided in OMB 

Circular No. A-123, Appendix C and OMB Circular No. A-136. This section provides required 

information that demonstrates the Department’s commitment to reducing improper payments. For 

additional information on improper payments not included in this report, please refer to 

PaymentAccuracy.gov.

This section reports detailed information on the following improper payment requirements:

I. Risk Assessment

II. Payment Reporting

III. Recapture of Improper Payments Reporting

IV. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative

V. Accountability

VI. Agency Information Systems and Other Infrastructure

VII. Sampling and Estimation
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I. Risk Assessment

OMB Circular No. A-123, Appendix C requires agencies to review all programs and activities and 

assess their risk for improper payments. Agencies are required to institute a systematic method of reviewing 

all programs with the end goal of determining whether the programs are or are not susceptible to significant 

improper payments10. Improper payment reviews or risk assessments may use qualitative or quantitative 

methods. If an agency determines that a program or activity is not susceptible to significant improper 

payments, the agency must re-assess that program’s improper payment risk at least once every three years. 

Conversely, if an agency determines a program to be susceptible to significant improper payments, the 

agency is required to estimate and report improper payments for that program annually. 

Programs already reporting an annual improper payment estimate in accordance with OMB 

Circular No. A-123, Appendix C requirements do not need to perform an additional improper payment risk 

assessment to comply with IPERA requirements, as the quantitative risk assessment method used for 

reporting the annual estimate fulfills the risk assessment requirement under IPERA. In FY 2018, the 

Department reported improper payment estimates for each of its eight programs. As a result, in FY 2018, 

the Department was not required to perform additional risk assessment reviews on its programs. However, 

in subsequent fiscal years, if a new program is identified or established, a risk assessment should be 

completed after the first 12 months of the program’s operation.

 

10 “Significant improper payments” are defined as gross annual improper payments (i.e., the total amount of overpayments and 

underpayments) in the program exceeding (1) both 1.5% of program outlays and $10 million of all program or activity payments 

made during the fiscal year reported or (2) $100 million (regardless of the improper payment percentage of total program outlays).

Army Sgt. Madelyn Guerrero provides care to a dog during Continuing Promise 2018 in Puerto Cortes, Honduras, March 17, 2018. U.S. forces 

conducted civil-military operations, including humanitarian assistance, training engagements, and medical, dental and veterinary support to show 

U.S. commitment to Central and South America.

Navy photo by Petty Officer 2nd Class Kayla Cosby
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

168

II. Payment Reporting

Exhibit 11 reports the estimated amount of payments that were properly paid (PP), improperly paid (IP), and the corresponding percentages 

of each by program for FY 2018. It also reports the estimated amount of improper payments that resulted in overpayments or underpayments in 

FY 2018 and the OMB-approved future year (i.e., FY 2019) reduction targets by program.

Exhibit 11. FY 2018 Improper Payment Reduction Outlook

($ in millions)

Note: Amounts may not sum or calculate exactly due to rounding.

Program Name

Military Health 

 Benefits 1, 2, 3

Military Pay 4

Civilian Pay

Military 

Retirement 

FY 2019 

Est. IP Rate

(%)

FY 2019 

Est. IP 

Amount

Month and 

Year Start 

Date for 

Data

Month and 

Year End 

Date for 

Data

FY 2018

O utlays 

FY 2018 

PP Amount

FY 2018

PP Rate 

(%)

FY 2018 

IP Amount

FY 2018 

IP Rate

(%)

FY 2018 

O verPayment

FY 2018 

UnderPayment

FY 2019 

Est. O utlays 

Sep-2017

 99,979.42 99.70% 305.76 0.30% 288.64 17.12

Total

$ 23,296.55

 100,285.18

 61,609.67

 69,367.74

 7,961.95

 292,790.29

 269.98

 18,610.93

$ 574,192.29

DoD Travel 

 Pay 5, 6, 7, 8

Commercial 

 Pay 9, 10, 11

Commercial Bill 

 Pay Office 

 Naples 1 0

USACE Travel Pay

USACE 

Commercial 

 Pay 12, 13

 103,920.24 0.30% 311.76 Aug-2017 Jul-2018

$ 23,205.31 99.61% $ 91.24 0.39% $ 72.38 $ 18.86 $ 24,205.12 0.80% $ 193.87 Oct-2016

Jul-2018

 69,053.30 99.55% 314.44 0.45% 283.32 31.12 60,566.10 0.40% 242.26 Aug-2017 Jul-2018

 61,524.66 99.86% 85.01 0.14% 85.01 - 61,408.83 0.13% 79.83 Aug-2017

Jul-2018

 292,775.26 99.99% 15.03 0.01% 15.03 - 330,043.97 0.01% 32.92 Jul-2017 Jun-2018

 7,596.63 95.41% 365.32 4.59% 345.79 19.53 11,953.70 5.75% 687.34 Aug-2017

 268.75 99.54% 1.23 0.46% 1.19 0.04 233.01 0.42% 0.99 Jul-2017 Jun-2018

Jun-2018

$572,999.22 99.79% $ 1,193.07 0.21% $ 1,100.25 $ 92.82 $ 611,683.19 0.26% $ 1,597.35

 18,595.89 99.92% 15.04 0.08% 8.89 6.15 19,352.22 0.25% 48.38 Jul-2017
U.S. Department of Defense Agency Financial Report for FY 2018

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Exhibit 11 Footnotes:

1 DHA reports data 12 months in arrears. The sample populations for the Military Health Benefits program is comprised of nine sub-programs. 86% 

of the transactional data samples (outlays) from these sub-programs fall within the period October 2016 to September 2017. The remaining subprogram transactional data samples are for consecutive 12 month periods falling between August 2016 to October 2017.

2 FY 2018 outlays are the sum of the dollars paid for civilian health care by private sector contractors to health care providers and/or TRICARE 

beneficiaries. These payments are reviewed by an external independent contractor (EIC) on a quarterly basis. In addition, the FY 2018 outlays also 

include administrative payments shared among multiple contractors to administer the TRICARE program and other contracts that are not included 

in the DHA EIC audits, but which are subject to internal and external pre- and post-payment controls.

3 DHA established its FY 2019 projected IP rate of 0.80% based on a trend of actual improper payments data from prior years. These figures are 

estimated to be higher than the FY 2018 actuals as a result of DHA’s implementation of medical record reviews in FY 2019 (which have the potential 

to identify additional improper payments), and the implementation of the National Defense Authorization Act (NDAA) for FY 2017 legislative 

requirements, which established changes to the TRICARE program that could result in increased payment errors.

4 The FY 2019 IP rate for the Military Pay program is projected to be 0.30%. This rate remains constant to the IP rate of 0.30% that was estimated 

and reported in FY 2018. In FY 2019, the Department will implement a revamped sampling plan for this program, which will introduce verification 

of Military Service member pay and allowances (i.e., entitlements) against existing supporting documentation. The impact of this change on the 

Department’s process of identifying and reporting IPs is unknown. As such, until the results of the new post-payment review procedures conducted 

in FY 2019 are evaluated, the future year projected IP rate for this program remains constant to the FY 2018 achieved IP rate.

5

In FY 2018, the Navy was able to complete 12 months of IPs testing on their FY 2017 Windows Integrated Automated Travel System (WinIATS) 

travel payments and the Marine Corps was able to complete the remaining four months of IPs testing on their FY 2017 WinIATS travel payments. 

With these additional testing results, the amounts reported in the DoD AFR for FY 2017 for Outlays, IP Amount, and IP Rate would be revised to:

Outlays = $6,412.23 million, IP Amount = $368.88 million, and IP Rate = 5.75%. These revised numbers include only nine months of the Defense 

Travel System data (July 2016 – March 2017).

6 The DoD Travel Pay program reports travel payments disbursed for the period August 2017 – July 2018 by DFAS and the Military Services. 

However, the following Army Outside the Continental United States. (OCONUS) offices used different 12 month sampling timeframes in FY 2018 

to test their travel payments: Italy Finance Office (October 2017 – September 2018) and Benelux Finance Office (October 2017 – September 2018). 

In addition, the Air Force also used a different 12 month sampling timeframe in FY 2018 to test their travel payments (i.e., July 2017 – June 2018).

7 The DoD Travel Pay figures reported for FY 2018 do not include data from the Army 266th Financial Management Support Center (FMSC). A 

new rotational policy in Europe resulted in high turnover in Army 266th FMSC and the FMSC personnel were not able to complete the IP testing 

for FY 2018. Army 266th FMSC reported the following travel IPs data in FY 2017: Outlays = $17.49 million, IP Amount = $0.02 million, and IP 

Rate = 0.11%. 
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

170

8 The FY 2019 rate for the DoD Travel Pay program is projected to be 5.75%. This rate is 0.25% lower than the target rate of 6% that was projected 

for FY 2018. Due to drastic fluctuations in the IP rates over the past three fiscal years, the Department is still working to establish a baseline for this 

program. Moreover, even though numerous corrective actions have been taken to reduce IPs in this program, until a more consistent baseline is 

established, future year IP target rates will be projected based on the average rates reported for this program in the previous three fiscal years. The 

average IP rate for this program based on the rates reported in FY 2016, FY 2017, and FY 2018 is 5.86%. As such, the Department is confident that 

5.75% is an achievable target rate.

9 The Commercial Pay program reports commercial payments disbursed for the period July 2017 – June 2018 by DFAS, the Army, and the Navy. 

However, the following Army OCONUS offices used different 12 month sampling timeframes in FY 2018 to test their commercial vendor service 

payments: 175th FMSC (August 2017 – July 2018), Italy Finance Office (October 2017 – September 2018), and Benelux Finance Office 

(October 2017 – September 2018). Additionally, the figures reported in Exhibit 11 do not include data from the Army 266th FMSC for either 

FY 2017 or FY 2018. The Commercial Pay program is reported as the DFAS Commercial Pay program on PaymentAccuracy.gov. 

10 Effective FY 2018, the Navy Commercial Bill Pay Office Naples was sampled by DFAS and is reported as part of the Commercial Pay program.

11 The Commercial Pay program is comprised of payments made by DFAS, the Army, and the Navy to vendors and contractors for goods and 

services. This program does not include payments for “transportation of things” or payments related to government purchase cards. Title 31, United 

States Code, section 3726 (31 U.S.C. §3726) gives the General Services Agency (GSA) the authority and responsibility to audit and settle all federal 

payments for transportation. The GSA Transportation Audits Division conducts post-payment audits on all transportation payments (and supporting 

documentation) provided by the Department. GSA reviews DoD transportation payments for overcharges only. GSA finances their post-payment 

audit contract and audit-related functions with overpayments collected from the transportation payments previously paid by the Department and 

other federal agencies. GSA reported the following data related to DoD transportation payments for the months July 2017 – June 2018: Total 

Number of Transactions Submitted by the Department = 15.32 million, Total Value of Transactions Submitted by the 

Department = $4,083.03 million, Total Number of Overcharges Collected by GSA = 0.43 million, and Total Value of Overcharges Collected by 

GSA = $9.32 million.

12

In FY 2018, USACE was able to complete the remaining 6 months of IPs testing on their FY 2017 commercial payments. With these additional 

testing results, the amounts reported in the DoD AFR for FY 2017 for Outlays, IP Amount, and IP Rate would be revised to: 

Outlays = $17,128.35 million, IP Amount = $157.87 million, and IP Rate = 0.92%. 

13 The FY 2019 Estimated IP rate of 0.25% for USACE Commercial Pay is an increase over the 0.08% reported in FY 2018 (which represents the 

calculated rate based on estimated IPs as a percent of total FY 2018 outlays). The increase is due to receipt of significant supplemental funding, 

resulting in increased risk of improper payments associated with a high volume of contract actions occurring in dispersed locations, some remote, 

under tightened deadlines.
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

171

Exhibit 12 reports the amount of FY 2018 improper payments identified in samples by program 

that resulted in actual monetary losses to the Department. These statistically-based sample amounts are 

then extrapolated to the payment population of the program to calculate an estimate of the monetary loss to 

the Department due to improper payments by program. Monetary loss to the Department would be an 

amount that should not have been paid and, in theory, should/could be recovered. This table excludes 

payments classified as improper payments solely on the basis of insufficient supporting documentation, 

since these payments do not represent an actual monetary loss. 

Exhibit 12. FY 2018 Improper Payment Classification (Monetary Loss)

($ in millions)

* The monetary loss amounts reported in Exhbit 12 will not match the overpayments 

 reported in Exhibit 11, which include both monetary and non-monetary improper

 payements.

Total

Program Name

Actual Monetary Loss 

to the Department 

Identified in the 

Sample*

Estimated Total 

Monetary Loss to the 

Department *

Military Health Benefits

Military Pay

Civilian Pay

$ 72.38

 288.64

 85.01

Military Retirement

DoD Travel Pay

Commercial Pay

USACE Travel Pay

USACE Commercial Pay

$ 664.86

$ 4.14

 276.66

 85.01

 76.24

 1.98

 0.60

 0.03

 -

$ 444.66

 76.45

 126.16

 15.03

 1.19

 -

A waterspout forms as the USS Gerald R. Ford travels in the Atlantic Ocean, Dec. 4, 2017. The aircraft carrier is underway conducting 

test and evaluation operations.

Navy photo by Petty Officer 2nd Class Martin Widenhouse
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

172

Exhibit 13 reports the root causes for overpayments and underpayments by amount and program for FY 2018.

Exhibit 13. FY 2018 Improper Payment Root Cause Category Matrix

($ in millions)

USACE Commercial Pay Overpayments 8.89 8.89

Total $ 0.02 $ 805.36 $ 90.83 $ 0.18 $ 220.58 $ 76.10 $ 1,193.07

USACE Commercial Pay Underpayments 6.15 6.15

USACE Travel Pay Underpayments 0.04 0.04

USACE Travel Pay Overpayments 1.19 1.19

Commercial Pay Underpayments -

Commercial Pay Overpayments 15.03 15.03

Program Name

Military Health Benefits

Military Health Benefits

Military Pay 2

Military Pay 2

Inability to 

Authenticate 

Eligibility: 

Inability to 

Access Data

Administrative 

or Process 

Errors Made by 

the 

Department

Administrative 

or Process 

Errors Made by 

O ther Parties 1

Medical 

Necessity

 17.12

Payment Type

Overpayments

Underpayments

Overpayments

Underpayments

Insufficient 

Documentation 

to Determine

Notification of 

Death After 

Monthly 

Payments 

Disbursed for 

Military 

Retirees and 

Annuitants

Total

 18.86 18.86

$ 71.97 $ 0.18 $ 0.21 $ 72.38

DoD Travel Pay 2

$ 0.02

Civilian Pay

Civilian Pay

Military Retirement 2

Military Retirement 2

DoD Travel Pay 2 Overpayments

Underpayments

Overpayments

Underpayments

Overpayments

Underpayments

 17.12

 288.64 288.64

 -

 85.01 85.01

 31.12 31.12

 207.22 76.10 283.32

 19.53 19.53

 125.42 220.37 345.79

Exhibit 13 Footnotes:

1

“Other Parties” includes Participating Lenders, Health Care Providers, or any other organizations administering federal dollars.

2 The Military Pay, Military Retirement, and DoD Travel Pay programs were determined to be susceptible to significant improper payments in 

accordance with OMB Circular No. A-123, Appendix C.
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

173

Root Causes and Corrective Action Plans for Programs Susceptible to Significant Improper Payments 

(IPs Exceeding $100 million)

When significant improper payments are identified in a program through testing, DoD Components 

are required to determine the root causes of the improper payments and to develop CAPs to remediate them. 

The CAPs for the applicable program are monitored throughout the year by DoD Components and the 

Office of the Under Secretary of Defense (Comptroller) (OUSD(C)) to ensure milestone dates for corrective 

actions are completed on a timely basis. The implementation and effectiveness of corrective actions is 

evidenced through the subsequent improper payment testing results for the program. Based on testing 

performed on the eight programs in FY 2018, three programs (Military Pay, Military Retirement, and DoD 

Travel Pay) were estimated to have made improper payments in excess of $100 million and were therefore 

required to develop CAPs and disclose them in this report. In addition, during FY 2018, OUSD(C) worked 

with DoD Components to strengthen the CAPs for these programs by performing in-depth assessments to 

ensure that the corrective actions identified were measurable, timely, and effective.

The following information related to improper overpayments and underpayments identified 

through testing, as well as root causes and corrective actions, is summarized and described at the DoD 

consolidated level. Individual DoD Component CAPs and target completion dates are maintained and 

monitored by the DoD Components and OUSD(C). Generally, corrective actions are developed and 

executed by individual DoD Components with oversight provided by OUSD(C).

Air Force explosive ordnance disposal technicians assess a simulated improvised rocket-assisted munition during a training exercise at Al Udeid Air 

Base, Qatar, Nov. 25, 2017. The airmen are assigned the 379th Civil Engineer Squadron.

Air National Guard photo by Staff Sgt. Patrick Evenson
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

174

Military Pay 

In FY 2018, the estimated improper payments for the Military Pay program were $306 million, 

approximately 94.40% of which were identified as overpayments (see Exhibit 14). Of those overpayments, 

the majority resulted from debts established after Military Service members left the Department and/or 

debts initiated and recorded within the military pay systems for Active and Reserve Component Military 

Service members. This estimate was based on a sampling methodology with a 95% confidence interval, 

which equated to a 0.30 (+/- 0.02)% improper payment rate and an estimated proper processing rate of 

99.70%.

Exhibit 14. FY 2018 Military Pay Estimated Improper Payments by OMB Root Cause Category

Exhibit 15. Military Pay Summary Corrective Action Plans

The root cause for all improper payments in the Military Pay program was attributed to 

Administrative or Process Errors Made by the Department, which accounted for $306 million, or 100%, of 

the improper payments.

Improper Payment Root Cause Category Corrective Actions Target Completion 

Date

Administrative or Process Errors Made by the 

Department

 Contributing factors can include payroll 

data input errors and untimely updates to 

payroll records and systems.

 For improper payment statistical sample selections, obtain sufficient 

personnel supporting documentation for the payroll disbursement 

from the relevant DoD Component. 

September 2019

 Based on review of supporting documentation for each sample item, 

determine improper payment exceptions and report exceptions to the 

relevant DoD Component.

 Provide instructions to relevant DoD Components for preparation of 

a root cause analysis for each improper payment exception. 

Instructions will include guidance for summary level reporting to 

leadership.

 Relevant DoD Components will develop corrective action plans to 

address specific root causes identified for improper payments 

attributable to their payroll disbursements.

 Based on the root cause analysis, training will be developed and 

delivered to improve effectiveness over manual payroll processing 

controls.

 Evaluate the cost/benefit of additional or enhanced system controls 

over payroll processing and implement as applicable.
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

175

Military Retirement

In FY 2018, the estimated improper payments for the Military Retirement program were

$314 million. Approximately 90.10% of these improper payments were identified as overpayments (see 

Exhibit 16). This estimate was based on a sampling methodology with a 95% confidence interval, which 

equated to a 0.45 (+/- 0.10)% improper payment rate and an estimated proper processing rate of 99.55%.

Exhibit 16. FY 2018 Military Retirement Estimated Improper Payments by OMB Root Cause Category

Marines assist a wounded warrior into the ocean during wounded warrior day at White Plaines Beach in Kapolei, Hawaii, July 18, 2018. The 

Marines are assigned to with 3rd Marine Regiment.

Marine Corps photo by Sgt. Ricky Gomez
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

176

The primary root cause for improper payments in the Military Retirement program was attributed 

to Administrative or Process Errors Made by the Department, which accounted for $238 million, or 75.80%, 

of the program’s improper payments. The second major root cause for improper payments in the Military 

Retirement was Notification of Death after Monthly Payments Disbursed for Military Retirees and 

Annuitants, which accounted for $76 million, or 24.20%, of the program’s improper payments.

Exhibit 17. Military Retirement Summary Corrective Action Plans

Improper Payment Root Cause Category Corrective Actions Target Completion 

Date

Administrative or Process Errors Made by the 

Department

 Processing errors were noted for retired 

and annuitant pay: new annuitants, new 

retirees, and changed annuitant account, 

which included:

o Payments made despite insufficient 

documentation,

 Revise the Military Retirement Sampling Plan to stratify the 

population by risk level based on account type: new retiree 

accounts, new annuitant accounts, changed retiree accounts, 

changed annuitant accounts, unchanged retiree accounts, and 

unchanged annuitant accounts. This sampling approach is designed 

to provide greater sample coverage and insight into each of the 

categories where processing errors were noted.

November 2020

o Errors in following processing 

procedures and applying policy 

changes for Department of Veterans 

Affairs waivers awards

o Untimely application of 

Dependency and Indemnity 

Compensation offsets

 Conduct bi-monthly workgroup meetings to provide DFAS 

leadership with timely, detailed information to assist in identifying 

predominant error types, root causes, suggested corrective actions 

and other data grouped by account type. This includes detailed error 

descriptions. The information disseminated to DFAS leadership 

will be used by them to better manage the military retirement 

program and minimize improper payments.

o Systematic computation errors

o Manual computation errors

 Increase the scope and frequency of retired and annuitant operations 

internal personnel training. Training will be focused on the trends 

identified in the post pay review deliverables.

Notification of Death After Monthly 

Payments Disbursed for Military Retirees and 

Annuitants

 Improper payments were made to deceased 

retirees and annuitants because the 

notification of death was not obtained until 

after the monthly payments were disbursed

 Validate the existence of the retiree/annuitant, if living outside the 

United States.

 Certify annually the existence and entitlement for all annuitants 

who:

Completed in 

FY 2018

o Are under 55 years of age,

o Receive hard copy checks in a foreign country, and

o Have a permanent disability (regardless of age).

 Conduct periodic, random certifications for retirees over a certain 

age.

 Validate military retiree’s existence if payments are returned and/or 

if a benefit account was suspended for several months due to bad 

check/correspondence address.
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

177

DoD Travel Pay

In FY 2018, the estimated improper payments for the DoD Travel Pay program were $365 million. 

Approximately 94.65% of these improper payments were identified as overpayments (see Exhibit 18). This 

estimate was based on a sampling methodology with a 95% confidence interval, which equated to a 

4.59 (+/- 0.43)% improper payment rate and an estimated proper processing rate of 95.41%.

Payments for the DoD Travel Pay program were processed through three travel systems: the 

Defense Travel System (DTS), the Windows Integrated Automated Travel System (WinIATS), and the Air 

Force’s Reserve Travel System (RTS). The largest portion of travel payments are processed through DTS.

Exhibit 18. FY 2018 Travel Pay Estimated Improper Payments by OMB Root Cause Category

Marines ride horses with Mongolian youth at Five Hills Training Area, Mongolia, June 17, 2018, during Khaan Quest 18, a multinational 

exercise designed to strengthen international peace support capabilities.

Army National Guard photo by Sgt. Heidi Kroll
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

178

The primary root cause for improper payments in the DoD Travel Pay program was attributed to 

Insufficient Documentation to Determine, which accounted for $220 million, or 60.32%, of the program’s 

improper payments. The second major root cause for improper payments in the DoD Travel Pay program 

was Administrative or Process Errors Made by the Department, which accounted for $145 million, or 

39.68%, of the program’s improper payments.

Exhibit 19. DoD Travel Pay Summary Corrective Action Plans

Improper Payment Root Cause Category Corrective Actions Target Completion 

Date

Insufficient Documentation to Determine

 Root cause of improper payments are not 

always clearly defined or linked to a DoD 

Component’s corrective action plans.

 Provide additional guidance and templates to assist DoD 

Components in documenting root cause and corrective actions. 

December 2018

 Lack of sampling plan and/or execution of 

sampling plan and testing

 Sampling plans will be prepared and documented using approved 

templates with site specific modifications as necessary. Sampling 

plans will be prepared for all locations and travel pay systems as 

applicable and will include a full 12 months of samples.

December 2018

 Sampling plans will be reviewed by DFAS statisticians to ensure 

compliance with OMB guidelines prior to execution.

 Lack of process to evaluate, monitor, and 

measure improper payments noted in 

sample testing and the related corrective 

actions

 Develop and implement processes and tools to evaluate, monitor, and 

measure improper payments for DoD Travel Pay, including:

o Develop performance metrics and track via spreadsheets and 

database dashboards,

o Perform periodic quality assurance reviews over metrics and 

corrective action implementation, and

o Monitor recovery of improper overpayments.

December 2018

 Develop and publish guidance to DoD Components establishing a 

monthly reporting schedule for sampling and testing and gaining 

efficiency in sample reviews.

Completed 

October 2017

Administrative or Process Errors Made by the 

Department

The following types of improper payments 

result from administrative or process errors:  Develop and deliver focused training for: December 2018

 Overpayment of travel advances, o Validating the status of previous advances before disbursing 

another advance;

o Computing cost comparisons for travel reimbursements;

o The roles of authorizing officials and reviewers in reviewing 

receipts prior to their approval signature; and

o Incorporate the DoD video on improper payments, including 

missing/invalid receipts, into personnel required training 

programs.

 Airfare paid incorrectly,

 Travelers reimbursed for expenses with 

missing or invalid receipts, and

 Travel vouchers paid without the proper 

signature.

 Develop and implement standard checklists to be used in travel 

voucher reviews to assess the completeness and accuracy of the travel 

payment prior to disbursement.
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

179

III. Recapture of Improper Payments Reporting

The Department performs three separate and distinct activities which can result in the collection of 

amounts improperly paid to the recipient. Collection of these amounts is often referred to as “payment 

recapture.” The three activities performed by DoD are:

(1) Testing payments selected in statistical samples under OMB Circular No. A-123, Appendix C 

(IPERA Testing);

(2) Testing under the requirements of OMB Circular No. A-123 (Enterprise Risk Management and

Internal Control Program (ERM/ICP) Control Activities); and

(3) Payment Recapture Audits as defined under OMB Circular No. A-123, Appendix C (Payment 

Recapture Audit).

IPERA Testing

Under IPERA Testing, sampled items are tested to identify overpayments or underpayments to 

eligible recipients, payments to ineligible recipients, payments for ineligible goods or services, and 

payments for goods or services not received. Tests include review of supporting documentation and such 

other test procedures as applicable. When a review is unable to discern whether a payment was proper as 

a result of insufficient or lack of documentation, the payment is considered to be improper.

As part of the Department’s overall system of internal control, individual overpayments identified 

in sampled items are reported to the DoD Component where the transaction originated. For example, if 

DFAS were performing the IPERA testing for the DoD Travel Pay program and identified an overpayment 

involving an Army employee, DFAS would report the overpayment to the Army. The Army would then 

contact the affected employee and agree upon a repayment method consistent with the Army’s debt 

management program. In most situations, the repayment would occur through payroll deduction or direct 

reimbursement by the employee to the Department for the overpayment.

ERM/ICP Control Activities

The framework of internal controls has five components – Control Environment, Risk Assessment, 

Control Activities, Information and Communication, and Monitoring. Within this framework, Control 

Activities are the actions management establishes through policies and procedures to achieve objectives 

and respond to risks in the system of internal control. 

Execution of Control Activities can result in the identification of an overpayment. For example, 

an overpayment in the Commercial Pay program may be identified through Control Activities at the DoD 

Component level. These overpayments would be subject to collection efforts coordinated between DFAS

and the DoD Component offices responsible for originating the transactions. These collections efforts may 

include direct collection from the contractor or offset against the same contract with that contractor.

Payment Recapture Audit

A Payment Recapture Audit is a review and analysis of a program’s accounting and financial 

records, supporting documentation, and other pertinent information supporting its payments, and is 

specifically designed to identify overpayments. It is not an audit in the traditional sense covered by 

Generally Accepted Government Auditing Standards.

As part of their internal controls over payments, federal agencies are required to conduct Payment 

Recapture Audits for all programs that expend more than $1 million in a fiscal year if conducting such 

audits is cost-effective. However, federal agencies may exclude program payments from Payment 
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

180

Recapture Audits if the agency determines that Payment Recapture Audits are not a cost-effective method 

for identifying and recapturing payments. The Department has determined that Payment Recapture Audits 

are not a cost-effective repayment capture method for its programs, with the exception of a portion of the

DoD Travel Pay program administered by the Defense Travel Management Office (DTMO).

Currently, the only payment recapture audit performed by the Department is conducted by DTMO 

as part of the DoD Travel Pay program. DTMO reviews all travel vouchers for temporary duty personnel 

processed through DTS using a set of 14 predefined queries designed to identify the most common improper 

payments.

Individual overpayments identified by DTMO through its Travel Policy Compliance Tool are

reported through automated notifications to locally based Compliance Tool Administrators at the DoD 

Component where the travel transaction originated. The DoD Component then contacts the affected 

employee and agrees upon a repayment method consistent with the DoD Component’s debt management 

program. In most situations, the repayment occurs through payroll deduction or direct reimbursement by 

the employee to the Department for the overpayment.

Overpayment Capture Reporting

Exhibit 20 reports the results of overpayments recaptured as a result of IPERA Testing and 

ERM/ICP Control Activities as “Overpayments Recaptured Outside of Payment Recapture Audits”; 

overpayments recaptured as a result of Payment Recapture Audit are reported as “Overpayments 

Recaptured Through Payment Recapture Audits.”

Amounts reported as “Overpayments Recaptured Outside of Payment Recapture Audits” in 

Exhibit 20 may differ from those reported on Exhibit 11 as “FY 2018 Overpayments” due to: timing 

differences in reporting, the fact that Exhibit 11 reflects estimates while Exhibit 20 reflects actuals, as well 

as differences in the manner of compilation. Additionally, note that overpayments identified in one fiscal 

year may be collected in that fiscal year or in a subsequent fiscal year.

Firefighters assigned to the Selfridge Air National Guard Base fire department practice victim-extraction during an ice rescue training exercise 

on Lake St. Clair, Mich., Jan. 31, 2018. During the winter, residents enjoy recreational activities on the lake's frozen surface, increasing a need 

for ice-water rescues.

Air National Guard photo by Terry L. Atwell
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

181

Exhibit 20. FY 2018 Payment Recapture Audit Reporting

($ in millions)

Amount 

Identified in 

FY 2018

Amount 

Recaptured in 

FY 2018

O verpayments Recaptured Through Payment Recapture 

Audits

O verpayments Recaptured 

O utside of Payment Recapture 

Audits

Includes Funds 

Recaptured from 

a High Priority 

Program? (Y/N) 1

Program

Amount 

Identified in 

FY 2018

Amount 

Recaptured in 

FY 2018

Recapture 

Rate in FY 

2018

(%)

FY 2019 

Recapture 

Rate Target

(%)

N

N

N

Military Health Benefits 2, 3, 4

Military Pay 5

Civilian Pay 5

Military Retirement 6

DoD Travel Pay 7, 8, 9

Commercial Pay

USACE Travel Pay

USACE Commercial Pay

N

N

N

N

N

Total

$ 22.48

 238.40

 85.01

 17.84

 0.87

 0.01

 1.28

 8.65

$ 374.54

$ 15.67

74%

$ 11.65

$ 15.67 $ 11.65 85%

74% 85%

 0.01

 1.49

 10.95

$ 401.57

$ 4.14

 276.66

 85.01

 19.62

 3.69

Exhibit 20 Footnotes:

1 The threshold for designation as a high-priority program for FY 2018 reporting is $2 billion in estimated

improper payments reported by the federal agency, regardless of the improper payment rate estimate.

2

“Amount Identified in FY 2018” represents the total overpayment dollars from sampled claims.

3 These numbers include recoupments for overpayments identified in reviews conducted by an external 

independent contractor as well as refunds occurring in the course of routine claim adjustments (for claims 

initially paid in FY 2017 and other fiscal years). DHA has no way to distinguish overpayment recoupments 

from routine claim adjustments. 

4 The amount recaptured in FY 2018 for the Active Duty Dental Program (ADDP) represents refunds shown 

on contractor invoices to DHA. ADDP data is not included in the TRICARE Encounter Data (TED) system, 

thus contractor invoices were used because TED transactions are not available.

5 The Military Pay program includes both in-service collections (i.e., collections from active employees) 

and out-of-service debts (i.e., collections from individuals not actively employed by the Department) in the 

Amount Recaptured. The Civilian Pay program includes only in-service collections in the Amount 

Recaptured.

6 The amounts identified and recaptured for the Military Retirement program are based on a 100% review 

of deceased retired and deceased annuitant accounts.

7

“Overpayments Recaptured Outside of Payment Recapture Audits” for the DoD Travel Pay program are 

overpayments of paid DTS and Navy WinIATS vouchers that were identified by DFAS through their 

sampling and post-payment review process.

8 The DoD Travel Policy Compliance Program is the only formal payment recapture audit program of the 

DoD Travel Pay program and its results are reported “through” payment recapture audits. Program scope 

is 100% of temporary duty vouchers processed in the DTS and currently includes 14 queries that identify 

common improper payments.

9

“Amount Recaptured” includes debts that have been fully collected or are currently in the debt process, 

such as payroll deductions.
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

182

Exhibit 21 reports the disposition of funds recaptured as a result of Payment Recapture Audits. In 

accordance with IPERA requirements, only funding which is expired at the time of collection can be 

reallocated.

Exhibit 21. FY 2018 Disposition of Funds Recaptured Through Payment Recapture Audits

($ in millions)

* "Amount Recaptured" will be identical to the "Amount Recaptured Through Payment Recapture Audits" in Exhibit 20.

** "Other" funds remain in the original account until cancelled.

$ -

$ -

$ 11.65

$ - $ 11.65

$ -

$ -

$ -

$ -

$ -

$ -

Orig ina l 

P urpo s e

Offic e o f 

the 

Ins pe c to r 

Ge ne ra l

R e turne d 

to the 

Tre a s ury

Othe r **

Total

$ 11.65

$ 11.65

$ -

$ -

$ -

P ro g ra m

DoD Travel Pay

A m o unt 

R e c a pture d *

D o D 

Expe ns e s 

to 

A dm inis te r 

the 

P ro g ra m

P a ym e nt 

R e c a pture 

A udito r 

F e e s

F ina nc ia l 

M a na g e m e nt 

Im pro v e m e nt 

A c tiv itie s

Exhibit 22 reports an aging schedule of the amount of overpayments identified through Payment 

Recapture Audits that are outstanding (i.e., overpayments that have been identified, but not recaptured). 

Identified overpayments were determined to be uncollectible for one of the following reasons: the amount 

of the debt is $10 or less, a waiver has been approved, or the amount is an out-of-service debt (i.e., debt 

from an individual not actively employed by the Department).

Exhibit 22. Aging of Outstanding Overpayments Identified Through Payment Recapture Audits

($ in millions)

$ 3.24

$ 3.24

$ 0.65

Program

DoD Travel Pay

Total

Amount Outstanding

(0 - 6 months)

Amount 

Outstanding

(6 months - 1 year)

$ 0.65

$ 0.01

$ 0.01

Amount Determined 

to Not Be Collectible

$ 0.12

$ 0.12

Amount Outstanding

(over 1 year)

Exhibit 23 reports the actual amount (i.e., not estimated) of overpayments identified in FY 2018 

and the actual amount of overpayments recaptured in FY 2018. Note: not all overpayments will be collected 

in the same fiscal year that they were made and/or identified. The Department continues to work to improve 

its methods to identify, collect, and report improper payments.

Exhibit 23. FY 2018 Overpayments Identified and Recaptured
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

183

IV. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative

The Department of Treasury (Treasury) Do Not Pay (DNP) Portal is the legislatively-mandated 

and OMB-designated source of centralized data and analytics services to help federal agencies verify 

eligibility for payment and to identify and prevent fraud, waste, and abuse associated with improper 

payments. Federal agencies interface with Treasury’s centralized data to achieve a higher degree of 

certainty that a payee is legitimate and eligible before making a payment. All payments that are identified 

to be potentially improper are then adjudicated and either paid or not paid. Improper payments, however, 

may still occur at some later point due to reasons that the DNP Portal cannot detect or prevent.

DFAS

DFAS sends a Commercial Pay weekly batch file of invoices in a non-pay status to the DNP Portal

and receives results the next day. DFAS then researches any potential improper payments identified to 

determine if the proposed payment is proper based on established business rules. To date, DFAS has been 

able to adjudicate and clear all potential improper payments identified using the DNP Portal. 

DFAS does not conduct payment reconciliations to the Debt Check database, which is subset of the

data contained in the Treasury Offset Program, and the Credit Alert Verification Reporting System

(CAIVRS). 99% of the false positives received are based on the Death Master File (DMF) results along 

with name match results from the DNP Portal. The remaining 1% of false positives are deemed not to be 

improper payments based on established business rules related to vendor performance in accordance with 

established contracts.

DHA

Individual Payments 

DHA processes relatively few (5 – 20) case recoupment refunds each month for small dollar 

amounts ($5 – 20,000). The DNP Portal search is utilized for 100% of all case recoupment refunds prior 

to making the payment to verify (1) a business or individual has not been placed on the List of Excluded 

Individuals/Entities (LEIE) and/or (2) an individual is not deceased. Any matches are referred to the DHA 

Office of General Counsel (DHA OGC).

Vendor, Contract Payments 

DHA processes an average of 225 routine payments per month for 13 unique contractor payees. 

Those unique contractor Employer Identification Numbers (EINs) are checked in the DNP Portal only once 

at the beginning of each month. The initial DNP Portal check is then carried for all remaining payments 

being made to that unique payee for the rest of the month. This process is then repeated every month, 

therefore maintaining 100% validation of a contractor in the DNP Portal. This pre-payment validation of 

payees is to verify that a DHA payee has not been placed on the System for Award Management (SAM) 

Exclusion Records (referred to as the Excluded Parties List System (EPLS) in IPERIA) or the LEIE. Any 

matches are validated with the Treasury Offset Program, ensuring the contractor does not have the same 

EIN as an individual’s Social Security Number. The contractor is responsible for resolving these matching 

issues due to proprietary reasons. If the contractor is on the SAM, LEIE, and/or Treasury Offset Program

list, the finding is referred to the assigned Contracting Officer.

The risk for payments to a subcontractor or individual via the contractor, however, lies outside of 

DHA control. DHA contractors are not required to utilize the DNP Portal and there is no current mechanism 

in place to require the contractors to use the DNP Portal at the pre-payment phase to comply with IPERA

requirements.
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USACE 

On a daily basis, USACE sends payments certified for the next day’s disbursing process to the DNP 

Portal. The DNP Portal searches for potential matches of pending USACE payments and vendors/persons 

identified on the DMF and the SAM Exclusion Records. USACE then researches any potential improper 

payments identified to determine if the proposed payment is proper based on established business rules. To 

date, USACE has been able to adjudicate and clear all potential improper payments identified using the

DNP Portal. 

USACE has determined that the majority of matches received were false positives. The other 

matches received were not deemed to be improper payments based on established business rules related to 

vendor performance in accordance with established contracts.

File Matching with the DMF Outside of Do Not Pay for Military Retiree and Annuitant Benefit Payments

The Defense Manpower Data Center (DMDC) has a computer matching agreement with the Social 

Security Administration (SSA) to use its DMF to identify potential accounts that need to be suspended or 

cancelled as a result of a retiree’s or annuitant’s passing. As part of the end-of-month processing, DFAS 

produces two files (one for retirees, one for annuitants) that are sent to DMDC to match or conduct 

comparisons against the monthly DMF. The results are compiled and forwarded to DFAS.

DFAS then runs its match process to suspend (but not cancel) pay accounts and to notify next of 

kin that this action was based on information received from SSA. The disbursement system suspends 

payment to prevent additional benefits from being improperly paid. For any electronic funds transfer 

payment that was mistakenly disbursed, an electronic transaction is generated to automatically reclaim the 

payment from the bank account where it was originally deposited after the official notification of death is 

processed. The normal recovery rate is approximately 95% within 60 days of the official death 

confirmation.

Army combat engineers blast through a concrete wall during demolition training at Fort Hood, Texas, July 17, 2018. The soldiers are 

assigned to the 2nd Armored Brigade Combat Team, 1st Cavalry Division.

Army photo by Maj. Carson Petry
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V. Accountability

The Department recognizes the difficulty of any single official exercising direct personal control 

over all aspects of each business transaction. Therefore, the Department relies on automated systems, 

manual controls, and accountable officials to ensure accountability of government funds, including the 

accuracy, propriety, and legality of payments. The Under Secretary of Defense (Comptroller)/Chief 

Financial Officer (USD(C)/CFO) is the Accountable Official for the Department and is responsible for 

ensuring that, to the greatest extent possible, all DoD payments are accurate.

The Department adheres to 10 U.S.C. §2773(a), which holds Departmental Accountable Officials 

(DAOs) and Certifying Officials (COs) accountable for government funds. DAOs and COs are subject to 

pecuniary liability for an illegal, improper, or incorrect payment. This law forms the basis of the DoD 

Financial Management Regulation (DoD FMR), Volume 5, Chapter 5, which addresses the selection, 

appointment, responsibilities, and qualifications for certifying officers; certification of vouchers for 

payment; DAOs; random review of disbursement vouchers; and pecuniary liability. Moreover, the 

Department’s efforts to recover overpayments are administered in accordance with the debt collection 

policy in DoD FMR, Volume 16. 

The DoD FMR also contains chapters that specifically address improper payments (i.e., 

Volume 4, Chapter 14) and recovery auditing (i.e., Volume 10, Chapter 22). The Deputy Chief Financial 

Officer (DCFO) is the Executive Agent and Senior Accountable Official (SAO) for the DoD Payment 

Integrity Program. The DCFO, along with the Director of Accounting and Finance Policy and the Payment 

Integrity Program manager, provides oversight to the Payment Integrity Program and are each held 

accountable in their performance plans for reducing and recapturing improper payments as well as 

achieving compliance with IPERA.

The Department continues to take many proactive steps to hold individuals accountable for the 

prevention and reduction of improper payments. In FY 2013, following the DoD Travel Pay program’s 

initial year of noncompliance, a Department-wide remediation plan was developed and implemented to 

assist the program in meeting its future years’ improper payment target rates. By FY 2017 this plan evolved 

into an improper payments SAO steering committee, which is responsible for proactive oversight of the 

Payment Integrity Program, implementing best practices, monitoring performance, and driving actions for 

achieving IPERA compliance. This committee, which is comprised of SAOs from across the Military 

Services and several other DoD Components, is held accountable for reducing and recapturing improper 

payments through corrective action plans and remediation progress is monitored and measured through 

performance metrics. Moreover, the SAO steering committee helps ensure that improper payment estimates 

for all programs are complete and accurate and that program target rates are met.

Military Pay

The Department is committed to ensuring that Military Service members are paid timely and 

accurately. To accomplish this important mission, individuals within the Military Pay hire-to-retire process 

are held accountable for their respective areas of responsibilities. Military Service members are held 

accountable to report timely their eligibility information as well as any qualifying change of life situations 

affecting their pay to their Personnel and/or Finance offices. Personnel and/or Finance offices are held 

accountable to process Military Service member payroll and benefit documentation accurately and timely 

and to ensure the documentation is correctly entered into entitlement systems. Personnel and/or Finance 

office employees are required to perform reconciliations on a regular basis and to make timely edits or 

updates to a Military Service member’s pay in entitlement systems, as necessary. Management is held 

accountable for ensuring that controls are in place to properly capture, record, and approve Military Service 
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186

members’ pay and entitlement information. Additionally, management is responsible for reviewing finance 

reports, which reflect pay and entitlements paid to Military Service members, and for conducting monthly 

internal reviews to compare and reconcile pay and personnel records.

Military Retirement

The DFAS Director of Retired and Annuitant (R&A) Pay is held accountable in a performance plan 

for reducing and recapturing improper payments. The DFAS Director of R&A Pay is required, under a 

performance plan element of “Internal Controls and Audit Support,” to actively support R&A work group 

efforts to reduce improper payments identified by the DFAS Post-pay Review & Analysis, Reports & 

Analysis Enterprise Solutions & Standards – Compliance team. Moreover, executives at DFAS Cleveland, 

where R&A Pay is managed, are held accountable to meet established percentage goals for improper 

payments through annual performance plan criteria.

DoD Travel Pay

The Department is committed to ensuring that all employees, both Military Service members and 

civilians, are reimbursed timely and accurately for their travel-related expenses. To accomplish this 

mission, individuals within the travel management process are held accountable for their respective areas 

of responsibility. 

DAOs involved in the travel management process serve as control points within the Department. 

Individuals officially appointed as DAOs for the travel process may include reviewing officials, approving 

officials, and authorizing officials. If appointed, DAOs are subject to pecuniary liability for illegal, 

improper, or incorrect payments resulting from information, data, or services they negligently provide to 

COs and upon which the COs relied to certify payment vouchers. DAOs must be appointed and terminated 

using a DoD (DD) Form 577.

COs are subject to pecuniary liability under 10 U.S.C. §2773(a) and 31 U.S.C. §3528. They are 

responsible for certifying travel claims for payment, forwarding certified claims to the supporting 

disbursing office, comparing pre-trip and post-trip estimates of expenses, reviewing all lodging receipts,

and reviewing individual reimbursable expense receipts of $75 or more. Responsibilities for individuals 

appointed as COs are applicable to both DTS and non-DTS travel claims. COs must be appointed by an 

appropriate authority and they must acknowledge their appointment as a CO by signature as well as 

complete a DD Form 577.

Travelers are held accountable for preparing their vouchers (i.e., DD Form 1351-2) after travel has 

been completed. Travelers must provide all supporting documentation including the original (or legible 

copies of) orders and receipts for all lodging expenses, as well as claimed reimbursable expenses of $75 or 

more, to their DAOs and/or COs. Moreover, travelers are liable under 18 U.S.C. §§287 and 1001 and the 

False Claims Act, 31 U.S.C. §§3729-3731, if they knowingly submit false, fictitious, or fraudulent travel 

claims.
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VI. Agency Information Systems and Other Infrastructure

Military Pay

Internal Controls 

The Department has internal controls in place that support the reduction of improper payments in 

the Military Pay program to the levels the Department has targeted. However, in FY 2018 there were three 

outstanding material weaknesses in the Military Pay hire-to-retire process. The material weaknesses were 

identified by the Army and the Navy in FY 2011. Although the material weaknesses have had an impact 

on the Payment Integrity Program, significant progress has been made by the Army and the Navy to 

remediate them. The Army and the Navy plan to fully resolve the deficiencies by FY 2020. Moreover, 

OUSD(C) provides ongoing oversight to ensure that the material weaknesses are resolved by their target 

dates and coordination continues between the ERM/ICP and the Payment Integrity Program.

Human Capital

Currently, the Department has the human capital it needs to reduce improper payments in the 

Military Pay program to the levels the Department has targeted. However, as the Military Pay program 

evolves and DoD operations change, additional skill sets and personnel resources may be needed to sustain 

and advance the program.

Information Systems and Other Infrastructure 

The Department has the information systems and other infrastructure it needs to reduce improper 

payments in the Military Pay program to the levels the Department has targeted. The primary system 

currently used by the Department to process Military Pay is the Defense Joint Military Pay System (DJMS). 

DJMS received an unmodified System and Organizational Control (SOC) 1 Type 2 report under Statement 

on Standards for Attestation Engagements (SSAE) No. 18 in FY 2018. However, as technology advances, 

the Department continues to consider ways to improve the accuracy and efficiency of Military Pay through 

implementation of new payroll and entitlement processing systems and enhancements to existing systems.

Military Retirement

Internal Controls 

The Department has internal controls in place to support the reduction of improper payments in the 

Military Retirement program to the levels the Department has targeted. As part of the internal control 

framework for this program, the DFAS Director of R&A Pay has identified and documented known risks 

associated with the processes for providing pay services to the customers of the Military Retirement 

program. Along with identifying these risks by process, the Director of R&A Pay instituted key controls 

and control activities to mitigate the documented risks. The Director also tests the controls to ensure their 

effectiveness and documents the test results. In addition, OUSD(C) is committed to the coordination of 

activities between the ERM/ICP and the Payment Integrity Program to leverage best practices in internal

controls. 

Human Capital

Currently, the Department has the human capital it needs to reduce improper payments in the 

Military Retirement program to the levels the Department has targeted. However, as the Military 

Retirement program evolves and DoD operations change, additional skill sets and personnel resources may 

be needed to sustain and advance the program.
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Information Systems and Other Infrastructure 

The Department has the information systems and other infrastructure it needs to reduce improper 

payments in the Military Retirement program to the levels the Department has targeted. As technology 

advances, the Department continues to consider improving the accuracy and efficiency of Military 

Retirement through implementation of new retiree and annuitant pay systems and enhancements to existing 

systems.

DoD Travel Pay

Internal Controls

The Department has the internal controls in place to support the reduction of improper payments in 

the DoD Travel Pay program to the levels the Department has targeted. In addition, OUSD(C) is committed 

to the coordination of activities between the ERM/ICP and the Payment Integrity Program to leverage best 

practices in internal controls. 

Human Capital 

Currently, the Department has the human capital it needs to reduce improper payments in the DoD 

Travel Pay program to the levels the Department has targeted. However, as the DoD Travel Pay program 

evolves and DoD operations change, additional skill sets and personnel resources may be needed to sustain 

and advance the program.

Information Systems and Other Infrastructure 

The Department has the information systems and other infrastructure it needs to reduce improper 

payments in the DoD Travel Pay program to the levels the Department has targeted. The primary system 

currently used by the Department to process travel payments is DTS. DTS received an unmodified SOC 1 

Type 2 report under SSAE No. 18 in FY 2018. However, as technology advances, the Department 

continues to consider ways to improve the accuracy and efficiency of travel pay through implementation of 

new travel and entitlement processing systems and enhancements to existing systems. 

Service members signal as an F/A-18E Super Hornet launches from the flight deck of the aircraft carrier USS Theodore 

Roosevelt in the Persian Gulf, Feb. 27, 2018.

Navy photo by Petty Officer 3rd Class Alex Corona
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VII. Sampling and Estimation

The primary disbursing DoD Components use statistically valid and rigorous methods that are 

designed to meet or exceed OMB’s requirements of a 95% confidence level and a margin of error of 

+/- 3.0%. By using these methods, disbursing DoD Components are able to identify valid sample sizes and 

project improper payment percentages for the Department’s Payment Integrity Program. The smaller 

disbursing DoD Components normally perform 100% post-payment reviews or a full review of payments 

above a specific dollar threshold, with random sampling for lower dollar payments.

Military Pay

DFAS designed the program samples using a dollar-stratified sampling plan and the Neyman 

Allocation method. The Neyman Allocation method stratifies financial data from DJMS and the Marine 

Corps Total Force System (MCTFS) and allocates the data to defined strata. The overall variable sample 

size was calculated for the combined systems to produce a point estimate with a 95% confidence interval 

and a margin of error of +/- 2.5%. Samples were then randomly selected using the Statistical Package for 

the Social Sciences (SPSS) statistical software from each system’s population as a whole. Each payment 

within each stratum had an equal probability of selection.

On a monthly basis, DFAS statistically sampled Military Pay accounts stratified by Active Duty 

(i.e., Army, Navy, Air Force, and Marine Corps) and Reserve Components (i.e., Army Reserve, Army 

National Guard, Navy Reserve, Air Force Reserve, Air National Guard, and Marine Corps Reserve), and 

further stratified by the dollar amount of disbursements. The Defense Management Data Center provided 

the total universe of Military Pay accounts for each Military Service. DFAS reviewed the sampled pay 

accounts and calculated estimates of improper payments.

In FY 2019, based on a recommendation made by the Government Accountability Office (GAO) 

in Report No. GAO-18-377, the Department is revising its post-payment review procedures for this program 

to include verification of Military Service members pay and allowances with sufficient supporting 

documentation.

Air Force Chief Master Sgt. Hope L. Skibitsky leads an all-female military training instructor formation to honor 

Women’s History Month during a Basic Military Training graduation at Joint Base San Antonio, March 9, 2018.

Air Force photo by Ismael Ortega
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Military Retirement

On a monthly basis, DFAS statistically sampled Military Retirement payments stratified by retired 

and annuitant pay accounts. The reviews contained samples of drilling Reserve units, retiree offsets, 

survivor benefit plans, transfers to/from the Temporary Disability Retired List to the Permanent List, and 

Veterans Affairs offsets. The overall variable sample size was calculated to produce a point estimate with 

a 95% confidence interval and a margin of error of +/- 2.5%.

In FY 2018, DFAS updated its Military Retirement sampling plan to a methodology that stratifies 

the population by the status of the account (e.g. new accounts, accounts with changes, and unchanged 

accounts).

DoD Travel Pay

DFAS designed the program samples using a dollar-stratified sampling plan and the Neyman 

Allocation method. The Neyman Allocation method stratifies financial data from DTS and WinIATS and 

allocates the data to defined strata. The overall variable sample size was calculated for the combined 

systems to produce a point estimate with a 95% confidence interval and a margin of error of +/- 2.5%. 

Samples were then randomly selected using SPSS statistical software from each system’s population as a 

whole. Each payment within each stratum had an equal probability of selection.

On a monthly basis, DFAS sampled vouchers from DTS stratified by component (i.e., Army, Navy, 

Marine Corps, Air Force, and other DoD Components) and vouchers from WinIATS stratified by travel 

type (i.e., Active, Reserve, Casualty, Contingency, Civilian Permanent Change of Station (PCS), other DoD 

Component, International Military Education and Training, Military PCS, Navy Reserve Officers' Training 

Corps, and Navy Travel). In addition, each population was further stratified by dollar amount.

DFAS statisticians selected a random sample and the Post-pay Review and Analysis team reviewed 

the samples and calculated estimates of improper payments. Furthermore, to form the overall DoD Travel 

Pay improper payments estimate, the DFAS DTS and WinIATS improper payment estimates were 

combined with the Army’s WinIATS estimates of overseas travel, the Navy’s WinIATS estimate, the Air 

Force’s RTS estimate, and the Marine Corps’ WinIATS estimate.

In FY 2018, DFAS segregated the U.S. Special Operations Command (USSOCOM) data from the 

DTS Defense Agencies population and sampled it separately in order to provide USSOCOM with more 

detailed information regarding the root causes of their travel pay errors. DFAS selected USSOCOM 

because it accounts for the largest number of travel vouchers amongst the Defense Agencies.
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Fraud Reduction Report

The Fraud Reduction and Data Analytics Act of 2015 (FRDAA) was enacted on June 30, 2016 to 

help improve federal agencies’ financial and administrative controls and procedures to assess and mitigate 

fraud risks and to improve federal agencies’ development and use of data analytics for the purposes of 

preventing, detecting, and responding to fraud. The FRDAA requires agencies to (1) conduct an evaluation 

of fraud risks and use a risk-based approach to design and implement financial and administrative control 

activities to mitigate identified fraud risks; (2) collect and analyze data on detected fraud to monitor fraud 

trends and use the data and information to continuously improve fraud controls; and (3) use the results of 

monitoring, evaluation, audits, and investigations to improve fraud prevention, detection, and response. 

In support of its FRDAA compliance efforts in FY 2018, the Department developed an enterprisewide Fraud Risk Management framework to assist DoD Components with implementing the requirements 

of the FRDAA. The framework is a set of guidance and toolkits which will assist DoD Components in 

achieving the following outcomes: 

 Implementing the fraud risk principle in the Government Accountability Office (GAO) Standards 

for Internal Control in the Federal Government (“Green Book”) and the leading practices identified 

in the July 2015 GAO Report No. GAO-15-593SP, A Framework for Managing Fraud Risks in 

Federal Programs; 

 Identifying existing control activities that relate to fraud risk management, opportunities for 

expanding the scope of those control activities, and fraud risk areas that require the implementation 

of new control activities; and

 Identifying risks and vulnerabilities to fraud, including with respect to payroll; beneficiary 

payments; grants; large contracts; information technology and services; purchase, travel, and fleet 

cards; and commissary. 

A Marine ascends out of a cave at Marine Corps Air Station Futenma, Japan, April 19, 2018, during training to detect chemical 

or radiological threats in difficult-to-access areas.

Marine Corps photo by Cpl. Charles Plouffe
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Further, the Department conducted a pilot program of its framework with select DoD Components 

to obtain feedback to help enhance the framework’s applicability and effectiveness. Feedback received 

from the pilot program included recommendations to develop a list of frequently asked questions (FAQs), 

consolidate the framework’s toolkits, provide additional potential examples of fraud schemes, highlight the 

operational benefits of FRDAA compliance, and provide additional fraud risk management training. The 

Department is working to address each of these recommendations prior to the planned Department-wide 

implementation of its framework in FY 2019. Once fully implemented, the framework will help raise the 

maturity level of fraud risk management efforts across the Department and help facilitate the development 

of an enterprise-wide fraud risk profile. The fraud risk profile, which includes an analysis of the types of 

internal and external fraud risks, the perceived likelihood and impact of fraud risks, management’s risk 

tolerance, and a prioritized inventory of fraud risks, will assist the Department in the development of an 

enterprise-wide anti-fraud strategy.

In addition to the steps taken to develop and implement the Fraud Risk Management framework, 

the Department revised its Enterprise Risk Management and Internal Control Program policies and 

procedures to align with the updated guidance provided by Office of Management and Budget (OMB) 

Circular No. A-123. This effort included developing an Internal Control Guide to assist DoD Components 

with strengthening their internal controls and updating the Statement of Assurance Handbook to incorporate 

FRDAA requirements. 

The Department also continued to participate in meetings with the OMB working group tasked by 

the FRDAA to oversee the scope and development of an inter-agency library to improve the sharing of 

fraud risk management best practices and data analytics techniques for preventing, detecting, and 

responding to fraud. As part of this endeavor, the Department contributed to OMB’s development of a 

fraud taxonomy, which is intended to serve as a comprehensive system to effectively communicate fraud 

risks across the Federal Government, by identifying fraud risks and data analytic approaches for asset 

misappropriation and procurement fraud. The lessons learned and best practices identified during these 

activities will be communicated with program managers to further enhance Department-wide fraud 

prevention and detection.

An unarmed Trident II D5 missile launches from the ballistic missile submarine USS Nebraska in the Pacific Ocean off 

the coast of California, March 26, 2018, as part of a Navy Strategic Systems Programs test.

Navy photo by Mass Communication Specialist 1st Class Ronald Gutridge
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Reduce the Footprint

Consistent with Section 3 of OMB Memorandum M-12-12, OMB Management Procedures 

Memorandum No. 2015-01, and the National Strategy for the Efficient Use of Real Property, the 

Department sets annual targets to reduce the total square footage of domestic office and warehouse 

inventory compared to the FY 2015 baseline as part of the annual Real Property Efficiency Plan submission 

to OMB and the General Services Administration. Exhibit 24 and Exhibit 25 present the Department’s 

Reduce the Footprint comparisons of FY 2017 office and warehouse square footage and operations and 

maintenance costs to the FY 2015 baseline.

Exhibit 24. Reduce the Footprint Baseline Comparison

FY 2015 

Baseline FY 2017 Change(FY 2017 - FY 2015 Baseline)

$ 339.3 $ 284.6 $ (54.7)

Square footage

($ in millions)

Through FY 2017, the Department reduced its office and warehouse inventory by over 54 million 

square feet by focusing on various methods such as consolidation of underutilized assets, termination of 

leases, and demolition of excess facilities. Additionally, the Department continued conducting physical 

inspections and inventories of real property in preparation for the FY 2018 full-scope financial statement 

audit. These tests of existence and completeness led to the discovery of assets which were not previously 

reported correctly in the Department’s accounting records.

Exhibit 25. Reporting of Estimated Operation and Maintenance Costs – Owned and Direct Lease Buildings

FY 2015 

Reported Costs FY 2017 Change(FY 2017 - FY 2015 Baseline)

$ 829.5 $ 895.9 $ 66.4

Operation and 

Maintenance 

Costs

($ in millions)

Through FY 2017, the Department’s estimated annual operation and maintenance costs of its 

owned and direct leased facilities increased more than $66 million. The Department’s operation and 

maintenance costs are funded, managed, and disbursed at the base or installation level as opposed to the 

asset level (e.g., by facility). As a result, the Department is not currently able to trace the actual operations 

and maintenance costs associated with its office and warehouse inventory at the asset level and must rely 

on estimates mathematically derived from the allocation of base or installation level costs to all of the 

various facilities contained therein. As the Department’s office and warehouse inventory represents less 

than 15% of the total DoD real property footprint, changes in the calculated allocation of operations and 

maintenance costs to office and warehouse space may potentially be driven by factors unrelated to the office 

and warehouse facilities. 
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Civil Monetary Penalty Adjustment for Inflation

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act), 

which amended the Federal Civil Penalties Inflation Adjustment Act of 1990 (Inflation Adjustment Act, 

28 U.S.C. § 2461, note), requires federal agencies to annually adjust the level of civil monetary penalties 

for inflation to improve their effectiveness and maintain their deterrent effect. The implementation of this 

law helps deter violations of law; encourages corrective actions for existing violations; and helps prevent 

fraud, waste, and abuse within the Department. 

The Department publishes its civil monetary penalties adjustments as two separate final rules in the 

Federal Register – one containing the adjustments related to the U.S. Army Corps of Engineers (USACE) 

and one containing the adjustments related to the remainder of the Department. Exhibit 26 provides the 

civil monetary penalties that the Department may impose, the authority for imposing the penalty, the year 

enacted, the year of the latest adjustment, and the current penalty level. Additional supporting details about 

these penalties are available at Federal Register Volume 83, page 3077 (83 FR 3077) and 83 FR 19180. 

Exhibit 26. FY 2018 Civil Monetary Penalty Adjustments for Inflation

Penalty

(Name or Description)

Statutory 

Authority

Year

Enacted 

Latest 

Year of 

Adjustme

n t

Current 

Penalty

($ a m o unt o r 

ra ng e )

Sub-Agency / 

Bureau / Unit

Location for 

Penalty 

Updates

Unauthorized Activities 

Directed at or Possession 

of Sunken Military Craft

National Defense 

Authorization Act for 

FY 2005, 10 U.S.C. § 

113, note

2004 2018 $129,211 Department of 

the Navy

83 FR 3077

(January 23, 

2018)

Unlawful Provision of 

Health Care

10 U.S.C. § 

1094(c)(1)

1985 2018 $11,346 Defense Health 

Agency

84 FR 3077

(January 23, 

2018)

Wrongful Disclosure - 

Medical Records

10 U.S.C. § 1102(k) 1986 2018

$6,709 

(First Offense)

$44,726 

(Subsequent 

Offense)

Defense Health 

Agency

85 FR 3077

(January 23, 

2018)

Violation of the 

Pentagon Reservation 

Operation and Parking 

of Motor Vehicles Rules 

and Regulations

10 U.S.C. § 

2674(c)(2) 1990 2018 $1,848 

Deputy Chief 

Information 

Officer

86 FR 3077

(January 23, 

2018)

Violation Involving 

False Claim

31 U.S.C. § 

3802(a)(1) 1986 2018 $11,181 

Office of the 

Inspector General

87 FR 3077

(January 23, 

2018)

Violation Involving 

False Statement

31 U.S.C. § 

3802(a)(2) 1986 2018 $11,181 

Office of the 

Inspector General

88 FR 3077

(January 23, 

2018)

Class I Civil 

Administrative Penalties 

for Violations of Clean 

Water Act Section 404 

Permits

Clean Water Act, 

33 U.S.C. § 

1319(g)(2)(A)

1987 2018

$21,394 per 

violation, with a 

maximum of 

$53,484

U.S. Army Corps 

of Engineers

83 FR 19180

(May 2, 2018)

Judicially Imposed Civil 

Penalties for Violations 

of Clean Water Act 

Section 404 Permits

Clean Water Act, 

33 U.S.C. § 

1344(s)(4) 

1987 2018

Maximum of 

$53,484 per day 

for each violation

U.S. Army Corps 

of Engineers

84 FR 19180

(May 2, 2018)

Civil Administrative 

Penalties for Violations 

of Section 205(e) of the 

National Fishing 

Enhancement Act

National Fishing 

Enhancement Act, 

33 U.S.C. § 2104(e) 

1984 2018

Maximum of 

$23,426 per 

violation

U.S. Army Corps 

of Engineers

85 FR 19180

(May 2, 2018)
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Grants Oversight and New Efficiency Act Requirements

The Grants Oversight & New Efficiency (GONE) Act was enacted on January 28, 2016 with the 

goal of helping federal agencies to more efficiently identify and close out expired federal grant awards 

(including cooperative agreements). To accomplish this, the GONE Act required, among other things, that 

the head of each federal agency (1) submit a report to Congress in FY 2017 which identifies and quantifies 

federal grant awards which had been expired for more than two years but had not been closed out and 

(2) submit a follow-up report to Congress in FY 2018 which discloses progress made in closing out the 

previously reported expired grant awards. Exhibit 27 provides information related to the expired federal 

grant awards previously disclosed in the Agency Financial Report for FY 2017 which were not closed out 

as of September 30, 2018.

Exhibit 27. Unclosed Previously Reported Expired DoD Grant and Cooperative Agreement Awards

 as of September 30, 2018

Category 2 - 3 Years > 3 - 5 Years > 5 Years

Number of Grants / Cooperative 

Agreements with Zero Dollar 

Balances

631 554 413

Number of Grants / Cooperative 

Agreements with Undisbursed 

Balances

423 147 141

Total Amount of Undisbursed 

Balances $ 37,714,877 $ 37,456,451 $ 13,923,750 

During FY 2018, the Department successfully closed out 54% of the expired federal grant awards 

that were previously reported in FY 2017. To achieve this progress in closing out the identified federal 

grant awards, the Department instituted a number of business process improvements such as

 Increasing staff (both newly hired civilian employees as well as contractors) to reduce the backlog 

of expired federal grant awards requiring closeout;

 Using new systems that now track closeout requirements, thereby assisting grants offices in 

tracking when awards are ready to closeout;

 Increasing collaboration between the offices awarding federal grants and those administering the 

federal grant award; and

 Establishing new business practices to batch federal grant awards by recipient, thereby reducing 

the burden of the closeout process for both the grant officer and the grantee.

Additionally, through an increased emphasis on data reconciliation during FY 2018, the 

Department discovered that 415 expired federal grant awards were erroneously reported in FY 2017 and 

were, in fact, closed.

Despite these efforts, many challenges remain such as the lack of adequate staffing, delays caused 

by DoD and grantee staff changes, and the lack of a centralized system for the management and reporting 

of federal grant awards. The Department continues to actively research mitigation strategies for these and 

other challenges, among which include sponsoring Department-wide grant management workshops to 

facilitate the sharing of best practices, working to develop guidance for the process of closing out federal 

grant awards, and exploring options for the centralization of federal grant award report collection.
U.S. Department of Defense Agency Financial Report for FY 2018

Other Information

196

Management Challenges

In accordance with the Reports Consolidation Act of 2000, the DoD Inspector General (DoD IG) 

prepares an annual statement that summarizes what the DoD IG considers to be the most serious 

management and performance challenges facing the Department. This statement is included in a larger 

report by the DoD IG which provides additional background and descriptive information about each 

challenge and provides an assessment of the Department’s progress in addressing the challenges.

The DoD Office of the Inspector General uses the DoD IG report as a research and planning tool 

to identify areas of risk in DoD operations. As the report is forward-looking and outlines the most 

significant management and performance challenges facing the Department now and in the future, it is 

labelled as FY 2019 rather than FY 2018 to reflect its forward-looking orientation. 

The DoD IG’s statement summarizing the most serious management and performance challenges 

facing the Department is included on the following page. The complete DoD IG report on FY 2019 Top 

DoD Management Challenges as well as reports from previous years are available at the DoD IG website.

This Page Intentionally Left Blank
FY 2018

Appendix A: Acronyms and 

Abbreviations A-1

Appendix B: URL Index B-1

Appendix C: Index of Figures, 

Tables, and Exhibits C-1

Appendices
Face of Defense: Former Slave, 2-Time Olympian Becomes an Airman

For the full article, click icon
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix A

A-1

Appendix A – Acronyms and Abbreviations

Acronym Definition

ADA Antideficiency Act

ADDP Active Duty Dental Program

AF Air Force

AF-IPPS Air Force Integrated Personnel and Pay System 

AFR Agency Financial Report

AM&E Assessment, Monitoring, and Evaluation

ASD Assistant Secretary of Defense

ASP Agency Strategic Plan

AU Assessable Unit

BEA Business Enterprise Architecture

BRAC Base Realignment and Closure

BRS Blended Retirement System 

CAIVRS Credit Alert Verification Reporting System

CAP Corrective Action Plan

CBY Charge Back Year

CERCLA Comprehensive Environmental Response, Compensation, and Liability Act 

CFO Chief Financial Officer

CJCS Chairman of the Joint Chiefs of Staff

CMO Chief Management Officer

CNGB Chief of the National Guard Bureau

CNO Chief of Naval Operations

CO Certifying Official

COLA Cost of Living Adjustment

CONOPS Concept of Operations

COO Chief Operating Officer

COTS Commercial Off-The-Shelf

CPIM Consumer Price Index Medical

CR Comprehensive Review

CSA Chief of Staff of the Army

CSAF Chief of Staff of the Air Force

DAI Defense Agencies Initiative

DAO Departmental Accountable Official

DARPA Defense Advanced Research Projects Agency

DATA Digital Accountability and Transparency Act 

DBC Defense Business Council 

DBS Defense Business Systems

DC3 DoD Cyber Crime Center

DCFO Deputy Chief Financial Officer

DCMA Defense Contract Management Agency 

DEAMS Defense Enterprise Accounting and Management System

DERP Defense Environmental Restoration Program

DFARS Defense Federal Acquisition Regulation Supplement

DFAS Defense Finance and Accounting Services 

DHA Defense Heath Agency

DIB Defense Industrial Base 

DISA Defense Information System Agency

DJMS Defense Joint Military Pay System

DLA Defense Logistics Agency 

DM&R Deferred Maintenance and Repairs

DMDC Defense Manpower Data Center

DMF Death Master File

DNP Do Not Pay

DoD Department of Defense

DoD IG Department of Defense Inspector General

DoD OIG Department of Defense Office of the Inspector General

DoDI Department of Defense Instruction

DoDIN Department of Defense Information Network

DOL Department of Labor

DSCA Defense Security Cooperation Agency

DTD Direct Treasury Disbursing

DTMO Defense Travel Management Office

DTS Defense Travel System

E2E End-to-End

E&DL Environmental and Disposal Liabilities

EBF Education Benefits Fund

EBS Enterprise Business System
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix A

A-2

Acronym Definition

EIC External Independent Contractor

EIN Employer Identification Number

ELPS Excluded Parties List System

EO Executive Order

EOU Excess, Obsolete, and Unserviceable

ERM Enterprise Risk Management 

ERM/ICP Enterprise Risk Management and Internal Control Program

ERP Enterprise Resource Planning

FAR Federal Acquisition Regulation

FASAB Federal Accounting Standards Advisory Board 

FBWT Fund Balance with Treasury

FECA Federal Employees’ Compensation Act

FERC Federal Energy Regulatory Commission

FFATA Federal Funding Accountability and Transparency Act

FFMIA Federal Financial Management Improvement Act of 1996 

FFRDC Federally Funded Research and Development Center

FGB FIAR Governance Board

FIAR Financial Improvement Audit Readiness 

FISCAM Federal Information System Controls Audit Manual

FISMA Federal Information Security Modernization Act of 2014 

FM Financial Management

FMFIA Federal Managers’ Financial Integrity Act of 1982 

FMR Financial Management Regulation

FMS Foreign Military Sales

FMSC Financial Management Support Center

FR Federal Register

FRDAA Fraud Reduction and Data Analytics Act

FSD FIAR Systems Database

FUSRAP Formerly Utilized Sites Remedial Action Program 

FY Fiscal Year

FYDP Future Years Defense Program

GAAP Generally Accepted Accounting Principles

GAO Government Accountability Office

GAO Government Accountability Office

GC General Counsel

GCSS-A Global Combat Support System – Army

GCSS-MC Global Combat Support Systems-Marine Corps 

GFEBS General Fund Enterprise Business System 

GMRA Government Management Reform Act of 1994

GONE Act Grants Oversight and New Efficiency Act of 2016

GPRA Government Performance and Results Act of 1993 

GPRAMA GPRA Modernization Act of 2010 

GRPA Government Performance and Results Act

GSA General Services Agency

HII Hiring Improvement Initiatives

HR Human Resources

ICP Internal Control Program 

IGT Intragovernmental Transactions

IP Improper Payment / Improperly Paid

IPERA Improper Payments Elimination and Recovery Act 

IPERIA Improper Payments Elimination and Recovery Improvement Act 

IPIA Improper Payments Information Act

IPPS-A Integrated Personnel and Pay System – Army 

ISIS Islamic State of Iraq and Syria

IT Information Technology

JCS Joint Chiefs of Staff

JIE Joint Information Environment 

JRSS Joint Regional Security Stack 

JV Journal Voucher

LEIE List of Excluded Individuals/Entities

LMP Logistics Modernization Program

MCTFS Marine Corps Total Force System

MERHCF Medicare Eligible Retiree Health Care Fund 

MHPI Military Housing Privatization Initiative

MHS Military Health System

MILDEPS Military Departments

MRF Military Retirement Fund

MW Material Weakness

MWR Morale, Welfare, and Recreation
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix A

A-3

Acronym Definition

NAF Nonappropriated Fund

NAFI Nonappropriated Fund Instrumentality

NATO North Atlantic Treaty Organization

NDAA National Defense Authorization Act

NDBOP National Defense Business Operations Plan 

NDS National Defense Strategy

NFR Notice of Findings and Recommendations

NIPRNet Non-Classified Internet Protocol Router Network

No. Number

NOAA National Oceanic and Atmospheric Administration

NPV Net Present Value 

OCO Overseas Contingency Operations

OCONUS Outside the Continental United States

ODCFO Office of the Deputy Chief Financial Officer 

ODOs Other Defense Organizations

OEP Organizational Execution Plans

OGC Office of General Counsel

OM&S Operating Materials and Supplies

OMB Office of Management and Budget

OSD Office of the Secretary of Defense

OUSD(C) Office of the Under Secretary of Defense (Comptroller)

P2P Procure-to-Pay

PCS Permanent Change of Station

PP Proper Payment / Properly Paid

PP&E Property, Plant and Equipment

PPA Prompt Payment Act

PPBE Planning, Programming, Budgeting, and Execution

QCO Quick Closeout 

R&A Pay Retired and Annuitant Pay

R&D Research and Development

R2F Readiness Recovery Framework 

RACER Remedial Action Cost Engineering Requirements

RCRA Resource Conservation and Recovery Act 

RDT&E Research, Development, Test, and Evaluation

RMF Risk Management Framework

RSI Required Supplementary Information

RSSI Required Supplementary Stewardship Information

RTS Reserve Travel System

SAM System for Award Management

SAO Senior Accountable Official

SARA Superfund Amendments and Reauthorization Act 

SBR Statement of Budgetary Resources 

SC Security Cooperation

SCM Service Chain Management

SCNP Statement of Changes in Net Position

SCR System Change Request

SDP Savings Deposit Program

SFFAS Statement of Federal Financial Accounting Standards

SFIS Standard Financial Information Structure

SLOA Standard Line of Accounting

SMS Sustainment Management System

SNC Statement of Net Cost 

SOC System and Organization Controls

SOF Special Operations Forces

SPSS Statistical Package for the Social Sciences

SRR Strategic Readiness Review

SSA Social Security Administration

SSAE Statement on Standards for Attestation Engagements

STB Standard Transaction Broker

TED TRICARE Encounter Data

TNC Treasury Nominal Coupon

Treasury United States Department of the Treasury

TSP Thrift Savings Plan 

U.S. United States

U.S.C. United States Code

USACE U.S. Army Corps of Engineers

USCYBERCOM U.S. Cyber Command

USD Under Secretary of Defense

USD(C)/CFO Under Secretary of Defense (Comptroller)/Chief Financial Officer 
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix A

A-4

Acronym Definition

USD(P&R) Under Secretary of Defense for Personnel and Readiness

USSGL United States Government Standard General Ledger

USSOCOM U.S. Special Operations Command

USSTRATCOM U.S. Strategic Command

USTRANSCOM U.S. Transportation Command

VCJCS Vice Chairman of the Joint Chiefs of Staff

VSI Voluntary Separation Incentive 

WCF Working Capital Funds

WG Working Group

WinIATS Windows Integrated Automated Travel System

Deputy Defense Secretary Pat Shanahan holds a Javelin anti-tank weapon during a visit to Joint Base Lewis-McChord, Wash., to speak with military personnel about 

unit readiness, Nov. 14, 2017.

DoD photo by Air Force Tech. Sgt. Brigitte N. Brantley
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-1

Appendix B – URL Index

Link Title URL

Active Duty Dental Program (ADDP) https://www.tricare.mil/CoveredServices/Dental/ADDental/ADDP

Air Force Audit Agency https://www.afaa.af.mil/

Air Force Integrated Personnel and Pay 

System (AF-IPPS) http://www.dtic.mil/dtic/tr/fulltext/u2/1019572.pdf

Annual Performance Report https://cmo.defense.gov/Publications/Annual-Performance-Plan-and-Performance-Report/

Antideficiency Act Reports https://www.gao.gov/legal/appropriations-law-decisions/resources#reports

Arms Export Control Act of 1976 http://uscode.house.gov/view.xhtml?path=/prelim@title22/chapter39&edition=prelim

Atomic Energy Act of 1954 https://www.nrc.gov/docs/ML1327/ML13274A489.pdf#page=23

Basic Research https://basicresearch.defense.gov/

Bipartisan Budget Act of 2018 https://www.congress.gov/115/bills/hr1892/BILLS-115hr1892enr.pdf

Blended Retirement System (BRS) https://militarypay.defense.gov/blendedretirement/

Budget Control Act of 2011 https://www.congress.gov/112/plaws/publ25/PLAW-112publ25.pdf

Bureau of the Fiscal Service https://www.fiscal.treasury.gov/

Chairman of the Joint Chiefs of Staff 

(CJCS) http://www.jcs.mil/About/The-Joint-Staff/Chairman/

Chief Financial Officers (CFO) Act of 

1990 https://www.gpo.gov/fdsys/pkg/STATUTE-104/pdf/STATUTE-104-Pg2838.pdf

Chief Management Officer (CMO), 

Department of Defense (DoD) https://cmo.defense.gov/

Chief of Naval Operations (CNO) http://www.navy.mil/cno/index.asp

Chief of Staff of the Air Force (CSAF) https://www.af.mil/About-Us/Air-Force-Senior-Leaders/CSAF/

Chief of Staff of the Army (CSA) https://www.army.mil/leaders/csa/

Chief of the National Guard Bureau 

(CNGB) http://www.nationalguard.mil/Leadership/CNGB.aspx

Comprehensive Environmental 

Response, Compensation, and Liability 

Act (CERCLA)

https://www.gpo.gov/fdsys/pkg/STATUTE-94/pdf/STATUTE-94-Pg2767.pdf

Consolidated Appropriations Act of 2018 https://www.congress.gov/115/bills/hr1625/BILLS-115hr1625enr.pdf

Credit Alert Verification Reporting 

System (CAIVRS) https://www.hud.gov/program_offices/housing/sfh/caivrs

David Packard Excellence in Acquisition 

Award https://www.dau.mil/about/p/Packard Award

Death Master File (DMF) https://www.ssa.gov/dataexchange/request_dmf.html

Defense Advanced Research Projects 

Agency (DARPA) https://www.darpa.mil/

Defense Agencies Initiative (DAI) http://www.dla.mil/HQ/InformationOperations/Offers/DefenseAgenciesInitiative/

Defense Business Council (DBC) https://cmo.defense.gov/Governance/Defense-Business-Council/

Defense Contract Management Agency 

(DCMA) http://www.dcma.mil/

Defense Enterprise Accounting and 

Management System (DEAMS) http://www.dtic.mil/dtic/tr/fulltext/u2/1019788.pdf

Defense Environmental Restoration 

Program (DERP) https://www.denix.osd.mil/derp/home/

Defense Federal Acquisition Regulation 

Supplement (DFARS) https://www.acq.osd.mil/dpap/dars/dfarspgi/current/

Defense Finance and Accounting Service 

(DFAS) https://www.dfas.mil/

Defense Finance and Accounting Service 

(DFAS) Cleveland https://www.dfas.mil/careers/PDFs/ClevelandSiteSheet.html

Defense Health Agency (DHA) Office of 

General Counsel (OGC) https://www.health.mil/About-MHS/OASDHA/Defense-Health-Agency/Office-of-General-Counsel
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-2

Link Title URL

Defense Heath Agency (DHA) https://www.health.mil/dha

Defense Industrial Base (DIB) https://policy.defense.gov/OUSDP-Offices/ASD-for-Homeland-Defense-Global-Security/DefenseCritical-Infrastructure-Program/Partnering/#dib

Defense Logistics Agency (DLA) http://www.dla.mil/

Defense Logistics Agency (DLA) 

Disposition Services http://www.dla.mil/DispositionServices.aspx

Defense Manpower Data Center 

(DMDC) http://www.dmdc.osd.mil/

Defense Security Cooperation Agency 

(DSCA) http://www.dsca.mil/

Defense Travel Management Office 

(DTMO) https://www.defensetravel.dod.mil/

Defense Travel System (DTS) https://www.defensetravel.dod.mil/site/dts.cfm

Department of Defense Appropriations 

Act of 1993 https://www.gpo.gov/fdsys/pkg/STATUTE-106/pdf/STATUTE-106-Pg1876.pdf#page=67

Department of Health and Human 

Services https://www.hhs.gov/

Department of Homeland Security https://www.dhs.gov/

Department of the Air Force https://www.af.mil/

Department of the Army https://www.army.mil/

Department of the Navy http://www.navy.mil/

Department of the Treasury https://home.treasury.gov/

Deputy Chief Financial Officer (DCFO) https://comptroller.defense.gov/About-OUSD-C/dcfo_Bio.aspx

Deputy Secretary of Defense https://www.defense.gov/our-story/meet-the-team/deputy-secretary-of-defense/

Do Not Pay (DNP) https://donotpay.treas.gov/

DoD Cyber Crime Center (DC3) https://www.dc3.mil/

DoD Cyber Strategy https://media.defense.gov/2018/Sep/18/2002041658/-1/-

1/1/CYBER_STRATEGY_SUMMARY_FINAL.PDF

DoD Financial Management (FM) 

Certification Program https://comptroller.defense.gov/External-Links/FMCert/

DoD Financial Management Regulation https://comptroller.defense.gov/FMR.aspx

DoD Financial Management Regulation 

(DoD FMR) https://comptroller.defense.gov/FMR.aspx

DoD FMR, Volume 10, Chapter 22, 

"Payment Recapture Audits" https://comptroller.defense.gov/Portals/45/documents/fmr/current/10/10_22.pdf

DoD FMR, Volume 16, "Department of 

Defense Debt Management" https://comptroller.defense.gov/Portals/45/documents/fmr/Volume_16.pdf

DoD FMR, Volume 4, Chapter 14, 

"Improper Payments" https://comptroller.defense.gov/Portals/45/documents/fmr/current/04/04_14.pdf

DoD FMR, Volume 5, Chapter 5, 

"Certifying Officers, Departmental 

Accountable Officials, and Review 

Officials"

https://comptroller.defense.gov/Portals/45/documents/fmr/current/05/05_05.pdf

DoD Inspector General (DoD IG) http://www.dodig.mil/About/Leaders/

DoD Inspector General (IG) Website http://www.dodig.mil/reports.html/Category/14742/

DoD Instruction 1020.03, "Harassment 

Prevention and Response in the Armed 

Forces"

http://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/102003.pdf

DoD Instruction 3110.06, "War Reserve 

Material (WRM) Policy"

http://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/311006p.pdf?ver=2018-10-05-

071002-703

DoD Instruction 5000.61, "DoD 

Modeling and Simulation (M&S) 

Verification, Validation, and 

Accreditation"

http://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/500061p.pdf
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-3

Link Title URL

DoD Instruction 5010.40, "Managers' 

Internal Control Program Procedures" http://www.esd.whs.mil/Portals/54/Documents/DD/issuances/dodi/501040p.pdf

DoD Office of the Inspector General 

(OIG) http://www.dodig.mil/

Executive Order (EO) 13777, "Enforcing 

the Regulatory Reform Agenda" https://www.gpo.gov/fdsys/pkg/FR-2017-03-01/pdf/2017-04107.pdf

Federal Accounting Standards Advisory 

Board (FASAB) http://www.fasab.gov/

Federal Acquisition Regulation (FAR) https://www.acquisition.gov/browse/index/far

Federal Acquisition Regulation (FAR), 

Part 32 https://acquisition.gov/far/current/html/FARTOCP32.html

Federal Acquisition Regulation (FAR), 

Part 35.017 https://www.acquisition.gov/sites/default/files/current/far/html/Subpart%2035_0.html#wp1085198

Federal Civil Penalties Inflation 

Adjustment Act Improvements Act of 

2015 (the 2015 Act)

https://www.congress.gov/114/plaws/publ74/PLAW-114publ74.pdf#page=17

Federal Civil Penalties Inflation 

Adjustment Act of 1990 (Inflation 

Adjustment Act)

https://www.gpo.gov/fdsys/pkg/STATUTE-104/pdf/STATUTE-104-Pg890.pdf

Federal Credit Reform Act of 1990 https://www.fiscal.treasury.gov/fsreports/ref/ussgl/creditreform/fcra.htm#titleV

Federal Employees’ Compensation Act 

(FECA) https://www.dol.gov/owcp/dfec/regs/statutes/feca.htm

Federal Energy Regulatory Commission 

(FERC) https://www.ferc.gov/

Federal Financial Management 

Improvement Act of 1996 (FFMIA) https://www.congress.gov/104/bills/hr4319/BILLS-104hr4319ih.pdf

Federal Funding Accountability and 

Transparency Act of 2006 (FFATA) https://www.congress.gov/109/plaws/publ282/PLAW-109publ282.pdf

Federal Information Security 

Modernization Act of 2014 (FISMA) https://www.congress.gov/113/plaws/publ283/PLAW-113publ283.pdf

Federal Managers’ Financial Integrity 

Act of 1982 (FMFIA) https://www.gpo.gov/fdsys/pkg/STATUTE-96/pdf/STATUTE-96-Pg814.pdf

Federal Register (FR) https://www.federalregister.gov/

Federal Register Volume 83, page 19180 

(83 FR 19180) https://www.gpo.gov/fdsys/pkg/FR-2018-05-02/pdf/2018-09316.pdf

Federal Register Volume 83, page 3077 

(83 FR 3077) https://www.gpo.gov/fdsys/pkg/FR-2018-01-23/pdf/2018-01168.pdf

Foreign Military Sales (FMS) http://www.dsca.mil/programs/foreign-military-sales-fms

Formerly Utilized Sites Remedial Action 

Program (FUSRAP) https://www.usace.army.mil/Missions/Environmental/FUSRAP/

Fraud Reduction and Data Analytics Act 

of 2015 (FRDAA) https://www.congress.gov/114/plaws/publ186/PLAW-114publ186.pdf

Fraud Reduction and Data Analytics Act 

of 2015 (FRDAA) https://www.congress.gov/114/plaws/publ186/PLAW-114publ186.pdf

FY 2017 DoD Agency Financial Report 

(AFR) https://comptroller.defense.gov/odcfo/afr2017.aspx

FY 2017 Request of Additional 

Appropriations

https://comptroller.defense.gov/Portals/45/Documents/defbudget/fy2017/marchAmendment/FY17_

March_Amendment.pdf

FY 2019 Annual Performance Plan https://cmo.defense.gov/Portals/47/Documents/Publications/NBDOP/TAB B FY18-22 NDBOP 

Appendices.pdf

General Counsel (GC), Department of

Defense (DoD) http://ogc.osd.mil/

General Fund Enterprise Business 

System (GFEBS) http://www.eis.army.mil/programs/gfebs

General Services Agency (GSA) https://www.gsa.gov/
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-4

Link Title URL

General Services Agency (GSA) 

Transportation Audits Division

https://www.gsa.gov/buying-selling/products-services/transportation-logisticsservices/transportation-audits

Global Combat Support System – Army 

(GCSS-A) http://www.eis.army.mil/programs/gcss-a

Global Combat Support Systems-Marine 

Corps (GCSS-MC) https://www.marcorsyscom.marines.mil/PEOs/PEO-EIS/GCSS-MC/

Government Accountability Office 

(GAO) https://www.gao.gov/

Government Accountability Office 

(GAO) Standards for Internal Control in 

the Federal Government ("Green Book")

https://www.gao.gov/assets/670/665712.pdf

Government Accountability Office 

(GAO) Report No. GAO-15-593SP, "A 

Framework for Managing Fraud Risks in 

Federal Programs"

https://www.gao.gov/assets/680/671664.pdf

Government Accountability Office 

(GAO) Report No. GAO-18-377, 

"Improper Payments: Actions and 

Guidance Could Help Address Issues 

and Inconsistencies in Estimation 

Processes"

https://www.gao.gov/products/GAO-18-377

Government Management Reform Act of 

1994 (GMRA) https://www.congress.gov/103/bills/s2170/BILLS-103s2170enr.pdf

Government Performance and Results 

Act of 1993 (GPRA) https://www.congress.gov/103/bills/s20/BILLS-103s20enr.pdf

GPRA Modernization Act of 2010 

(GPRAMA) https://www.congress.gov/111/plaws/publ352/PLAW-111publ352.pdf

Grants Oversight and New Efficiency 

(GONE) Act of 2016 https://www.congress.gov/114/plaws/publ117/PLAW-114publ117.pdf

Hill Air Force Base https://www.hill.af.mil/

Improper Payments Elimination and 

Recovery Act of 2010 (IPERA) https://www.congress.gov/111/plaws/publ204/PLAW-111publ204.pdf

Improper Payments Elimination and 

Recovery Improvement Act of 2012 

(IPERIA)

https://www.congress.gov/112/plaws/publ248/PLAW-112publ248.pdf

Improper Payments Information Act of 

2002 (IPIA) https://www.congress.gov/107/plaws/publ300/PLAW-107publ300.pdf

Integrated Personnel and Pay System –

Army (IPPS-A) http://www.eis.army.mil/programs/ipps-a

Interpretation of Federal Financial 

Accounting Standards (Interpretation) 6 http://files.fasab.gov/pdffiles/handbook_interp_6.pdf

Joint Chiefs of Staff (JCS) http://www.jcs.mil/

Joint Information Environment (JIE) https://www.disa.mil/About/Our-Work/JIE

Joint Regional Security Stack (JRSS) https://disa.mil/-/media/Files/DISA/Fact-Sheets/JRSS-Fact-Sheet-April-2017.ashx

List of Excluded Individuals/Entities 

(LEIE) https://oig.hhs.gov/exclusions/background.asp

Logistics Modernization Program (LMP) http://www.eis.army.mil/programs/lmp

Low-Level Radioactive Waste Policy 

Amendments Act of 1985 https://www.nrc.gov/docs/ML1327/ML13274A489.pdf#page=295

Military Health System (MHS) https://www.health.mil/

Morale, Welfare, and Recreation (MWR) https://www.militaryonesource.mil/morale-welfare-and-recreation

National Defense Authorization Act 

(NDAA) for FY 1984 http://uscode.house.gov/statutes/pl/98/94.pdf

National Defense Authorization Act 

(NDAA) for FY 1985 https://www.gpo.gov/fdsys/pkg/STATUTE-98/pdf/STATUTE-98-Pg2492.pdf
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-5

Link Title URL

National Defense Authorization Act 

(NDAA) for FY 1986 https://www.gpo.gov/fdsys/pkg/STATUTE-99/pdf/STATUTE-99-Pg583.pdf

National Defense Authorization Act 

(NDAA) for FY 1992 and 1993 https://www.gpo.gov/fdsys/pkg/STATUTE-105/pdf/STATUTE-105-Pg1290.pdf

National Defense Authorization Act 

(NDAA) for FY 1996 https://www.congress.gov/104/plaws/publ106/PLAW-104publ106.pdf#page=360

National Defense Authorization Act 

(NDAA) for FY 2001 https://www.congress.gov/106/plaws/publ398/PLAW-106publ398.pdf

National Defense Authorization Act 

(NDAA) for FY 2005 https://www.congress.gov/108/plaws/publ375/PLAW-108publ375.pdf#page=312

National Defense Authorization Act 

(NDAA) for FY 2012 https://www.congress.gov/112/plaws/publ81/PLAW-112publ81.pdf

National Defense Authorization Act 

(NDAA) for FY 2014 https://www.congress.gov/113/plaws/publ66/PLAW-113publ66.pdf

National Defense Authorization Act 

(NDAA) for FY 2016 https://www.congress.gov/114/plaws/publ92/PLAW-114publ92.pdf

National Defense Authorization Act 

(NDAA) for FY 2017 https://www.congress.gov/114/crpt/hrpt840/CRPT-114hrpt840.pdf

National Defense Authorization Act 

(NDAA) for FY 2018 https://www.congress.gov/115/crpt/hrpt404/CRPT-115hrpt404.pdf

National Defense Business Operations 

Plan (NDBOP)

https://cmo.defense.gov/Portals/47/Documents/Publications/NBDOP/TAB A FY18-22 NDBOP 

(CMO signed 05_18_18).pdf

National Defense Strategy (NDS) https://dod.defense.gov/Portals/1/Documents/pubs/2018-National-Defense-Strategy-Summary.pdf

National Guard http://www.nationalguard.mil/

National Historic Preservation Act https://www.fema.gov/media-library-data/20130726-1623-20490-5704/nhpa.pdf

National Security Act of 1947 https://legcounsel.house.gov/Comps/National%20Security%20Act%20Of%201947.pdf

National Security Strategy https://www.whitehouse.gov/wp-content/uploads/2017/12/NSS-Final-12-18-2017-0905.pdf

National Strategy for the Efficient Use of 

Real Property

https://obamawhitehouse.archives.gov/sites/default/files/omb/financial/national-strategy-efficientuse-real-property.pdf

Navy Enterprise Resource Planning 

(ERP) http://www.erp.navy.mil/

North Atlantic Treaty Organization 

(NATO) https://www.nato.int/

Nuclear Waste Policy Act of 1982 https://www.nrc.gov/docs/ML1327/ML13274A489.pdf#page=419

Office of Management and Budget 

(OMB) https://www.whitehouse.gov/omb/

Office of the Deputy Chief Financial 

Officer (ODCFO) https://comptroller.defense.gov/ODCFO/

Office of the Secretary of Defense 

(OSD) https://dod.defense.gov/About/Office-of-the-Secretary-of-Defense/

Office of the Under Secretary of Defense 

(Comptroller) (OUSD(C)) https://comptroller.defense.gov/

OMB Circular No. A-11, "Preparation, 

Submission, and Execution of the 

Budget"

https://www.whitehouse.gov/wp-content/uploads/2018/06/a11.pdf

OMB Circular No. A-123, 

"Management's Responsibility for 

Enterprise Risk Management and 

Internal Control"

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2016/m-16-17.pdf

OMB Circular No. A-123, Appendix C, 

"Requirements for Payment Integrity 

Improvement"

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2013/m-13-23.pdf

OMB Circular No. A-123, Appendix D, 

"Compliance with the Federal Financial 

Management Improvement Act of 1996"

https://www.whitehouse.gov/wp-content/uploads/2018/06/M-18-20.pdf
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-6

Link Title URL

OMB Circular No. A-129, "Policies for 

Federal Credit Programs and Non-Tax 

Receivables"

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/circulars/A129/a-129.pdf

OMB Circular No. A-136, "Financial 

Reporting Requirements" https://www.whitehouse.gov/wp-content/uploads/2018/07/A-136-2018.pdf

OMB Circular No. A-25, "User Charges" https://www.whitehouse.gov/wp-content/uploads/2017/11/Circular-025.pdf

OMB Management Procedures 

Memorandum No. 2015-01, 

"Implementation of OMB Memorandum 

M-12-12 Section 3: Reduce the 

Footprint"

https://www.whitehouse.gov/wp-content/uploads/2017/11/m-15.01Reduce-the-Footprint-Policy.pdf

OMB Memorandum M-12-12, 

"Promoting Efficient Spending to 

Support Agency Operations"

https://obamawhitehouse.archives.gov/sites/default/files/omb/memoranda/2012/m-12-12.pdf

OMB Memorandum M-17-23, 

"Guidance on Regulatory Reform 

Accountability under Executive Order 

13777, titled 'Enforcing the Regulatory 

Reform Agenda' "

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2017/M-17-23.pdf

OMB Memorandum M-18-02, "Fiscal 

Year 2017-2018 Guidance on Federal 

Information Security and Privacy 

Management Requirements"

https://www.whitehouse.gov/sites/whitehouse.gov/files/omb/memoranda/2017/M-18-02 

%28final%29.pdf

Operation Atlantic Resolve https://dod.defense.gov/News/Special-Reports/0218_Atlantic-Resolve/

PaymentAccuracy.gov https://paymentaccuracy.gov/

Prompt Payment Act (PPA) https://www.gpo.gov/fdsys/pkg/STATUTE-96/pdf/STATUTE-96-Pg85.pdf

Public Law 110-181, "National Defense 

Authorization Act (NDAA) for FY 

2008"

https://www.congress.gov/110/plaws/publ181/PLAW-110publ181.pdf

Public Law 111-5, "American Recovery 

and Reinvestment Act of 2009" https://www.govinfo.gov/content/pkg/PLAW-111publ5/pdf/PLAW-111publ5.pdf

Public Law 89-538 http://www.gpo.gov/fdsys/pkg/STATUTE-80/pdf/STATUTE-80-Pg347.pdf

Qualified Recycling Program http://www.dla.mil/DispositionServices/Offers/Disposal/QRP.aspx

Remedial Action Cost Engineering 

Requirements (RACER) https://frtr.gov/ec2/ecracersystem.htm

Reports Consolidation Act of 2000 https://www.congress.gov/106/plaws/publ531/PLAW-106publ531.pdf

Resource Conservation and Recovery 

Act (RCRA) https://www.gpo.gov/fdsys/pkg/STATUTE-90/pdf/STATUTE-90-Pg2795.pdf

Retired and Annuitant (R&A) Pay https://www.dfas.mil/retiredmilitary

Savings Deposit Program https://militarypay.defense.gov/Benefits/Savings-Deposit-Program/

Social Security Administration (SSA) https://www.ssa.gov/

Standard Financial Information Structure 

(SFIS) https://comptroller.defense.gov/ODCFO/sfis.aspx

Statement of Federal Financial 

Accounting Standards (SFFAS) 12, 

"Recognition of Contingent Liabilities 

Arising from Litigation: An Amendment 

of SFFAS 5, Accounting for Liabilities 

of the Federal Government"

http://files.fasab.gov/pdffiles/handbook_sffas_12.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 27, 

"Identifying and Reporting Funds from 

Dedicated Collections"

http://files.fasab.gov/pdffiles/handbook_sffas_27.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 29, 

"Heritage Assets and Steward Ship 

Land"

http://files.fasab.gov/pdffiles/handbook_sffas_29.pdf
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-7

Link Title URL

Statement of Federal Financial 

Accounting Standards (SFFAS) 30, 

"Inter-Entity Cost Implementation: 

Amending SFFAS 4, Managerial Cost 

Accounting Standards and Concepts"

http://files.fasab.gov/pdffiles/handbook_sffas_30.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 31, 

"Accounting for Fiduciary Activities"

http://files.fasab.gov/pdffiles/handbook_sffas_31.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 33, 

"Pensions, Other Retirement Benefits, 

and Other Postemployment Benefits: 

Reporting the Gains and Losses from 

Changes in Assumptions and Selecting 

Discount Rates and Valuation Dates"

http://files.fasab.gov/pdffiles/handbook_sffas_33.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 4, 

"Managerial Cost Accounting Standards 

and Concepts"

http://files.fasab.gov/pdffiles/handbook_sffas_4.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 42, 

"Deferred Maintenance and Repairs: 

Amending Statements of Federal 

Financial Accounting Standards 6, 14, 29 

and 32"

http://files.fasab.gov/pdffiles/handbook_sffas_42.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 43, 

"Funds from Dedicated Collections: 

Amending Statement of Federal 

Financial Accounting Standards 27, 

Identifying and Reporting Earmarked 

Funds"

http://files.fasab.gov/pdffiles/handbook_sffas_43.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 47, 

"Reporting Entity"

http://files.fasab.gov/pdffiles/handbook_sffas_47.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 48, 

"Opening Balances for Inventory, 

Operating Materials and Supplies, and 

Stockpile Materials"

http://files.fasab.gov/pdffiles/handbook_sffas_48.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 5, 

"Accounting for Liabilities of the Federal 

Government"

http://files.fasab.gov/pdffiles/handbook_sffas_5.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 50, 

"Establishing Opening Balances for 

General Property, Plant, and Equipment: 

Amending SFFAS 6, 10, and 23, and 

Rescinding SFFAS 35"

http://files.fasab.gov/pdffiles/handbook_sffas_50.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 55, 

"Amending Inter-entity Cost Provisions"

http://files.fasab.gov/pdffiles/handbook_sffas_55.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 6, 

"Accounting for Property, Plant, and 

Equipment"

http://files.fasab.gov/pdffiles/handbook_sffas_6.pdf

Statement of Federal Financial 

Accounting Standards (SFFAS) 7, 

"Accounting for Revenue and Other 

Financing Sources and Concepts for 

Reconciling Budgetary and Financial 

Accounting"

http://files.fasab.gov/pdffiles/handbook_sffas_7.pdf
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-8

Link Title URL

Statement on Standards for Attestation 

Engagements (SSAE) No. 18

https://www.aicpa.org/content/dam/aicpa/research/standards/auditattest/downloadabledocuments/

ssae-no-18.pdf

Strategic Petroleum Reserve https://www.energy.gov/fe/services/petroleum-reserves/strategic-petroleum-reserve

Superfund Amendments and 

Reauthorization Act of 1986 (SARA) https://www.gpo.gov/fdsys/pkg/STATUTE-100/pdf/STATUTE-100-Pg1613.pdf

Sustainment Management System (SMS) https://www.erdc.usace.army.mil/Media/Fact-Sheets/Fact-Sheet-ArticleView/Article/476728/builder-sustainment-management-system/

System and Organization Controls 

(SOC) 1 Reports https://www.aicpa.org/interestareas/frc/assuranceadvisoryservices/aicpasoc1report.html

System for Award Management (SAM) https://sam.gov/

The Digital Accountability and 

Transparency Act of 2014 (DATA Act) https://www.congress.gov/113/plaws/publ101/PLAW-113publ101.pdf

Thrift Savings Plan (TSP) https://www.tsp.gov/

Title 10, United States Code http://uscode.house.gov/view.xhtml?path=/prelim@title10&edition=prelim

Title 10, United States Code, 

section 1111 http://uscode.house.gov/view.xhtml?req=(title:10%20section:1111%20edition:prelim)

Title 10, United States Code, 

section 1116 http://uscode.house.gov/view.xhtml?req=(title:10%20section:1116%20edition:prelim)

Title 10, United States Code, 

section 113(b) http://uscode.house.gov/view.xhtml?req=(title:10%20section:113%20edition:prelim)

Title 10, United States Code, 

section 1175(h) http://uscode.house.gov/view.xhtml?req=(title:10%20section:1175%20edition:prelim)

Title 10, United States Code, 

section 1461 http://uscode.house.gov/view.xhtml?req=(title:10%20section:1461%20edition:prelim)

Title 10, United States Code, 

section 1466 http://uscode.house.gov/view.xhtml?req=(title:10%20section:1466%20edition:prelim)

Title 10, United States Code, 

section 1466(b)(1) http://uscode.house.gov/view.xhtml?req=(title:10%20section:1466%20edition:prelim)

Title 10, United States Code, 

section 1581

https://www.gpo.gov/fdsys/pkg/USCODE-2001-title40/pdf/USCODE-2001-title40-chap10-

subchapII-sec485.pdf

Title 10, United States Code, 

section 2006 http://uscode.house.gov/view.xhtml?req=(title:10%20section:2006%20edition:prelim)

Title 10, United States Code, 

section 2222 http://uscode.house.gov/view.xhtml?req=(title:10%20section:2222%20edition:prelim)

Title 10, United States Code, 

section 2350j

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-

section2350j&num=0&edition=prelim

Title 10, United States Code, 

section 2350k

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-

section2350k&num=0&edition=prelim

Title 10, United States Code, 

section 2601 http://uscode.house.gov/view.xhtml?req=(title:10%20section:2601%20edition:prelim)%20

Title 10, United States Code, 

section 2601 (c)(1) http://uscode.house.gov/view.xhtml?req=(title:10%20section:2601%20edition:prelim)%20

Title 10, United States Code, 

section 2601 (c)(2) http://uscode.house.gov/view.xhtml?req=(title:10%20section:2601%20edition:prelim)%20

Title 10, United States Code, 

section 2601 (c)(3) http://uscode.house.gov/view.xhtml?req=(title:10%20section:2601%20edition:prelim)%20

Title 10, United States Code, 

section 2665 http://uscode.house.gov/view.xhtml?req=(title:10%20section:2665%20edition:prelim)

Title 10, United States Code, 

section 2685

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-

section2685&num=0&edition=prelim

Title 10, United States Code, 

section 2773(a) http://uscode.house.gov/view.xhtml?req=(title:10%20section:2773%20edition:prelim)

Title 10, United States Code, 

section 2883(a) http://uscode.house.gov/view.xhtml?req=(title:10%20section:2883%20edition:prelim)
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-9

Link Title URL

Title 10, United States Code, 

section 6973

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-

section6973&num=0&edition=prelim

Title 10, United States Code, 

section 6974

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-

section6974&num=0&edition=prelim

Title 10, United States Code, 

section 7220

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title10-

section7220&num=0&edition=prelim

Title 16, United States Code, 

section 3951-3956 http://uscode.house.gov/view.xhtml?path=/prelim@title16/chapter59A&edition=prelim

Title 16, United States Code, 

section 460l-6a

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title16-section460l6a&num=0&edition=prelim

Title 16, United States Code, 

section 670-670f

http://uscode.house.gov/view.xhtml?path=/prelim@title16/chapter5C/subchapter1&edition=preli

m

Title 16, United States Code, 

section 6812(e)(1) http://uscode.house.gov/view.xhtml?req=(title:16%20section:6812%20edition:prelim)

Title 16, United States Code, 

section 803(f)

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title16-

section803&num=0&edition=prelim

Title 16, United States Code, section 810 http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title16-

section810&num=0&edition=prelim

Title 16, United States Code, 

section 810(a) http://uscode.house.gov/view.xhtml?req=(title:16%20section:810%20edition:prelim)

Title 18, United States Code, 

section 1001 http://uscode.house.gov/view.xhtml?req=(title:18%20section:1001%20edition:prelim)

Title 18, United States Code, section 287 http://uscode.house.gov/view.xhtml?req=(title:18%20section:287%20edition:prelim)

Title 26, United States Code, 

section 9505 http://uscode.house.gov/view.xhtml?req=(title:26%20section:9505%20edition:prelim)

Title 26, United States Code, 

section 9506 http://uscode.house.gov/view.xhtml?req=(title%3A26%20section%3A9506%20edition%3Aprelim)

Title 28, United States Code, 

section 2461, note http://uscode.house.gov/view.xhtml?req=(title:28%20section:2461%20edition:prelim)%20

Title 31, United States Code, 

section 1321 http://uscode.house.gov/view.xhtml?req=(title:31%20section:1321%20edition:prelim)

Title 31, United States Code, 

section 1341(a)(1) http://uscode.house.gov/view.xhtml?req=(title:31%20section:1341%20edition:prelim)%20

Title 31, United States Code, 

section 1342 http://uscode.house.gov/view.xhtml?req=(title:31%20section:1342%20edition:prelim)%20

Title 31, United States Code, 

section 1351

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title31-

section1351&num=0&edition=prelim

Title 31, United States Code, 

section 1517(a) http://uscode.house.gov/view.xhtml?req=(title:31%20section:1517%20edition:prelim)%20

Title 31, United States Code, 

section 3515 (b) http://uscode.house.gov/view.xhtml?req=(title:31%20section:3515%20edition:prelim)%20

Title 31, United States Code, 

section 3528 http://uscode.house.gov/view.xhtml?req=(title:31%20section:3528%20edition:prelim)

Title 31, United States Code, 

section 3726 http://uscode.house.gov/view.xhtml?req=(title:31%20section:3726%20edition:prelim)

Title 31, United States Code, 

section 3729-3731

http://uscode.house.gov/view.xhtml?path=/prelim@title31/subtitle3/chapter37/subchapter3&editi

on=prelim

Title 33, United States Code, 

section 2326

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title33-

section2326&num=0&edition=prelim

Title 33, United States Code, section 560 http://uscode.house.gov/view.xhtml?req=(title:33%20section:560%20edition:prelim)

Title 33, United States Code, section 683 http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title33-

section683&num=0&edition=prelim

Title 33, United States Code, 

section 701c-3

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title33-section701c3&num=0&edition=prelim

Title 33, United States Code, 

section 701h

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title33-

section701h&num=0&edition=prelim
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-10

Link Title URL

Title 33, United States Code, 

section 702f

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title33-

section701h&num=0&edition=prelim

Title 33, United States Code, section 703 http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title33-

section703&num=0&edition=prelim

Title 40, United States Code, 

section 485(h)

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title40-

section572&num=0&edition=prelim

Title 40, United States Code, 

section 572(b)(5)(A)

http://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title40-

section572&num=0&edition=prelim

Title 42, United States Code, 

section 3374(d) http://uscode.house.gov/view.xhtml?req=(title:42%20section:3374%20edition:prelim)

Travel Policy Compliance Tool https://www.defensetravel.dod.mil/site/compliance.cfm

Treasury Current Value of Funds Rate https://www.fiscal.treasury.gov/fsreports/rpt/cvfr/cvfr_home.htm

Treasury Financial Manual, Volume I, 

Part 2, Chapter 4700, "Agency Reporting 

Requirements for the Financial Report of 

the United States Government"

https://tfm.fiscal.treasury.gov/v1/p2/c470.pdf

Treasury Judgment Fund https://www.fiscal.treasury.gov/fsservices/gov/pmt/jdgFund/judgementFund_home.htm

Treasury Offset Program https://fiscal.treasury.gov/fsservices/gov/debtColl/dms/top/debt_top.htm

Treasury’s Yield Curve for Treasury 

Nominal Coupon Issues (TNC Yield 

Curve)

https://www.treasury.gov/resource-center/economic-policy/corp-bond-yield/Pages/TNC-YC.aspx

TRICARE https://www.tricare.mil/

TRICARE Encounter Data (TED) 

System

https://www.health.mil/Military-Health-Topics/Technology/Claims-Processing/TRICAREEncounter-Data

U.S. Army Corps of Engineers (USACE) https://www.usace.army.mil/

U.S. Army Corps of Engineers (USACE) 

Civil Works https://www.usace.army.mil/Missions/Civil-Works/

U.S. Cyber Command 

(USCYBERCOM) https://www.cybercom.mil/

U.S. Special Operations Command 

(USSOCOM) https://www.socom.mil/

U.S. Strategic Command 

(USSTRATCOM) http://www.stratcom.mil/

U.S. Transportation Command 

(USTRANSCOM) https://www.ustranscom.mil/

Under Secretary of Defense 

(Comptroller)/Chief Financial Officer 

(USD(C)/CFO)

https://comptroller.defense.gov/About-OUSD-C/comptroller_Bio.aspx

Under Secretary of Defense for 

Acquisition Technology and Logistics 

Policy Memorandum, "Standardizing 

Facility Condition Assessments"

https://www.acq.osd.mil/eie/Downloads/FIM/DoD%20Facility%20Inspection%20Policy.pdf

Under Secretary of Defense for 

Personnel and Readiness (USD(P&R)) https://prhome.defense.gov/

United States Coast Guard https://www.uscg.mil/

United States Government Standard 

General Ledger (USSGL) https://www.fiscal.treasury.gov/fsreports/ref/ussgl/ussgl_home.htm

United States Marine Corps https://www.marines.mil/

United States Government Standard 

General Ledger (USSGL) https://www.fiscal.treasury.gov/fsreports/ref/ussgl/ussgl_home.htm

United States Marine Corps https://www.marines.mil/

United States Statutes at Large, Volume 

100, page 4003, section 1367 https://www.govinfo.gov/content/pkg/STATUTE-100/pdf/STATUTE-100.pdf#page=5393

United States Statutes at Large, Volume 

122, page 141, section 598 https://www.govinfo.gov/content/pkg/STATUTE-122/pdf/STATUTE-122.pdf#page=164
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-11

Link Title URL

USASpending.gov https://www.usaspending.gov/

USS Paul Hamilton (DDG 60) https://www.public.navy.mil/surfor/ddg60/Pages/default.aspx

Vice Chairman of the Joint Chiefs of 

Staff (VCJCS) http://www.jcs.mil/About/The-Joint-Staff/Vice-Chairman/

Voluntary Separation Incentive (VSI) 

Program 

https://www.dfas.mil/retiredmilitary/plan/separation-payments/voluntary-separationincentive.html

Water Resources Development Act of 

1986 https://www.gpo.gov/fdsys/pkg/STATUTE-100/pdf/STATUTE-100-Pg4082.pdf

White Sands Missile Range http://www.wsmr.army.mil/Pages/home.aspx

U.S. Air Force Academy Cadets 3rd Class Shawn Weathersby, left, and James Barney, both falconers with the academy’s falconry program, prepare to release their 

raptors at the academy in Colorado Springs, Colo., Oct. 12, 2017. The team comprises nine cadets.

Air Force photo by Senior Airman Clayton Cupit
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix B

B-12

This Page Intentionally Left Blank
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix C

C-1

Appendix C – Index of Figures, Tables, and Exhibits

Figure Page Number

Figure 1. Department of Defense Organizational Structure 3

Figure 2. Office of the Secretary of Defense Principal Staff Assistants 4

Figure 3. Reserve Components – Reserve and National Guard 5

Figure 4. Defense Agencies and DoD Field Activities 6

Figure 5. Combatant Commands 7

Figure 6. FY 2018 DoD Budget Authority 8

Figure 7. Trend in DoD Budget Authority 22

Figure 8. Composition of DoD Total Budgetary Resources 22

Figure 9. Summary of Total Assets 23

Figure 10. Summary of Total Liabilities 24

Figure 11. Liabilities Covered/Not Covered by Budgetary Resources 24

Figure 12. Summary of Net Cost of Operations 25

Figure 13. Financial Performance Summary 26

Figure 14. DoD Integrated Business Framework 33

Figure 15. DoD FM Systems Improvement Initiatives 34

Table Page Number

Table 1. Principal Financial Statements 43

Table 2. Non-Entity Assets 59

Table 3. Status of Fund Balance with Treasury 60

Table 4. Investments and Related Interest 62

Table 5. Accounts Receivable 64

Table 6. Other Assets 65

Table 7. Cash and Other Monetary Assets 66

Table 8A. Direct Loans Obligated After FY 1991 67

Table 8B. Total Amount of Direct Loans Disbursed 67

Table 8C. Subsidy Expense for New Direct Loans Disbursed 68

Table 8D. Direct Loan Modifications and Reestimates 68

Table 8E. Total Direct Loan Subsidy Expense 68

Table 8F. Budget Subsidy Rates for Direct Loans for the Current Year 68

Table 8G. Schedule for Reconciling Subsidy Cost Allowance Balances 69

Table 8H. Guaranteed Loans Outstanding 69

Table 8I. New Guaranteed Loans Disbursed 70

Table 8J. Liability for Loan Guarantees 70

Table 8K. Subsidy Expense for New Loan Guarantees 70

Table 8L. Guaranteed Loan Modifications and Reestimates 70

Table 8M. Total Loan Guarantee Subsidy Expense 71

Table 8N. Budget Subsidy Rates for Loan Guarantees for the Current Year 71

Table 8O. Schedule for Reconciling Loan Guarantee Liability Balances 71

Table 9A. Inventory and Related Property 72

Table 9B. Inventory Categories 72

Table 9C. OM&S Categories 73

Table 9D. Stockpile Materiel Categories 74
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix C

C-2

Table Page Number

Table 10A. Major General PP&E Asset Classes 76

Table 10B. Heritage Assets 78

Table 10C. Stewardship Land 78

Table 10D. Assets Under Capital Lease 79

Table 11. Liabilities Not Covered by Budgetary Resources 80

Table 12. Accounts Payable 82

Table 13. Debt 83

Table 14. Environmental and Disposal Liabilities 84

Table 15. Other Liabilities 87

Table 16. Summary of Legal Contingent Liabilities 91

Table 17A. Military Retirement and Other Federal Employment Benefits Liability 92

Table 17B. Reconciliation of Beginning and Ending Liability Balances for Military 

Retirement and Other Federal Employment Benefits 93

Table 17C. Actuarial Assumptions for Military Retirement Pension Liability 95

Table 17D. Actuarial Assumptions for MRHB Liability 95

Table 17E. Actuarial Assumptions for MERHCF Liability 96

Table 17F. Actuarial Assumptions for FECA Liability 97

Table 18. Costs and Exchange Revenue by Major Program 98

Table 19A. Reconciliation of Appropriations on the Statement of Budgetary Resources to 

Appropriations Received on the Statement of Changes in Net Position 100

Table 19B. Reconciliation of Combined Unexpended Appropriations and Cumulative 

Results of Operations to Consolidated Unexpended Appropriations and 

Cumulative Results of Operations 

101

Table 20A. Budgetary Resources Obligated for Undelivered Orders at the End of the 

Period 102

Table 20B. Available Borrowing / Contract Authority at the End of the Period 102

Table 20C. Apportionment Categories of New Obligations and Upward Adjustments, 

Budgetary and Non-Budgetary Credit Reform Financing Account 103

Table 20D. Explanation of Differences Between the SBR and the Budget of the U.S. 

Government 105

Table 21. Reconciliation of Net Cost of Operations to Budget 106

Table 23A. Combined Balance Sheet – Funds from Dedicated Collections 109

Table 23B. Combined Statement of Net Cost – Funds from Dedicated Collections 110

Table 23C. Combined Statement of Changes in Net Position – Funds from Dedicated 

Collections 110

Table 24A. Schedule of Fiduciary Activity 113

Table 24B. Schedule of Fiduciary Net Assets 113

Table 25. Future Payments Due for Non-Cancelable Operating Leases 114

Table RSSI-1. Non-Federal Physical Property Investments 116

Table RSSI-2. Investments in Research and Developments 117

Table RSI-1. Real Property Deferred Maintenance and Repairs (excluding Military Family 

Housing) 119

Table RSI-2. Real Property Deferred Maintenance and Repairs (Military Family Housing 

only) 120

Table RSI-3. Equipment Deferred Maintenance and Repairs 121

Table RSI-4. Combining Statement of Budgetary Resources (Budgetary) 123

Table RSI-5. Combining Statement of Budgetary Resources (Non-Budgetary Credit 

Reform Financing Account) 125

Note: The title “Table 22” is not used, as the table titles in the Financial Section are aligned to the related Note to the Financial Statements and 

Note 22 does not contain a table.
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix C

C-3

Exhibit Page Number

Exhibit 1. Summary of Financial Statement Audit 144

Exhibit 2. FY 2018 Effectiveness of Internal Control over Financial Reporting (FMFIA §2) 147

Exhibit 3. Internal Control over Financial Reporting Corrective Action Plans 148

Exhibit 4. FY 2018 Effectiveness of Internal Controls over Operations (FMFIA §2) 155

Exhibit 5. Effectiveness of Internal Controls over Operations Corrective Action Plans 156

Exhibit 6. FY 2018 Compliance with Federal Financial Management System Requirements 

(FMFIA §4) 161

Exhibit 7. FY 2018 Implementation of Federal Financial Management Improvements 

(FFMIA §803(a)) 161

Exhibit 8. Compliance with Federal Financial Management System Requirements 

Corrective Action Plans 162

Exhibit 9. FY 2018 Estimated Proper and Improper Payments 165

Exhibit 10. FY 2018 Total Improper Payments Reported by Program 166

Exhibit 11. FY 2018 Improper Payment Reduction Outlook 168

Exhibit 12. FY 2018 Improper Payment Classification (Monetary Loss) 171

Exhibit 13. FY 2018 Improper Payment Root Cause Category Matrix 172

Exhibit 14. FY 2018 Military Pay Estimated Improper Payments by OMB Root Cause 

Category 174

Exhibit 15. Military Pay Summary Corrective Action Plans 174

Exhibit 16. FY 2018 Military Retirement Estimated Improper Payments by OMB Root 

Cause Category 175

Exhibit 17. Military Retirement Summary Corrective Action Plans 176

Exhibit 18. FY 2018 Travel Pay Estimated Improper Payments by OMB Root Cause 

Category 177

Exhibit 19. DoD Travel Pay Summary Corrective Action Plans 178

Exhibit 20. FY 2018 Payment Recapture Audit Reporting 181

Exhibit 21. FY 2018 Disposition of Funds Recaptured Through Payment Recapture Audits 182

Exhibit 22. Aging of Outstanding Overpayments Identified Through Payment Recapture 

Audits 182

Exhibit 23. FY 2018 Overpayments Identified and Recaptured 182

Exhibit 24. Reduce the Footprint Baseline Comparison 193

Exhibit 25. Reporting of Estimated Operation and Maintenance Costs – Owned and Direct 

Lease Buildings 193

Exhibit 26. FY 2018 Civil Monetary Penalty Adjustments for Inflation 194

Exhibit 27. Unclosed Previously Reported Expired DoD Grant and Cooperative Agreement 

Awards as of September 30, 2018 195
U.S. Department of Defense Agency Financial Report for FY 2018

Appendix C

C-4

Sailors participate in an M9 qualification course aboard the USS Porter in the Black Sea, July 7, 2018.

Navy photo by Petty Officer 2nd Class Ford Williams
Acknowledgements

This Agency Financial Report was prepared with the energies and talents of many employees across the 

Department of Defense. To these individuals, the Office of the Under Secretary of Defense (Comptroller) 

would like to offer our sincerest thanks and acknowledgement. In particular, we would like to recognize 

the following individuals for their contributions:

Ms. Yelena Baker Ms. Mobola Kadiri

Mr. Brian Banal Ms. Meron Laiketsion

Ms. Krystal Baranoski Ms. Kim Laurance

Ms. Charlotte Beacham Mr. Marlon Moreira

Mr. Steven Birk Mr. Charles Morse

Dr. Pamela Clay Ms. Glenda Scheiner

Ms. Sara Lynn Colley Ms. Anna Smith

Mr. Gerald Davenport Mr. Christopher Smith

Ms. Rosana Heraud Mr. Ned Torson

Ms. Cynthia Jones Mrs. Nancy Valeski
We are interested in your feedback.

Please send your comments to:

osd.pentagon.ousd-c.mbx.DoD-AFR@mail.mil

or

United States Department of Defense

Office of the Under Secretary of Defense (Comptroller)

1100 Defense Pentagon

Washington, DC 20301‐1100

This document is published online at:

http://comptroller.defense.gov/odcfo/AFR2018.aspx

DEPARTMENT OF DEFENSE