September 2018

Providing for the Common Defense

A Promise Kept to the American Taxpayer
“Weakness is the surest path to conflict, and 

unquestioned strength is the most certain 

means of defense.”

- President Donald Trump

“Weakness is the surest path to conflict, and 

unquestioned strength is the most certain 

means of defense.”

- President Donald Trump
September 26, 2018

the secretary of defense

★

★

★

The Bipartisan Budget Act of 2018 enabled the Department of Defense (DoD) 

to continue rebuilding the U.S. military after years of destructive budget cuts. In 

a time of competing priorities, Congress demonstrated political courage to ensure 

America’s sentinels remain the combat-credible military force we need to deter war 

and guarantee the President and our diplomats always negotiate from a position of 

strength. 

Congress did its part – and we are grateful to the American taxpayers for their 

support. It is now DoD’s duty to spend these funds responsibly. 

This report demonstrates how DoD has kept its promise that every decision we 

make is focused on lethality and affordability. 

The following pages highlight how our investments over the last 18 months 

directly support our 2018 National Defense Strategy’s three lines of effort: 

• Restoring readiness and building a more lethal force; 

• Strengthening existing alliances while building new partnerships abroad; and 

• Reforming and modernizing our Department for greater affordability, 

accountability, and performance. 

Going forward, stable funding rooted in a consistent, predictable budget process 

will be essential to fielding a force that can deter – and if necessary, defeat – any 

threat in this constantly changing world. 

I look forward to continuing our work with Congress to protect this great 

experiment in democracy and maintain the trust of the American people.

James N. Mattis

Secretary of Defense
REBUILDING THE MILITARY
Providing for the Common Defense - A Promise Kept to the American Taxpayer

Defense Challenges....................................................................................................................................................... 1

The 2018 National Defense Strategy .................................................................................................................. 2

Funding the National Defense Strategy............................................................................................................ 3

 People: Adapting the Force................................................................................................................................ 4

 Operations: Restoring Readiness.................................................................................................................... 5

 Investments: Enhancing Lethality.................................................................................................................... 7

Strengthening Alliances as We Attract New Partners ............................................................................. 9

Business Reform to Support the Warfighter.................................................................................................. 11

 Financial Statement Audit.................................................................................................................................. 12

Protecting the Next Generation........................................................................................................................... 13

TABLE OF CONTENTS
1 Providing for the Common Defense - A Promise Kept to the American Taxpayer

DEFENSE CHALLENGES

Five years of operating under 

destructive spending caps left DoD 

with a significant funding shortfall. 

This resulted in:

• The smallest military since 1940;

• Key munitions shortages;

• Aircraft and ships unable to 

deploy;

• Declining technological edge; 

and

• An urgent requirement to refresh 

our nuclear deterrent.

CHINA

is using influence operations to penetrate democratic societies in a whole-ofgovernment approach and is leveraging military modernization and predatory 

economics to coerce other countries in an effort to reorder the Indo-Pacific region 

and beyond to its advantage. China’s militarization of disputed features in the South 

China Sea contributes to the intimidation and coercion of regional allies and partners, 

undermines the principles of a free and open Indo-Pacific, and is inconsistent with 

President Xi’s 2015 Rose Garden pledges to President Obama.

RUSSIA 

seeks veto authority over nations in their governmental, economic, and diplomatic 

decisions in order to shatter the North Atlantic Treaty Organization (NATO) and 

change European and Middle East security and economic structures to its favor. 

Russia continues to use destabilizing activities as a security tool and subjugates 

democratic processes, as demonstrated by its occupation of territory seized following 

its invasion of Georgia in 2008 and its occupation of parts of Ukraine in 2014. In Syria, it 

supports the murderous Assad regime.

NORTH KOREA 

DoD continues to ensure that the President and our diplomats 

negotiate from a position of strength with credible military options 

available to protect the U.S. and its interests. The U.S. works with 

allies and likeminded nations to enforce United Nations Security 

Council resolutions.

IRAN 

is the principal destabilizing force in the Middle East and is 

increasing its malign influence, using state-sponsored terrorist 

activities, a growing network of proxies, and its cyber, naval, and 

missile programs. Iran is aiding a humanitarian catastrophe in 

Yemen by supporting and arming the Houthis in their conflict 

against the internationally recognized government.

VIOLENT EXTREMIST ORGANIZATIONS 

continue to sow hatred, destroying peace and murdering 

innocents across the globe, particularly in regions with unstable 

political and economic structures. Terrorist acts committed by ISIS 

continue to pose a threat to the stability of the Middle East, despite 

the defeat of the physical caliphate in Syria and Iraq.

STATE OF DEFENSE 

IN 2016

Primary Challenge: Great Power Competition

Enduring Challenges
Providing for the Common Defense - A Promise Kept to the American Taxpayer 2

THE 2018 NATIONAL DEFENSE STRATEGY

DoD’s Three Lines of Effort

Consistent with President Trump’s National Security Strategy, the first National Defense Strategy in a decade 

orchestrates DoD’s response to a more complex security environment than any experienced in recent 

memory. The central challenge to American prosperity and security is the reemergence of long-term 

strategic competition by China and Russia.

As directed in the National Defense Strategy, DoD is making urgent and significant change to expand the 

competitive space and rebuild America’s military advantage. A more lethal, agile, and innovative 

Joint Force, together with a robust constellation of allies and partners and departmental reform, will sustain 

American influence and ensure favorable balances of power that safeguard American interests.

BUILD A MORE 

LETHAL FORCE

(PAGES 4-8)

STRENGTHEN 

ALLIANCES AND 

ATTRACT NEW 

PARTNERS

(PAGES 9-10)

REFORM THE 

DEPARTMENT 

FOR GREATER 

PERFORMANCE AND 

AFFORDABILITY

(PAGES 11-12)

CHANGING COURSE 

IN 2018

Recognizing the challenges facing 

the nation and DoD, Congress took 

the difficult step of reversing the 

2016 trends and restoring funding 

to pre-spending cap levels with the 

2018 and 2019 budgets, facilitating 

implementation of the National 

Defense Strategy. These budgets 

are driven by a strategy to reinforce 

all aspects of national power 

and preserve sustainable military 

advantages for the U.S. warfighter. 

DoD now has momentum, but 

needs stable funding to continue its 

efforts.
3 Providing for the Common Defense - A Promise Kept to the American Taxpayer

FUNDING THE NATIONAL DEFENSE STRATEGY

In 2018, the American people, through the President of the United States and Congress, provided $700 

billion in national security funding, with $671 billion going to DoD to implement the 2018 National Defense 

Strategy. DoD is 15% of the Federal Budget; so for every thousand dollars paid in taxes, $150 goes to the 

Department for people, operations, and investments in new military equipment.

WHERE DO YOUR TAX DOLLARS GO?

For every $1,000 in Federal taxes:

Department of Defense .......................... $150

 People..................................................... $50

 Operations.............................................. $47

 Investments............................................. $53

THE FISCAL YEAR 2018 DOD BUDGET

Department of Defense ...................... $671B

 People ............................................ $222B

 Operations ..................................... $212B

 Investments .................................... $237B

YOUR TAXES AT WORK

Active Duty Military

• 483,500 Army

• 327,900 Navy

• 186,000 Marine Corps

• 325,100 Air Force

DoD Civilians 

• 741,671

Guard/Reserve

• 343,500 Army 

National Guard (NG)

• 199,500 Army Reserve

• 59,000 Navy Reserve

• 38,500 USMC Reserve 

• 106,600 Air NG

• 69,800 AF Reserve

PEOPLE

• 58 Army Brigade Combat Teams (31 Active and 

27 Guard/Reserve)

• 284 Navy Battle Force Ships

• 3 USMC Marine Expeditionary Forces

• 312 Air Force Operational Squadrons

CURRENT OPERATIONAL FORCE 

• 90 F-35 Fighter Jets

• 13 Battle Force Ships

• 24 F/A-18 Fighter Jets

• 100 H-60 Helicopters

• 2,637 Joint Light Tactical Vehicles

• 44,916 Joint Direct Attack Munitions

• 8,004 Guided Multiple Launch Rocket System

• 3 Evolved Expendable Launch Vehicles

FY18 Enacted Amounts

FY18 Enacted Amounts

FY18 Enacted Amounts

INVESTMENTS

DEPARTMENT OF DEFENSE SPENDING IS 

NEAR HISTORIC LOWS AS A SHARE OF 

BOTH THE FEDERAL BUDGET AND THE 

NATIONAL ECONOMY

Source: OMB Historical Tables 5-2 & 5-4; U.S. Department of the Treasury 

FY 2019 Budget in Brief, Mandatory Funding Levels; and the Budget of 

the U.S. Government 1958

*DoD does not include funding for the U.S. Department of Veterans Affairs.

*DoD does not include funding for the U.S. Department of Veterans Affairs.

DoD’s % of the Federal Budget*

DoD’s Spending as a % 

of gross Domestic Product (GDP)*

1957 2017

DoD

52%

DoD

All 15%

Other

48% All

Other

85%

Sources: OMB Historical Table 1-2, Green Book Table 6-13

0%

3%

6%

9%

12%

1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 2018 2023

Past Projected

DoD Spending as a % of Gross Domestic Product (GDP)

1953: Korea

11.3%

1968: Vietnam

8.6%

1985

5.7%

2010

4.5%

2017

3.0%

2023

2.9%

1979,

4.5%

1999

2.7%

1965

6.5%

1957

8.2%
Providing for the Common Defense - A Promise Kept to the American Taxpayer 4

PEOPLE: ADAPTING THE FORCE

U.S. service members and civilian employees are the bedrock of American military might, and are the 

Department’s most important asset. Over 2.9 million people, whether in uniform or as civilian employees, 

serve in DoD carrying out the 2018 National Defense Strategy and increasing lethality and capabilities to 

operate in new threat domains. DoD is adding more than 20,000 Soldiers, Sailors, Airmen, and Marines 

to fill the Department’s most critical skill gaps inherited from its years under the funding caps. DoD is also 

adapting its professional military education as an investment in strategic and warfighting excellence.

Increasing Air Force Maintainers

Increased funding allowed the Air Force to hire over 4,600 new aircraft 

maintainers, eliminating a critical shortfall. Furthermore, when combined with 

additional funding for operations, the Air Force increased readiness for major 

combat operations by approximately 15%.

Fully Operational Cyber Mission Force 

The over 6,200 Soldiers, Sailors, Airmen, Marines, and civilians of the Cyber 

Mission Force became fully operational in May 2018, under DoD’s newest 

combatant command - U.S. Cyber Command. They now stand ready 

to defend the nation by blocking adversary activity, conducting military 

cyberspace operations in support of Combatant Commanders, and 

defending DoD’s information network.

Hiring Shipyard Personnel

The Navy has expanded efforts to hire and train public shipyard workers. 

Seven hundred skilled workers added to date will help ensure all scheduled 

ship maintenance periods are completed on time and ships are returned to 

the fleet ready for action.

Expanding Army Warfighting Capabilities

The Army continues to provide credible and capable strategic land power 

to the Combatant Commanders to prevent conflict, shape the environment, 

and win decisively. Despite a challenging recruiting environment, the Army is 

expanding key warfighter capabilities to support worldwide deployments in 

rocket artillery, air defense, cyber, and electronic warfare. Currently, the Army 

has over 180,000 Soldiers deployed in over 140 countries supporting 

10 key contingency operations and several theater security cooperation 

activities.
5 Providing for the Common Defense - A Promise Kept to the American Taxpayer

OPERATIONS: RESTORING READINESS

As We Build a More Lethal Joint Force

The surest way to prevent war is to be prepared to win. The Joint Force must be prepared to sustain 

favorable balances of power and deter aggression in key regions. Over the next several years, America is 

building a more lethal and ready force to effectively confront threats in multiple domains. 

Increasing Warfighter Training and Readiness 

Funding provided by Congress enabled a 17% increase in the number of 

exercises conducted over the past two years, which enhances America’s 

ability to work with allies and partners to address shared security challenges. 

The Department implemented a Globally Integrated Exercise (GIE) initiative 

to address global risk and the arrangement of cohesive Joint Force actions in 

time, space, and purpose. The GIE program ensures the Joint Force, as part of 

a whole-of-government approach, is able to operate as an integrated global 

force with U.S. allies and partners. 

Strengthening Collective Security in Europe 

DoD is enhancing cooperation in Europe through 

increased rotations of U.S. Forces and growth in 

exercises and training with allies to improve readiness 

and ensure preparedness to operate effectively 

together. For example, U.S. Army Europe conducted 

multinational exercises Saber Strike in June 2018, 

and Noble Partner in August 2018 to enhance 

interoperability with regional partners from more 

than 25 countries. Twenty-one thousand participants 

conducted training operations in Estonia, Latvia, 

Lithuania, Poland, and Georgia with more than 1,000 

combat and support vehicles, and over 60 helicopters.

Tailoring Forces

Increased DoD resources accelerated the stand-up of Army 

Security Force Assistance Brigades (SFABs), which are specifically 

built to train, advise, assist, and enable foreign security forces. By 

assuming this mission, SFABs preserve the readiness of Brigade 

Combat Teams (BCTs), allowing BCTs to focus on their warfighting 

missions. The deployment of the first SFAB brought a tailored, more 

experienced force with a smaller footprint to accomplish this 

complex mission at reduced cost and impact to the Army. The 

Army plans to establish six SFABs; five in the Army and one in the 

Army National Guard.

A LETHAL 
Providing for the Common Defense - A Promise Kept to the American Taxpayer 6

Enhancing Ground Combat Capabilities

To meet battlefield capabilities of potential adversaries, the Army is converting two 

Infantry Brigade Combat Teams to Armored Brigade Combat Teams (ABCT), the 

Army’s most lethal and survivable formation, adding the 15th and 16th ABCT to the 

Army’s structure. ABCTs conduct combined arms fire and maneuver to deter or 

destroy adversaries in support of Combatant Commanders’ war plans.

Expanding Surveillance 

DoD used the Intelligence Surveillance 

Reconnaissance (ISR) Transfer Fund to provide 

over $1.2 billion in additional ISR capabilities in 

2017 and 2018. This investment led to over 6,100 

additional hours per month of intelligence collection 

and improved warfighter readiness, and enabled 

enhanced decision-making capability for 

Combatant Commanders.

Restoring Helicopters

The Marine Corps returned 18 CH-53 Sea Stallion 

heavy lift transport helicopters to operational status, 

which generated 5,500 flight hours in training and 

operational flights, allowing the fleet to achieve 

service readiness goals two years ahead of 

schedule. The CH-53E program increased mission 

capable aircraft by 140% since 2016. 

Getting Ships Back to Sea

A $1.6 billion increase in U.S. investment in ship maintenance 

has enabled the Navy to complete previously deferred 

maintenance, funding 58 ships in maintenance in 2017 and 

77 ships in maintenance in 2018. This funding improves the 

material condition of Navy ships for future deployments and 

ensures ships stay in service.

READY FORCE

A ready, lethal force requires dedicated people with proper training, 

modern equipment with regular maintenance, and sufficient ordnance.
7 Providing for the Common Defense - A Promise Kept to the American Taxpayer

Investing in Infantry Firepower 

DoD established the Close Combat Lethality Task Force (CCLTF) to develop and monitor 

improvements to American infantry squads, ensuring close combat superiority against 

near-peer competitors. The CCLTF is working to implement next generation close combat 

training, equipment, and armaments on an accelerated schedule to make sure our infantry is 

deadly and protected.

INVESTMENTS: ENHANCING LETHALITY

DoD is investing in the technologies that will increase the lethality of both the current and future 

force, ensuring the U.S. military continues to defend America’s interests. The Department is investing 

heavily in weapons systems such as the Ford-class aircraft carrier, the F-35 Joint Strike Fighter, and 

Armored Multi-Purpose Vehicle, while also modernizing weapons systems like the Abrams Main 

Battle Tank, F/A-18 combat jet, and the B-52 strategic bomber, to prevail in today’s fight. To ensure 

the Department can obtain the equipment and supplies it needs in the event of conflict, DoD is 

investing in a stable and efficient defense industrial base by expanding the production capacity 

of precision-guided munitions and shipbuilding facilities, and supporting a sustainable national 

defense industrial base workforce.

Procuring Advanced Fighter Jets 

With the support of Congress, the Air Force invested $1.4 billion to procure 15 additional 

F-35A Joint Strike Fighter aircraft, and accelerated production to deliver nearly an entire 

F-35A squadron one year earlier than scheduled.

Increasing Production of Critical Munitions

To increase combat readiness, DoD invested 

$272 million to increase total industrial production 

capacity for smart bomb guidance systems 

(Joint Direct Attack Munitions) by 23%, allowing the 

Air Force to achieve its requirement six years earlier 

than projected.

2018 Increased 

Munitions Production 

(Munitions/Year) 

+4,000

+15,000

+9,000

0 4,000 8,000 12,000 16,000

Joint Direct 

Attack Munition

Precision Laser-Guided

Rockets 

Guided Multiple

Launch Rocket System
Providing for the Common Defense - A Promise Kept to the American Taxpayer 8

Investment in modernizing technology makes the warfighter more lethal and survivable, 

and ensures the safety of the American people and our interests.

Keeping the U.S. Nuclear Deterrent Credible

The 2018 Nuclear Posture Review affirmed the need for the nuclear triad, validating DoD’s 

long-overdue recapitalization of the nation’s nuclear armed missiles, submarines, bombers, 

dual-capable aircraft, and related infrastructure to keep U.S. nuclear deterrent credible and 

modernized for decades. In 2018 this effort includes $862 million for the Columbia-class ballistic 

missile submarine, $451 million for the Long Range 

Standoff Weapon, $216 million for the Ground-Based 

Strategic Deterrent, $112 million for B-52 Modernization, 

and $98 million for Nuclear Command, Control, and 

Communications Modernization.

Fortifying Missile Defense

With more DoD resources, the Department funded a 20-silo missile field at Fort Greely, 

Alaska, to have a total of 64 interceptors, based in Alaska and California, capable 

of destroying ballistic missile threats to the homeland. Funding also supported full 

operational capability of a ballistic missile defense for U.S. allies, partners, and U.S. 

forces in Europe. The Navy’s new construction and modernization programs are 

delivering four ballistic missile defense-capable destroyers each year.

Increasing Tank Lethality 

The Army is upgrading and modernizing 202 Abrams tanks, at a cost of 

$1.7 billion, increasing battlefield lethality and survivability through turret 

and hull armor upgrades, improved computer systems, and increased 

power generation and distribution systems. 

Expanding the Fleet 

The Navy invested $23.8 billion in critical shipbuilding programs to begin increasing the fleet size to 

355 ships. The 2018 budget procured 13 battle force ships, including one aircraft carrier, three littoral 

combat ships, two submarines, two destroyers, one amphibious assault ship, and four auxiliary ships. 

These investments support a stable and efficient defense industrial base that encourages industry 

investment in capital improvements, capital expansion, and a properly sized world-class workforce.

What is the 

Nuclear Triad? 

For more than six decades, across 

10 presidential administrations, the 

United States has fielded a triad of 

complementary nuclear delivery systems 

involving land-, sea-, and air-based 

nuclear weapons to deter nuclear and 

non-nuclear aggression against the 

United States and its interests.
9 Providing for the Common Defense - A Promise Kept to the American Taxpayer

STRENGTHENING ALLIANCES AS WE 

ATTRACT NEW PARTNERS

Leveraging Global Relationships

Mutually beneficial alliances and partnerships are crucial to American national security, providing a durable, 

asymmetric strategic advantage that no competitor can match. This approach has served the United States 

and its friends well, in peace and war, for the past 75 years. When the United States shares responsibility for 

common defense, the security burden becomes lighter and more cost-effective.

Maintaining a Free and Open Indo-Pacific 

The Southeast Asia Maritime Security Initiative boosted key partner nations’ 

abilities to conduct maritime security and awareness operations, helped to 

secure sovereignty of partners, and improved interoperability. Together with the 

Philippines, the United States is defeating ISIS’s branch in Mindanao while also 

working with partners such as Singapore, Malaysia, and Indonesia to address 

regional terrorist threats. The historic U.S. aircraft carrier visit to Vietnam in 2018 

shows a strengthening relationship, and the U.S. and India are forming a strategic 

partnership by deepening security cooperation.

Growing Partners’ Defense Capabilities 

In the last three years, U.S. Foreign Military Sales have increased by 62%. For 

example, Gulf partners are purchasing advanced missile defenses that are 

interoperable with U.S. forces, enabling a more effective combined defense network. 

The United Arab Emirates was the first foreign partner to procure the Terminal High 

Altitude Area Defense missile defense system to 

complement its existing Patriot defense network, 

with both programs at a combined value of 

$11 billion. Saudi Arabia is upgrading its existing 

Patriot batteries, and Kuwait is upgrading its 

Patriot units. Meanwhile, Qatar is expected to 

field the first of its Patriot systems in 2019, with a 

case value of $7 billion.

Broadening the International Coalition in Afghanistan 

At the 2018 North Atlantic Treaty Organization (NATO) Summit in Brussels, NATO 

nations committed to increase force contributions in Afghanistan to historic highs 

and broadened the international coalition by welcoming Qatar and United Arab 

Emirates as operational partners to the Resolute Support Mission. NATO also 

committed to extend financial sustainment of the Afghan National Defense and 

Security Forces (ANDSF) through 2024. International contributions to the Afghan 

National Army Trust Fund in 2018 have increased by $35 million with the addition 

of two new donor countries, and many contributing countries continue to donate 

above their 2016 Warsaw Summit pledges. In total, U.S. international partners 

provide $900 million to support the ANDSF.

U.S. MILITARY SALES TO 

ALLIES AND PARTNERS

0 2016

*FY 2018 date as of 8/31/18. 

Totals include Foreign Military Sales, Foreign Military Financing, 

and Building Partnership Capacity

2017 2018*

$33.63

$41.93

$54.45

20

Sales in $ Billions 40

60
Providing for the Common Defense - A Promise Kept to the American Taxpayer 10

America’s security is stronger and more sustainable through global relationships.

Leveraging Combined Purchasing Power 

By working with allies and partners to place large aircraft orders, DoD negotiated 

lower prices as larger-scale production makes individual planes cheaper to 

produce. These economies of scale will result in estimated savings of $11 billion 

when procuring more than 2,000 fighter jets.

Improved Burden Sharing to Deter Russia 

In 2014, only three NATO allies’ military spending was 2% of GDP. In 2018, eight 

nations are projected to meet the 2% pledge and 19 allies are on track for 2% 

by 2024. Since 2016, NATO allies have added over $42 billion in new defense 

spending, reversing the downward trend.

Annihilating ISIS in Iraq and Syria 

Operation Inherent Resolve has significantly degraded ISIS in Syria and Iraq. 

U.S. intelligence, surveillance, special operations, and air strikes combined with 

partners on the ground to remove high-level ISIS leaders and cripple their networks. 

investments in 2017 of $1.8 billion to train and equip capable partner forces have 

enabled the Global Coalition to roll back 99% of ISIS-held territory in Iraq and Syria 

while reducing the burden on U.S. forces. 

Working Towards the Final, Fully-Verified Denuclearization

of the Korean Peninsula

The President and U.S. diplomats are negotiating from a position of strength to 

achieve a denuclearized Korean Peninsula. The U.S. and its allies and partners are 

strictly enforcing United Nations Security Council Resolution sanctions and ensuring 

credible military options exist to defend the United States and its interests. 
11 Providing for the Common Defense - A Promise Kept to the American Taxpayer

BUSINESS REFORM TO SUPPORT THE WARFIGHTER

At the direction of and with support from Congress, the Department has made two important 

organization reforms. 

In early 2018, the Department executed its most significant restructure in 30 years, dividing the 

Under Secretary of Defense (USD) for Acquisition, Technology and Logistics into the USD for 

Acquisition and Sustainment (A&S) and USD for Research and Engineering (R&E). 

• USD (A&S) increased lethality and readiness while enhancing global relationships and 

cooperation by reforming key pieces of the Foreign Military Sales process and accelerating 

sales through pilot programs with Romania, Japan, Saudi Arabia, and Bahrain. 

• USD (R&E) created a new modernization “Road to Dominance” that is pushing advances and 

increased investment in nine priority areas including hypersonics, space, and fully networked 

communications.

The Office of the Chief Management Officer (CMO) also reorganized to meet new roles and 

responsibilities by running the enterprise-wide Reform Management Group and transforming 

business operations. These efforts will increase organizational effectiveness through management 

of shared services, delivery of business data, and improving the coordination and outputs of the 

Department’s 28 agencies.

Continuous Reform in Action 

DoD is actively identifying opportunities to make the Department a smarter customer and a more 

effective enterprise through: 

1. improved maintenance and sustainment of America’s warfighting capability; 

2. reduced overhead to enhance lethality; 

3. greater enterprise-wide efficiencies; and 

4. increased performance at the speed of relevance. 

This continuous reform is realizing operational and financial benefits through the innovation in 

nine lines of business: Contract Management; Healthcare; Logistics and Supply Chain; Information 

Technology (IT); Financial Management; Human Resources; Real Property; Test and Evaluation; and 

Community Services.

Examples of Reform Initiatives:

• Achieving $1.61 billion in benefits by implementing private sector best practices in purchasing 

goods and services contracts in the Air Force and Defense Agencies.

• Saving $297 million to date through commercial IT solutions, Department-wide network 

management, and optimized data centers.

• Improving patient care and medical readiness by consolidating four healthcare enterprises 

into one, which when combined with other reforms will save more than $2.5 billion by 2023. 

Combined, these savings translate into one year of operating costs for six Carrier Air Wings 

and three F-16 squadrons and procurement of 25 Joint Strike Fighters.
Providing for the Common Defense - A Promise Kept to the American Taxpayer 12

 ASSETS: What We Own

 Fund Balance with Treasury $ 501,620 

 Inventory 266,761 

 Property and Equipment (Net*) 761,708 

 Financial Investments 995,246 

 Other Assets 40,380 

 TOTAL ASSETS $ 2,565,714 

 LIABILITIES: What We Owe

 Military Retirement and Other Federal

 Employment Benefits $ 2,356,870 

 Environmental and Disposal Liabilities 68,318 

 Other Liabilities 72,786 

 TOTAL LIABILITIES $ 2,497,974 

 NET POSITION: Where We Are

 TOTAL NET POSITION 67,740 

 TOTAL LIABILITIES AND NET POSITION $ 2,565,714 

DoD Summary Balance Sheet

As of September 30, 2017

($ in millions)

*Expenditures of $1,653 billion less Accumulated Depreciation of $891 billion

The financial statement audit will identify problems—DoD will develop effective solutions.

In December 2017, DoD started its first‐ever consolidated financial statement audit, the largest and 

most complex financial audit ever. The audit will cover roughly $2.6 trillion in assets and touch 

every mission and line of business in the Department.

While DoD has numerous program and contract cost audits, a financial statement audit is 

different. A financial statement audit is comprehensive and occurs annually. The Department will 

post audit results for the public to review starting November 15th, and annually thereafter.

What Are Financial Statements?

Financial statements are a summary of an organization’s business activities over the course of a year and 

highlight what it owns (assets) and what it owes (liabilities). Below is an example of one of DoD’s key financial 

statements: the balance sheet.

$2.3 trillion for Military 

Pensions and Health 

Benefits for

5 million Currently Serving 

and Retired Military 

Members

Defense Environmental 

Restoration Program

Remaining Chemical 

Weapons Disposal

Maintenance Parts

Active Installations 

Worldwide: 512

Battle Force Ships: 279

(growing to 284 in 2018)

Munitions

Aircraft: 14,000+

Food and Supplies

Financial investments 

are primarily Treasury 

Bills that are held to 

maturity to fund military 

retirement

FINANCIAL STATEMENT AUDIT

What Happens in a Financial Statement Audit?

Auditors (about 1,200 this year) review DoD business processes and activities. From the 

Department’s more than 18 billion transactions, auditors evaluate statistically valid samples for 

accuracy and completeness. In particular, auditors:

• Verify count, location, and condition of military equipment, real property, and inventory;

• Test for security vulnerabilities in DoD business systems; and

• Validate the accuracy of personnel records and actions, such as promotions and separations.

Money provided by 

Congress for DoD is held 

at the U.S. Department of 

Treasury
13 Providing for the Common Defense - A Promise Kept to the American Taxpayer

PROTECTING THE NEXT GENERATION

Refocusing Innovation

The DoD’s long history of technological innovation has delivered unmatched competitive advantages over 

potential adversaries. These military advantages, however, are eroding in the face of emerging threats, which 

necessitates continued and focused investment in national defense.

Today’s science and technology investments are the foundation for future breakthroughs, creating affordable, 

decisive advantages, while prototyping and experimentation activities will help drive down risk.

Accelerating Hypersonic Weapons Development

The Department is investing in hypersonic systems that can travel five times faster 

than the speed of sound. This is a game-changing capability that will create 

technology surprise for potential U.S. adversaries. Through an investment of 

$107 million in 2017 and 2018, the Air Force anticipates fielding a hypersonic 

weapon system prototype in 2021, five years earlier than planned.

Unlocking Artificial Intelligence Potential

DoD Artificial Intelligence (AI) investments offer the opportunity to upgrade 

military operational capabilities while improving affordability and streamlining 

key business functions. Efforts include: Project Maven, which uses AI to augment, 

accelerate, and automate manpower-intensive intelligence functions; scaling 

the DoD-wide impact of AI; and synchronizing DoD AI activities to expand Joint 

Force advantages.

Competing in Space

U.S. space systems have historically maintained a technological advantage 

over those of potential adversaries, but competitors are now actively developing 

ways to deny American use of space in a crisis. To protect U.S. interests and 

enable DoD operations, the Department is laying foundations for a space 

force to protect U.S. defense advantages and enable DoD operations through 

deterrence of malicious activities, ensure U.S. space systems meet national 

security requirements, and provide vital capabilities to joint and coalition forces 

across the spectrum of conflict.

Advancing Modernization Priorities with New Army Futures Command

The Army established Army Futures Command to streamline and accelerate 

acquisition and rapidly deliver warfighting capabilities to the future force, reducing 

the requirements development process from nearly five years to one year. With crossfunctional teams, the command is tackling six modernization priorities: Long Range 

Precision Fires; Next Generation Combat Vehicle; Future Vertical Lift; Network Command, 

Control, Communication, and Intelligence; Air and Missile Defense; and Soldier Lethality. 
With continued support, we will ensure we 

never send America’s sons and daughters 

into a fair fight.

With continued support, we will ensure we 

never send America’s sons and daughters 

into a fair fight.

It is our duty to ensure that our warfighters are ready to face any challenge. 

With Congress’ support, DoD has begun to arrest the erosion of our competitive 

advantage by aligning the Department’s budget with the National Defense 

Strategy.

The Department is:

• Building a more lethal force:

- Adding personnel to fill critical skill gaps

- Improving training to increase the readiness of the warfighter

- Investing in equipment to enhance the lethality of the warfighter

- Funding maintenance so our ships, vehicles, and aircraft are ready 

to fight

- Increasing ordnance production to ensure we are prepared to 

respond

• Strengthening alliances as we attract new partners

• Reforming the Department for greater performance and accountability

DoD is making significant progress, but without sustained and predictable 

funding, our gains will fade and investments will not realize their full potential.

At the heart of this document is the Department’s unwavering commitment 

to our warfighters that stand watch over friends, families, neighbors, and 

the nation they have sworn to protect. Though this document is focused on 

investments in lethality and modernization to support the warfighter, the 

Department continues to invest in initiatives and facilities for our service 

members and their families. We are grateful for their dedication and service 

to our country.
Publication Prepared by:

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

U.S. Department of Defense