◄ Arctic Strategy

Army paratroopers hold onto a rope 

secured to the back of a small-unit 

sustainment vehicle during a skijoring 

exercise at Joint Base ElmendorfRichardson, Alaska, Jan. 27. Photo Credit:

Alejandro Peña/Air Force

▼ Signaling Soldier

A Marine with the 24th Marine 

Expeditionary Unit provides fresh water 

to a child during an evacuation at Hamid 

Karzai International Airport, Kabul, 

Afghanistan, Aug. 20. Photo Credit:

Sgt. Samuel Ruiz/Marine Corps

▲ Aircraft Lines

Air Force aircraft assigned to the 354th Fighter Wing 

and the Alaska Air National Guard’s 168th Wing line 

up in formation at Eielson Air Force Base, Alaska, Dec. 

18, 2020. Photo Credit: Air Force Senior Airman Keith 

Holcomb

► Exercise Prep

Marines prepare for an exercise at Vaziani Training 

Area, Georgia, Oct. 18, 2020. Photo Credit: Marne 

Corps Sgt. Devin Andrews
Agency Financial Report | FY 2021 Transaction Fund | Defense Logistics Agency i

 About the Agency Financial Report

About the Agency Financial Report

All information within this report pertains to DLA TF unless 

specifically noted otherwise. DLA TF’s financial results are unaudited because there are limitations to underlying processes 

and internal controls that support the principal financial statements. DLA TF continues to implement processes and system 

improvements addressing these limitations. The AFR consists 

of three primary sections:

Management’s Discussion and Analysis

(Unaudited)

This section provides a high-level overview of DLA TF, including 

DLA’s history, mission, and organizational structure; DLA TF’s 

overall performance related to its strategic goals and primary 

objectives; financial analysis; management’s assurance on 

internal controls; system analysis; compliance with laws and 

regulations; and forward-looking information.

The Defense Logistics Agency (DLA) Transaction Fund 

(TF) Agency Financial Report (AFR) provides financial 

and summary performance results enabling the President, 

Congress, and the American people to assess its 

accomplishments, and to understand its financial results 

and operational functions. The AFR consists of DLA TF 

financial statements and other reports. The principal 

financial statements1 have been prepared to report the 

financial position and results of DLA TF’s operations. The 

principal financial statements and accompanying notes have 

been prepared from the books and records of DLA TF using 

guidance from the following applicable laws and regulations 

for which DLA TF is unable to provide assurance:

Financial Section (Unaudited)

This section contains a message from the CFO, audit reports, 

management’s response to the audit reports, financial 

statements and the accompanying notes, as well as required 

supplimentary information (RSI).

Other Information (Unaudited)

This section details DLA TF’s compliance with, and commitment 

to, specific regulations. It includes foregone revenue reporting, 

performance and management analyses, recommendations, 

and payment integrity reporting.

1 Refer to the Financial Section Introduction for definition of 

principal financial statements.

♦ Federal Managers’ Financial Integrity Act 

(FMFIA) of 1982;

♦ Chief Financial Officers (CFO) Act of 1990;

♦ Government Management Reform Act 

(GMRA) of 1994;

♦ Federal Financial Management 

Improvement Act (FFMIA) of 1996;

♦ Reports Consolidation Act of 2000;

♦ Government Performance and Results 

Act (GPRA) Modernization Act of 2010;

♦ Improper Payments Elimination and 

Recovery Improvement Act (IPERIA) of 2012;

♦ Fraud Reduction and Data Analytics Act 

 (FRDAA) of 2015;

♦ Office of Management and Budget 

(OMB) Circular A-136, Financial Reporting 

 Requirements, as amended;

♦ OMB Circular A-123, Management’s 

Responsibility for Enterprise Risk Management 

(ERM) and Internal Control; and

♦ OMB Circular A-11, Preparation, Submission, 

 and Execution of the Budget.
FY 2021 Transaction Fund

Mission Prep

New Jersey National Guard soldiers and airmen arrive near the 

Capitol to set up security positions in Washington, D.C., Jan. 12, 

2021. National Guard soldiers and airmen from several states 

have traveled to Washington to provide support to federal 

and district authorities leading up to the 59th presidential 

inauguration.

 Photo Credit: Air National Guard Master Sgt. Matt Hecht

Defense Logistics Agency
Table of Contents

iv

Message from the Director

1 SECTION 1

Management’s Discussion 

and Analysis (Unaudited)

4 Mission and Organizational Structure

10 Performance Goals, Objectives, and 

Results

18 Analysis of Financial Statements and 

Stewardship Information 

24 Analysis of Systems, Controls, and Legal 

Compliance 

34 Forward-Looking Information

37 SECTION 2

Financial Section (Unaudited)

40 Message from the Chief Financial Officer

41 Audit Reports 

71 Management’s Response to Audit Reports 

72 Introduction to the Principal Financial 

Statements

73 Principal Financial Statements 

(Unaudited) 

77 Notes to the Principal Financial 

Statements (Unaudited)

The AFR is available on the DLA website at: 

www.dla.mil/HQ/Finance/Offers/FinancialReports/

103 SECTION 3

Other Information (Unaudited)

106 Management Challenges 

110 Summary of Financial Statement Audit 

and Management Assurances 

114 Payment Integrity

115 APPENDIX

117 Appendix A: Summary of FMFIA 

Definitions and Reporting

119 Appendix B: J/D Codes, DLA HQ Program 

Support Structure, Roles and 

Responsibilities 

121 Appendix C: Abbreviations & Acronyms 

123 Acknowledgments
iv

Message from the Director

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

On behalf of the Defense Logistics Agency (DLA), I’m pleased to present the 

Fiscal Year (FY) 2021 Agency Financial Report. This year, the first of October 

is not only the beginning of a new fiscal year – it’s also the anniversary of 

DLA’s founding in 1961. For over six decades, DLA has served the Warfighter, developing 

into a dynamic and forward-leaning agency with vast capabilities, fueled by a dedicated 

and mission-focused workforce. We are “Forged by History, Focused on the Future,” 

and proud to serve as the Nation’s Combat Logistics Support Agency.

DLA continued to fulfill our key mission to deliver readiness and lethality to the Warfighter 

Always and to provide support to our Nation through quality, proactive global logistics. 

Among the FY21 highlights, DLA’s Medical Surgical Prime Vendor Program received 

the Best-in-Class designation from the Office of Management and Budget having 

achieved a 3% cost avoidance. DLA’s Industrial Hardware Supply Chain completed its 

transformational initiative alignment ahead of schedule, creating increased effectiveness 

in logistics support, increased efficiencies through reduced material and operating costs, and improved pricing. DLA quickly 

acted to support Operation ALLIES REFUGE with food, fuel, clothing, and medicine. The agency continued to support efforts 

to combat the COVID-19 pandemic by managing, tracking, and distributing personal protective equipment and vaccines to 

overseas military service members and families and to other Department of Defense customers. DLA supported relief efforts 

for natural disasters, including from Hurricanes Henri and Ida, flooding in Tennessee, and wildfires in California.

The Agency launched a refreshed Strategic Plan (2021-2026) that reflects current challenges. To deliver world-class support 

to the Warfighter while maintaining fiscal accountability, DLA is committed to five key lines of effort and three critical capabilities.

This year, our Independent Public Accounting (IPA) firm, Ernst and Young, LLP, issued a Disclaimer of Opinion on DLA’s 

Transaction Fund (TF) Financial Statement. Information obtained through this report will be extremely valuable in our ongoing 

efforts to improve all aspects of DLA TF operations. The IPA reported material weaknesses in key areas involving policies 

and procedures, critical asset accounting procedures, financial information systems and reporting, and completeness of records. 

DLA also continues to identify material weaknesses in those areas.

DLA’s roadmap to an unmodified audit opinion in the foreseeable future is focused on process improvements, strengthened 

financial management, and improved monitoring and oversight. DLA will review audit results, identify root causes of conditions, 

prioritize resources, and develop corrective action plans. This effort will rely on establishing firm internal controls throughout 

every process, which will better position the agency to address risks effectively and efficiently. In the future, we’ll focus on 

financial and operational system upgrades, reengineering end to end processes, identifying risks, designing and testing 

controls, and prioritizing remediation efforts. In addition, DLA is reviewing all aspects of OMB Circulars A-123, Management’s 

Responsibility for Enterprise Risk Management and Internal Control and A-136, Financial Reporting Requirements, to incorporate 

necessary enterprise-wide operational and financial reporting process changes that will ensure our financial statements are 

complete, accurate and reliable.

Message from the Director

FY 2021 Transaction Fund
Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report v

 Message from the Director

In DLA’s Diamond Anniversary year, I am proud of our history. From its earliest days, DLA’s mission, “...to provide effective 

logistics support to the operating forces of our military services and do so at the lowest possible cost to the taxpayer,” has 

been our focus. With this report, we reaffirm our commitment to supporting our Warfighters and our Nation through efficient 

and accountable resource management and making strides toward stronger fiscal transparency and performance.

WARFIGHTER ALWAYS!

M.C. SKUBIC

VADM, SC, USN

Director

DLA CONTINUED TO FULFILL OUR KEY MISSION TO DELIVER 

READINESS AND LETHALITY TO THE WARFIGHTER ALWAYS 

AND TO PROVIDE SUPPORT TO OUR NATION 

THROUGH QUALITY, PROACTIVE GLOBAL LOGISTICS.
Section 1 | Management’s Discussion and Analysis (Unaudited)

1 Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report

Replenishment-at-Sea ►

Sailors aboard the Arleigh Burke-class guided-missile destroyer 

USS Roosevelt (DDG 80) receive pallets of food stores during 

a replenishment-at-sea with the dry cargo ship USNS William 

McClean (T-AKE 12), April 1, 2021. Roosevelt, forward-deployed 

to Rota, Spain, is on its second patrol in the U.S. Sixth Fleet area 

of operations in support of regional allies and partners and U.S. 

national security interests in Europe and Africa.

 Photo Credit: U.S. Navy - Mass Communication Specialist 

 2nd Class Andrea Rumple

SECTION 1

Management’s Discussion 

and Analysis (Unaudited)

1

SECTION 1

Launch Prep

Staff Sgt. Joe Payea, Vermont Air National Guard, prepares to launch an F-35A Lightning II 

during training at Tyndall Air Force Base, Fla., Jan. 21, 2021.

 Photo Credit: Master Sgt. Michael Davis/Air National Guard

In this section

4 Mission and Organizational Structure

10 Performance Goals, Objectives, and Results 

18 Analysis of Financial Statements and Stewardship Information 

24 Analysis of Systems, Controls, and Legal Compliance 

34 Forward-Looking Information
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 4

Mission and Organizational Structure

The origins of DLA date back to World War II when America’s 

military buildup required the rapid procurement of vast amounts 

of munitions and supplies. After the war, a commission headed 

by former President Herbert Hoover recommended the central 

management of items common to more than one military 

service. The Department of Defense (DoD) responded by 

assigning procurement responsibilities to individual services. 

The Army became the military’s sole buyer of food, clothing, 

general supplies, and construction supplies; the Navy 

purchased medical supplies, petroleum, and industrial parts for 

every service; and only the Air Force provided airlift services.

Although centralizing wholesale stocks, this “single manager” 

system did not provide the uniform methods recommended by 

the Hoover Commission. Each single manager operated under 

its own rules, giving customers as many sets of procedures 

as there were managers. On October 1, 1961, Secretary 

of Defense Robert McNamara eliminated this complexity 

by forming the Defense Supply Agency (DSA). Beginning 

operations on January 1, 1962, DSA saved money by employing 

fewer people and keeping less inventory.

As the Nation’s combat logistics support agency, the Defense Logistics Agency manages the global supply 

chain – from raw materials to end user to disposition – for the Army, Marine Corps, Navy, Air Force, Space 

Force, Coast Guard, 11 combatant commands, other Federal agencies, and partner and allied nations.

Forged by History, Focused on the Future: 

A Short History of the Defense Logistics Agency
Section 1 | Management’s Discussion and Analysis (Unaudited)

5 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

DSA faced its first real-world test one year after formation. 

Restricted to the continental United States, it was perfectly 

positioned to respond to Soviet Premier Nikita S. Khrushchev’s 

placement of nuclear missiles on Cuba. The agency supported 

the military during the crisis by supplying fuel and photographic 

film and the Nation after it, by providing fallout shelter material. 

DSA grew substantially following the Cuban Missile Crisis. In 

1963 and 1964, it assumed control of additional warehouses 

and supply centers. In 1965, it consolidated contract management offices under its Headquarters (HQ). Through its Defense 

Contract Administration Services (DCAS), DSA oversaw most 

of the Nation’s defense contractors, as well as companies 

manufacturing items for the National Aeronautics and Space 

Administration (NASA).

The war in Vietnam also fueled DSA’s growth. In the summer 

of 1965, the clothing and textile supply chain doubled its 

employees to produce enough warm-weather uniforms and 

jungle boots for the 44 battalions deployed by President 

Lyndon B. Johnson. Warehouses also increased hiring, adding 

shifts so they could operate on a 24-hour schedule. When the 

subsistence supply chain received permission to establish 

offices in the Pacific, it increased its numbers as well.

DSA received additional responsibilities Outside the Continental 

United States (OCONUS) in the last years of the war. In 1972, 

it started conducting property disposal overseas and oversaw 

the worldwide procurement, management, and distribution of 

bulk petroleum. In 1973, it began providing food to mess halls 

and commissaries in Europe. At the same time, the Agency 

became involved in foreign military sales (FMS). The weapon 

systems America sold to partner nations needed repair parts, 

and DSA was the logical provider.

On January 1, 1977, the Department of Defense recognized 

this expanded mission by renaming DSA the Defense Logistics 

Agency. Over the next decade and a half, the retitled Agency 

demonstrated its acquisition prowess by acquiring meals, 

ready-to-eat; filling the Nation’s Strategic Petroleum Reserve; 

and providing parts for the F-16 Fighting Falcon, the mostmanufactured fighter jet in history. Parts production reached 

all-time highs with the Reagan buildup of the 1980s. In 1986, 

DLA grew in purpose and scope when Congress designated 

it a combat support Agency. In 1988, it became even more 

important to DoD when the General Services Administration 

(GSA) transferred strategic materials oversight to it. The 

following year, the Department consolidated nearly all contract 

administration activities under the Agency. To handle the 

increased workload, DLA elevated DCAS to a command: the 

Defense Contract Management Command. 

The Agency continued to reorganize in the 1990s. In April 

1990, it began overseeing the services’ distribution depots. 

This mission eventually became the responsibility of DLA 

Distribution. In March 1993, the Agency reengineered its HQ 

so only 6 organizations, rather than 42, reported directly to the 

Director. In 1995, as a result of Base Realignment and Closure 

(BRAC) 88, DLA HQ moved from Cameron Station, VA, to Fort 

Belvoir, VA. In the mid-1990s, as a result of BRAC 93, the 

Agency merged its Defense Electronic Supply Center in Dayton, 

OH, with its Defense Construction Supply Center in Columbus, 

OH. It called the consolidated center Defense Supply Center 

Columbus. As part of the same BRAC, the Defense Personnel 

1961

The Defense Supply Agency

 is established.

1965 1977 1986

Active combat units deploy 

to Vietnam. By 1969, more 

than 500,000 U.S. troops 

in the country.

DSA is redesignated 

the Defense Logistics 

Agency in recognition of 

its broadened mission 

responsibilities.

The Goldwater-Nichols 

Reorganization Act 

designates DLA a combat 

support agency.

History of DLA

1988

DLA assumes management 

of the nation’s strategic 

stockpile from the General 

Services Administration 

and Federal Emergency 

Management Agency. 

Headquarters and Defense 

Fuel Supply personnel 

learn that they will be 

moving from Cameron 

Station to Fort Belvoir. 
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 6

Support Center collocated with Defense Industrial Supply 

Center in northern Philadelphia to form Defense Supply Center 

Philadelphia. Finally, Defense Printing Services, renamed 

Defense Automated Printing Service, transferred to the Agency 

in October 1996.

The DLA rose to meet new challenges in the new millennium. 

The Agency responded rapidly to terrorist attacks in 2001, 

providing logistical support to multiple commands in Operation 

ENDURING FREEDOM. Beginning that year, DLA supported the 

conflict by processing more than 6.8 million requisitions worth 

more than $6.9 billion, providing $21.2 million in humanitarian 

support, and supplying in excess of 2.3 billion U.S. gallons 

of fuel. To sustain service members fighting Operation IRAQI 

FREEDOM, DLA processed 6.4 million requisitions worth more 

than $6.89 billion, provided 180.5 million field meals, supplied 

nearly 2.0 million humanitarian daily rations, and sourced more 

than 3.0 billion U.S. gallons of fuel. 

The DLA supported humanitarian and relief missions in addition 

to military operations in the twenty-first century. In August 2005, 

it offered food, fuel, and housing to the many Louisianians 

displaced by Hurricane Katrina. In October and November 

of 2012, it offered the same services to victims of Hurricane 

Sandy, one of the worst weather events to strike the eastern 

coast of the United States. In September 2014, it helped the 

U.S. Agency for International Development combat the deadly 

Ebola virus in West Africa, not only providing material but 

also developing the sustainment footprint. In the later part 

of the decade, DLA delivered disaster relief to Haiti and the 

Southeastern U.S., sustained Iraqi and Syrian refugees, helped 

the U.S. Forest Service fight fires, and provided resources to 

secure the Nation’s southern border.

Since early 2020, DLA has supported the Nation’s efforts to 

fight COVID-19, its most-sustained non-military mission in 60 

years. Through the Federal Emergency Management Agency 

(FEMA), Department of Health and Human Services (HHS), 

U.S. Army Corps of Engineers (USACE), and military hospitals, 

the Agency provided personal protective equipment (PPE), 

ventilators, food, construction material, and repair parts. 

Among those DLA helped were inhabitants of hard-hit cities, 

residents of assisted-living facilities, and school children. 

In addition to supplying mass quantities of scarce goods at 

low prices, the Agency developed domestically sourced face 

masks, used additive manufacturing to produce face shields, 

and tracked PPE data for the entire Federal government. 

Starting in December 2020, it began distributing vaccines to 

the military’s overseas locations.

As DLA approaches its 60th anniversary on October 1, 2021, 

it continues to provide logistics, acquisition, and technical 

services to DoD and other customers. As it has for sixty years, 

the Agency adds effectiveness and efficiency to governmental 

logistics. Forged in history, it remains focused on supporting 

Warfighters and the Nation they serve. 

1993

DLA forms integrated 

business units for supply 

management, distribution, 

and contract management, 

reducing the number of 

organizations reporting 

directly to the DLA director 

from 42 to 6.

2005

DLA provides support in 

the wake of Hurricane 

Katrina.

2012

DLA delivers more than 

6.2 million meals, 172,500 

blankets, and 14 million 

gallons of fuel to areas 

affected by Hurricane 

Sandy.

2014-15

DLA helps West Africa 

combat the Ebola virus 

by providing goods and 

services in Operation 

United Assistance.

2020-21

DLA supports efforts to combat the 

coronavirus by providing personal 

protective equipment and ventilators 

to the American people through the 

Federal Emergency Management 

Agency and Department of Health 

and Human Services. It also acts as 

a purveyor of information, feeds naval 

crews on lockdown, reutilizes life-saving 

equipment, and delivers vaccines to the 

military’s overseas locations.
Section 1 | Management’s Discussion and Analysis (Unaudited)

7 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

The DLA reports to the Office of the Under Secretary of 

Defense (OUSD) for Acquisition and Sustainment through 

the Assistant Secretary of Defense for Sustainment. As the 

Nation’s Combat Logistics Support Agency, DLA manages 

the global supply chain – from raw materials, to end user, 

to disposition for the components of the DoD (including the 

U.S. Army, Navy, and Air Force), other Federal Agencies, 

and public entities. DLA sources and provides nearly all 

the consumable items America’s military forces need to 

operate, from food, fuel and energy to uniforms, medical 

supplies, and construction material. DLA provides support 

around the clock and around the world to meet the needs 

of America’s Armed Forces and other designated customers 

in times of peace, National emergency, and war. DLA 

supports DoD objectives and missions with involvement 

in the full range of military operations from participation 

with multi-national forces engaged in large-scale combat 

operations, weapons and spares provisions, peacekeeping 

efforts, and emergency support to humanitarian assistance.

The DLA TF employs approximately 58 civilian personnel, 

whose labor is paid from DLA TF.

The National Defense Authorization Act (NDAA) is the U.S. 

Federal law specifying annual budget and expenditures of 

the DoD.

What DLA Does

Mission and Vision

The DLA’s mission and vision are integral parts of the Agency which are represented 

through its efforts and impact around the world.

As the Nation’s Combat Logistics Support Agency and valued partner, we are innovative, 

adaptable, agile, and accountable – focused on the Warfighter Always.

VISION

MISSION

Deliver readiness and lethality to the Warfighter Always and support our Nation through 

quality, proactive global logistics.
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 8

How DLA TF Accomplishes its Mission

The DLA SM program is a distinct revolving fund which 

operates under the authority of the Strategic and Critical 

Materials Stock Piling Act (50 U.S.C. §98, et seq.) (the 

Act). The mission of the National Defense Stockpile (NDS) 

program is to provide for the acquisition and retention of 

stocks of certain S&C materials, and to encourage the 

conservation and development of sources of S&C materials 

within the United States. The major activity within the DLA 

TF is the acquisition and storage of Strategic Materials 

(SM) as part of managing and operating the Nation’s NDS. 

DLA SM strives to decrease and preclude a dangerous 

and costly dependency upon foreign sources or a single 

point of failure for supplies of such materials in times of 

National Emergency. DLA SM operational goals for the 

NDS include ensuring efficient and responsible resource 

stewardship and the highest environmental standards.

Along with providing oversight and acquisition and 

retention of stockpile materials, DLA SM provides for the 

conversion and upgrade of stockpile materials to prevent 

obsolescence, the recycling of strategic materials from endof-life Government items and disposes of excess stocks for 

operational funding. DLA SM performs analysis, planning, 

procurement, and management of materials critical to 

National security. DLA SM serves clients through a unique 

combination of technical expertise, global/geopolitical 

material supply analysis, management of existing critical 

materials, and broad range tracking of future critical 

materials.

The DLA SM revenues are generated through auctions 

to pre-qualified customers of stocks determined excess 

to DoD needs as determined by Congress through the 

Annual Sales Plan (ASP) and is the source of funding for 

operational expenditures and new material acquisitions.

Fresh Produce

Soldiers assigned to the Arizona National Guard (AZNG) load boxes with fresh produce at a local food bank in 

Phoenix, Ariz., May 21, 2021. The AZNG continues to support food banks and vaccination sites across the state 

during this COVID-19 emergency response. Photo By: Army Sgt. Laura Bauer
Section 1 | Management’s Discussion and Analysis (Unaudited)

9 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Organizational Chart

Below is DLA’s organizational chart. Appendix B contains further explanation of the Staff 

Directors and Field Activity Commanders (J/D) Codes.

Figure 1: DLA Organizational Chart
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 10

Performance Goals, Objectives, and Results

The DLA has established performance assessments 

of its programs to evaluate Agency performance and 

improvement based on the GPRA Modernization Act of 

2010. DoD produces an Annual Performance Report (APR) 

for all its components (including DLA TF) and will include 

its FY 2021 APR with its FY 2023 Congressional Budget 

Justification. The APR is located at: https://dam.defense.

gov/Publications/Annual-Performance-Plan-and-PerformanceReport/.

The Performance Goals, Objectives, and Results within this 

section are aligned to DLA’s 2021-2026 Strategic Plan and 

provides a summary of DLA’s five Lines of Effort (LOEs) 

and three Critical Capabilities (CCs). These goal-oriented 

objectives and forward-looking initiatives are designed to 

strengthen DLA’s efforts in sustaining Warfighter readiness 

and the Nation’s responsiveness as described:

Lines of Effort: Key strategic priority used to link 

multiple objectives that when combined achieve an operational or strategic outcome.

Critical Capabilities: Agency enablers which are 

essential to accomplishing DLA’s strategic objectives and 

LOEs. 

Objectives: Specific goals to be achieved and are 

the most important actions essential to LOEs and Critical 

Capabilities – the “how” of the strategy.

The key initiatives that have specific Director’s emphasis in 

DLA’s Strategic Plan for 2021-2026 are shown in the LOEs 

and CCs below.

Figure 2: Lines of Effort and Critical Capabilities
Section 1 | Management’s Discussion and Analysis (Unaudited)

11 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

The LOEs, CCs and objectives in the section below are derived from DLA’s 2021-2026 

Strategic Plan; however, there are specific objectives and key performance measures 

that are applicable to DLA TF and have been identified accordingly below.

LOE 1: WARFIGHTER ALWAYS

Objective 1.1: Improve end-to-end readiness 

and cost-effectiveness in support of Combatant 

Commander Campaign Plans and Integrated 

Contingency Plans in competitive and contested 

logistics environments

Objective 1.2: Partner with customers at the 

wholesale and retail levels to address Servicespecific challenges and develop solutions

Objective 1.3: Proactively support the DoD 

Nuclear Enterprise and Space Enterprise

DLA’s support to the Warfighter is job one. It’s our core strategic 

priority. We must provide the right support in the right places 

at the right times.

The Military Services and Combatant Commands have unique 

needs and capabilities requiring customized solutions.

It’s imperative for DLA to make smart, disciplined investments 

in innovative tailored logistics solutions to increase and sustain 

weapons system and warfighting readiness – including our 

Nation’s strategic deterrent – to meet today’s requirements and 

prepare for the future fight.

LOE 2: SUPPORT TO THE NATION

Objective 2.1: Implement a deliberate, enterprisewide approach to Whole of Government support

Capitalizing on our scope, scale and skills in acquisition, 

storage, distribution, and surge capabilities, the Nation has 

increasingly called upon DLA to provide Whole of Government 

support.

DoD is redoubling its commitment to a cooperative, whole-ofnation approach to national security that builds consensus, 

drives creative solutions to crises, to guarantee that we lead 

from a position of strength.

As part of this effort, this LOE clarifies a deliberate approach 

to our Whole of Government mission with no cost trade-off to 

the Warfighter.

LOE 3: TRUSTED MISSION PARTNER

Objective 3.1: Implement customer-centric 

performance metrics and predictive problemsolving culture

Objective 3.2: Provide greater financial 

transparency to customers

Objective 3.3: Provide next generation 

customer service, including a customer feedback 

mechanism

Building trust begins with understanding our customers’ 

priorities. Through a collaborative, data-driven problemsolving culture, we will pursue viable solutions to these critical 

challenges.

DLA will improve trust and transparency by enhancing 

customer-facing tools and software, formalizing customer 

feedback and increasing collaboration at all levels. We will align 

performance metrics and targets to ensure we are accountable 

to our customers.

LOE 4: MODERNIZE ACQUISITION AND 

SUPPLY CHAIN MANAGEMENT 

Objective 4.1: Expand industry engagement 

to foster innovation and maximize value for our 

customers

Objective 4.2: Improve the end-to-end post-award 

segment to enable collaborative customer support, 

increase responsiveness, and manage costs

Objective 4.3: Develop a market intelligence 

capability to manage supply chain risk and drive 

best value
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 12

Objective 4.4: Enhance our acquisition 

capabilities to improve readiness for contingencies

The global logistics environment is rapidly evolving and 

increasingly interconnected. DLA must work closely with 

industry partners to modernize and streamline our acquisition 

and end-to-end supply chains to deliver increased readiness 

and maintain our competitive advantage.

Through strong partnerships with our suppliers, and an 

enhanced focus on market intelligence capabilities, DLA will 

continue building a diverse, resilient, and agile industrial base 

to reduce supply chain risk and drive the best value for our 

customers.

Given the increasing number of global contingencies, this will 

better position us and our partners to meet the accelerating 

challenges in an ever-changing world.

At the heart of this LOE is the ability to increasingly harness 

and analyze business performance data to make informed, riskbased decisions and develop actionable solutions to improve 

customer outcomes for routine and contingency operations.

LOE 5: FUTURE OF WORK

Objective 5.1: Redefine virtual work models to 

enable our next generation workforce

Objective 5.2: Assess DLA CONUS facilities 

footprint to maximize space utilization

Objective 5.3: Build skillsets of the future

The workplace is increasingly virtual, reducing the need for a 

large physical footprint. Ongoing modernization efforts such as 

the use of mobile tablets, voice technology, autonomous guided 

vehicles and other advances to optimize warehouse operations 

all impact the future of work. DLA will continue adapting to these 

changes as it attracts and sustains a competitive workforce to 

drive increased productivity and employee satisfaction.

Creating an optimal work environment for employees that is 

modern, safe, secure, and well maintained will help increase 

retention and expand our access to diverse talent pools.

DLA Critical Capabilities

The three Critical Capabilities are fundamental to our successful 

transformation. They intersect and support the five LOEs with 

specific underlying objectives, initiatives and metrics.

• CC-A: People and Culture 

 Supporting our people

• CC-B: Fiscal Stewardship 

 Investing in outcomes

• CC-C: Digital-Business Transformation 

 Embracing the future

In these areas, DLA must be ready to act, adapt, reform, and 

embrace change to improve our organizational efficiency and 

effectiveness.

Critical Capability A: People and Culture

Objective A1: People

Objective A2: Culture

Our most important asset as an agency is our people. This

capability aligns DLA’s proven human capital strategies with 

our mission, LOEs, and objectives.

Our ability to attract, develop, and retain a diverse, skilled, and 

agile workforce is vital to our continued success.

To achieve a shared vision with the agency’s Strategic Plan, 

all DLA organizations, employees and leaders must work 

together to fortify the culture, reward high performance, build 

connections, and prioritize safety of the workforce.

Critical Capability B: Fiscal Stewardship

Objective B1: Auditability

Objective B2: Cost visibility and cash 

management

Objective B3: Investment to drive efficiency 

and effectiveness
Section 1 | Management’s Discussion and Analysis (Unaudited)

13 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

In an increasingly resource-constrained environment we will 

drive cost effectiveness while maintaining Service readiness. 

We must effectively manage our resources while making 

smart, transformative investments that increase value for our 

customers and taxpayers.

Through enhanced tools and capabilities, we will improve our 

cost and cash management for the DLA Transaction Fund.

We will assess our work processes and the effectiveness of 

current internal controls to provide greater transparency, 

improve auditability and prevent fraud, waste, and abuse.

Critical Capability C: Digital Business 

Transformation

Objective C1: Transformational information 

technology capabilities

Objective C2: Advanced analytics and automation

Objective C3: Cybersecurity

Objective C4: Technology governance

Technology is changing at an exponential rate, generating 

new possibilities in logistics and customer support. It is also 

increasing the capabilities of our competitors, the risks to our 

supply chains and operations.

We are focusing our IT and digital capability investments on 

key areas that will enable us to enhance performance, reduce 

costs, and make more predictive and data-driven decisions.

We will transform our systems and processes to improve 

transparency, reliability, and security for our employees, 

customers, and suppliers.

We will work internally and with our partners to ensure the 

agency’s network, systems, and data are protected from 

emerging and complex cyber threats.

Welcome to America

Fort Lee Garrison Command Sgt. Maj. Tamisha Love welcomes an Afghan child to America during reception 

operations in New Jersey Aug. 5. Photo By: 1st Lt. Tom Burcham IV/Army
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 14

Performance Measures (Unaudited)

Performance Measure 1: Sales versus Contract Awards

This performance measure relates to the objectives described above: 

Objective B2: Cost visibility and cash management

The DLA SM targets current year sales to equal respective 

contract awards, as all the contracts signed each year are 

typically completed that year. SM cash receipts keep the 

program self-funded, facilitating program operations in current 

and future years.

The Stockpile Sales Program conducted 45 competitive 

offerings in FY 2021. The results were 45 sales contracts: 10 

more than in FY 2020. FY 2021 contract awards totaled $75.5 

million.

Any variances between contract awards and sales are typically 

due to timing of shipments; if a contract is signed late in the 

financial period the actual shipment (and the sales recognition) 

may be delayed until the following period. For the year ending 

September 30, 2021, sales were higher than contract awards 

due to shipments relating to contracts that had been awarded 

late in FY 2020. 

Figure 3: DLA SM Sales and Contract Awards

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

FY 2019 FY 2020 FY 2021

39,059

56,870 

75,455 

40,324

46,723 

81,776 

Dollars in thousands

DLA SM Current Year Actual Sales versus Contract Awards

(Dollars in thousands)

Awards Sales
Section 1 | Management’s Discussion and Analysis (Unaudited)

15 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

The DLA TF is apportioned Spending Authority from Offsetting 

Collections to fund operational expenditures and strategic and 

critical materials purchases. Therefore, auditability hinges on 

metrics, controls and tracking over the movement of inventory, 

as it relates to disposals via public sales, and the corresponding 

accounting for the receipts of those sales to the TF.

Through comprehensive analyses and study, all NDS stocks 

undergo evaluation of need against a stringent set of criteria. 

The determinations from these analyses may result in 

authorization by Congress to acquire new materials and deem 

some current stocks excess. The National Defense Stock Piling 

Act provides authority for a public competitive sales program, 

which protects against an avoidable loss to the Government, 

and avoids undue disruption to the usual markets. The sale 

of excess stocks requires current existing legislative disposal 

authority along with an Annual Materials Plan (AMP). Congress 

typically provides disposal authority via the National Defense 

Authorization Act. Disposal authority, generally, provides 

quantity by material but does not always provide for a specific 

expiration. Additionally, the AMP provides for the ceiling limit 

quantity of any material sold in a given fiscal year.

The DLA SM operates the Stockpile Sales Program. DLA 

SM has built an established customer base. All approved 

and potential customers have undergone review for financial 

responsibility and have cleared a set of criteria for participation 

in the Stockpile Sales Program. DLA SM conducts on-going 

outreach and canvassing to the approved customer base and 

marketplace to determine business outlook and forecasting 

regarding demand for materials in order to issue public sales 

This performance measure relates to the objectives described above: 

Objective B2: Cost visibility and cash management

Performance Measure 2: DLA SM Actual Collections versus Anticipated Collections

offerings. Pricing tolerances are established in advance based 

upon fair market value assessments to aid in protecting against 

avoidable loss. Awarded sales and terms are documented in a 

bilateral Sales Contract.

The DLA SM creates an ASP to support the revenue projection 

as set forth in the Program Budget Review process. The 

ASP contains a mix of excess stocks, supported by the AMP 

believed to generate the anticipated collections authorized. 

Designated line items of inventory are made “available for 

sale” based on the ASP. These are the inventory items used 

to support sales offerings and generate revenue. Variances 

between the ASP and actual contract awards may occur due to 

market conditions. Collections are the result of execution under 

the sales contract terms. These collections serve to replenish 

the TF and support revolving fund operations of the NDS.

FY 2021 collections totaled $79.0 million, or 94.8% of 

anticipated collections of $83.3 million. All FY 2021 collections 

related to FY 2021 sales.

All but two of the DLA Strategic Materials Stockpile Sales 

Program offerings since April were net 30 days. This translated 

to awards being made in nearly every offering (45 contacts 

awarded in 45 offerings) all with values that exceeded minimum 

pricing tolerances. Basic Ordering Agreement (BOA) sales 

contracts are fixed price and require payment and removal 

within 30 days which provides for a quick turn on payment 

collection.

(continued on next page)
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 16

Figure 4: DLA SM Actual Collections versus Anticipated Collections

(From Standard Form 132, Apportionment and Reapportionment Schedule) 

Securing PPE

Angela Mello, left, a general duty corpsman assigned to Naval Medical Center San Diego, and Navy Ensign. 

Kaitlyn Leibing, a staff nurse assigned to one of NMCSD’s internal medicine wards, don 3D-printed face 

shields, donated to the hospital by Naval Information Warfare Systems Command, before entering a COVID-19 

positive, non-critical patient’s room in San Diego, Aug. 4, 2020. Photo By: Navy Petty Officer 3rd Class Jake 

Greenberg

 $-

 $10,000.0

 $20,000.0

 $30,000.0

 $40,000.0

 $50,000.0

 $60,000.0

 $70,000.0

 $80,000.0

 $90,000.0

FY 2019 FY 2020 FY 2021

$64,000.0 $64,000.0 

$83,305.0 

$40,338.0 

$46,707.0 

$79,015.3 

Dollars in thousands

DLA SM Actual Collections versus Anticipated Collections 

Anticipated Actual
Section 1 | Management’s Discussion and Analysis (Unaudited)

17 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

2010

NDAA mandates the Department 

of Defense to have its financial 

statements validated for audit 

readiness by the end of FY17

2018

DLA’s Audit Task Force was created by 

Operation Order 19-004 in October 2018 

to coordinate, integrate and synchronize 

audit efforts across the Agency.

2016

The IPA began DLA’s initial 

audit for the FY2017 TF, WCF, 

and GF financial statements.

2015

DLA completes audit readiness of 

the financial processes of the TF, 

WCF, and GF financial statements.

2017

The IPA Issued a disclaimer of 

opinion on DLA’s FY17 financial 

statements. DLA begins to 

address Notice of Findings and 

Recommendations (NFRs).

2021

The IPA issued a disclaimer of 

opinion on DLA’s FY21 financial 

statements. DLA continues to support 

the audit by identifying root causes of 

conditions, prioritizing resources, and 

developing corrective action plans.

Currently, DLA TF receives a disclaimer of opinion on its financial 

statements. DLA TF is striving to obtain an unmodified audit 

opinion from its IPA in the future. Since receiving a disclaimer of 

opinion each year from FY 2017, DLA TF has taken a two track 

approach in resolving major impediments in efforts to strive 

for an unmodified audit opinion: (1) improving the reliability 

and fair presentation of financial data reported in the AFR by 

This performance measure relates to the objectives described above: 

Objective B1: Auditability

DLA Roadmap to Auditability

addressing Notice of Findings and Recommendations (NFRs); 

and (2) developing, improving, and refining the underlying endto-end processes that support the compilation of the AFR by 

instilling sound fundamental practices in accordance with U.S. 

GAAP. The following timeline summarizes the occurrence of 

events that propelled DLA into a corrective action posture.

Figure 5: DLA Auditability Timeline
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 18

This analysis presents a summary of DLA TF’s financial position and results of operations and addresses the major changes and 

the related activity in the amounts of assets, liabilities, net position, cost, revenue, budgetary resources, and obligations.

Analysis of Financial Statements and 

Stewardship Information

Overview of Financial Position

The principal financial statements of DLA TF include the Balance 

Sheets, Statements of Net Cost, Statements of Changes in Net 

Position, and the Statements of Budgetary Resources. These 

principal financial statements and accompanying notes are 

included in the Financial Section of this AFR.

Preparing DLA TF financial statements is a vital component 

of sound financial management and is intended to provide 

accurate, accountable, and reliable financial information that is 

useful for assessing performance, allocating resources, and for 

targeting areas for future programmatic emphasis. DLA TF’s 

management is responsible for the integrity and objectivity of 

the financial information presented in the statements. DLA TF 

is dedicated in its pursuit of financial management excellence.

A summary of DLA TF’s changes in key financial measures for 

FY 2021 and FY 2020 is presented in the following Analysis 

of Key Financial Measures. The table represents the assets 

on hand to pay liabilities, and the corresponding net position. 

The net cost of operations is the gross costs of executing DLA 

TF programs, less earned revenue. The Financial Results 

Summary section also includes an explanation of significant 

changes for each DLA TF financial statement.

Air Force, Army Joint Petroleum Training

Senior Master Sgt. Paul Franklin, 302nd Logistics Readiness Squadron fuel shop noncommissioned officer in 

charge, prepares a group of 59th Quartermaster Company Army petroleum systems technicians to enter a 

C-130 aircraft Jan. 29, 2021, at Peterson Air Force Base, Colorado. Photo By: Tech. Sgt. Justin Norton
Section 1 | Management’s Discussion and Analysis (Unaudited)

19 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Changes In Key Financial Measures

As of and for the Years Ended September 30, 2021 and 2020 (dollars in millions)

Condensed Principal Financial Statements

FY 2021

FY 20202 

As Restated Increase/Decrease

Financial Condition (Unaudited) (Unaudited) $ %

Fund Balance with Treasury $ 313.6 $ 280.7 $ 32.9 11.7%

Inventory and Related Property, Net 809.4 740.4 69.0 9.3%

General PP&E, Net and Other Assets 1.7 2.3 (0.6) (26.1%)

TOTAL ASSETS $ 1,124.7 $ 1,023.4 $ 101.3 9.9%

Accounts Payable $ 1.1 $ 5.1 $ (4.0) (78.4%)

Environmental and Disposal Liabilities 9.8 11.1 (1.3) (11.7%)

Federal Benefits and Other Liabilities 2.7 6.3 (3.6) (57.1%)

TOTAL LIABILITIES $ 13.6 $ 22.5 $ (8.9) (39.6%)

TOTAL NET POSITION 

(ASSETS LESS LIABILITIES) $ 1,111.1 $ 1,000.9 $ 110.2 11.1%

Total Gross Cost $ 141.3 $ 105.0 $ 36.3 34.6%

Less: Total Earned Revenue (251.0) (65.9) (185.1) 280.9%

NET COST OF OPERATIONS $ (109.7) $ 39.1 $ (148.8) (380.6%)

Figure 6: Changes In Key Financial Measures

2 In FY 2021, DLA TF restated its FY 2020 financial statements to correct errors in the Balance Sheet, Statement of Net Cost, 

and Statement of Changes in Net Position. Additionally, the FY 2020 Balance Sheet was reclassified to conform to the FY 2021 

financial statement presentation requirements in accordance with OMB Circular No. A-136, Financial Reporting Requirements.
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 20

Assets - What DLA TF Owns and Manages

Assets represent materials owned and managed by DLA TF that 

can be used to accomplish its mission as the Nation’s Combat 

Logistics Support Agency and consist of Fund Balance with 

Treasury, Inventory and Related Property, Net, and General 

PP&E, Net and Other Assets. The DLA TF’s largest asset is 

Inventory and Related Property, Net, which represent $809.4 

million or 72.0% of Total Assets as of September 30, 2021. DLA 

TF FBwT increase of $32.9 million or 11.7% from September 

30, 2020 was primarily attributed to improved collections and 

higher demand of supplies as the global markets and economy 

reopened following the COVID-19 shutdown in FY 2020.

Figure 7: Total Assets by component as of September 30, 2021 and 2020.

Financial Results Summary

 $-

 $100.0

 $200.0

 $300.0

 $400.0

 $500.0

 $600.0

 $700.0

 $800.0

 $900.0

FBwT Inventory and

Related Property,

Net

General PP&E, Net

and Other Assets

$313.6 

$809.4 

$1.7 

$280.7 

$740.4 

$2.3 

Two Year Trend in Components 

of Total Assets (Unaudited)

As of September 30, 2021 and 2020

FY 2021 Assets FY 2020 Assets As Restated

($ in millions)

$1,124.7M

General PP&E, Net and 

Other Assets ($1.7)

FBwT

($313.6)

Inventory and Related Property, Net 

($809.4)

Total Assets (Unaudited)

As of September 30, 2021

($ in millions)
Section 1 | Management’s Discussion and Analysis (Unaudited)

21 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Liabilities - What DLA TF Owes

Liabilities are the amounts owed (1) to Federal and public 

entities (Other than Intragovernmental) for goods and services 

provided but not yet paid; (2) to DLA TF employees for wages 

and future benefits; (3) for Environmental and Disposal 

Liabilities (EL); and (4) for Other Liabilities. The largest liability 

as of September 30, 2021 was EL, which was associated 

with restoration of environmental sites on real property that 

DLA TF does not own but has received funds to execute and 

manage. The EL balance of $9.8 million represented 72.1% of 

Total Liabilities as of September 30, 2021. Federal Benefits 

and Other Liabilities of $2.7 million represented 19.9% of Total 

Liabilities. 

Figure 8: Total Liabilities by component as of September 30, 2021 and 2020.

 $-

 $2.0

 $4.0

 $6.0

 $8.0

 $10.0

 $12.0

Accounts Payable Federal Benefits,

Other Liabilities

Environmental &

Disposal

$1.1 $2.7 

$9.8 

$5.1 

$6.3 

$11.1 

Two Year Trend in Components 

of Total Liabilities (Unaudited)

As of September 30, 2021 and 2020

FY 2021 Liabilities FY 2020 Liabilities As Restated

($ in millions)

$13.6M

Accounts Payable ($1.1)

Federal Benefits, Other 

Liabilities ($2.7)

Environmental & Disposal

($9.8)

Total Liabilities (Unaudited) 

As of September 30, 2021

($ in millions)
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 22

Net Position - What DLA TF has Done 

Over Time

Net position represents primarily the accumulation of revenue 

and expenses, as represented in DLA TF balances reflected 

in the Statements of Changes in Net Position. DLA TF Net 

Position consisted of Cumulative Results of Operation of 

$1,111.1 million as of September 30, 2021 and $1,000.9 million 

as of September 30, 2020.

Budgetary Activity - DLA TF Budgetary 

Resources and Obligations

The recognition of budgetary accounting transactions is 

essential for compliance with legal constraints and controls 

over the use of Federal funds. The budget represents the plan 

for efficiently and effectively achieving the strategic objectives 

to carry out the mission and to ensure that DLA TF manages 

its operations within the appropriated amounts using budgetary 

controls. Two key components of budgetary activity include 

Budgetary Resources and Obligations. Budgetary resources 

are funds available to DLA TF to incur obligations, to pay 

for goods and services, and to sell products to customers. 

Obligations are balances for which there has been legally 

binding action during the year. 

For the year ended September 30, 2021, Total Budgetary 

Resources were $309.5 million and Obligations were $47.8 

million. Total Budgetary Resources increased by $44.0 million 

or 16.6% due to an increase in sales as the global markets 

and economy reopened following the COVID-19 shutdown in 

FY 2020.

Figure 9: Total Budgetary Resources and New Obligations 

for year ended September 30, 2021 and 2020.

Net Cost of Operations - DLA TF Net 

Operating Results

The DLA TF Statements of Net Cost reports one program: 

Operations, Readiness, and Support. Net Cost of Operations 

totaled ($109.7) million for the year ended September 30, 2021 

and $39.1 million for the year ended September 30, 2020. 

Net Cost of Operations decreased ($148.8) million, or over 

(380.6%) due to Total Earned Revenue exceeding Total Gross 

Cost. The net decrease in Net Cost of Operations was primarily 

due to an increase in sales as the global markets and economy 

reopened following the COVID-19 shutdown in FY 2020.

 $-

 $100.0

 $200.0

 $300.0

 $400.0

Total Budgetary

Resources

New Obligations

$309.5 

$47.8 

$265.5 

$50.2 

FY 2021 FY 2020 As Restated

($ in millions)

Two Year Trend in Total Budgetary Resources 

and New Obligations (Unaudited)

For the Years Ended September 30, 2021 and 2020
Section 1 | Management’s Discussion and Analysis (Unaudited)

23 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

The DLA TF principal financial statements3 and accompanying 

notes are prepared to report the financial position and results 

of operations of DLA TF, as required by the CFO Act of 1990, 

expanded by the GMRA of 1994, and 31 U.S.C. § 3515(b).

The DLA TF is unable to fully implement all elements of 

U.S. GAAP as promulgated by the Federal Accounting 

Standards Advisory Board (FASAB) and the form and content 

requirements for Federal government entities specified by OMB 

Circular A-136, and other authoritative guidance. This is due to 

financial and nonfinancial management system limitations, as 

well as limitations on the underlying processes that support the 

principal financial statements. DLA TF derives reported values 

and information for major asset and liability categories largely 

from nonfinancial 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. These systems were not designed to collect and 

record financial information on the full accrual accounting 

basis as required by U.S. GAAP, and most of the financial 

management systems used by DLA TF were designed to record 

information on a budgetary basis.

The DLA continues to address IT and financial audit NFRs 

to strengthen system controls, and financial and regulatory 

compliance with corrective action plans that include developing 

Limitations of the Financial Statements 

3 Refer to the Financial Section Introduction for definition of principal 

financial statements.

requests for systems changes. DLA has begun planning and 

defining requirements for a major system upgrade to the 4th 

version of System Applications and Products (SAP’s) Data 

processing Enterprise Resource Planning (ERP) Business 

Suite 4 SAP HANA (SAP S/4HANA). SAP S/4 will provide 

enhanced reporting of financial information on the full accrual 

accounting basis and streamline data between IT systems, 

which DLA continues to consolidate and rationalize through the 

migration of major legacy systems

The DLA TF continues to develop, improve, and refine the 

underlying financial and nonfinancial end-to-end processes 

and systems that support the compilation of the financial 

statements and notes in accordance with U.S. GAAP as 

promulgated by FASAB and other Federal regulations. DLA TF 

continues to implement interim mitigation processes to address 

known limitations; additionally, DLA TF is remediating material 

weaknesses to the financial statement preparation process. 

DLA TF has several corrective actions underway intended 

to improve the underlying systems, business processes and 

internal controls.

The financial statements should be read with the realization 

that they are for a component of the U.S. Government.

Water Works

Army Sgt. 1st Class Glenn Malo and 

Sgt. Jorge Mercado prepare a water 

buffalo at Fort Bliss. N.M., Sept. 3, 2021. 

The Defense Department is providing 

support for Afghan evacuees. Photo By: 

Army Sgt. Briaira Tolbert
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 24

Analysis of Systems, Controls, and Legal Compliance

The DLA management is responsible for establishing, 

maintaining, and assessing internal controls to provide 

reasonable assurance that the objectives of OMB Circular 

A-123, Management’s Responsibility for Enterprise Risk 

Management (ERM) and Internal Control, the FMFIA (31 U.S. 

Code (U.S.C.) 3512, Sections 2 and 4), and the FFMIA (Pub. 

Management Assurances

L. 104-208), as prescribed by U.S. Government Accountability 

Office (GAO) Green Book, Standards for Internal Control in 

the Federal Government, are met. The appendices referenced 

within the annual Statement of Assurance (SOA) below are 

OMB Circular A-123 appendices and are not included in DLA 

TF AFR.
Section 1 | Management’s Discussion and Analysis (Unaudited)

25 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 26

Federal Managers’ Financial Integrity Act

The DLA management evaluated the system of internal control 

in effect during the current fiscal year according to the guidance 

prescribed in the GAO Green Book and OMB Circular A-123.

The evaluation of internal controls extends to every responsibility 

and activity undertaken by DLA and applies to program, 

administrative, operational controls, and financial reporting. 

Furthermore, the concept of reasonable assurance recognizes 

that: (1) the cost of internal controls should not exceed the 

expected benefits and (2) the benefits include reducing the 

risk associated with failing to achieve the stated objectives. 

Errors or irregularities may occur and not be detected because 

of inherent limitations in any system of internal control, 

including those limitations resulting from resource constraints, 

congressional restrictions, and other factors. The projection 

of any system evaluation to future periods is subject to risks 

that procedures may be inadequate because of changes in 

conditions or that the degree of compliance with procedures 

may deteriorate. Based on the preceding description, DLA is 

providing a statement of no assurance.

DLA considered the five components and seventeen principles 

defined by the GAO Green Book to conclude its determination 

of statement of no assurance. Based on the standards, DLA 

Summary of Internal Control Assessment

identified gaps in Control Environment, Risk Assessment, 

Control Activities, Information and Communication, and 

Monitoring. The Risk Assessment component evaluates the 

risk facing the entity as it seeks to achieve its objectives and 

provides the basis for developing appropriate risk responses. 

Within this component, gaps exist in fraud risk management. 

Furthermore, DLA lacks sufficient policies and procedures to 

achieve the control activities principles. The Information and 

Communication component lacks data quality that affects 

external communication and the financial statement audit. The 

lack of assessments also identified the need for improvements 

in remediation and timeliness of response to internal control 

failures. Therefore, the overall operating effectiveness of DLA’s 

system of internal control is insufficient to support reasonable 

assurance.

The DLA SOA package only includes self-identified material 

weaknesses and significant deficiencies for internal DoD 

reporting; however, the financial statement audit NFRs continue 

to be monitored by management. The audit related ICOR and 

ICOFS material weaknesses that have not yet been remediated 

are reported in the Summary of Financial Statement Audit and 

Management Assurances Other Information (OI) section. DLA’s 

SOA Package FY 2021 Material Weaknesses and Significant 

Deficiencies template included a total of three ICOR-O material 

weaknesses.

The objectives of the system of internal control of DLA are to provide reasonable 

assurance of: 

● Effectiveness and efficiency of operations; 

● Reliability of financial and nonfinancial reporting; 

● Compliance with applicable laws and regulations; and 

● Financial information systems compliance with the FMFIA and FFMIA 
Section 1 | Management’s Discussion and Analysis (Unaudited)

27 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Effectiveness of Internal Control over Operations (FMFIA § 2)

Material Weaknesses Corrective Action Summary

Supply Operations: Lack of policy and procedures in place over 

the management and oversight of First Article Test Exhibits

The DLA will establish and implement policies and procedures for identified areas, train 

affected personnel on new procedures, and conduct compliance reviews, tests of design, and 

tests of effectiveness for internal controls.

Business Process Controls: Lack of procedures 

over the scrap management program

The DLA Disposition Services will perform a risk assessment (to include fraud risks), 

define, develop, and publish policy and procedures and controls to correct OCONUS 

Scrap Program.

Contract Administration: Non-verification of supplier invoices

The DLA will perform an analysis, develop and update policies and procedures, test 

controls, and conduct implementation procedures to remediate the deficiencies associated 

with this finding. 

The DLA is working to improve the documentation around 

DLA’s end-to-end business processes and has not performed 

full-scale OMB Circular A-123 internal control testing during 

FY 2021 in order to self-identify and track ICOR and ICOFS 

material weaknesses that remain unremediated from the FY 

2020 SOA package. 

To address these deficiencies, the DLA Enterprise Risk 

Management (ERM) Program Management Office (PMO), 

led by DLA’s Chief Risk Officer, maintain oversight of the 

full spectrum of DLA's risk portfolio and key internal controls 

across all organizational and business aspects. This oversight 

enables DLA to integrate the diverse groups performing 

elements of risk management and internal control activities 

under a single umbrella with the goal of improved mission 

delivery, reduced costs, and response actions focused on key 

risks to DLA’s mission. DLA continues to build the institutional 

capacity to execute an effective OMB Circular A-123 Program 

and demonstrates measurable progress that includes:

● Publishing two comprehensive manuals, DLAM 

5010.40 Risk Management (Vol I) and Internal 

Control (Vol II) that provide the concepts for 

implementing and executing an effective A-123 

program;

● Publishing DLA’s Fraud Risk Management 

Strategy, that defines the framework to protect our 

agency’s assets and resources from fraud, waste, 

and, abuse;

● Conducting a Fraud Risk Maturity Assessment 

across major DLA programs to identify and build 

upon activities to mitigate the risks of fraud, waste, 

abuse, and mismanagement;

● Performing regular reviews of ERM and A-123 

efforts and work products through a robust, multilayered ERM governance structure, including a 

Senior Management Council (SMC) to identify, 

escalate, and respond to risks in a methodical way 

and implement internal controls in the high priority 

areas;

● Publishing a comprehensive A-123 Program 

instruction (DLAI 5010.40) that is sought after by 

the DOD Enterprise Risk Management Community 

of Practice and other DOD organizations to use as 

benchmark for developing the Department’s DODI 

5010.40

The DLA consistently strives to create a “culture of 

accountability” to ensure compliance with laws, regulations, 

policies, and the execution of key processes. Examples of 

this include the Agency-wide circulation of the Director’s “Tone 

at the Top” message and monthly employee accountability 

assessments and supervisory assurance certifications.

The DLA has also synchronized its efforts between the ERM 

PMO and Audit Task Force to strengthen the Agency’s OMB 

Circular A-123 Program and audit infrastructure. This new 

approach leverages a risk-based methodology to facilitate 

the integration of internal controls, risk management activities 

and audit remediation. The effort includes establishing an 

aggressive plan to validate Transaction Fund beginning 

balances and inventory existence, completeness and valuation 

for FY 2021 to support a favorable audit opinion. 

The DLA’s Summary of Financial Statement Audit and 

Management Assurances for SOA package and audit related 

material weaknesses are presented in the OI section of this 

report.
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 28

Federal Financial Management 

Improvement Act

FFMIA was enacted to advance Federal financial management 

by ensuring that Federal financial management systems 

can routinely provide reliable financial information uniformly 

across the Federal government following OMB Circular 

A-123 Appendix D, Compliance with the Federal Financial 

Management Improvement Act of 1996. The FFMIA requires 

agencies to establish and maintain financial management 

systems that substantially comply with the following three 

FFMIA Section 803(a) requirements:

OMB Circular A-123, Appendix D provides the compliance 

determination framework to evaluate compliance with the 

FFMIA requirements. The FFMIA compliance determination 

framework includes a series of Federal financial management 

goals applicable across all Federal agencies and associated 

compliance indicators that assist the Agency head in 

determining whether the Agency has substantially complied 

with the requirements of FFMIA. 

The DLA leveraged the OMB Circular A-123, Appendix D 

compliance determination framework to perform a review of data 

for each of the FFMIA compliance indicators and associated 

analysis in order to determine compliance with FFMIA. Based 

on the application of the framework and associated analysis 

of relevant FFMIA compliance indicators available, DLA had 

identified high-risk factors associated with all three FFMIA 

Section 803(a) requirements.

4 Refer to the Notes to the Principal Financial Statements; Note 1.C, 

Departures from U.S. GAAP.

FFMSR:

High-risk factors that indicate non-compliance in this area 

include: the disclaimer of opinion on the FY 2020 financial 

statements; and material weaknesses over internal controls 

over reporting and information system non-compliance related 

to financial system security were reported in FY 2020 and FY 

2021 in areas that corresponded to FFMSRs.

Federal Accounting Standards4: 

High-risk factors that indicate non-compliance in this area 

include: the disclaimer of opinion on the FY 2020 financial 

statements and material weaknesses over internal controls 

over reporting reported by DLA in FY 2020 and FY 2021 in 

areas that related to compliance with Federal accounting 

standards.

USSGL at the Transaction Level:

High-risk factors that indicate non-compliance in this area 

include the disclaimer of opinion on the FY 2020 financial 

statements and material weaknesses over internal controls 

over reporting reported in FY 2020 and FY 2021 in areas that 

related to implementation of the USSGL at the transaction 

level.

The table below summarizes the status of unresolved 

deficiencies associated with each of the FFMIA Section 803(a) 

requirements and remediation activities that are planned or 

underway, target dates, and offices responsible for bringing 

systems into compliance. 

● Federal Financial Management System 

Requirements (FFMSRs)

● Federal Accounting Standards

● U.S. Standard General Ledger (USSGL) at 

the transaction level
Section 1 | Management’s Discussion and Analysis (Unaudited)

29 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

FFMIA Section 803(a) 

Requirement

Remediation 

Activities Target Date Responsible Offices

Federal Financial 

Management System 

Requirements

The DLA will continue to 

develop and document 

policies, procedures, 

and controls in order to 

comply with standards, 

laws, and regulations that 

promote reliable financial 

reporting and effective 

and efficient operations.

FY 2022 - 

FY 2023

• Finance

• Information Operations

• Acquisition

• Logistics Operations

Federal 

Accounting 

Standards 

Advisory

 Board (FASAB)

The DLA will continue 

to perform a root cause 

analysis to identify underlying issues as well as 

develop and document 

policies, procedures, 

and controls to maintain 

accounting data to permit 

reporting in accordance 

with U.S. GAAP as established by the FASAB.

FY 2022 - 

FY 2023

• Finance

• Information Operations

• Acquisition

• Logistics Operations

USSGL at the 

Transaction Level

To reduce the material 

risks of procedural and 

posting logic deficiencies 

and achieve compliance 

with applicable accounting regulations, DLA will 

identify non-compliant 

areas with a financial impact in processes across 

the enterprise. This 

approach will include 

creating and updating 

policies, procedures 

and internal controls, as 

well as requesting the 

implementation of system 

changes to address 

underlying errors in the 

systemic posting logic.

FY 2022 - 

FY 2023

• Finance

• Information Operations

• Acquisition

• Logistics Operations
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 30

Compliance with Laws and Regulations

Anti-Deficiency Act

The Anti-Deficiency Act (ADA) Title 31 U.S.C. §1341, prohibits 

Federal employees from obligating funds in excess of an 

appropriation or before funds are available, or from accepting 

voluntary services. As required by the ADA, DLA TF notifies all 

appropriate authorities of any potential ADA violations. At this 

time, there are no known or potential ADA violations for DLA 

TF.

The DLA TF has funds control policies to monitor and track 

commitments, expenditures, and obligations to ensure amounts 

do not exceed available authority, in compliance with the ADA. 

DLA TF is continuously evaluating the existing processes and 

controls to identify areas of improvement.

Digital Accountability 

and Transparency Act of 2014

The Digital Accountability and Transparency Act of 2014 

(DATA Act) expands the Federal Funding Accountability 

and Transparency Act of 2006 to increase accountability 

and transparency in Federal spending, making Federal 

expenditure information more accessible to the public. It 

directs the Federal Government to use government-wide data 

standards for developing and publishing reports and to make 

more information, including award-related data, available on 

USASpending.gov. The standards and data allow stakeholders 

to track Federal spending more effectively.

In FY 2021, DLA completed a comprehensive Data Quality 

Plan (DQP) in accordance with OMB Memorandum M-18-16, 

Appendix A to OMB Circular A-123, Management Reporting of 

Data and Data Integrity Risk. This plan leverages several wellestablished processes to monitor and improve procurement 

data quality and sets forth the DLA process for reviewing, 

monitoring, and reporting the required data, as well as how 

DLA will continue to improve the process. During FY 2021, 

DLA began implementation of its DQP and executed test plans 

to assess controls impacting data quality in the core financial 

system, EBS. 

The DLA is unable to provide assurance over compliance with 

the DATA Act.

Debt Collection Improvement Act of 1996

For the purpose of administrative offset, the Debt Collection 

Improvement Act of 1996 requires Federal Agencies to refer 

legally enforceable, past due, non-tax debts to the Secretary 

of the Treasury after 180 days. Section 5 of the Digital 

Accountability and Transparency Act of 2014 amended the 

Debt Collection Improvement Act of 1996 to reduce the time 

period to 120 days. 

Accordingly, at the end of each fiscal quarter, the Defense 

Finance and Accounting Service (DFAS) prepares the Treasury 

Report on Receivables (TROR) to notify the Secretary of the 

Treasury of receivables due from the public aged more than 

120 days.

In FY 2021, DLA TF had no delinquent debt to report to 

Treasury and noted no instances of noncompliance with the 

Debt Collections Improvement Act.

Prompt Payment Act, 31 U.S.C. §§ 3901–

3907

In 1982, Congress enacted the Prompt Payment Act (PPA) to 

require Federal Agencies to pay their bills on a timely basis, to 

pay interest penalties when payments are made late, and to 

take discounts only when payments are made by the discount 

date. 

The DLA is unable to provide assurance over compliance with 

the PPA.

Government Charge Card Abuse 

Prevention Act of 2012

The Charge Card Abuse Prevention Act (Charge Card Act) 

requires Agencies to establish and maintain safeguards and 

internal controls for purchase cards, travel cards, integrated 

cards, and centrally billed accounts. Furthermore, the Charge 

Card Act requires Agencies to report purchase card violations, 

and the Inspector General to conduct periodic risk assessments 

of government charge card programs. DLA is unable to provide

assurance over compliance with the Charge Card Act but has

multiple layers of processes and controls in place to identify

fraudulent purchases.
Section 1 | Management’s Discussion and Analysis (Unaudited)

31 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

In order to mitigate the risk of fraud, DLA uses the DoD 

mandated Insight on Demand (IOD) system, which is an 

artificial intelligence data mining platform that automatically 

analyzes Government Purchase Card (GPC) data to identify 

and flag high risk transactions. Agency/Organization Program 

Coordinators (A/OPC) and Approving/Billing Officials (A/BO) 

review 100% of all flagged IOD data mining cases daily. A/OPCs 

complete a monthly checklist within IOD, which is a series of 

oversight questions related to appointment and training, and 

the Component Program Managers (CPMs) review the monthly 

A/OPC reports within IOD to include corrective actions taken 

for any identified non-compliance. A/OPCs complete a semiannual head of activity report within IOD that captures program 

oversight data, including the number of transactions flagged for 

review, findings, and corrective actions assigned. The A/OPCs 

brief their head of activity with the results. CPMs complete a 

semi-annual head of activity report within IOD that captures 

program oversight data at the Agency level and briefs to the 

Senior Procurement Executive.

In addition to IOD, DLA has processes in place for A/BOs, 

A/OPCs, and the CPMs to conduct transaction reviews and 

overall program compliance reviews in order to mitigate the 

risk of fraud and misuse. Major Subordinate Command (MSC) 

audit teams also conduct GPC reviews. As a result of IOD and 

DLA processes, transactions are reviewed by A/BOs, A/OPCs, 

and CPMs daily, monthly, semi-annually, and annually with 

corrective action assigned as appropriate.

Daily, management approves all requirements before the 

cardholder makes the purchase. A/BOs approve the use of the 

GPC as the method of payment and review 100% of purchases 

made by cardholders. The A/OPCs perform a monthly review 

over a minimum of 6.0% of all cardholder transactions, take 

corrective action and provide results to the CPM for review. 

The A/OPCs and CPMs also review all monthly statement 

approval and certifications to identify any A/BO violations of 

segregation of duty policies.

CPM also conducts an annual comprehensive program 

review of each DLA GPC Activity, which includes a random 

sampling of cardholder transactions, appointment and training 

documentation, and overall program oversight responsibilities. 

The CPM assigns corrective actions as appropriate and 

provides results to senior leadership.

During FY 2021, there were no instances of fraud identified as 

a result of reviews or audits.

Financial Systems

Financial Systems Strategy

The DLA Information Operations is DLA’s knowledge broker, 

providing comprehensive, best practice IT support to DoD/

DLA Logistics Business Community. Information Operations 

provides dynamic information systems, customer support, 

efficient and economical computing, data management, 

electronic business, telecommunication services, key 

management, and secure voice systems for DoD and DLA. 

Although DLA is unable to provide assurance that the financial 

systems are in compliance with Federal system security 

and accounting requirements, DLA Information Operations 

endeavors to improve the control posture of systems and 

processes by testing and correcting deficiencies to ensure 

that DLA’s systems are compliant.

The DLA Information Operations continues to review audit 

findings from prior and current financial statement audits. 

DLA Information Operations works with DLA Finance and 

other business stakeholders to develop CAPs and resolve 

findings. Identified deficiencies are prioritized and aligned to 

the appropriate plans and system enhancements. In addition 

to identified audit findings, DLA Information Operations is 

working to become compliant with the Standard Financial 

Information Structure (SFIS) and Standard Line of Accounting 

(SLOA) in accordance with applicable Federal requirements. 

Improvements to general ledger posting logic to comply 

with the USSGL are also being implemented proactively to 

ensure all business events are mapped to the proper general 

ledger accounts. DLA Information Operations works with 

DLA Finance to build a roadmap for future financial system 

improvements based on budget availability, resource and 

system constraints. The financial systems strategy will support 

the overarching strategy of DLA to make an end-to-end 

process review aligned to financial statements line items with 

focus on risk and controls. DLA Information Operations will 

also continue to focus on remediating any issues associated 

with material weaknesses and DoD Chief Information Officer 

(CIO) priorities.

Effective April 1, 2020, DLA reduced onsite operations to 

emergency and mission-essential/critical personnel only 

(i.e., meaning only those employees who must be physically 

present to perform necessary functions) in response to the 

COVID-19 pandemic. While operating in an emergency status 

due to COVID-19 precautions, telework-ready personnel not 
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 32

required to be onsite are required to telework. DLA is working 

with the Defense Information Systems Agency (DISA) to 

ensure the sustainment of DLA mass telework capability and 

partnering with the DoD CIO, National Security Agency (NSA), 

and industry on a longer-term solution to provide the Secret 

Internet Protocol Router Network for teleworkers.

Financial Management Systems 

Framework

The DLA relies on the Enterprise Business System (EBS) as 

its accounting system of record to process, track and report 

all business transactions which impact DLA TF. The core of 

EBS is Systems Applications and Product’s (SAP) Enterprise 

Resource Planning Central Component (ECC) version 6.0. 

This is an on-premise, commercial off-the-shelf (COTS) 

software which has been configured to meet DLA's business 

requirements. However, due to system limitations, accurate 

data is not always produced, and DLA is unable to provide 

assurance that the financial systems are in compliance with 

Federal system security and accounting requirements. There 

are numerous systems which interface with EBS. These 

include, but are not limited to, inventory and customer ordering 

systems, including the Distribution Standard System (DSS), a 

legacy inventory warehouse management system and multiple 

DFAS systems, including the Defense Departmental Reporting 

System (DDRS), for the creation of financial statements, 

reports and Treasury cash management. DLA EBS ECC 6.0 

has a single, enterprise general ledger which resides in SAP 

and is used for all funds.

Future Financial Management Systems 

Framework

The DLA has begun migrating the existing SAP Enterprise 

Resource Planning (ERP) application environment to SAP’s 

Secure HANA Cloud (SHC) platform. DLA has also begun 

the process for migrating the core financial management 

system, SAP ECC 6.0 to SAP S/4HANA in SAP's SHC. These 

migrations will provide an improved cyber security posture 

as well as enhanced capabilities for accounting and financial 

reporting and improved auditability.

The DLA is in the first year of a two phased ERP Migration. 

Phase 1 is ERP Migration to Cloud (M2C) and during this phase 

all applications that are within the EBS accreditation boundary 

will be migrated to SAP’s Secure HANA Cloud platform. Phase 

1 is scheduled to be completed by February 2022. Phase 2 is 

ERP Migration to Standard (M2S) – SAP S/4HANA in SAP's 

SHC. Phase 2 has four sub-phases: Business Transformation 

Study (BTS), Business Process Engineering/Laws Regulations 

and Policy (BPR/LRP) Analysis, Requirements Development, 

and Execution.

The BTS was performed to identify opportunities to decustomize and adopt standard SAP S/4HANA capability. DLA 

will conduct BPR/LRP analysis to identify and challenge DoD 

LRPs that impede the ability to adopt standard capability. DLA 

will consider BPR to use standard capability to the maximum 

extent possible to reduce cost, streamline business processes 

to adopt industry best practices, and allow for better innovation 

going forward. Phase 2 is scheduled to be completed by the 

fourth quarter of FY 2027.

The DLA will also be implementing system changes to 

meet the requirements of Treasury’s G-Invoicing system. 

G-Invoicing will help address government-wide accounting 

elimination problems by ensuring trading partners have the 

same information for intragovernmental transactions. The 

G-Invoicing required use date for Federal Program Agencies 

(FPAs) for new orders has been delayed from June 2021. The 

mandated implementation deadline of October 2022 for new 

orders includes orders with a period of performance beginning 

October 1, 2022, or later. FPAs must implement G-Invoicing 

for “In-Flight” orders by October 2023. The mandated 

implementation deadline of October 2023 for “In-Flight” orders 

includes the conversion of orders with an open balance and a 

period of performance extending beyond September 30, 2023.

The implementation of DoD SLOA will improve interoperability 

between DoD business systems and provide better end-toend funds traceability and eliminations reporting to enable 

successful audits in DoD.
Section 1 | Management’s Discussion and Analysis (Unaudited)

33 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Helping Hands

U.S. Marines, along with British and Turkish forces assist a child during an evacuation at Hamid Karzai International Airport, Kabul, Afghanistan, Aug. 20, 2021. U.S. service members are assisting the Department of State with 

a non-combatant evacuation operation (NEO) in Afghanistan. Photo By: Marine Corps Staff Sgt. Victor Mancilla
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 34

The following areas present insights into how the Agency 

shapes its programs and responds to challenges posed to DLA 

TF’s goals and missions.

An Ever-Changing Workforce

 

The DLA is a high-performing organization, and DLA’s 

workforce is its greatest asset. DLA must attract, develop, and 

retain a diverse, skilled and agile workforce. The eight People 

and Culture objectives are the strategies that will assist DLA 

in mitigating several significant external factors that will affect 

DLA and its workforce.

Changing demographics are the first significant external factor. 

There are different generations working side-by-side in the 

DLA’s workplace and DLA civilians are playing an increasingly 

critical role in supporting global DoD missions. These 

changing demographics will require continued assessment 

of DLA’s current human resources initiatives and new 

strategies to excel in areas such as recruitment, training and 

development, work-life balance, managing in a geographically 

dispersed environment while maintaining strong connections 

to DLA culture, knowledge transfer, leadership skills, labor 

management relations and a culture that fosters diversity, 

equity, inclusion and employee engagement.

Our economy is the second external factor that influences 

the Federal government’s ability to recruit top talent and 

retain its workforce. It is critical that DLA not only recruit and 

retain a diverse workforce, but also ensures the workforce 

has the critical skills necessary to operate in this constrained 

environment.

Technology is the third external factor. COVID-19 has 

accelerated the use of digital technology and has changed the 

way work is being performed. More work is being performed 

virtually rather than on site or in person. DLA developed a 

COVID-19 Vaccine Questionnaire that will replace the manual 

email and spreadsheet tracking currently being performed. 

The Department of Defense expanded efforts to gather data 

as it relates to COVID-19 vaccinations to better focus vaccine 

supply availability. As a result, DLA would like to ascertain the 

percentage of the workforce that has been vaccinated against 

COVID-19. This information will be used to aid in distribution 

Forward-Looking Information

at locations with shortfalls and assist in prioritizing Agency/

DoD vaccination efforts. DLA must recruit, develop, and 

sustain a workforce that is technically proficient and agile to 

adopt emerging technologies, which requires innovative human 

capital management strategies.

The work environment is the last significant external factor 

to impact DLA’s workforce. DLA's success as an organization 

is largely dependent on DLA’s ability to achieve a highperforming, results-driven culture and to sustain that culture in 

light of changes to demographics, economics, and technology. 

These factors will impact each segment of DLA, and DLA 

Human Resources must strategically partner with leadership 

and the workforce to carry out DLA's mission. The use of 

change management techniques will assist in decreasing 

the uncertainty associated with changes as well as mitigate 

resistance to those changes.

The DLA has a critical mission to support the Military Services, 

Combatant Commands, and other Federal Agencies; that 

includes supporting our Nation’s response to COVID-19. The 

key to DLA’s success is its people, and while DLA will respond 

professionally and swiftly to mission requirements related to 

COVID-19, DLA will also take necessary steps to protect and 

inform our workforce. The workforce that has been designated 

as “mission-critical onsite,” must come into their respective 

workplace throughout the crisis to continue DLA’s vital work 

of supporting Warfighters and the whole-of-government 

response to the pandemic. This includes deploying overseas; 

executing our wholesale distribution operations; supporting 

our Disposition Services customers; enabling our Service 

customers at shipyards, readiness centers, and depots; keeping 

our installations safe and secure; performing necessary IT 

“touch labor”; issuing Common Access Cards (CACs) and 

fingerprinting new employees; performing classified work; 

and many other functions requiring physical presence. As 

an employer, DLA will follow DoD policies and guidelines in 

taking any actions to address or mitigate the threat posed by 

COVID-19. This includes disseminating official information by 

appropriate public or military health authorities, leveraging 

workplace policies and flexibilities designed to protect our 

workforce, and activating “continuity of operations” plans 

should it become necessary. In response to both Families First 

Coronavirus Response Act (FFCRA) and American Rescue 
Section 1 | Management’s Discussion and Analysis (Unaudited)

35 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Plan (ARP), DLA added new leave codes so employees will 

be able to record excused absences for virus prevention or for 

care of self or family members with COVID-19. Each DLA major 

population center has its own plan for returning employees to 

the workplace, all based on common guidance for a conditionbased, deliberate, and safe return. Different locations will go 

through the various phases on different timelines accounting 

for local conditions. DLA is monitoring workforce availability 

and conducting site capability and capacity assessments. DLA 

will continue to encourage completion of COVID-19 worksite 

related trainings and to develop methods to effectively hire 

and onboard personnel with a plan for virtual training and 

orientation.

External Threats 

In response to the President’s call for governmental reform 

and under the Direction of the Chief Management Officer, 

DoD is reviewing, changing, and setting up processes, where 

appropriate, to gain efficiencies and maximize savings to 

reinvest into service readiness. This is aligned to the LOE of 

Warfighter First.

The DoD as a whole faces numerous challenges – ranging 

from strategic competition and aggression from other nations 

and the threat of terrorism, to the concern of securing funding 

necessary to accomplish the mission. These threats directly 

affect DLA’s mission and goals. As the Nation’s Combat 

Logistics Support Agency, DLA monitors these external threats 

to ensure readiness and support of the Warfighter.

In addition, DLA continuously reviews its strategy to meet 

global mission requirements as prescribed by DoD. DLA 

developed a 2021-2026 Strategic Plan and amended the 

plan in April 2021 to meet the evolving requirements of the 

Warfighter and the nation with a targeted transformative 

approach encompassing the most critical priorities for the next 

five years. DLA’s Strategic Plan reaffirms and extends DLA’s 

commitment to Warfighter readiness and lethality and to selfaccountability. The plan describes five LOEs and three CCs 

that DLA leverages to provide global, end-to-end supply chain 

solutions: Warfighter Always, Support to the Nation, Trusted 

Mission Partner, Modernized Acquisition and Supply Chain 

Management, Future of Work, People and Culture, Fiscal 

Stewardship, and Digital-Business Transformation. Each LOE 

or CC has specific objectives. 

The DoD and the DLA share the responsibility for implementing 

effective ERM to maintain operational efficiency and to protect 

the achievement of mission. ERM is a strategic capability that 

enables DLA to effectively deal with uncertainty and associated 

risk and opportunity. It utilizes a forward-looking, missionoriented, and holistic approach to ERM that links risk to DLA’s 

strategy and objectives. ERM enables the identification of 

potential risks and subsequent responses to those risks. ERM 

enables DLA to more effectively manage enterprise risks, 

consider constraints and dependencies between key risks, 

while creating and preserving the value DLA contributes to 

the National Defense Strategy, National Defense Business 

Operations Plan, and DoD objectives. ERM and Internal 

Control are components of the governance framework.

The DLA’s culture of risk awareness continues to mature. 

Thorough risk assessments can identify, document, and 

communicate risk before it becomes an issue. Through ERM 

and Internal Control, DLA is taking a strategic approach to 

manage risk and drive DLA’s mission.

The DLA faces current and future cyber threats that must 

be countered in a sustained effort to secure and defend the 

Agency’s critical operational data, network, and business 

systems by applying key security principles, which include:

The DLA is providing support to the U.S. response to COVID-19 

in the areas of material support, planning, and acquisition 

and will continue to be a vital part of the worldwide logistics 

response. However, DLA is also a global enterprise, with 

resources and people around the world, both within and outside 

the Continental U.S. As such, DLA is tracking the virus and 

its impact to military operations and locations, as well as how 

communities are responding to the threat. DLA is fully engaged 

and monitoring COVID-19 changes from Occupational Safety 

and Health Administration (OSHA) and DoD as well as providing 

continual communication with employees through staff and site 

directors. DLA host site services are operating based on local 

and state guidance. DLA is continuing to monitor the readiness 

of first responders and documenting the execution of the 

risk manage process and risk acceptance at the appropriate 

leadership levels.

● Operations-level Situational Awareness;

● Layered perimeter defenses; 

● Least privilege for access to data and IT 

capabilities; and

● Physical or logical segmentation of networks, 

services, and applications.
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 36

Technological Advancement and 

Initiatives

As part of the 2021-2026 Strategic Plan, DLA has the DigitalBusiness Transformation. Digital-Business Transformation 

focuses on IT and digital capability investments on key areas 

that will enable DLA to enhance performance, reduce costs, 

and make more predictive and data-driven decisions. This will 

transform systems and processes to improve transparency, 

reliability, and security for DLA’s employees, customers, and 

suppliers. DLA data assets include supply chain, acquisition, 

personnel, information management, and financial data, along 

with the infrastructure and exchanges that move it. Looking 

forward, effective data management will enable DLA to develop 

data and analysis as a service for its business users to facilitate 

access to it as well as data-driven decisions.

For technology, DLA Information Operations continuously 

evaluates the IT operating environment to identify potential 

opportunities to streamline and automate processes as well 

as ensure alignment with DoD and DLA Strategic Initiatives. 

One example of these types of efforts currently in process 

include increasing the use of cloud computing technologies 

and solutions. Many applications have already begun migration 

to cloud computing. 

Finally, DLA provides Congressionally appropriated funding 

for the development of the Defense Agencies Initiative (DAI). 

The DAI mission is to deliver auditable, CFO Act compliant 

business environments for Defense Agencies. The goal is to 

provide accurate, timely, and authoritative financial data in 

support of DoD goals to standardize financial management 

practices, improve financial decision support, and support 

audit readiness. The DAI is a critical DoD effort to modernize 

the Defense Agencies’ financial management capabilities. 

DLA Energy Commander Visits Texas Aerostat Site

Defense Logistics Agency Energy Commander Air Force Brig. Gen. Jimmy Canlas and a team from DLA Energy 

Aerospace visited the Tethered Aerostat Radar System site at El Indio, Texas, Sept. 29. The balloons, technically 

known as aerostats, are filled with DLA Energy Aerospace helium and are operated by U.S. Customs and Border 

Protection. They are equipped with an array of high-powered surveillance and communications equipment. 

Photo courtesy of DLA Energy Aerospace.. Photo By: DLA Energy Aerospace
Corps Cover ►

Marine Corps officer candidates receive uniform items upon 

arriving at Officer Candidates School at Marine Corps Base 

Quantico, Va., Sept. 13, 2021.

 Photo Credit: Tia Dufour, Marine Corps

SECTION 2

Financial Section (Unaudited)

37

SECTION 2

Lightning Handshake

The USS Mitscher and the USS Dwight D. Eisenhower sail in the Atlantic Ocean, March 3, 

2021, during Lightning Handshake, a bilateral maritime exercise between U.S. and Moroccan 

troops.

 Photo Credit: Navy Petty Officer 2nd Class Damon Grosvenor

In this section

40 Message from the Chief Financial Officer

41 Audit Reports

71 Management’s Response to Audit Reports

72 Introduction to the Principal Financial Statements

73 Principal Financial Statements (Unaudited)

77 Notes to the Principal Financial Statements (Unaudited)

Balance Sheets Statements of Net Cost

Statements of Changes 

in Net Position

Combined Statements 

of Budgetary Resources

73

75 76

74
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 40

Message from the Chief Financial Officer

I am proud to join the Director in issuing our Fiscal Year (FY) 2021 Agency Financial 

Report (AFR), the fifth Defense Logistics Agency (DLA) has issued since starting the 

financial statement audit process. DLA Transaction Fund’s (TF) FY 2021 AFR highlights 

certain valuable insights into the overall financial operations, accomplishments, and 

challenges of the Agency, and this section of the AFR provides a comprehensive view 

of DLA TF financial activities. DLA remains committed to ensuring value, efficiency, and 

effectiveness, as well as ensuring outstanding stewardship to protect against fraud, 

waste, and abuse in every program we manage.

Although DLA received a Disclaimer of Opinion on the Agency’s TF financial statements, 

which denotes that the auditor conducted audit procedures but was unable to express an 

opinion on the financial statements, DLA continues to make tremendous strides. DLA’s 

continued efforts consist of establishing the framework to correct material weaknesses 

by reviewing and establishing end-to-end business processes, evaluating operational 

impacts on the financial statements, identifying the financial statement and financial reporting risks, and designing and 

implementing the appropriate controls to address those risks.

The DLA enterprise continues to document and evaluate critical processes, identify risks, and develop internal controls to 

address risks associated with reporting of financial information. Efforts include initiatives to improve budgeting, financial 

operations, and accounting to enhance the value provided to the Warfighter and our partners. DLA continues to focus efforts 

and resources towards improving the financial reporting data, upgrading financial and operational systems, concentrating 

remediation of Notice of Findings and Recommendations in areas with the greatest impact to DLA readiness and lethality, 

and improved financial data and internal controls with the goal of achieving an unmodified audit opinion. For DLA TF, we are 

enhancing our internal controls over operations, financial reporting, and financial systems.

As DLA continues to evolve in the audit process, we will continue to learn and use that knowledge to improve and protect 

our business processes, allowing us to maximize our resources in support of the Warfighter. One of our highest priorities 

is to provide enhanced financial management and strong governance in support of our goals to identify and address risks, 

successfully manage challenges including audit findings, and accomplish associated remediation actions necessary to address 

material weaknesses. Our commitment to fiscal stewardship is paramount in supporting the Warfighter and demonstrates 

prudent use of the American taxpayer funds entrusted to us.

WARFIGHTER ALWAYS!

J.ARTHUR HAGLER

Director, DLA Finance

Chief Financial Officer

November 2021 (TF) 
Section 2 | Financial Section (Unaudited)

41 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Audit Reports

INSPECTOR GENERAL

DEPARTMENT OF DEFENSE

4800 MARK CENTER DRIVE

ALEXANDRIA, VIRGINIA 22350-1500

November 8, 2021

MEMORANDUM FOR UNDER SECRETARY OF DEFENSE (COMPTROLLER)/

CHIEF FINANCIAL OFFICER, DOD

DIRECTOR, DEFENSE LOGISTICS AGENCY

SUBJECT: Transmittal of the Independent Auditor’s Reports on the Defense Logistics 

Agency National Defense Stockpile Transaction Fund Financial Statements and 

Related Notes for FY 2021 and FY 2020 (Project No. D2021-D000FE-0059.000, 

Report No. DODIG-2022-033)

We contracted with the independent public accounting firm of Ernst & Young, LLP (EY), 

to audit the Defense Logistics Agency (DLA) National Defense Stockpile Transaction 

Fund (Transaction Fund) Financial Statements and related notes as of and for the fiscal 

years ended September 30, 2021, and 2020. The contract required EY to provide a 

report on internal control over financial reporting and compliance with provisions of 

applicable laws and regulations, contracts, and grant agreements, and to report on 

whether the DLA’s financial management systems substantially complied with the 

requirements of the Federal Financial Management Improvement Act of 1996. The 

contract required EY to conduct the audit in accordance with generally accepted 

government auditing standards (GAGAS); Office of Management and Budget audit 

guidance; and the Government Accountability Office/Council of the Inspectors General 

on Integrity and Efficiency, “Financial Audit Manual,” June 2018, Volume 1 (Updated, 

April 2020), Volume 2 (Updated, March 2021), and Volume 3 (Updated, 

September 2021). EY’s Independent Auditor’s Reports are attached.

EY’s audit resulted in a disclaimer of opinion. EY could not obtain sufficient, 

appropriate audit evidence to support the reported amounts within the DLA 

Transaction Fund Financial Statements. As a result, EY could not conclude whether the 

financial statements and related notes were presented fairly in accordance with 

Generally Accepted Accounting Principles. Accordingly, EY did not express an opinion 

on the DLA Transaction Fund FY 2021 and FY 2020 Financial Statements and related 

notes. 
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EY’s separate report, “Report of Independent Auditors on Internal Control Over 

Financial Reporting,” discusses six material weaknesses related to the DLA’s internal 

controls over financial reporting.* Specifically, EY concluded that the DLA did not

design or implement effective internal controls to:

• document and validate Inventory balances and transactions;

• reconcile Fund Balance With Treasury;

• support Accounts Payable, expenses, and related budgetary balances;

• review inaccurate financial statement balances and footnote disclosures;

• document end-to-end business processes, monitor internal control risks, and 

remediate audit findings in a timely manner; and

• ensure the effective design and operation of financial reporting information 

systems.

EY’s additional report, “Report of Independent Auditors on Compliance and Other 

Matters,” discusses two instances of noncompliance with provisions of applicable laws 

and regulations, contracts, and grant agreements. Specifically, EY’s report describes

instances in which the DLA’s financial management systems did not comply with the 

Federal Financial Management Improvement Act of 1996 and Federal Managers’ 

Financial Integrity Act of 1982.

In connection with the contract, we reviewed EY’s reports and related documentation 

and discussed them with EY’s representatives. Our review, as differentiated from an 

audit of the financial statements and related notes in accordance with GAGAS, was not 

intended to enable us to express, and we do not express, an opinion on the DLA 

Transaction Fund FY 2021 and FY 2020 Financial Statements and related notes. 

Furthermore, we do not express conclusions on the effectiveness of internal control 

over financial reporting, on whether the DLA’s financial systems substantially complied 

with Federal Financial Management Improvement Act of 1996 requirements, or on 

compliance with provisions of applicable laws and regulations, contracts, and grant 

agreements. Our review disclosed no instances where EY did not comply, in all material 

 

* A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial 

reporting that results in a reasonable possibility that management will not prevent, or detect and correct, a 

material misstatement in the financial statements in a timely manner.
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respects, with GAGAS. EY is responsible for the attached November 8, 2021 reports, 

and the conclusions expressed within the reports. 

We appreciate the cooperation and assistance received during the audit. Please direct 

questions to me.

Lorin T. Venable, CPA

Assistant Inspector General for Audit

Financial Management and Reporting

Attachments: 

As stated
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Ernst & Young LLP

1775 Tysons Blvd

Tysons, VA 22102

Tel: +1 703 747 1000

Fax: +1 703 747 0100

ey.com

Report of Independent Auditors

The Director of the Defense Logistics Agency and the

Inspector General of the Department of Defense

Report on the Financial Statements

We were engaged to audit the accompanying financial statements of the National Defense 

Stockpile Transaction Fund of the Defense Logistics Agency (DLA), which comprise the balance 

sheets as of September 30, 2021 and 2020, and the related statements of net cost and changes in 

net position and statements of budgetary resources for the years then ended, and the related notes 

to the financial statements (the financial statements).

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements

in conformity with U.S. generally accepted accounting principles; this includes the design, 

implementation and maintenance of internal control relevant to the preparation and fair 

presentation of the financial statements that are free of material misstatement, whether due to fraud 

or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on conducting the 

audit in accordance with auditing standards generally accepted in the United States of America, 

the standards applicable to financial audits contained in Government Auditing Standards, issued 

by the Comptroller General of the United States and the Office of Management and Budget

Bulletin No. 21-04, Audit Requirements for Federal Financial Statements. Because of the matters

described in the Basis for Disclaimer of Opinion paragraph, however, we were not able to obtain 

sufficient appropriate audit evidence to provide a basis for an audit opinion.

Departure from U.S. Generally Accepted Accounting Principles

As described in Note 1, DLA has not implemented certain accounting standards for the Department 

of Defense and the Federal Government. The effect of these matters on the financial statement 

amounts and related disclosures involved is not currently determinable by DLA and could be 

material.
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Basis for Disclaimer of Opinion

DLA continues to have unresolved accounting issues and material weaknesses in internal controls 

that cause DLA to be unable to provide sufficient evidential support for complete and accurate 

financial statements on a timely basis. As a result, we cannot determine the effect of the lack of 

sufficient appropriate audit evidence on DLA’s financial statements as of and for the years ended 

September 30, 2021 and 2020.

Disclaimer of Opinion

Because of the significance of the matters described in the Basis for Disclaimer of Opinion 

paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis 

for an audit opinion. Accordingly, we do not express an opinion on these financial statements.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the 

Management’s Discussion and Analysis, as listed in the Table of Contents, be presented to 

supplement the financial statements. Such information, although not a part of the financial 

statements, is required by the Federal Accounting Standards Advisory Board who considers it to 

be an essential part of financial reporting for placing the financial statements in an appropriate 

operational, economic, or historical context. We were unable to apply certain limited procedures 

to the required supplementary information in accordance with auditing standards generally 

accepted in the United States of America because of the significance of the matters described in 

the Basis for Disclaimer of Opinion paragraph. We do not express an opinion or provide any 

assurance on the information.

Other Information

We were engaged for the purpose of forming an opinion on the financial statements that 

collectively comprise DLA’s financial statements. The Other Information, as listed in the Table of 

Contents, is presented for purposes of additional analysis and is not a required part of the financial 

statements.

The Other Information has not been subjected to the auditing procedures applied in the engagement 

to perform an audit of the financial statements, and, accordingly, we do not express an opinion or 

provide any assurance on it.
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Other Reporting Required by Government Auditing Standards

In accordance with Government Auditing Standards, we also have issued our reports dated 

November 8, 2021, on our consideration of DLA’s internal control over financial reporting and on 

our tests of its compliance with certain provisions of laws, regulations, contracts, grant 

agreements and other matters. The purpose of those reports is solely to describe the scope of our 

testing of internal control over financial reporting and compliance and the results of that testing, 

and not to provide an opinion on the effectiveness of DLA’s internal control over financial 

reporting or on compliance. Those reports are an integral part of an engagement to perform an 

audit in accordance with Government Auditing Standards in considering DLA’s internal control 

over financial reporting and compliance.

November 8, 2021


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A member firm of Ernst & Young Global Limited

2111-3902072

Ernst & Young LLP

1775 Tysons Blvd

Tysons, VA 22102

Tel: +1 703 747 1000

Fax: +1 703 747 0100

ey.com

Report of Independent Auditors on Internal Control Over Financial Reporting 

Based on an Engagement to Audit the Financial Statements

Performed in Accordance with Government Auditing Standards

The Director of the Defense Logistics Agency and the

Inspector General of the Department of Defense

We were engaged to audit, in accordance with auditing standards generally accepted in the United 

States of America, the standards applicable to financial audits contained in Government Auditing 

Standards issued by the Comptroller General of the United States and the Office of Management 

and Budget (OMB) Bulletin No. 21-04, Audit Requirements for Federal Financial Statements, the 

financial statements of the National Defense Stockpile Transaction Fund of the Defense Logistics 

Agency (DLA), which comprise the balance sheet as of September 30, 2021, and the related 

statement of net cost, statement of changes in net position and statement of budgetary resources 

for the year then ended, and the related notes to the financial statements, and have issued our report 

thereon dated November 8, 2021. Our report disclaims an opinion on such financial statements 

because DLA was not able to provide sufficient appropriate audit evidence due to matters 

discussed further in the Basis for Disclaimer of Opinion paragraph.

Internal Control Over Financial Reporting

In connection with our engagement to audit the financial statements, we considered DLA’s internal 

control over financial reporting (internal control) as a basis for designing audit procedures that are 

appropriate in the circumstances for the purpose of expressing our opinion on the financial 

statements, but not for the purpose of expressing an opinion on the effectiveness of DLA’s internal 

control. Accordingly, we do not express an opinion on the effectiveness of DLA’s internal control.

We did not consider all internal controls relevant to operating objectives as broadly defined by the 

Federal Managers’ Financial Integrity Act of 1982 (FMFIA), such as those controls relevant to 

preparing performance information ensuring efficient operations.

Our consideration of internal control was for the limited purpose described in the first paragraph

of this section and was not designed to identify all deficiencies in internal control that might be 

material weaknesses or significant deficiencies and therefore, material weaknesses or significant 

deficiencies may exist that have not been identified. However, as described below, we identified 

certain deficiencies in internal control that we consider to be material weaknesses and significant 

deficiencies.

A deficiency in internal control exists when the design or operation of a control does not allow 

management or employees, in the normal course of performing their assigned functions, to prevent, 

or detect and correct misstatements on a timely basis. A material weakness is a deficiency, or a 

combination of deficiencies, in internal control such that there is a reasonable possibility that a 
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material misstatement of the entity’s financial statements will not be prevented, or detected and 

corrected on a timely basis. We consider the deficiencies described below and in Appendix A as 

items I through VI to be material weaknesses.

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is 

less severe than a material weakness, yet important enough to merit attention by those charged 

with governance. We consider the deficiencies described below and in Appendix B as items I and 

II to be significant deficiencies.

Material Weaknesses

We identified the following matters involving internal control over financial reporting and its 

operation that we consider to be material weaknesses, as defined above:

I. Inventory – Inventory is comprised of strategic and critical materials that can be used in times 

of national emergencies. The materials include ores, metals, alloys, chemicals, highperformance fibers and energetics. Policies, procedures and internal controls surrounding 

documentation of procurements and disbursements, validating the perpetual inventory 

systems by performing periodic physical counts, accumulating cost of inventory, and

supporting inventory balances and transactions all had deficiencies. The combination of these 

deficiencies in aggregate results in a material weakness in internal control related to 

inventory. The matters identified related to inventory are further described in Appendix A.

II. Fund Balance with Treasury (FBwT) – FBwT represents the aggregate amount of funds in 

DLA’s account with U.S. Treasury. DLA is unable to reconcile FBwT beginning and ending 

balances from the general ledger to U.S. Treasury and support the FBwT balance. DLA 

implemented a process to reconcile the collection and disbursement activity from the general 

ledger to U.S. Treasury, however, DLA did not implement controls to assess the 

completeness and accuracy of the source data used in the reconciliation. DLA lacks policies,

procedures and controls to evaluate the impact to FBwT for transactions in suspense accounts

and the Statement of Differences (SOD). The combination of these deficiencies in aggregate 

results in a material weakness in internal control related to FBwT. The matters identified 

related to FBwT are further described in Appendix A.

III. Accounts Payable (AP) and Expense – AP represents the amount owed to third parties by 

DLA for goods and services received. Expenses are incurred and recognized when DLA 

obtains services from the public or other federal entities. DLA was unable to support the AP

balance, expenses and related budgetary beginning balances. In addition, DLA did not have 

adequate policies, procedures and internal controls for the procure to pay process, including 

the process to create and approve obligations and the process to review, record and pay 

invoices. Furthermore, DLA lacked adequate procedures to record obligations and accrue for 

liabilities incurred but not paid, and it recorded transactions in the procure to pay process in 

incorrect periods. The combination of these deficiencies in aggregate results in a material 
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weakness in internal control related to AP and expense. The matters identified related to AP

and expense are further described in Appendix A.

IV. Financial Reporting – Financial reporting encompasses all aspects of operations affecting 

DLA’s ability to produce reliable financial statements and disclosures. DLA’s financial 

statement preparation process lacks sufficient controls to review and identify inaccurate 

balances on the financial statements and incomplete or inaccurate footnote disclosures. In 

addition, DLA lacks policies and procedures to validate account balances and monitor 

reporting variances between source systems, resulting in DLA recording unsupported journal 

vouchers (JVs) to correct the variances. Furthermore, DLA is unable to provide detailed

listings for accounts that reconcile to the general ledger. The combination of these

deficiencies in aggregate results in a material weakness in internal control related to financial 

reporting. The matters identified related to financial reporting are further described in 

Appendix A.

V. Oversight and Monitoring – Oversight and monitoring relate to DLA’s lack of establishment 

and implementation of a sufficient enterprise-wide control environment as required by OMB 

Circular A-123, Management’s Responsibility for Enterprise Risk Management Internal 

Control. DLA does not have an effective OMB Circular A-123 program, which impacted 

DLA’s ability to appropriately identify and address significant risks for all key business 

processes. DLA has not implemented appropriate internal controls, including the 

documentation of policies and procedures that describe DLA’s environment related to endto-end business processes, monitoring of service providers, related parties, systems, risks and

controls and remediation of audit findings. In addition, DLA does not perform a proper 

review of data/reports used in the execution of key controls. The combination of these 

deficiencies in aggregate resultsin a material weakness in internal control related to oversight 

and monitoring. The matters identified related to oversight and monitoring are further 

described in Appendix A.

VI. Information Systems – Our assessment of DLA’s information technology (IT) controls and 

the computing environment identified deficiencies which, collectively, constitute a material 

weakness in the design and operation of information systems controls over financial data. 

Based on our review, we have identified four areas of deficiency which, when aggregated, 

result in a material weakness. The deficiencies relate to the following four areas:

• Access Controls

• Configuration Management

• Segregation of Duties Controls

• Security Management / Governance Over Implementation of Security Controls

The matters identified related to information systems are further described in Appendix A.
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Significant Deficiencies

We identified the following matter involving internal control over financial reporting and its 

operation that we consider to be a significant deficiency, as defined above:

I. Revenue – Revenue is earned when DLA sells goods to the public. DLA records manual 

adjustments to present revenue and cost of goods sold in accordance with U.S. generally 

accepted accounting principles (U.S. GAAP). The matters identified related to revenue are 

further described in Appendix B.

II. Environmental Liabilities (EL) – ELs are comprised of cleanup costs associated with the 

restoration of sites on real property that DLA manages. DLA lacks adequate policies, 

procedures and controls to validate its estimation methodology. The matters identified related 

to EL are further described in Appendix B.

Management’s Response to Findings

DLA’s response to the findings identified in our engagement and relevant comments from DLA’s 

management are provided in their accompanying letter dated November 8, 2021. Management’s

response was not subjected to the auditing procedures applied in the engagement to audit the 

financial statements and, accordingly, we express no opinion on it.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of internal control and the 

results of that testing, and not to provide an opinion on the effectiveness of the entity’s internal 

control. This report is an integral part of an engagement to perform an audit in accordance with 

Government Auditing Standards in considering the entity’s internal control. Accordingly, this 

communication is not suitable for any other purpose.

November 8, 2021


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Appendix A – Material Weaknesses

I. Inventory

DLA’s inventory is comprised of strategic and critical materials that can be used in times of 

national emergencies. The materials include ores, metals, alloys, chemicals, high-performance 

fibers and energetics. In accordance with FMFIA, management is responsible for establishing 

effective controls over and accountability for all assets for which the agency is responsible. DLA’s 

controls and processes do not exist or are not operating in several significant areas, specifically:

A. Lack of or Inadequate Policies, Procedures and Controls Over Inventory Processes. DLA 

lacks or has inadequate policies, procedures and controls, including the design of controls, over 

the following:

• Physical Inventory Counts. DLA has not adequately designed controls over physical 

inventory counts. Adjustments for variances identified during the inventory count are not 

properly evaluated, which includes assessing the impact of the variances to the remaining

inventory balance, and are not reviewed for completeness and accuracy. Variance 

thresholds are established only by using the weight discrepancies without considering the 

monetary impact. As such, weight discrepancies below the threshold may be a material 

error and not adjusted in the general ledger and the financial statements.

• Inventory Recorded in the Appropriate Period. Policies and procedures are not in place 

to record transactions in the period that the transaction occurred or to accrue for 

transactions that occurred but were not posted at period-end. For example, quantity 

variances identified during the reconciliation of third-party inventory listings to DLA’s 

general ledger system are not recorded in the proper period.

B. Lack of Policies, Procedures and Controls to Effectively Implement Accounting 

Standards. DLA does not have policies, procedures and controls to effectively implement 

accounting standards, causing an inaccurate presentation of inventory on the balance sheet and 

in the related footnote disclosure. Specifically, DLA has neither implemented nor applied the 

costing and valuation methodologies set forth by Statement of Federal Financial Accounting 

Standards (SFFAS) No. 3, Accounting for Inventory and Related Property and SFFAS No. 48, 

Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile Materials.

For example:

• Inventory is valued based on historical cost, unless the carrying amount of the material has 

suffered a permanent decline in value to an amount less than the cost. DLA does not have 

defined policies, procedures and controls to determine whether there are permanent 

declines in value. For example, DLA does not have documentation that describes the 

valuation process, including the criteria used to determine whether a decline in value is 

temporary or permanent. In addition, the impairment assessment does not include 

procedures to perform a periodic review and to document the basis for determining that the 

benchmarks and inputs used for assessing whether a decline in value has occurred are 

appropriate.
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• SFFAS No. 3 states that historical cost shall include all appropriate purchase, 

transportation and production costs incurred to bring the items to their current condition 

and location. However, DLA records the reconditioning costs associated with the 

refurbishment of inventory as a period cost rather than capitalized and included as part of 

the cost to bring the inventory to its current condition. In addition, inventory received from 

other federal agencies is not properly valued and recorded in accordance with SFFAS 

No. 3.

• DLA began implementing inventory costing methodologies in accordance with SFFAS 

No. 48. However, DLA is unable to sufficiently support its application SFFAS No. 48. For 

example, DLA did not sufficiently document the valuation methods, inputs and 

assumptions used to determine deemed cost and was unable to provide documentation to 

support key inputs and assumptions.

Recommendations

Consider the following corrective actions related to the deficiencies identified above:

A. Lack of or Inadequate Policies, Procedures and Controls Over Inventory Processes.

• Physical Inventory Counts. Design and implement controls over physical inventory 

counts. The controls should be designed to review adjustments recorded for completeness 

and accuracy and to assess the monetary impact of variances, individually and in the 

aggregate across the entire inventory balance. 

• Inventory Recorded in the Appropriate Period. Design and implement policies and 

procedures, including controls to process and post transactions to the correct period in the 

general ledger, and that an accrual is recorded at period-end for transactions that should be 

posted to reflect recording in the proper period but have not been resolved.

B. Lack of Policies, Procedures and Controls to Effectively Implement Accounting 

Standards. Design policies and procedures to implement the accounting standard, SFFAS 

No. 3 and SFFAS No. 48. The policies and procedures should consider:

• Determining the criteria for when a decline in value should be considered temporary or 

permanent, how the market value of specific commodities should be selected and 

performed, and what benchmarks are used to determine market value.

• Ensuring that costs to bring inventory to its current condition, such as reconditioning costs, 

are properly capitalized.

• Ensuring that inventory received from federal entitiesis properly valued in accordance with 

U.S. GAAP.

• Establishing opening inventory balances by valuing inventory using the valuation 

methodologies provided in SFFAS No. 48, supporting the key inputs and assumptions used 

in the valuation methodologies with appropriate documentation and verifying that 

inventory valuation complies with SFFAS No. 3 subsequent to the implementation of 

SFFAS No. 48. 
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II. Fund Balance with Treasury

Fund Balance with Treasury (FBwT) represents the aggregate amount of funds in DLA’s account 

with U.S. Treasury. Treasury’s Financial Manual (TFM) Chapter 5100, Section 5130 requires 

agencies to implement effective and efficient reconciliation processes and perform timely 

reconciliations. However, deficiencies exist related to DLA’s processes of recording and 

reconciling transactions involving FBwT.

A. Lack of or Inadequate Documentation of FBwT Accounting Policies, Procedures and 

Controls. DLA has not documented the end-to-end process to account for, monitor and report 

FBwT and FBwT-related transactions. Documentation does not include the process to 

determine the amounts recorded in suspense accounts and research and resolve differences 

between U.S. Treasury, disbursing system records and accounting system records on a timely 

basis (the DoD suspense account contains transactions that are aged more than 60 days). 

B. Lack of Controls for the Reconciliation of FBwT Between the General Ledger and the 

U.S. Treasury. DLA lacks or has inadequate controls, including the design of controls, to 

reconcile FBwT. As a result, DLA is unable to accurately reconcile the beginning and ending 

general ledger balances to U.S. Treasury.

• Collections and Disbursements. DLA has not effectively designed controls to completely 

and accurately reconcile collections and disbursement data from the source systems to U.S. 

Treasury, including controls to reconcile collections and disbursements between the 

general ledger and Treasury’s Secure Payment System (SPS).

• Statement of Differences (SOD). DLA has not effectively designed controls to completely 

and accurately reconcile FBwT. Specifically, DLA has not demonstrated how the

differences included in the SODs were appropriately identified and cleared to the TF. For 

example, DLA erroneously excluded $4 million of transactions in the SOD from its 

opening balance.

C. Lack of or Inadequate Documentation to Substantiate FBwT. DLA was unable to provide 

documentation to support the existence and completeness of FBwT. Specifically, 

documentation was not available to support the composition of a $333 million summary 

journal voucher and demonstrate that the amount is appropriate to include in FBwT. 

Recommendations

Consider the following corrective actions related to the conditions described above:

A. Lack of or Inadequate Documentation of FBwT Accounting Policies, Procedures and 

Controls. Finalize the documentation of the end-to-end process for FBwT. The documentation 

should include the process to perform regular and recurring reconciliations of the suspense 

account data and the process to research and resolve differences between U.S. Treasury, 

disbursing system records and accounting system records within a timely basis.
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B. Lack of Controls for the Reconciliation of FBwT Between the General Ledger and the 

U.S. Treasury.

• Collections and Disbursements. Design and implement procedures to assess the 

completeness and accuracy of the collections and disbursements data from third party 

systems used in the reconciliation to U.S. Treasury.

• SODs. Design and implement procedures to completely and accurately reconcile FBwT, 

including demonstrating that the differences included in the SODs associated to the DLA 

TF are recorded correctly and timely in the general ledger.

C. Lack of or Inadequate Documentation to Substantiate FBwT. Develop documentation to 

support the existence and completeness of FBwT and demonstrate that amounts recorded are

appropriate to include in the FBwT balance.

III. Accounts Payable and Expenses

Accounts payable (AP) consists of amounts owed to vendors. Expenses are incurred and 

recognized when DLA obtains goods and services from the public or other federal entities. 

Undelivered Orders (UDOs) represent the amount of goods and/or services ordered which have 

not been received. AP, expenses and UDOs fall within the scope of DLA’s procure to pay process.

In accordance with FMFIA, management is responsible for establishing and maintaining internal 

controls that provide reasonable assurance that expenses and budgetary transactions applicable to 

the agency’s operations are properly recorded and accounted for to permit the preparation of 

reliable financial reports. Because of the nature of the operations, DLA has a significant volume 

of transactions to procure goods and services to sell to its customers. Deficiencies exist in DLA’s 

processes for recording and supporting accounts payable, expenses and the related budgetary 

balances; recording transactions in the proper period; documenting policies, procedures and 

controls in a sufficient manner; and designing and executing controls over the process to create 

and approve obligations and to review, record and pay invoices.

A. Lack of or Inadequate Documentation of UDO, AP and Expenses Accounting Policies, 

Procedures and Controls. DLA has not documented the end-to-end processes to account for 

UDO, AP and expense transactions.

• UDO. The documentation does not include the process to review the validity of 

significantly aged UDO.

• AP. The documentation does not include the process to evaluate the validity of AP, 

including significantly aged AP and negative payables; and the process to pay invoices 

timely or assess interest penalties for late payments in accordance with the Prompt Payment 

Act.
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B. Lack of or Inadequate Controls Over UDO, AP, Expenses and Cash Disbursement 

Processes. DLA lacks or has inadequate controls, including the design of controls, over the 

following:

• UDO. DLA lacks controls to approve and record obligations in a timely manner; controls 

to record upward and downward adjustments to UDO accurately and timely; controls to 

close invalid UDO in a timely manner; and controls to review that the purchase order 

information is recorded accurately in order to record the obligation in the correct period. 

• Vendor Contracts. DLA lacks controls to execute contracts in accordance with the Federal 

Acquisition Regulation (FAR), and record obligations timely for contracts, including 

Indefinite Quantity Contracts (IQC). For example, IQCs were awarded, and the obligation 

was not recorded at the contract award date because the IQC did not have a guaranteed 

minimum at contract award date.

• AP and Cash Disbursements. DLA lacks controls to post goods receipts in a timely 

manner; review invoices prior to payment; and prevent rejected invoices from being paid.

• Expenses Recorded in the Appropriate Period. DLA lacks controls to record expense 

transactions appropriately and accurately in the period that the transaction occurred. As a 

result, expense transactions were recorded in the incorrect period.

• Transactions Recorded at the Detailed Level. DLA lacks controls to comply with the 

Federal Financial Management Improvement Act (FFMIA), which requires transactions to 

be recorded at the detailed level. DLA recorded transactions at a summary level for certain 

budgetary and proprietary accounts. As a result, each summary-level record contained

multiple individual transactions. A reconciliation is not performed between detailed 

transactions posted to the proprietary accounts and the summarized postings to the 

corresponding budgetary accounts. 

C. Lack of or Inadequate Documentation to Substantiate AP and Expense Transactions. 

DLA was unable to provide documentation to support the existence of AP balances, or that 

expense transactions that occurred are accurately recorded in the financial statements. 

Specifically, documentation was not available to support the transactions and balances for 

various accounts, such as accounts payable, negative payables, UDO, and upward and 

downward adjustments to UDO. For example, DLA was unable to provide sufficient 

documentation demonstrating that the goods were received for purchase order samples 

selected.

D. Lack of Policies, Procedures and Controls to Effectively Implement Accounting 

Standards. DLA does not have policies, procedures and controls to effectively implement 

accounting standards. Specifically, DLA has neither implemented nor applied the accounting 

set forth by SFFAS No. 1, Accounting for Selected Assets and Liabilities, SFFAS No. 4, 

Managerial Cost Accounting Standards and Concepts and SFFAS No. 5, Accounting for 

Liabilities of the Federal Government. For example:

• DLA inappropriately expensed costs that should have been capitalized. For example, 

inventory purchased for resale was inappropriately expensed. 
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• DLA processes allow for payment without receipt, thus resulting in a negative payable 

balance. This occurs when payment is made prior to the goods receipts being posted in the 

general ledger. This results in an understatement of expenses and payables and a 

misstatement of UDO. 

• AP and accrued liabilities are not recorded appropriately. For example, DLA applied the 

straight-line method to calculate the accrual amount but did not perform any assessment to 

determine whether this is an appropriate methodology. Particularly, for Military 

Interdepartmental Purchase Requests that do not have a fixed monthly cost, the straightline method is not appropriate. 

Recommendations

Consider the following corrective actions related to the conditions described above:

A. Lack of or Inadequate Documentation of UDO, AP and Expenses Accounting Policies, 

Procedures and Controls. Update and finalize the process cycle memoranda that document 

the end-to-end processes for UDO, AP and expenses.

• UDO. The documentation should include the process to review the validity of significantly 

aged UDO, including a process to write off residual UDO for completed transactions.

• AP. The documentation should include the process to evaluate the validity of accounts 

payable, including significantly aged AP and negative payables, and the process to pay 

invoices timely or assess interest penalties for late payments in accordance with the Prompt 

Payment Act.

B. Lack of or Inadequate Controls Over UDO, AP, Expenses and Cash Disbursement 

Processes.

• UDO. Design and implement controls to approve and record obligations in a timely 

manner; controls to record upward and downward adjustments to UDO accurately and 

timely; controls to review and close invalid UDO in a timely manner; and controls to 

validate that the purchase order information is recorded accurately in order to record the 

obligation in the correct period. 

• Vendor Contracts. Design and implement controls to execute contracts in accordance 

with the FAR and record obligations timely for contracts, including IQCs. For example, 

controls that prevent contracts from being completed and executed without the appropriate 

terms and conditions required by the FAR.

• AP and Cash Disbursements. Design and implement controls to post goods receipts in a 

timely manner; review invoices prior to payment; and prevent rejected invoices from being 

processed for payment.

• Expenses Recorded in the Appropriate Period. Design and implement controls to record 

expense transactions appropriately and accurately in the period that the transaction 

occurred and controls to monitor expense transactions at or near period-end. 
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• Transactions Recorded at the Detailed Level. Design and implement controls to comply 

with the FFMIA and reconcile the transaction-level detail to the summarized postings in 

each account.

C. Lack of or Inadequate Documentation to Substantiate AP and Expense Transactions. 

Develop documentation to support that AP balances exist, or that expense transactions 

occurred and are accurately recorded in the financial statements.

D. Lack of Policies, Procedures and Controls to Effectively Implement Accounting 

Standards. Design and implement policies and procedures to record expenses incurred in the 

proper period and to properly classify costs and payables in accordance with SFFAS No. 1, 

SFFAS No. 4 and SFFAS No. 5.

IV. Financial Reporting

Financial reporting encompasses all aspects of operations affecting DLA’s ability to produce 

reliable financial statements and disclosures. This process starts with establishing an effective 

governance structure to identify and assess risk and continues with developing a control 

environment that is effective and efficient to manage identified risks. In accordance with FMFIA,

management is responsible for establishing and maintaining internal controls to achieve reliable 

financial reporting. However, deficiencies exist in DLA’s processes related to the accumulation 

and presentation of their financial position and results of operations.

A. Lack of or Inadequate Documentation of Financial Reporting and Budgetary Processes. 

DLA has not documented the end-to-end processes to account for funds management. The 

documentation does not sufficiently include a description of the process to record budget 

authority, the transfer process, and the Treasury warrant process.

B. Lack of Controls Over Compliance with the TFM United States Standard General 

Ledger (USSGL). DLA does not have controls to configure the general ledger posting logic 

to be compliant with the USSGL and apply TFM updates timely, nor does it have controls to 

link business events to the correct posting logic. As a result, transactions are not recorded 

appropriately. For example, DLA inappropriately uses a general ledger account (negative 

payables) to track payments made without goods received and inappropriately combines 

entries to record the movement of budgetary funds through the apportionment and allotment 

process, which should be recorded separately. As a result, DLA did not implement the FY 2021 

TFM update to add USSGL account 425400 – Reimbursements and Other Income Earned –

Collected From Non-Federal Sources during FY 2021. In addition, the posting logic for various 

inventory transactions, such as goods being sold and returned into inventory, do not meet the 

corresponding TFM business events. 
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C. Lack of or Inadequate Controls Over Financial Reporting Processes. DLA lacks or has 

inadequate controls, including the design of controls, over the following:

• Beginning Balances for Budgetary Accounts. DLA does not have controls to verify the 

accuracy of the beginning balances for budgetary accounts, such as the Total Actual 

Resources Collected account.

• Trading Partner Transactions. DLA does not have controls in place to validate and 

reconcile trading partner eliminations. Adjustments made to accounts receivable, accounts 

payable, revenue, expenses and undisbursed funds are not appropriately supported. A 

complete reconciliation is not performed at the agreement level to the trading partner 

adjustments that are being made. As a result, trading partner adjustments are recorded in 

the Defense Departmental Reporting System (DDRS) as “top-side” adjustments and are 

identified as “unsupported” by DFAS.

• Contingent Liabilities. DLA does not have adequate controls to identify and account for 

contingent legal liabilities that should be recorded or disclosed in the financial statements.

• Leases. DLA has not established a policy, including controls, to account for its leasing 

arrangements, nor has it completed an assessment whether the leasing arrangements should 

be accounted for as a capital or an operating lease set forth by SFFAS No. 5, Accounting 

for Liabilities of the Government; and SFFAS No. 6, Accounting for Property, Plant and 

Equipment. As a result, the financial statements do not include disclosures for DLA’s

policy to account for lease arrangements, any operating lease commitments and future 

minimum payments due.

• Financial Statement Close Process. DLA does not have adequately designed controls 

around the annual close and reconciliation processes, such as the following: the monthly 

or quarterly reconciliation between the unadjusted trial balance (UTB) and the adjusted 

trial balance (ATB) is not performed sufficiently and timely and does not consider system 

generated JVs; the information used in the reconciliation of UTB to ATB is not complete 

and accurate; and the review of the procedures performed during the financial statement 

close process is not adequate. In addition, DLA has not designed processes or controls to

implement new accounting standards. As a result, DLA has not implemented accounting 

standards such as SFFAS No. 49, Public-Private Partnerships: Disclosure Requirements.

• Budgetary to Proprietary Tie Points. DLA does not have adequately designed controls 

around the tie-point process. There are reconciliation issues between the budgetary and 

proprietary tie points. As a result, DFAS records unsupported monthly and quarterly JVs 

in the general ledger and Defense Departmental Reporting System (DDRS) to reconcile

DLA’s budgetary accounts to the proprietary accounts. 

• Monthly or Quarterly JV Adjustments. DLA does not have controls to review and 

approve JV adjustments recorded in the general ledger and DDRS by DLA and DFAS for 

completeness, accuracy and validity. As a result, a comprehensive listing of adjustments 

made is not maintained to allow DLA to determine the appropriateness of each JV 

adjustment, including those recorded by their service provider.
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• Financial Statement Review Process. The level of review of the financial statements and 

footnote disclosures was insufficient to detect and correct misstatements in the financial 

statements and related disclosures. As a result, inaccurate balances and disclosures were 

reported in the financial statements and notes. For example, line items are not appropriately 

classified between federal and with the public; supporting documentation did not support 

the balances recorded in the notes; and the financial statements are not prepared in 

conformity with U.S. GAAP as described in Note 1, Significant Accounting Policies, 

which did not sufficiently describe changes or noncompliance in U.S. GAAP reporting.

• Transactions Recorded Using Elevated Privileges. DLA does not have controls to 

review and approve transactions recorded with elevated access privileges. There were more 

than 19,000 transactions recorded, totaling approximately $250 million using user roles 

with elevated access privileges. 

D. Lack of or Inadequate Documentation to Substantiate Budgetary Amounts. DLA was 

unable to provide documentation to support the existence and completeness of Total Actual 

Resources Collected and Unapportioned Authority. Specifically, documentation was not 

available to support the composition of a $333 million summary journal voucher and 

demonstrate that the amount is appropriate to include in Total Actual Resources Collected and 

Unapportioned Authority. In addition, DLA is unable to provide detailed listings for budgetary 

accounts at the purchase order (PO) or sales order (SO) level that reconcile to the general 

ledger, such as delivered and undelivered orders and unfilled customer orders.

Recommendations

Consider the following corrective actions related to the conditions described above:

A. Lack of or Inadequate Documentation of Financial Reporting and Budgetary Processes.

Document the funds management process and controls to accurately reflect all aspects of the 

end-to-end budget to execute process, including processes and controls performed by DLA and 

service providers. 

B. Lack of Controls over Compliance with the TFM United States Standard General Ledger 

(USSGL). Design and implement controls that: configure posting logic in the general ledger 

to be compliant with the USSGL; apply TFM updates in a timely manner; link business events 

to the correct posting logic; and post transactions as intended.

C. Lack of or Inadequate Controls over Financial Reporting Processes.

• Beginning Balances for Budgetary Accounts. Design and implement control activities to 

accurately state the beginning balance for carryforward budgetary accounts.

• Trading Partner Transactions. Design and implement controls to perform a 

reconciliation at the agreement level to validate trading partner eliminations, which 

includes identifying, researching and resolving variances between DLA general ledger data 

and trading partners. 
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• Contingent Liabilities. Design and implement controls related to claims and litigation to 

identify, estimate, record and disclose contingent liabilities in the financial statements. 

• Leases. Design policies and procedures to implement the appropriate accounting standards, 

specifically SFFAS No. 5 and SFFAS No. 6. The policies and procedures should establish 

an accounting policy to identify and account for leasing arrangements, including whether 

the leases should be accounted for and reported as capital or operating leases in accordance 

with SFFAS No. 5 and SFFAS No. 6. In addition, include the required disclosures for 

capital and operating leases in the financial statements in accordance with OMB A-136. 

• Financial Statement Close Process. Develop and implement controls around the annual 

close and reconciliation process, which includes a complete, accurate and timely 

reconciliation of the UTB to the ATB and processes and controls to analyze the impact of 

and implement new accounting standards, as appropriate. 

• Budgetary to Proprietary Tie Points. Design and implement controls to reconcile 

budgetary to proprietary tie points and investigate variances.

• Monthly or Quarterly Journal Voucher Adjustments. Design and implement controls 

to review and approve JV adjustments recorded in the general ledger and DDRS by DLA 

and DFAS for completeness, accuracy and validity prior to posting.

• Financial Statement Review Process. Design and implement controls to sufficiently 

review the quarterly and annual financial statements and disclosures; to detect and correct 

misstatements; and to review that the financial statements and disclosures are complete and

prepared in accordance with U.S. GAAP.

• Transactions Recorded Using Elevated Privileges. Design and implement controls to 

review and approve transactions recorded with elevated access privileges to assess for 

completeness, accuracy and validity. The review and approval should be performed by 

authorized individuals such as financial management.

D. Lack of or Inadequate Documentation to Substantiate Budgetary Amounts. Develop 

documentation to support the existence and completeness of budgetary amounts and

demonstrate that these amounts are appropriate to include in the balance. Develop and 

implement procedures to generate complete and accurate listings of budgetary accounts at the 

PO and SO level that reconcile to the general ledger.

V. Oversight and Monitoring

Oversight and monitoring relate to DLA’s lack of establishment and implementation of a sufficient 

enterprise-wide control environment as required by OMB Circular A-123, Management’s 

Responsibility for Enterprise Risk Management Internal Control. 

A. Lack of or Inadequate Documentation Around the OMB A-123 Program. DLA has not 

documented the end-to-end process to oversee and monitor the enterprise-level risks and 

controls, including their OMB A-123 program. Specifically, DLA has not performed and 

documented a sufficient risk assessment at the enterprise and business process level to assess 
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and document reporting matters, such as the complexity of programs, accounting estimates, 

related party transactions and extent of manual processes; a complete and accurate population 

of its assessable units, business processes and relevant controls that are responsive to and 

mitigate risks, including fraud risks; and an assessment and plan for timely remediation of 

audit findings. 

B. Lack of or Inadequate Controls Around System Generated Reports. DLA lacks or has 

inadequate controls to verify the accuracy and completeness of system generated reports 

required in the execution of controls.

C. Insufficient Oversight and Monitoring of Third-Party Service Providers. Service 

organizations undergo examinations of internal controls over systems and processes supporting 

their customers. The results of these examinations are documented in SOC 1 reports and 

include the independent service auditor’s report, the service organization’s management 

assertions and identified Complementary User Entity Controls (CUECs) that users of the 

service organization (e.g., DLA) should have in place to supplement the service organization’s 

internal controls. DLA does not perform sufficient oversight and monitoring of SOC 1 reports 

and does not sufficiently design, implement or monitor CUECs over its service providers.

Recommendations

Consider the following corrective actions related to the conditions described above:

A. Lack of or Inadequate Documentation Around the OMB A-123 Program. Document the 

end-to-end process to oversee and monitor the enterprise-level risks and controls, including the 

OMB A-123 program. Perform and document a sufficient risk assessment at the enterprise and 

business process level to assess and document reporting matters. Document a complete and 

accurate population of its assessable units and business processes. Identify and assess the risks 

in each business process and design and implement relevant controls that are responsive to and 

mitigate these risks, including fraud risks. Perform an assessment of audit findings and 

establish and execute the plan to remediate the audit findings timely.

B. Lack of or Inadequate Controls Around System Generated Reports. Design and 

implement controls to verify the accuracy and completeness around system generated reports 

used in the execution of controls. For example, the procedures should include footing system 

generated reports; performing a tie-out of system generated reports to the general ledger; 

verifying that the parameters used to generate the reports or data are appropriate; selecting a 

sample of transactions or balances in the report; and validating that the transactions are 

accurate.

C. Insufficient Oversight and Monitoring of Third-Party Service Providers. Design and 

implement controls around the SOC 1 review process and validate that CUECs are properly 

identified, designed and operating effectively.
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VI. Information Systems

Information systems controls are a critical component of the federal government’s operations to

manage the integrity, confidentiality and reliability of its programs and activities and assist with 

reducing the risk of errors, fraud or other illegal acts. Information management security, access 

controls, segregation of duties, and configuration management controls are fundamental to the 

integrity of financial data and can help manage risks such as unauthorized access, changes to 

critical data, and prevent compromised data. The nature, size, and complexity of DLA’s operations 

require DLA to administer its programs under a decentralized business model by using numerous 

geographically dispersed operating locations and complex, extensive information systems. 

We have noted progress in DLA’s ability to define the IT risks relevant to the financial statement 

audit, configuration changes to the entity level tool for managing approvals required for initial 

access to DLA financially significant systems, and monitoring of an IT service provider. However, 

several repeat control deficiencies in the design and operation of financially significant 

information systems controls continue to remain unresolved.

The deficiencies relate to the following areas:

• Access Controls

• Configuration Management

• Segregation of Duties Controls

• Security Management/Governance over Implementation of Security Controls

Access Controls

Access controls include those related to protecting system boundaries, user identification and 

authentication, authorization, protecting sensitive system resources, audit and monitoring, and 

physical security. When properly implemented, access controls can help ensure that critical 

systems assets are physically safeguarded and that logical access to sensitive computer programs 

and data is granted to users only when authorized and appropriate. Weaknesses in such controls 

can compromise the integrity of sensitive data and increase the risk that such data may be 

inappropriately used and disclosed.

The identified access control weaknesses in aggregate represent a significant risk to the DLA 

financial statements, Information Technology (IT) environment, and financial applications. Absent 

or ineffective preventative controls and compensating detective controls expose financial systems 

and financial data to inappropriate access, unauthorized inputs, and inaccurate entries, resulting in 

significant risk to the financial statements.
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The identified access control weaknesses that represent a significant risk to the DLA financial 

management information systems environment include the following:

• For a selection of users of financially significant applications, access is not restricted to 

authorized users with a business need, is not reviewed and documented prior to 

provisioning, and is not assigned in accordance with the principle of least privilege.

• For a selection of account management controls for financially significant applications, 

user access and activity are not monitored and tracked for routine access recertification, 

revalidation of privileged access, and terminated or inactive users.

• For a selection of audit logging controls for financially significant applications, audit logs, 

security violations, and sensitive user activity are not tracked, monitored, resolved, or 

configured appropriately within systems. 

Configuration Management

Configuration management involves the identification and management of security features for all 

hardware and software components of an information system at a given point and systematically 

controls changes to that configuration during the system’s life cycle. By implementing 

configuration management controls, DLA can ensure that only authorized applications and 

software programs are placed into production through establishing and maintaining baseline 

configurations and monitoring changes to these configurations. Weaknesses in such controls can 

compromise the integrity of sensitive data and increase the risk that such data may be 

inappropriately used and disclosed.

The identified configuration management and change control weaknesses in aggregate represent a 

significant risk to the DLA financial statements, IT environment, and financial applications. 

Absent or ineffective controls expose financial systems and financial data to unexpected impact 

from changes, inappropriate or unauthorized changes, and application errors in production.

The identified change control weaknesses that represent a significant risk to the DLA financial 

management information systems environment include the following:

• For a selection of changes to one financially significant application, both routine and 

emergency changes are not reviewed, approved, and tested in a non-production 

environment prior to release. The impact and functionality of configuration changes are

not assessed prior to implementation.

• For one financially significant application, system configurations, baseline code, and 

production environments are not monitored and inspected for unauthorized changes.

• For one financially significant application, users have access privileges enabling them to 

bypass the configuration management process and make changes directly to production.
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Segregation of Duties Controls

An effective control environment guards against a particular user having incompatible functions 

within a system. Segregation of duties controls provide policies, procedures, and an organizational 

structure to prevent one or more individuals from controlling key aspects of computer-related 

operations and, thereby, conducting unauthorized actions or gaining unauthorized access to 

financial management information systems.

The identified segregation of duties and conflicting role weaknesses in aggregate represent a 

significant risk to the DLA financial statements, IT environment, and financial applications. 

Absent or ineffective controls around segregation of duties allow users to circumvent processes 

and automated controls in place, obtain unnecessary or elevated access, and impact the integrity 

of financial data.

The identified weaknesses that represent a significant risk to the DLA financial management 

information systems environment include the following:

• Segregation of duties within the user provisioning process is not completed consistently 

across financially significant applications. Management does not identify segregation of 

duties conflicts that consider both IT and business process roles and activities. Conflicting 

roles are not inspected and rationalized prior to provisioning.

• Application program management has not completely identified sensitive (financial 

transactions) roles in order to identify and implement appropriate segregation of duties. 

Security Management/Governance Over Implementation of Security Controls

An entity-wide information security management and internal control program is the foundation 

of a security control structure to address security risks. The security management program should 

establish a framework and continuous cycle of activity for assessing risk, developing and 

implementing effective security procedures, and monitoring the effectiveness of these procedures. 

Without a well-designed program, security controls may be inadequate; responsibilities may be 

unclear, misunderstood, or improperly implemented; and controls may be inconsistently applied. 

Such conditions may lead to insufficient protection of sensitive or critical resources and 

disproportionately high expenditures for controls over low-risk resources.

The identified security management and governance weaknesses in aggregate represent a 

significant risk to the DLA financial statements, IT environment, and financial applications. 

Absent or ineffective controls around internal controls and governance compound data integrity 

risk by not monitoring third parties and not remediating known gaps timely.
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The identified security management control weaknesses that represent a significant risk to the DLA 

financial management information systems environment include the following:

• SOC 1 reports are not monitored and reviewed to assess CUECs, including validation of 

whether management’s internal controls relevant to the CUECs, are designed, 

implemented, and operating effectively.

Recommendations

Implement controls to address deficiencies in access controls, configuration management, 

segregation of duties and security management procedures to include:

Access and Segregation of Duties Controls

• Restrict access to authorized users in accordance with the least privilege principle. Review 

and approve all access, including justification of business needs. 

• Routinely monitor and revalidate access needs for business users, privileged users, and 

inactive users.

• Monitor user activity, identify and audit security violations, and assess privileged and 

sensitive users and transactions.

• Identify and document conflicting roles, enforce established segregation of duties 

processes, and assess conflicts during account provisioning and management. Segregate 

conflicting roles where possible, and if unavoidable, document business rationale and 

monitor user activity.

Configuration Management

• Review, approve and test changes prior to implementation, to include user testing and 

functionality assessments. Monitor source code, configurations, and production 

environments for unauthorized changes.

• Segregate conflicting roles between development and production environments.

Security Management/Governance Over Implementation of Security Controls

• Establish a process to evaluate and incorporate service provider reports, findings and 

controls into management’s security documentation, governance process and application 

control environment. 
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Appendix B – Significant Deficiency

I. Revenue

Revenue arises when DLA provides goods to the public. The amounts of these transactions make 

it critical for DLA to properly record and reconcile these transactions to ensure timely, appropriate 

recognition of costs to the end users. In accordance with FMFIA, management is responsible for 

establishing and maintaining internal controls that provide reasonable assurance that revenues 

applicable to the agency’s operations are properly recorded and accounted for to permit the 

preparation of reliable financial reports and maintain accountability of assets.

A. Improper Revenue Recognition in Accordance with Accounting Standards. DLA lacks 

policies, procedures and controls that are intended to properly document and review relevant 

facts and apply the appropriate revenue accounting under SFFAS No. 7, Accounting for 

Revenue and Other Financing Sources and Concepts for Reconciling Budgetary and Financial 

Accounting, which impacted the revenue and gross cost accounts on the statements of net cost. 

DLA misapplied the revenue recognition accounting principles set forth by SFFAS No. 7. 

Specifically:

• Gross versus net. Exchange revenue is recorded net of cost of goods sold at the transaction 

level. DLA records manual adjustments to present revenue and cost of goods sold on a 

gross basis on the statements of net cost.

Recommendations

Consider the following corrective actions related to the conditions described above:

A. Improper Revenue Recognition in Accordance with Accounting Standards. Design and 

implement revenue recognition policies, procedures and controls in accordance with SFFAS 

No. 7. The policies should include considering the appropriate relevant facts to determine that 

revenue and costs of goods sold are properly recorded and presented in the financial statements.

II. Environmental Liabilities

ELs are comprised of cleanup costs associated with the restoration of sites on real property that 

DLA manages. In accordance with FMFIA, management is responsible for establishing and 

maintaining internal controls to achieve reliable financial reporting. However, we identified 

deficiencies in controls listed below, which, when aggregated, we consider to be a significant 

deficiency.

A. Inadequate Controls Over Estimation Processes. DLA does not have adequately designed 

controls around their analysisto retrospectively review the estimate, which includes comparing

actual costs to estimates to validate the estimation methodology.
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Recommendations

Consider the following corrective actions related to the deficiencies identified above:

A. Inadequate Controls Over Estimation Processes. Design and implement controls to 

compare actual costs to estimates to see if any changes to the estimation methodology are 

necessary. 
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Ernst & Young LLP

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ey.com

Report of Independent Auditors on Compliance and Other Matters 

Based on an Engagement to Audit the Financial Statements Performed 

in Accordance with Government Auditing Standards

The Director of the Defense Logistics Agency and the

Inspector General of the Department of Defense

We were engaged to audit, in accordance with auditing standards generally accepted in the United 

States of America, the standards applicable to financial audits contained in Government Auditing 

Standards, issued by the Comptroller General of the United States and the Office of Management 

and Budget (OMB) Bulletin No. 21-04, Audit Requirements for Federal Financial Statements, the 

financial statements of the National Defense Stockpile Transaction Fund of the Defense Logistics 

Agency (DLA), which comprise the balance sheet as of September 30, 2021, and the related 

statement of net cost, statement of changes in net position and statement of budgetary resources

for the year then ended, and the related notes to the financial statements, and have issued our report 

thereon dated November 8, 2021. Our report disclaims an opinion on such financial statements 

because DLA was not able to provide sufficient appropriate audit evidence due to matters 

discussed further in the Basis for Disclaimer of Opinion paragraph.

Compliance and Other Matters

In connection with our engagement to audit the financial statements of DLA, we performed tests 

of its compliance with certain provisions of laws, regulations, contracts and grant agreements, 

noncompliance with which could have a direct and material effect on the financial statements, as 

well as the requirements referred to in the Federal Financial Management Improvement Act of 

1996 (FFMIA) (P.L. 104-208). However, providing an opinion on compliance with those 

provisions was not an objective of our engagement, and accordingly, we do not express such an 

opinion.

The results of our tests disclosed instances of noncompliance and other matters that are required 

to be reported under Government Auditing Standards and OMB Bulletin No. 21-04, as described 

below. Additionally, if the scope of our work had been sufficient to enable us to express an opinion 

on the financial statements, other instances of noncompliance or other matters may have been 

identified and reported herein.

Our Report on Internal Control Over Financial Reporting dated November 8, 2021, includes 

additional information related to the financial management systems and internal controls that were 

found not to comply with the requirements, relevant facts pertaining to the noncompliance, and 

our recommendations to the specific issues presented.
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As referenced in the Fiscal Year (FY) 2021 DLA Statement of Assurance, DLA provides no 

assurance that the internal controls over operations, financial systems, reporting and compliance 

are operating effectively in compliance with the Federal Managers’ Financial Integrity Act 

(FMFIA), Section 4; FFMIA of 1996, Section 803; and OMB Circular No. A-123.

FFMIA

Under FFMIA, we are required to report whether DLA’s financial management systems 

substantially comply with federal financial management system requirements, applicable federal

accounting standards, and the United States Standard General Ledger (USSGL) at the transaction 

level. To meet this requirement, we performed tests of compliance with FFMIA Section 803(a) 

requirements. The results of the tests disclosed instances in which DLA’s financial management 

systems did not substantially comply with federal financial management system requirements, 

applicable federal accounting standards or the USSGL.

(a) Federal financial management system requirements

EY identified as part of the Financial Information Systems material weakness, contained in the 

Report on Internal Control Over Financial Reporting, noncompliance with federal financial 

management system requirements for multiple systems. Weaknesses identified include those 

associated with user access, configuration management/change controls, segregation of duties and 

security management. These financial system deficiencies prevent DLA from being compliant 

with federal financial management system requirements and inhibit DLA’s ability to prepare 

complete and accurate financial reporting.

(b) Noncompliance with applicable federal accounting standards

As referenced in Note 1 to the financial statements, DLA self-identified that the design of their

financial and nonfinancial systems does not allow DLA to comply with applicable federal 

accounting standards, including not being able to collect and record financial information as 

required by U.S. generally accepted accounting principles. EY also identified noncompliance with 

federal accounting standards during our testing, which was included in our Report on Internal 

Control Over Financial Reporting.

(c) Noncompliance with USSGL posting logic at the transaction level

EY also identified noncompliance with USSGL posting logic during our testing, which was

included in our Report on Internal Control Over Financial Reporting.

FMFIA

Federal Managers’ Financial Integrity Act (FMFIA) of 1982 requires federal entities to establish 

internal controls, perform ongoing evaluations of the adequacy of the entity’s system of internal 

control, and prepare related reports. The Government Accountability Office’s (GAO’s) Standards 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 70

A member firm of Ernst & Young Global Limited

2111-3902072

for Internal Control in the Federal Government (commonly referred to as the “GAO Green Book”) 

issued under the authority of FMFIA, establishes five components of internal control: Control 

Environment, Risk Assessment, Control Activities, Information and Communication and 

Monitoring. To determine if an entity’s internal control system is effective, the Green Book 

requires management to assess the design, implementation and operating effectiveness of the five 

components of the entity’s internal control system.

DLA has not yet implemented a formal internal control program that would allow it to substantially 

comply with FMFIA and the related GAO Green Book requirements, leading to inadequate control 

environment, risk assessment and monitoring processes.

DLA was not able to provide evidence that they are in compliance with significant aspects of OMB 

Circular A-123, which implemented FMFIA. DLA provided a FY 2021 Statement of Assurance, 

however there was not sufficient evidence that DLA fully completed an organizational risk 

assessment, identified relevant risks related to the financial statement assertions, documented the 

internal control standards as it relates to those assertions, performed internal control testing, and 

reported and tracked control deficiencies at the control level for each process identified. DLA 

provided evidence demonstrating that DLA has started to implement a testing strategy, however,

DLA is unable to provide evidence that the extent of testing and review performed is sufficient to 

meet the requirements of FMFIA.

Management’s Response to Findings

DLA’s response to the findings identified in our engagement and relevant comments from DLA’s 

management responsible for addressing the noncompliance are provided in the accompanying

letter dated November 8, 2021. Management’s response was not subjected to the auditing 

procedures applied in the engagement to audit the financial statements and, accordingly, we 

express no opinion on it.

Purpose of this Report

The purpose of this report is solely to describe the scope of our testing of compliance and the 

results of that testing, and not to provide an opinion on the entity’s compliance. This report is an 

integral part of an engagement to perform an audit performed in accordance with Government 

Auditing Standards in considering the entity’s compliance. Accordingly, this communication is 

not suitable for any other purpose.

November 8, 2021


Section 2 | Financial Section (Unaudited)

71 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Management’s Response to Audit Reports
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 72

One Aircraft,Two Missions

A C-17 Globemaster III awaits takeoff Jan. 28, 2021, at Travis Air Force 

Base, California. The C-17 was part of 

a mission to transport 35,950 pounds 

of firefighting equipment and personal 

protective equipment to Guatemala 

and Ramstein Air Base, Germany, 

respectively. Photo Credit: U.S. Air 

Force, Senior Airman Christian Conrad

Introduction to the Principal Financial Statements

The principal financial statements and the accompanying notes 

(financial statements) included in this report are prepared 

pursuant to the requirements of the CFO Act of 1990 (Pub. L. 

101-576) and expanded by GMRA (Pub. L. 103-356) and other 

applicable legislation. Other reporting requirements include the 

OMB Circular A-136, as amended. The responsibility for the 

integrity of the financial information included in these financial 

statements rests with the management of DLA TF. The IPA was 

engaged to perform the audit of DLA TF’s financial statements 

and disclaimed an opinion on these financial statements. The 

Audit Reports, and Management’s Response to the Audit 

Reports, accompany the unaudited financial statements.

The Balance Sheets present those resources owned 

or managed by DLA TF that represent future economic 

benefits (assets), amounts owed by DLA TF that will 

require payments from those resources or future resources 

(liabilities), and residual amounts retained by DLA TF 

comprising the difference (net position) as of September 

30, 2021 and 2020. 

The Statements of Net Cost present the net cost of DLA 

TF operations for the years ended September 30, 2021 

and 2020. DLA TF’s net cost of operations is the gross 

cost incurred by DLA TF activities, less any exchange 

revenue earned and inter-entity eliminations from DLA TF 

activities.

The Statements of Changes in Net Position present the 

change in DLA TF’s net position resulting from the net cost 

of DLA TF’s operations, budgetary financing sources, and 

other financing sources for the years ended September 30, 

2021 and 2020. 

The Statements of Budgetary Resources present how 

and in what amounts budgetary resources were made 

available to DLA TF, the status of these resources, and 

the net outlays of budgetary resources for the years ended 

September 30, 2021 and 2020. 

The Notes to the Principal Financial Statements provide 

detail and clarification for amounts in the principal financial 

statements.

The DLA TF financial statements consist of the following:
Section 2 | Financial Section (Unaudited)

73 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Defense Logistics Agency - Transaction Fund

BALANCE SHEETS

As of September 30, 2021 and 2020

(dollars in thousands)

Unaudited

FY 2021

Unaudited 

FY 2020 

As Restated

ASSETS 

Intragovernmental

Fund Balance with Treasury (Note 2) $ 313,633 $ 280,730 

Total Intragovernmental 313,633 280,730 

Other than Intragovernmental

Accounts Receivable 4 38 

Inventory and Related Property, Net (Note 3) 809,312 740,427 

General Property, Plant and Equipment, Net (Note 4) 797 1,019 

Advances and Prepayments 915 1,155 

Total Other than Intragovernmental 811,028 742,639 

TOTAL ASSETS $ 1,124,661 $ 1,023,369 

LIABILITIES (Note 5)

Intragovernmental

Accounts Payable $ 762 $ 1,505 

Other Liabilities (Note 6) 282 371 

Total Intragovernmental Liabilities 1,044 1,876 

Total Other than Intragovernmental

Accounts Payable 321 3,609 

Environmental and Disposal Liabilities (Note 7) 9,800 11,115 

Federal Employee Benefits Payable (Note 6) 2,172 2,790 

Advances from Others and Deferred Revenue - 2,795 

Other Liabilities (Note 8) 262 299 

Total Other than Intragovernmental Liabilities 12,555 20,608 

TOTAL LIABILITIES 13,599 22,484 

Commitments and Contingencies (Note 9)

NET POSITION

Cumulative Results of Operations - Funds from Other than Dedicated Collections 1,111,062 1,000,885 

TOTAL NET POSITION 1,111,062 1,000,885 

TOTAL LIABILITIES AND NET POSITION $ 1,124,661 $ 1,023,369 

The accompanying notes are an integral part of these statements.
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 74

Defense Logistics Agency - Transaction Fund

STATEMENTS OF NET COST

For the Years Ended September 30, 2021 and 2020 

(dollars in thousands)

The accompanying notes are an integral part of these statements. 

Unaudited

FY 2021

Unaudited 

FY 2020 

As Restated

Operations, Readiness & Support

 Gross Cost $ 141,358 $ 104,972 

 Less: Earned Revenue (251,047) (65,824)

Net Cost (109,689) 39,148 

NET COST OF OPERATIONS $ (109,689) $ 39,148 

Food Pantry

Arizona National Guard service members prepare and distribute groceries for area residents at a food pantry 

in Snowflake, Ariz., June 22, 2021. The Arizona National Guard activated more than 800 Arizona guardsmen to 

support food banks during the COVID-19 emergency response. Photo By: Air Force Tech. Sgt. Dillon Davis, Air 

National Guard
Section 2 | Financial Section (Unaudited)

75 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Defense Logistics Agency - Transaction Fund

STATEMENTS OF CHANGES IN NET POSITION

For the Years Ended September 30, 2021 and 2020

(dollars in thousands)

Unaudited

FY 2021

Unaudited 

FY 2020 

As Restated

Cumulative Results of Operations

Beginning Balance $ 1,000,885 $ 1,039,538 

Imputed Financing 488 495 

Net Cost of Operations (109,689) 39,148 

Net Change in Cumulative Results of Operations 110,177 (26,983)

Cumulative Results of Operations: Ending Balance 1,111,062 1,000,885 

TOTAL NET POSITION $ 1,111,062 $ 1,000,885 

The accompanying notes are an integral part of these statements. 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 76

Defense Logistics Agency - Transaction Fund

STATEMENTS OF BUDGETARY RESOURCES

For the Years Ended September 30, 2021 and 2020 

(dollars in thousands)

Unaudited

FY 2021

Unaudited 

FY 2020

BUDGETARY RESOURCES

Unobligated Balance From Prior Year Budget Authority, Net $ 229,822 $ 214,702 

Spending Authority From Offsetting Collections 80,850 50,755 

TOTAL BUDGETARY RESOURCES $ 310,672 $ 265,457 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments $ 48,953 $ 50,248 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 44,743 56,934 

Unapportioned, Unexpired Accounts 216,976 158,275 

Unexpired Unobligated Balance, End of Year 261,719 215,209 

Total Unobligated Balance, End of Year 261,719 215,209 

TOTAL BUDGETARY RESOURCES $ 310,672 $ 265,457 

OUTLAYS, NET

Outlays, Net $ (32,903) $ 6,588 

AGENCY OUTLAYS, NET $ (32,903) $ 6,588 

The accompanying notes are an integral part of these statements. 
Section 2 | Financial Section (Unaudited)

77 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Notes to the Principal Financial Statements

(Unaudited)

Note 1: Summary of Significant Accounting Policies (Unaudited)

A. Reporting Entity

Created in 1961, DLA is a component of the U.S. DoD and 

reports to the OUSD for Acquisition and Sustainment through 

the Assistant Secretary of Defense for Sustainment. DLA 

provides material and services to components of DoD (including 

the U.S. Army, Navy, and Air Force), other Federal Agencies, 

and public entities. DLA accomplishes its mission and goals 

through the operations of the DLA WCF, DLA GF, and DLA TF. 

These financial statements and accompanying notes herein 

only refer to the activities of DLA TF.

The NDS (commonly known as DLA TF) is composed of S&C 

materials authorized for use during times of National Emergencies. Initially authorized by the Strategic and Critical Materials 

Stock Piling Act of 1946, the NDS is a physical reserve of definite quantities of S&C materials, owned by the U.S. government, authorized for use during times of National Emergencies. 

Executive Order 12626, issued February 25, 1988, designated 

the Secretary of Defense as the NDS Manager. The Secretary 

of Defense delegated the management responsibilities to the 

OUSD for Acquisition and Sustainment through the Assistant 

Secretary of Defense for Sustainment. The operational activities of the NDS are delegated to the Director of DLA.

The DLA SM program is a distinct revolving fund which operates 

under the authority of the Strategic and Critical Materials 

Stock Piling Act (50 U.S.C.) §98, et seq. Under the Act, critical 

materials are stockpiled in the interest of National defense to 

preclude a dangerous and/or costly dependence upon foreign 

or single source suppliers. The NDS Manager administers 

the acquisition, storage, management, and disposal of the 

stockpile. The NDAA authorized the NDS Manager to acquire 

materials determined to be strategic and critical to meet 

defense, industrial, and essential civilian needs of the U.S. 

The legislation further provided authority to dispose of certain 

materials, with proceeds deposited in the fund to finance future 

stockpile operating costs and procurement of replenishment 

materials.

B. Basis of Presentation and Accounting

Basis of Presentation and Accounting: The DLA 

TF fiscal year ends September 30. The accompanying financial 

statements account for all resources for which DLA TF is 

responsible. These financial statements present the financial 

position, results of operations, changes in net position, and 

budgetary resources of DLA TF, as required by the CFO Act 

of 1990, expanded by the GMRA of 1994, and other applicable 

legislation. The financial statements are prepared from the 

books and records of DLA TF in accordance with U.S. GAAP 

promulgated by the FASAB5 and presented in the format 

prescribed by the OMB Circular A-136, except as identified in 

Note 1.C., Departures from U.S. GAAP, and in the following 

paragraphs.

The DLA TF financial statements reflect both accrual and 

budgetary accounting transactions, except as identified in 

Note 1.C., Departures from U.S. GAAP. Under the accrual 

method of accounting, revenues are recognized when earned 

and expenses are recognized when incurred, without regard 

to the receipt or payment of cash. Budgetary accounting 

is based on concepts set forth by OMB Circular A-11, 

Preparation, Submission, and Execution of the Budget, as 

amended which provides instructions on budget execution. 

Budgetary accounting is designed to recognize the budgetary 

resources and the related status of those budgetary resources, 

including the obligation and outlay of funds according to 

legal requirements, which in many cases is made prior to 

the occurrence of an accrual-based transaction. Budgetary 

accounting is essential for compliance with legal constraints 

and controls over the use of Federal funds.

However, DLA TF is unable to fully prepare financial statements 

in conformity with and implement all elements of U.S. GAAP 

(refer to Note 1.C., Departures from U.S. GAAP ), the form and 

content requirements for Federal government entities specified 

by OMB Circular A-136, due to limitations of financial and 

 5 FASAB is the official body for setting accounting standards of the U.S. 

government.
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 78

nonfinancial management processes and systems that support 

the financial statements. In addition, the financial management 

systems used by DLA TF are unable to meet all full accrual and 

budgetary accounting requirements as many of the financial 

and nonfinancial feeder systems and processes were not 

designed to collect and record financial information on the full 

accrual accounting basis as required by U.S. GAAP. These 

systems were designed to support reporting requirements for 

maintaining accountability over assets, reporting the status 

of Federal appropriations, and recording information on a 

budgetary basis, rather than preparing financial statements in 

accordance with U.S. GAAP.

Therefore, DLA TF is continuing the necessary actions required 

to bring its financial and nonfinancial systems and processes 

to generate financial statements and the accompanying 

notes in accordance with U.S. GAAP and in compliance with 

the reporting requirements of OMB Circular A-136. DLA is 

assessing financial feeder systems and processes and their 

conformance to existence, completeness, and accuracy 

requirements as required by U.S. GAAP and OMB Circular 

A-136. As DLA TF identifies non-conforming data issues, the 

Agency will continue to implement interim mitigation processes 

to address these limitations. In addition, DLA TF is remediating 

material weaknesses found in all end-to-end business process 

cycles pertaining to reconciliations and adequacy of the 

supporting documentation identified through audits and other 

compliance reporting.

Statements of Budgetary Resources: The budgetary accounting concepts are recognized in the Statements 

of Budgetary Resources. The Statements of Budgetary Resources present; (1) budgetary resources for the fiscal year; 

(2) status of those budgetary resources (includes obligated6 

amounts and unobligated7 amounts for the fiscal year); and (3) 

Outlays8, Net for the fiscal year, which is comprised of Outlays 

less Offsetting Receipts (cash transactions). DLA TF’s budgetary resources9 include unobligated balances of resources 

from prior years and new resources, consisting of spending 

authority from offsetting collections. 

Intragovernmental and Other than 

Intragovernmental Transactions:

Statement of Federal Financial Accounting Standards 

(SFFAS) 1, Accounting for Selected Assets and Liabilities, 

distinguishes between Intragovernmental and Other than 

Intragovernmental assets and liabilities. Intragovernmental 

assets and liabilities arise from transactions among Federal 

entities. Intragovernmental assets are claims other Federal 

entities owe to DLA TF. Intragovernmental liabilities are claims 

DLA TF owes to other Federal entities, whereas Other than 

Intragovernmental assets and liabilities arise from transactions 

with public entities. The term public entities encompass 

domestic and foreign persons and organizations outside 

the U.S. Government. Other than Intragovernmental assets 

are claims of DLA TF against public entities. Other than 

Intragovernmental liabilities are amounts that DLA TF owes to 

public entities. 

The DLA TF engages in transactions with other DoD and 

Federal entities that generate inter-DoD and intragovernmental 

balances; however, DLA TF is unable to reconcile and resolve 

differences between balances and transactions with other DoD 

and Federal entities in accordance with OMB Circular A-136 

requirements and Treasury Financial Manual (TFM), Volume I, 

Part 2, Chapter 4700, Federal Entity Reporting Requirements 

for the Financial Report of the United States Government. 

The process is not fully implemented (refer to Note 1.C., 

Departures from U.S. GAAP, related to Intragovernmental/Intradepartmental and Other than Intragovernmental Transactions).

Intra-departmental Transactions: DoD reporting 

entities reconcile with their trading partners at the detail 

transaction level. Detail transactions provide support for 

reported balances requiring elimination with trading partners. 

DLA TF is ultimately responsible for the accuracy of its trading 

partner data and initiating actions to reconcile balances with 

its trading partners; however, DLA TF is unable to resolve 

the reconciling differences in amounts reported for the buyer/ 

seller transactions reciprocal category with Other Defense 

Organizations (ODOs), (refer to Note 1.C., Departures from 

U.S. GAAP, related to Intragovernmental/Intra-departmental 

and Other than Intragovernmental Transactions). A DoD 

reporting entity unable to provide detail transactions at the 

appropriate time of the financial statement reporting cycle must 

adjust its balance to match the seller’s or buyer’s supportable 

data.

6 Per OMB Circular A-11, Section 20, “Obligation means a legally binding 

agreement that will result in outlays, immediately or in the future.”

7 Per OMB Circular A-11, Section 20, “Unobligated amount means 

the cumulative amount of budget authority that remains available for 

obligation under law in unexpired accounts. The term "expired balances 

available for adjustment”only refers to unobligated amounts in expired 

accounts.” 

8 Per OMB Circular A-11, Section 20, “Outlay means a payment to 

liquidate an obligation (other than the repayment to the Treasury of debt 

principal)... Outlays are a measure of Government spending.”

9 Per OMB Circular A-11, Section 20, "Budgetary resources are amounts 

available to incur obligations in a given year. Budgetary resources consist 

of new budget authority and unobligated balances of budget authority 

provided in previous years."
Section 2 | Financial Section (Unaudited)

79 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Classified Activities: 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.

Use of Estimates: The DLA TF management has made 

certain estimates and assumptions when reporting assets, liabilities and expenses and disclosures in the notes. DLA TF’s 

estimates are based on historical experience, current events 

and other assumptions that are believed to be reasonable under the circumstances. However, uncertainties associated with 

these estimates exist and actual results may differ from these 

estimates; Significant estimates reported in the financial statements include: (1) environmental and disposal liabilities and 

(2) Federal Employees’ Compensation Act (FECA) actuarial 

liability as of the date of these financial statements.

C. Departures from U.S. GAAP

Financial management systems and operations continue to 

be evaluated and modified as DLA TF strives to remediate 

its material weaknesses and record and report its financial 

activity in accordance with U.S. GAAP. Therefore, DLA TF 

is determining the actions required to bring its financial and 

nonfinancial feeder systems and processes into compliance 

with U.S. GAAP. However, due to the financial management 

systems and operational limitations, the known departures 

from U.S. GAAP described below have been identified that 

impact DLA TF financial statements although other departures 

from U.S. GAAP may exist that have not been identified. 

Definition of Reporting Entity: The DLA TF 

has not completed analyzing material applicable business 

relationships with other organizations to identify consolidation 

entities, disclosure entities, or related parties in accordance 

with SFFAS 47, Reporting Entity (effective FY2018). As a 

result, DLA TF is unable to determine if there are consolidation 

entities that are required to be consolidated and disclosed in 

DLA TF financial statements or disclosure entities and related 

parties where the nature and magnitude of such relationships 

are required to be disclosed in a Disclosure Entities and 

Related Parties note to the financial statements.

Statements of Net Cost: The DLA TF does not 

have policies and compliant processes in place to present 

its major program costs aligned with DLA TF mission and 

goals by responsibility segments in accordance with SFFAS 

4, Managerial Cost Accounting Concepts and Standards, and 

OMB Circular A-136.

Intragovernmental/Intra-departmental and 

Other than Intragovernmental Transactions 

(Note 1.B.): The DLA TF does not have compliant 

processes in place to properly report and distinguish between 

intragovernmental, intra-departmental, and Other than 

Intragovernmental transactions in accordance with SFFAS 1, 

Accounting for Selected Assets and Liabilities.

Inter-Entity Cost (Note 1.S.): The DLA TF does not 

have compliant processes in place to recognize all significant 

inter-entity costs related to inputs of its goods or services 

provided to entities for a fee or user charge in accordance with 

SFFAS 55, Amending Inter-Entity Cost Provisions, (effective 

FY 2019). Generally, the fees and user charges should recover 

the full costs of those goods and services. Thus, the cost of 

inter-entity goods or services needs to be recognized by the 

receiving entity in order to determine fees or user charges for 

goods and services sold.

Fund Balance with Treasury (Note 1.F. and 

Note 2): The DLA TF is not able to account for Fund 

Balance with Treasury (FBwT) in accordance with SFFAS 

1, Accounting for Selected Assets and Liabilities, due to its 

inability to identify and reconcile beginning balances and 

unknown entity transactions in DoD Statement of Differences 

to determine if they impact TF FBwT balances.

Accounts Receivable, Revenue, and Gains 

(Notes 1.G, 1.H., and 1.S.): The DLA TF does not 

have policies and compliant processes in place to recognize 

gains in accordance with SFFAS 7, Accounting for Revenue 

and Other Financing Sources and Concepts for Reconciling 

Budgetary and Financial Accounting. DLA TF improperly 

recognized gains when: (1) acquiring purchased stockpile 

materials and receiving upgraded and/or reconditioned 

stockpile materials and (2) making adjustments in FY 2021 

to the value of its stockpile materials for which it did not have 

sufficient evidential matter to support the historical cost in 

accordance with SFFAS 3 (refer to Note 1.C., Departures from 

U.S. GAAP, related to Inventory and Related Property, Net.)

Inventory and Related Property, Net (Note 

1.H. and Note 3): The DLA TF does not have policies and 

compliant processes in place to account for stockpile materials 

in accordance with SFFAS 3, Accounting for Inventory and 

Related Property, and SFFAS 7, Accounting for Revenue 

and Other Financing Sources and Concepts for Reconciling 

Budgetary and Financial Accounting. Furthermore, DLA 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 80

TF has not completed establishing beginning balances for 

stockpile materials using deemed cost and has not made an 

unreserved assertion as permitted by SFFAS 48, Opening 

Balances for Inventory, Operating Materials and Supplies, and 

Stockpile Materials (effective FY 2017). More specifically:

Inventory Quantities: The DLA TF does not have proper 

policies and procedures to record inventory quantities in the 

proper period and to sufficiently support the existence and 

completeness of the inventory quantities recorded;

Stockpile Materials Acquisition: The DLA TF’s accounting 

system does not properly account for stockpile material 

acquisitions due to system limitations. For acquisitions of 

stockpile materials, DLA TF recognized a gain when purchased 

stockpile materials were received. DLA TF also recognized an 

expense when approving the invoice for purchased stockpile 

materials. The cost of purchased stockpile materials should not 

be reported as an expense at the point the stockpile material 

is purchased, but rather when stockpile material is issued for 

use or sale. The results are an overstatement to total gross 

cost and total earned revenue reported in the Statements of 

Net Cost, however the net impact of the overstatements offset 

each other in Total Net Cost of Operations;

Stockpile Materials Upgraded and/or Reconditioned: 

The DLA TF does not properly account for stockpile material 

upgraded and/or reconditioned transactions. The outbound and 

inbound movements of stockpile material during the stockpile 

material upgraded and/or reconditioned process does not 

meet the criteria for expense and revenue recognition. DLA TF 

recognized a loss when the stockpile materials were provided 

to a third-party entity for upgrade and/or reconditioning. When 

the stockpile materials were returned, DLA TF recognized a 

gain. The results are an overstatement to total gross cost and 

total earned revenue reported in the Statements of Net Cost; 

and

Stockpile Materials Valuation: The DLA TF does not 

have proper policies and procedures over the inventory 

valuation process. During FY 2021, DLA TF made adjustments 

to the value of its stockpile materials for which it did not have 

sufficient evidential matter to support the historical cost in 

accordance with SFFAS 3. Most adjustments were made 

utilizing fair market value prices as of September 30, 2020. 

The adjustments recognized a gain or a loss for each inventory 

item. These adjustments were not made in accordance with 

U.S. GAAP. The results are an overstatement to total gross 

cost and total earned revenue reported in the Statements 

of Net Cost and a misstatement to Inventory and Related 

Property, Net reported in the Balance Sheets. 

Inventory Restatement: DLA TF made adjustment to 

Stockpile Materials inventory related to weight reverification 

activity from FY 2020. However, these adjustments could not 

all be attributed to FY 2020 activity as some of the adjustments 

were related to weight reverification activity performed 

in fiscal years prior to FY 2020. In addition, DLA could not 

provide sufficient support for the adjustments recorded. The 

adjustments recognized a gain or a loss for each inventory 

item. The results are an overstatement to total gross cost and 

total earned revenue reported in the Statements of Net Cost 

for FY 2020.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Advances and Prepayments; Accounts Receivable, Revenue, 

and Gains; and Accounts Payable, Expenses, and Undelivered 

Orders; and Note 12, Restatements of the FY 2020 Balance 

Sheet, Statement of Net Cost, and Statement of Changes in 

Net Position.)

Leases (Note 1.J.): The DLA TF does not have polices 

and compliant processes in place to identify, evaluate, record, 

and report capital and operating leases in accordance with 

SFFAS 5, Accounting for Liabilities of the Federal Government, 

SFFAS 6, Accounting for Property, Plant, and Equipment, 

and SFFAS 10, Accounting for Internal Use Software (IUS). 

As such, DLA TF does not have any capital or operating 

leases reported or disclosed as of the date of these financial 

statements.

Advances and Prepayments (Note 1.K. and 

Note 1.M.): The DLA TF does not have compliant processes 

in place to properly report Advances and Prepayments in 

accordance with SFFAS 1, Accounting for Selected Assets 

and Liabilities (refer to Note 1.C., Departures from U.S. GAAP, 

related to Inventory and Related Property, Net; and Note 12, 

Restatements of the FY 2020 Balance Sheet, Statement of 

Net Cost, and Statement of Changes in Net Position.)

Accounts Payable, Expenses, and 

Undelivered Orders (Notes 1.M. and 1.T.; 

Note 3; Note 5; Note 6; and Note 10):

The DLA TF does not have policies and compliant processes in 

place to account for accounts payable, expense accruals, and 

the related UDO’s in accordance with SFFAS 1, Accounting for 

Selected Assets and Liabilities, and SFFAS 5, Accounting for 

Liabilities of the Federal Government. More specifically:
Section 2 | Financial Section (Unaudited)

81 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Negative Payable: The DLA TF processes allow for 

payment to be made prior to the goods receipts being posted 

in the accounting system. Given that DLA does not post goods 

receipts timely, and that the posting of goods receipts triggers 

the recognition of expense and accounts payable, these 

processes result in negative balances existing in accounts 

payable (refer to Note 1.C., Departures from U.S. GAAP, 

related to Inventory and Related Property, Net);

Expenses: The DLA TF improperly recognized expenses 

when: (1) acquiring stockpile materials; (2) receiving upgraded 

and/or reconditioned stockpile materials; and (3) improperly 

recognized loses when adjusting the value of its stockpile 

materials, resulting in an overstatement of expenses. In 

addition, DLA is unable to support historical costs; therefore, 

cost of goods sold is not properly recognized (refer to Note 

1.C., Departures from U.S. GAAP, related to Inventory and 

Related Property, Net); and

Undelivered Orders: The DLA TF does not have sufficient 

policies and procedures in place to record obligations at the 

time contracts are awarded. In addition, DLA TF is unable to 

support the UDO balance in the accounting system.

(Refer to Note 1.C., Departures from U.S. GAAP, related 

to Inventory and Related Property, Net; and Note 12, 

Restatements of the FY 2020 Balance Sheet, Statement of 

Net Cost, and Statement of Changes in Net Position).

Environmental and Disposal Liabilities 

(Notes 1.L. and 1.N.; Note 7; and Note 9): The 

DLA TF does not have policies and compliant processes in 

place to reconcile asset listings to the amounts recorded for 

EL related to cleanup, asset closure, and asbestos associated 

with general PP&E, in accordance with SFFAS 5, Accounting 

for Liabilities of the Federal Government; SFFAS 6, Accounting 

for Property, Plant, and Equipment, and Federal Financial 

Accounting and Auditing Technical Release 2, Determining 

Probable and Reasonably Estimable for Environmental 

Liabilities in the Federal Government (refer to Note 1.C., 

Departures from U.S. GAAP, related to Commitments and 

Contingencies).

Commitments and Contingencies (Notes 

1.L. and 1.N.; Note 7; and Note 9): The DLA 

TF did not complete its assessment of commitments and 

contingencies in accordance with SFFAS 5, Accounting 

for Liabilities of The Federal Government, and SFFAS 12, 

Recognition of Contingent Liabilities Arising from Litigation: 

An Amendment of SFFAS 5, Accounting for Liabilities of the 

Federal Government (refer to Note 1.C., Departures from U.S. 

GAAP, related to Environmental and Disposal Liabilities).

Reconciliation of Net Cost to Net Outlays 

(Note 11): The DLA TF does not have an established policy 

for the reconciliation of net cost to net outlays in accordance 

with SFFAS 53, Budget and Accrual Reconciliation. DLA TF 

is also unable to fully prepare reconciliation of net cost to 

net outlays in conformity with U.S. GAAP due to limitations 

of financial and nonfinancial management processes and 

systems that support the underlying financial information 

(refer to Note 1.B., Basis of Presentation and Accounting). 

Public-Private Partnerships: The DLA TF has not 

completed analyzing all applicable business relationships to 

determine if these arrangements or transactions indicate the 

existence of Public-Private Partnerships (P3) relationships, 

risk-sharing arrangements or transactions lasting more 

than five years between public and private sector entities, 

in accordance with SFFAS 49, Public-Private Partnerships: 

Disclosure Requirements, (effective FY 2019). As a result, 

DLA TF is unable to determine the nature of such partnerships 

and related Federal funding amounts required to be disclosed 

in a P3 note to the financial statements, if applicable.

D. Pronouncements Recently Issued but 

Not Yet Effective

FASAB has issued the following pronouncements that may 

affect future financial presentation, as well as financial 

management practices and operations of DLA TF upon 

implementation. DLA TF has not completed the process 

of evaluating the effects of these pronouncements and is 

unable to determine the materiality of changes that these 

pronouncements will have on its financial position, results of 

operations, changes in net position, and budgetary activity.

FASAB

Statement No SFFAS 54 SFFAS 57 (paragraphs 

3 – 8, 11, and 12)

FASAB 

Standard

Leases: An Amendment 

of SFFAS 5, Accounting 

for Liabilities of the 

Federal Government, 

and SFFAS 6, 

Accounting of Property,

Plant, and Equipment

Omnibus 

Amendments 

FY 2019

Adoption 

Required in 

FY

Deferred to FY 2024 Effective FY 2024
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 82

SFFAS 58, Deferral of the Effective Date of SFFAS 54, 

Leases, defers SFFAS 54, Leases: An Amendment of SFFAS 

5, Accounting for Liabilities of the Federal Government, and 

SFFAS 6, Accounting for Property, Plant, and Equipment until 

FY 2024; earlier implementation is not permitted. SFFAS 54, 

revises the current Federal financial reporting standards for 

lease accounting and requires that Federal lessees recognize 

a lease liability and a leased asset at the commencement of 

the lease term, unless it meets any of the scope exclusions 

or the definition/criteria of short-term leases, or contracts or 

agreements that transfer ownership, or intragovernmental 

leases. SFFAS 57, Omnibus Amendments 2019, amends 

certain references to leases affected by SFFAS 54, as well 

as other minor changes in order to improve clarity of existing 

statements.

E. Funding Sources

The DLA TF receives annual apportionments of spending 

authority from offsetting collections from OUSD based on 

expected sales of materials that have been deemed excess 

to the needs of the Stockpile. The proceeds from the sale 

of materials are DLA TF’s major source of authority used 

to fund operations. The funds in the revolving fund do not 

expire but remain available for the NDS subject to Congressional and OUSD approval as part of the annual apportionment process.

F. Fund Balance with Treasury

The DLA TF does not maintain cash in a commercial bank, 

but rather in the U.S. Treasury. DLA TF’s FBwT includes the 

amount available for DLA TF to pay current liabilities and 

finance authorized purchases, except as restricted by law. The 

disbursing offices of DFAS, the U.S. Army Corps of Engineers, 

GSA, and the Department of State’s financial service centers 

process DLA TF’s cash collections, disbursements, and 

adjustments.

The DLA TF is the only agency using Treasury Account Symbol 

(TAS) 97X4555, the National Defense Stockpile Transaction 

Fund, which allows DLA to identify the transactions belonging 

to this fund. On a monthly basis, DLA TF adjusts its FBwT 

account balance to bring its cash balance in agreement with 

the U.S. Treasury cash balance reported on the Central 

Accounting and Reporting System (CARS). The adjustments 

represent the undistributed disbursements and collections 

amounts that have been reported to Treasury, but have not 

yet been posted to DLA TF’s accounting system. Undistributed 

amounts can be a result of timing, invalid line of accounting, 

and invalid Treasury Account Symbol (TAS) information, and 

unsupported and unreconciled differences.

The DLA TF’s accounting service provider, DFAS, uses U.S. 

Treasury suspense accounts to hold transactions temporarily 

prior to identifying the correct appropriation. Suspense 

account items represent the amounts that are reported to 

U.S. Treasury at the Treasury Index (TI) Level (TI-17, TI-21, 

T-57, T-97), but have not yet been classified to a DLA TF TAS. 

The transactions in suspense accounts include unidentified 

collections, disbursements, and Intragovernmental Payment 

and Collection transactions at month end. DFAS researches 

suspense transactions in each TI to post them against the 

appropriate line of accounting. The current balances for 

DLA TF suspense transactions are derived from the DFAS 

suspense Account Universe of Transactions (UoT).

U.S. Treasury also compares DoD’s FBwT reported by DFAS 

with comparable data submitted by financial institutions and 

U.S. Treasury Regional Financial Centers and notifies DoD 

of differences in collection and disbursement data on the 

Statement of Differences (SOD) report. DFAS reviews the 

SOD report to research and resolve differences. The current 

balances for DLA TF SOD transactions are derived from DFAS 

management analysis and the SOD UoT.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Fund Balance with Treasury and Note 2, Fund Balance with 

Treasury.)

G. Accounts Receivable

Accounts receivable represents amounts due to DLA TF from 

public sources. DLA’s accounts receivable arises from sales 

of stockpile materials.

The DLA TF customers remit payments in advance before 

material is shipped. There are instances when, the material 

delivered to the customer is in excess of the amount paid 

for in advance by the customer. When this occurs, DLA TF 

establishes an accounts receivable for the amount of material 

delivered in excess of the advance payment received. These 

amounts are minimal and historically are collected within 30-60 

days. The risk of uncollected receivable is minimal; therefore, 

DLA TF does not establish an allowance for doubtful accounts.

(continued on next page)
Section 2 | Financial Section (Unaudited)

83 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Depreciation Method and Useful Life:

(Refer to Note 4, General Property, Plant and Equipment, Net.)

J. Leases

As of the date of these financial statements, DLA TF has not 

completed the process of developing policies and procedures 

to identify, evaluate, record, and report capital and operating 

leases in accordance with SFFAS 5, Accounting for Liabilities 

of the Federal Government, and SFFAS 6, Accounting for 

Property, Plant, and Equipment, (refer to Note 1.C., Departures 

from U.S. GAAP, related to Leases).

K. Advances and Prepayments

Advances represent cash outlays to cover a part or all of the 

recipients’ anticipated expenses or as advance payments for 

the cost of goods and services the entity acquires. Prepayments 

represent payments made by a federal entity to cover certain 

periodic expenses before those expenses are incurred.

When advances are permitted by law, legislative action, or 

presidential authorization, DLA’s policy is to record advances 

or prepayments. DLA recognizes advance payments made 

for stockpile materials before the goods are provided by the 

contractor.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Advances and Prepayments.)

L. Commitments and Contingencies

In accordance with SFFAS 5, Accounting for Liabilities of the 

Federal Government, as amended by SFFAS 12, Recognition 

of Contingent Liabilities Arising from Litigation, DLA TF 

recognizes contingent liabilities in DLA TF’s Balance Sheets 

and Statements of Net Cost when the loss is determined to be 

probable and reasonably estimable. In the event of an adverse 

judgment against the Government, some of the liabilities 

may be payable from the U.S. Treasury. DLA TF evaluates 

all contingent liabilities based on three criteria: probable, 

reasonably possible, and remote.

H. Inventory and Related Property, Net

The DLA TF's Inventory and Related Property, Net includes 

stockpile materials, which are categorized as; 

Stockpile Materials Held for Sale: Stockpile 

materials held for sale is comprised of materials deemed to 

be excess and have been identified for disposal based on the 

ASP;

Stockpile Materials Held in Reserve for 

Future Use: Stockpile materials held in reserve for future 

use is comprised of S&C materials held due to statutory 

requirements for use in National defense, conservation, or 

National Emergencies. The S&C materials are not held with 

the intent of selling in the ordinary course of business; and

Stockpile Materials Valuation: Both stockpile 

materials classifications are valued at historical cost. They are 

recorded as assets when acquired and recorded as expenses 

when sold.

(Refer to Note 1.C., Departures from U.S. GAAP, related 

to Accounts Receivable, Revenue, and Gains, Accounts 

Payable, Expenses, and Undelivered Orders, and Inventory 

and Related Property, Net, and Note 3, Inventory and Related 

Property, Net.)

I. General Property, Plant and Equipment, 

Net

The DLA TF’s General Property, Plant and Equipment (PP&E) 

consists of general equipment used to facilitate the Agency’s 

mission. DLA TF uses the Straight-Line (S/L) method to calculate and record depreciation expense. The S/L method is 

based on the acquisition cost and expensed over the asset’s 

useful life in accordance with SFFAS 6, Accounting for Property, Plant, and Equipment.

Capitalization Threshold: The DLA TF’s General 

PP&E assets are recorded at the historical acquisition cost 

when an asset has a useful life of two or more years and 

when the acquisition cost equals or exceeds the $250,000 

capitalization threshold.

The DLA TF also capitalizes improvements added to existing 

General PP&E assets if the improvements equal or exceed the 

capitalization threshold, extend the useful life, or increase the 

size, efficiency, or capacity of the asset.

Asset Classes Depreciation 

Method Useful Life (Years)

General

 Equipment S/L 5 or 10
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 84

The DLA TF recognizes that the estimated liability may be a 

specific amount or a range of amounts. If some amount within 

the range is a better estimate than any other amount within the 

range, that amount is recorded. If no amount within the range is 

a better estimate than any other amount, the minimum amount 

of the range is recorded and the range and a description of the 

nature of the contingency are disclosed.

The DLA TF records an accrual for contingent liabilities 

if it is probable and reasonably estimable and discloses 

those contingencies that are reasonably possible in Note 9, 

Commitments and Contingencies, of the financial statements. 

DLA TF does not disclose or record contingent liabilities when 

the loss is considered remote. 

For matters where DLA Counsel is unable to express an opinion 

regarding the likely outcome of the case and an estimate of

the potential liability cannot be made, the total amount claimed 

against the government is classified as “Reasonably Possible” 

and disclosed if available.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Environmental and Disposal Liabilities and Commitments and 

Contingencies; Note 7, Environmental and Disposal Liabilities; 

and Note 9, Commitments and Contingencies.)

M. Liabilities

Liabilities represent probable and measurable future outflows 

of resources as a result of past transactions or events and are 

recognized when incurred, regardless of whether there are 

budgetary resources available to pay the liabilities. However, 

liabilities cannot be liquidated without legislation providing 

resources and legal authority (refer to Note 1.C., Departures 

from U.S. GAAP, related to Accounts Payable, Expenses, and 

Undelivered Orders and Advances and Prepayments, Note 5, 

Liabilities Not Covered by Budgetary Resources, and Note 6, 

Other Liabilities.)

Liabilities Covered and Not Covered by 

Budgetary Resources: Liabilities covered by 

budgetary resources include those liabilities for which 

Congress appropriated funds and are otherwise available to 

pay amounts due as of the Balance Sheet dates. Liabilities not 

covered by budgetary resources are amounts owed in excess 

of available, congressionally appropriated funds and, therefore, 

no budgetary resources are available to pay amounts due as 

of the Balance Sheet dates (refer to Note 5, Liabilities Not 

Covered by Budgetary Resources).

Current and Noncurrent Liabilities: The DLA TF 

discloses its other liabilities between current and noncurrent 

liabilities in accordance with SFFAS 1, Accounting for Selected 

Assets and Liabilities. The current liabilities represent liabilities 

that DLA TF expects to settle within 12 months of the Balance 

Sheet dates. Noncurrent liabilities represent liabilities that 

DLA TF does not expect to be settled within 12 months of the 

Balance Sheet dates (refer to Note 8, Other Liabilities).

Accounts Payable: Accounts Payable includes 

amounts owed but not yet paid to Intragovernmental and 

Other than Intragovernmental entities for goods and services 

received by DLA TF. DLA TF estimates and records accruals 

when services are performed or goods are received. DLA 

TF also accrues liabilities incurred at month-end but not yet 

recorded using data from Third Party Payment Systems, and 

estimates of costs incurred when goods or services received 

but not invoiced.

Advances from Others and Deferred 

Revenue: Advances from Others and Deferred Revenue 

are cash received in advance of goods or services that have 

not been fully rendered. 

N. Environmental and Disposal Liabilities

EL are a probable and reasonably estimable future outflow 

or expenditure of resources that exists as of the financial 

reporting date for environmental cleanup costs resulting from 

past transactions or events.

The DLA TF is responsible for accurate reporting of EL 

and expenses for the real property and/or equipment that it 

records and reports in its financial statements as assets, 

regardless of ownership by any Federal Agency. DLA TF 

identifies and estimates accrued EL through its annual costto-complete (CTC) process. DLA TF’s accrued EL comprises 

of environmental cleanup costs associated with restoration 

of environmental sites on real property that it does not own, 

but has received budget authority to execute and manage. 

These environmental sites may include, but are not limited 

to, decontamination, decommissioning, site restoration, site 

monitoring, clean closure of assets, and post- closure costs 

related to the Agency’s operations that result in hazardous 

waste.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Environmental and Disposal Liabilities and Commitments and 

Contingencies; Note 7, Environmental and Disposal Liabilities; 
Section 2 | Financial Section (Unaudited)

85 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

and Note 9, Commitments and Contingencies.)

O. Payroll and Annual Leave Accruals

Accrued payroll consists of salaries, wages, and other 

compensation earned by employees, but not yet disbursed 

as of the Balance Sheet dates. DLA TF accrues the cost of 

unused annual leave, including restored leave, compensatory 

time, and credit hours as earned and reduces the accrual when 

leave is taken. The payroll and annual leave accrual liability 

is accrued based on the latest pay period data for reporting 

purposes (refer to Note 8, Other Liabilities).

P. Federal Employee Benefits Payable

The FECA (Public Law 103-3) provides income and medical 

cost protection to covered Federal civilian employees injured 

on the job, to employees who have incurred work-related 

occupational diseases, and to beneficiaries of employees 

whose deaths are attributable to job-related injuries or 

occupational diseases. The FECA program is administered by 

the Department of Labor (DOL), which pays valid claims and 

subsequently seeks reimbursement from DLA TF for these paid 

claims. The FECA liability consists of two elements.

The first element, accrued FECA liability, is based on actual 

future payments for claims paid by DOL but not yet reimbursed 

by DLA TF. DLA TF reimburses DOL for claims as funds are 

appropriated for this purpose. In general, there is a one to 

two- year period between payment by DOL and reimbursement 

to DOL by DLA TF. As a result, DLA TF recognizes an 

intragovernmental liability, not covered by budgetary resources, 

for the claims paid by DOL that will be reimbursed by DLA TF.

(refer to Note 5, Liabilities Not Covered by Budgetary 

Resources, and Note 6, Federal Employee Benefits Payable 

and Related Other Liabilities.)

The second element, actuarial FECA liability, is the estimated 

liability for future payments and is recorded as an other 

than Intragovernmental liability, not covered by budgetary 

resources. The actuarial FECA liability includes the expected 

liability for death, disability, medical, and miscellaneous 

costs for approved compensation cases. DOL determines the 

actuarial FECA liability annually, as of September 30, using 

an actuarial method that considers historical benefit payment 

patterns, wage inflation factors, medical inflation factors, and 

other variables. The projected annual benefit payments are 

discounted to present value.

The methodology for billable projected liabilities includes, 

among other things: (1) an algorithmic model that relies on 

individual case characteristics and benefit payments (the FECA 

Case Reserve Model) and (2) incurred but not reported claims 

were estimated using historical incurred benefit liabilities 

and payments. (refer to Note 5, Liabilities Not Covered by 

Budgetary Resources and Note 6, Federal Employee Benefits 

Payable and Related Other Liabilities.)

Q. Pension Benefits

Based on the effective Federal government start date, DLA 

TF’s civilian employees participate in either the Civil Service 

Retirement System (CSRS), a defined benefit plan, or the 

Federal Employees Retirement System (FERS), a defined 

benefit plan and contribution plan. The employee pension 

benefit is managed at the OUSD level. The measurement of 

the service cost requires the use of an actuarial cost method 

and assumptions. The Office of Personnel Management (OPM) 

administers these benefits and provides the factors that DLA TF 

applies to calculate and recognize imputed costs, as reported 

in its Statements of Net Cost, and a corresponding imputed 

revenue in the Statements of Changes in Net Position. DLA 

TF is not responsible for and does not report CSRS or FERS 

assets, accumulated plan benefits, or liabilities applicable to its 

employees. OPM is responsible for and reports these amounts.

R. Net Position

Net position is the residual difference between assets and 

liabilities and consists of cumulative results of operations. 

Cumulative results of operations consist of the net difference 

since inception between: (1) expenses and losses; (2) revenue 

and gains; and (3) other financing sources (refer to Note 1.C., 

Departures from U.S. GAAP, related to Accounts Receivable, 

Revenue, and Gains, Inventory and Related Property, Net, and 

Accounts Payable, Expenses, and Undelivered Orders)

S. Revenue and Other Financing Sources

Exchange and Non-exchange Revenue: The 

DLA TF classifies revenue as either exchange revenue or 

non- exchange revenue. Exchange revenue arises when DLA 

TF sells the materials that have been deemed excess to the 

needs of the Stockpile. The proceeds from the sale of materials 

are DLA TF’s major financing source and are used to fund the 

operation. In addition, materials are offered for sale on the 

open market and are awarded through competitive bidding. 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 86

Non-exchange revenue is derived from the government’s 

sovereign right to demand payment, such as specifically 

identifiable, legally enforceable claims. Non-exchange revenue 

is considered to impact the cost of operations and is reported 

in the Statements of Changes in Net Position as a financing 

source. For the years ended September 30, 2021 and 2020, 

respectively, DLA TF does not have activity related to nonexchange revenue.

Other Financing Sources: Other financing sources, 

other than exchange and non-exchange revenue, include 

additional inflows of resources that increase results of 

operations during the reporting period.

Imputed Financing and Imputed Cost: In certain 

cases, DLA TF receives goods and services from other Federal 

entities at no cost or at a cost less than the full cost to the 

providing entity. Consistent with accounting standards, certain 

costs of the providing entity that are not fully reimbursed by 

DLA TF are recognized as imputed cost in the Statements of 

Net Cost and are offset by imputed financing in the Statements 

of Changes in Net Position. DLA TF recognizes the following 

imputed cost and related imputed financing: (1) employee 

benefits administered by the OPM (i.e., retirement, health, 

life insurance benefits); and (2) claims settled by the Treasury 

Judgment Fund in accordance with SFFAS 55, Amending InterEntity Costs Provisions.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Inter-Entity Cost, Accounts Receivable, Revenue, and Gains 

and Inventory and Related Property, Net.)

T. Expenses

Expenses are recognized when there are outflows, usage 

of assets, or incurrences of liabilities (or a combination) 

from carrying out activities related to DLA TF’s program and 

missions, for which benefits do not extend beyond the present 

operating period. For financial reporting purposes, operating 

expenses are recognized in the period incurred (refer to Note 

1.C., Departures from U.S. GAAP, related to Accounts Payable, 

Expenses, and Undelivered Orders).

U. Reclassifications

The FY 2020 Balance Sheet was reclassified to conform to 

the FY 2021 financial statement presentation requirements 

in accordance with OMB Circular A-136, as amended, and 

included changes in the presentation to: Note 5, Liabilities Not 

Covered by Budgetary Resources; Note 6, Federal Employee 

Benefits Payable and Related Other Liabilities; Note 8, Other 

Liabilities; and Note 11, Reconciliation of Net Cost to Net 

Outlays. The reclassifications had no effect on total assets, 

liabilities, or net position.

DLA Distribution 

Delivers Johnson & 

Johnson Vaccines to 

Overseas Troops

Johnson & Johnson vaccines 

are packaged for shipping 

to overseas troops from 

Defense Logistics Agency 

Distribution Susquehanna, 

Pennsylvania, March 12, 

2021, as part of the federal 

response to COVID-19. Photo 

Credit: Matthew Mahoney, 

DLA Distribution Public 

Affairs
Section 2 | Financial Section (Unaudited)

87 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Note 2: Fund Balance with Treasury (Unaudited)

Fund Balance with Treasury as of September 30, 2021 and 2020, respectively, consist of the following (dollars in thousands):

FY 2021 FY 2020

Status of Fund Balance with Treasury

Unobligated Balance:

Available $ 44,743 $ 56,934 

Unavailable 238,999 182,133 

Obligated Balances Not Yet Disbursed 29,891 41,663 

Total Fund Balance with Treasury $ 313,633 $ 280,730 

Status of Fund Balance with Treasury

presents the budgetary and proprietary resources that 

constitute DLA TF FBwT. It primarily consists of unobligated 

and obligated balances. The balances reflect the budgetary 

authority remaining for disbursement against current or future 

obligations. Unobligated and obligated balances differ from 

the related amounts reported in the Statements of Budgetary 

Resources because budgetary balances are supported by 

amounts other than FBwT.

Unobligated Balance - Available includes the 

cumulative amount of budgetary authority that has not been 

set aside to cover outstanding obligations and can be used for 

future obligations.

Unobligated Balance - Unavailable includes 

the cumulative amount of unapportionment and sequestrated 

funds not available for obligation from offsetting collections.

Obligated Balances not yet Disbursed includes 

funds that have been obligated for goods and services not 

received and those received but not paid.

Non-budgetary FBwT consists of FBwT in unavailable 

receipt accounts and clearing accounts that do not have 

budgetary authority and non-budgetary FBwT such as nonfiduciary deposit funds. As of September 30, 2021 and 2020, 

DLA TF does not have a balance for non-budgetary FBwT.

Other Information includes the following tables 

summarizing the undistributed collections and disbursements 

between U.S. Treasury and DLA TF as of September 30, 2021 

and 2020, respectively:

All Aboard

Marines board the USS 

Lewis B. Puller from an 

inflatable boat during 

visit, board, search and 

seizure training in the 

Persian Gulf, March 19, 

2021. Photo By: Marine 

Corps Sgt. Sarah Stegall
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 88

(Refer to Note 1.C., Departures from U.S. GAAP, related to Advances and Prepayments)

FY 2020 Adjustments of Undistributed Collections and Disbursements (dollars in thousands)

Transaction Type

Treasury 

Balance based on CARS DLA TF Trial Balance

Balances Not Yet Recorded in DLA 

Accounting System - 

Undistributed 

Collections $ 45,467 $ 49,502 $ (4,035)10

Disbursements $ 56,092 $ 56,221 $ (129)

FY 2021 Adjustments of Undistributed Collections and Disbursements (dollars in thousands)

Transaction Type

Treasury 

Balance based on CARS DLA TF Trial Balance

Balances Not Yet Recorded in DLA 

Accounting System - 

Undistributed 

Collections $ 83,052 $ 83,052 $ 0

Disbursements $ 46,111 $ 46,203 $ (92)

Note 3: Inventory and Related Property, Net (Unaudited)

Inventory and Related Property, Net as of September 30, 2021 and 2020, respectively, include stockpile materials and consist of 

the following (dollars in thousands):

Valuation Method FY 2021 FY 2020 

As Restated

Inventory and Related Property, Net

Stockpile Materials Held for Sale HC $ 10,143 $ 17,391 

Stockpile Materials Held in Reserve for Future Use HC 799,169 723,036 

Total Inventory and Related Property, Net $ 809,312 $ 740,427 

Stockpile Materials Held for Sale is comprised 

of materials deemed to be excess and have been identified 

for disposal based on the annual sales plan. The Stockpile 

Materials Held for Sale in FY 2021 includes Ores, Metals, 

Minerals, and Alloys. As of September 30, 2021 and 2020, 

Stockpile Materials Held for Sale estimated selling price is 

$16.5 million and $18.9 million, respectively.

Stockpile Materials Held in Reserve for 

future use consist of a variety of industrial commodities 

including base and minor metals, ferrous and non-ferrous ores, 

metal powders and mercury.

Based on the Mercury Export Ban Act that was signed into 

law on October 14, 2008, Federal Agencies are prohibited 

from conveying, selling or distributing metallic mercury that is 

under their control or jurisdiction. This includes stockpiles held 

by DoD. Beginning January 1, 2013, United States Federal 

Agencies are prohibited from the export of metallic mercury.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Accounts Receivable, Revenue; Accounts Payable, Expenses, 

and Undelivered Orders; and Gains, and Inventory and Related 

Property, Net.)

11The DoD cost flow assumption policy for Inventory and Related Property is 

Moving Average Cost (MAC); DLA SM, due to the nature of its operations, 

does not rely upon its cost flow assumption to determine Historical Cost as 

all inventory is specifically identifiable.

HC = Historical Cost11

10As of September 30, 2021 and 2020, respectively, DLA TF recorded $0.0 million and $4.0 million, respectively as a Statement of Difference. The Statement 

of Difference adjustment represents a DLA Fund Balance with Treasury balance at Treasury but not reflected on DLA's Line of Accounting, and also not 

reflected in DLA's trial balance. 
Section 2 | Financial Section (Unaudited)

89 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

FY 2020

Acquisition Value Accumulated 

Depreciation Net Book Value

Major Asset Class:

General Equipment $ 2,337 $ (1,318) $ 1,019

Total General Property, Plant and Equipment, Net $ 2,337 $ (1,318) $ 1,019

The table below discloses activity for General Property, Plant and Equipment, Net as of September 30, 2021 and 2020 (dollars in 

thousands):

Note 4: General Property, Plant and Equipment, Net (Unaudited)

General Property, Plant and Equipment, Net as of September 30, 2021 and 2020, respectively, consist of the following (dollars in 

thousands):

FY 2021

Acquisition Value Accumulated 

Depreciation Net Book Value

Major Asset Class:

General Equipment $ 2,337 $ (1,540) $ 797 

Total General Property, Plant and Equipment, Net $ 2,337 $ (1,540) $ 797 

FY 2021 FY 2020

General Property, Plant and Equipment, Net - Beginning Balances $ 1,019 $ 1,242

Depreciation Expense (222) (223)

General Property, Plant and Equipment, Net - Ending Balances $ 797 $ 1,019

Preparing the Workspace

Air Force Staff Sgt. Vittoria Gonzalez 

and Air Force Staff Sgt. Ayanna Blanco, 

aerospace medical technicians 

assigned to the 161st Medical Squadron, 

prepare a workspace to be used for the 

administration of the COVID-19 vaccine at 

Cesar Chavez Cultural Center in San Luis, 

Arizona, March 30, 2021. Photo By: Army 

Sgt. Laura Bauer
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 90

Note 5: Liabilities not Covered by Budgetary Resources (Unaudited)

FY 2021 FY 2020 

As Restated

Intragovernmental Liabilities

Other Liabilities $ 180 $ 271 

Total Intragovernmental Liabilities 180 271 

Other than Intragovernmental Liabilities

Environmental and Disposal Liabilities 6,658 6,662 

Federal Employee Benefits Payable 2,172 2,790 

Total Other than Intragovernmental Liabilities 8,830 9,452 

Total Liabilities not Covered by Budgetary Resources 9,010 9,723 

Total Liabilities Covered by Budgetary Resources 4,589 12,761 

Total Liabilities $ 13,599 $ 22,484 

Other Liabilities (Intragovernmental) include 

the accrued FECA liability paid by DOL but not yet reimbursed 

by DLA TF.

Environmental and Disposal Liabilities 

(Other than Intragovernmental) consist of probable 

and reasonably estimable future outflow or expenditure 

of resources that exist as of the financial reporting date for 

environmental cleanup costs resulting from past transactions 

or events. As of September 30, 2021 and 2020, the total 

liabilities covered by budgetary resources for environmental 

and disposal liabilities consist of $3.1 million and $4.5 million, 

respectively.

Liabilities not Covered by Budgetary Resources as of September 30, 2021 and 2020, respectively, consist of the following 

(dollars in thousands):

Federal Employee Benefits Payable (Other 

than Intragovernmental) are comprised of the current 

year FECA actuarial liability based on DOL records, and current 

year unfunded annual leave earned by civilian employees but 

not yet paid. Unfunded annual leave includes restored leave, 

compensatory time, and credit hours as earned.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Accounts Payables, Expenses, and Undelivered Orders and 

Accounts Receivable, Revenue, and Gains; Note 6, Federal 

Employee Benefits Payable and Related Other Liabilities; 

Note 7, Environmental and Disposal Liabilities; and Note 9, 

Commitments and Contingencies.)

Field Figures

Marines participate in a patrolling session during the Infantry Marine Course at Marine Corps Base Camp 

Pendleton, California, March 31, 2021. The 14-week pilot course was designed to create better trained and more 

lethal entry level infantry Marines prepared for near-peer conflicts. Photo By: Marine Corps Sgt. Jeremy Laboy
Section 2 | Financial Section (Unaudited)

91 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Note 6: Federal Employee Benefits Payable and Related Other Liabilities 

(Unaudited)

Federal Employee Benefits Payable and Related Other Liabilities as of September 30, 2021 and 2020, respectively, consist of 

the following (dollars in thousands):

Employer Contributions and Payroll Taxes 

Payable (Intragovernmental) are the employer 

portion of payroll taxes and benefit contributions for health 

benefits, retirement, life insurance and voluntary separation 

incentive payments.

Unfunded FECA Liability 

(Intragovernmental) include the accrued FECA liability 

paid by DOL but not yet reimbursed by DLA TF.

Actuarial FECA Liability (Other than 

Intragovernmental) are workers’ compensation benefits developed by the DOL’s Office of Worker’s Compensation 

Programs (OWCP) and provided to DLA TF at the end of each 

FY. The liability includes the expected liability for death, disability, medical and miscellaneous costs for approved compensation cases. The liability is determined using a method that utilizes historical benefit payment patterns to predict the ultimate 

payments. The projected annual benefit payments are then 

discounted to the present value using the OMB’s economic assumptions for 10-year U.S. Treasury notes and bonds. Cost of 

Living Adjustments (COLAs) and medical inflation factors are 

also applied to the calculation of projected future benefits.

Accrued Unfunded Annual Leave (Other 

than Intragovernmental) includes restored leave, 

compensatory time, and credit hours as earned.

(Refer to Note 5, Liabilities Not Covered by Budgetary 

Resources.)

FY 2021

Liabilities

(Less: Assets 

Available to 

Pay Benefits)

Unfunded 

Liabilities

Intragovernmental Other Liabilities

Employer Contribution and Payroll Taxes Payable $ 102 $ (102) $ 0 

Unfunded FECA Liability 180 - 180 

Total Intragovernmental Other Liabilities $ 282 $ (102) $ 180 

Other than Intragovernmental Federal Employee Benefits Payable

Actuarial FECA Liability $ 1,459 $ - $ 1,459 

Accrued Unfunded Annual Leave 713 - 713 

Total Other than Intragovernmental Federal Employee Benefits Payable $ 2,172 $ - $ 2,172 

FY 2020

Liabilities

(Less: Assets 

Available to 

Pay Benefits)

Unfunded 

Liabilities

Intragovernmental Other Liabilities

Employer Contribution and Payroll Taxes Payable $ 100 $ (100) $ 0 

Unfunded FECA Liability 271 - 271 

Total Intragovernmental Other Liabilities $ 371 $ (100) $ 271 

Other than Intragovernmental Federal Employee Benefits Payable

Actuarial FECA Liability $ 2,010 $ - $ 2,010 

Accrued Unfunded Annual Leave 780 - 780 

Total Other than Intragovernmental Federal Employee Benefits Payable $ 2,790 $ - $ 2,790 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 92

Note 7: Environmental and Disposal Liabilities (Unaudited)

FY 2021 FY 2020

Environmental and Disposal Liabilities

Environmental Corrective Action $ 9,717 $ 11,037 

Environmental Closure Requirements 83 78 

Total Environmental and Disposal Liabilities $ 9,800 $ 11,115 

The DLA TF EL are comprised of two primary elements: 

(1) existing obligations supporting DLA SM environmental 

restoration programs, and (2) the CTC which includes 

anticipated future costs necessary to complete environmental 

restoration requirements at DLA SM environmental restoration 

sites.

In FY 2021 and FY 2020, DLA TF utilized the Remedial Action 

Cost Engineering and Requirements (RACER) software to 

generate the CTC estimates of anticipated future costs. CTC 

cost estimates were generated for 14 sites: seven sites with 

environmental corrective action costs and seven sites with 

environmental closure requirements costs. In FY 2021 and 

FY 2020, there were no PP&E transfers impacting the E&DL 

balance for TF.

Types of Environmental and Disposal 

Liabilities: The DLA TF is responsible for the recognition, 

measurement, reporting, and disclosure of EL not eligible for 

funding under the Defense Environmental Restoration Program 

(DERP), also known as Non-BRAC EL, and Environmental Disposal for General Equipment. Non-BRAC EL are specifically 

related to past and current installation restoration activities and 

operations, and closure and disposal of Property, Plant and 

Equipment. All cleanup and disposal actions are done in coordination with regulatory Agencies, other responsible parties, 

and current property owners.

The DLA TF reportable EL is under Other Accrued EL – NonBRAC and includes the following line items:

Environmental Corrective Action includes EL associated 

with the cleanup sites not eligible for DERP funding, typically 

conducted under the Resource Conservation and Recovery Act 

(RCRA) or other Federal or state statutes and regulations; and

Environmental Closure Requirements includes EL associated with the future closure/decommissioning of facilities on 

an installation that have environmental closure requirements.

The DLA assessed its PP&E inventory and does not currently 

have reportable TF EL for Asbestos. DLA TF assessed its 

general equipment inventory and does not currently have 

reportable TF EL for these or any other EL categories as listed 

on the DoD Financial Management Regulations (FMR) Volume 

6B, Chapter 10 – Note to the Financial Statements, Paragraph 

1017, Figure 10-31. Environmental and Disposal Liabilities 

(March 2020).

Applicable Laws and Regulations for 

Cleanup Requirements: The DLA SM is required 

to clean up contamination resulting from past waste disposal practices, leaks, spills and other prior activities, which may 

have created a public health or environmental risk. DLA SM 

is required to comply with the following laws and regulations 

for corrective action where applicable: The Comprehensive 

Environmental Response, Compensation, and Liability Act; the 

Superfund Amendments and Reauthorization Act; RCRA; and 

other applicable Federal, State, and local laws and regulations. 

Required cleanup may at times extend beyond DLA SM operational site boundaries onto adjacent property or onto other sites 

where DLA SM is named as a potentially responsible party by a 

regulatory Agency. DLA TF reports corrective action-related EL 

in accordance with SFFAS 5, Accounting for Liabilities of the 

Federal Government, and Federal Financial Accounting Technical Release 2, Determining Probable and Reasonably Estimable for Environmental Liabilities in the Federal Government.

The DLA SM is also required to ensure all hazardous substances 

are removed prior to closing or disposing of Property Plant, 

and Equipment assets such as Petroleum, Oil, and Lubricant 

(POL) storage tanks and General Equipment in accordance 

with applicable Federal, State, and local laws and regulations. 

DLA TF reports EL associated with closures of Property Plant, 

and Equipment in accordance with SFFAS 5, Accounting for 

Environmental and Disposal Liabilities as of September 30, 2021 and 2020, respectively, consist of the following (dollars in 

thousands):
Section 2 | Financial Section (Unaudited)

93 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Liabilities of the Federal Government, SFFAS 6, Accounting for 

Property, Plant, and Equipment, Federal Financial Accounting 

and Auditing Technical Release 11, Implementation Guidance 

on Cleanup Costs Associated with Equipment, and Federal 

Financial Accounting and Auditing Technical Release 14, 

Implementation Guidance on the Accounting for the Disposal 

of General Property, Plant, and Equipment.

Methods for Assigning Estimated Total 

Cleanup Cost to Current Operating Periods:

To estimate future environmental costs, DLA TF utilizes a 

combination of historical or pre-negotiated contract costs, 

proposal costs, engineering estimates, and in the absence 

of other detailed information, parametric estimates created 

using the RACER software. Any historical costs used in the 

creation of the estimates for DLA TF EL are adjusted for 

inflation and reported in current year dollars. The RACER 

Steering Committee ensures that the RACER software is 

Validated, Verified, and Accredited (VV&A) in accordance with 

DoD Instruction 5000.61. The DoD is working with the RACER 

Steering Committee and stakeholders to identify improvements 

to RACER functionality, auditability, and documentation. 

Detailed information on the estimating methodologies are 

provided in the DLA Environmental Liabilities Management 

(ELM) SOPs. 

Nature of Estimates and the Disclosure of 

Information Regarding Possible Changes 

Due to Inflation, Deflation, Technology, or 

Applicable Laws and Regulations: The DLA 

TF EL Site Identification (ID) process tracks environmental 

events such as spills and releases in an Environmental 

Event Repository and evaluates each event annually for EL 

potentiality to determine the annual CTC inventory. DLA TF EL 

estimates are created annually for all projected requirements 

to achieve site closure and are finalized and approved by July. 

The estimates are then reevaluated through a roll forward 

review to identify any material changes to previously approved 

estimates as of September 30. The Site ID, CTC, and roll 

forward processes are conducted in accordance with DLA 

policies and procedures, the DoD 7000.14-R FMR Volume 

4, Chapter 13 – Environmental and Disposal Liabilities (April 

2018) and OUSD memorandum for Strategy for Environmental 

& Disposal Liabilities Audit Readiness (September 30, 2015).

Revised CTC estimates and prior year obligations are reported 

in the balances as of September 30. As of the reporting date, 

no material changes in total estimated cleanup costs were 

identified through the roll forward review due to changes in 

laws, technology, or plans. In addition, DLA SM is not aware 

of any changes to estimates that would result from inflation, 

deflation, technology, plans, and/or pending changes to 

applicable laws and regulations. The cost estimate changes 

from prior periods are primarily driven by remediation activities 

and operations, as evidenced by UDOs; there are minor 

adjustments for inflation or other similar administrative costs 

throughout the fiscal year. EL estimates will be reevaluated 

each year and may change in the future due to changes in 

laws and regulations, changes in agreements with regulatory 

Agencies, and advances in technology.

Uncertainty Regarding the Accounting 

Estimates Used to Calculate the Reported 

Environmental and Disposal Liabilities: The 

stated total TF EL includes prior year obligations and the 

estimates of future costs necessary to complete requirements. 

DLA SM has instituted extensive controls to ensure that these 

estimates are accurate and reproducible. The cost estimates 

produced through the EL process are considered accounting 

estimates, which require certain judgments and assumptions 

that are reasonable based upon information available at the 

time the estimates are calculated. Actual results may materially 

vary from the accounting estimates if agreements with 

regulatory Agencies require remediation or closure activities 

to a different degree than anticipated when calculating the 

estimates. DLA TF EL can be further affected if investigation of 

the environmental sites reveals contamination levels that differ 

from the estimate parameters.

The calculation of DLA TF EL relies on site/asset inventories. 

An asset inventory obtained from DLA Strategic Materials 

provides the basis for asset-related EL estimates. The EL for 

these line items are estimated annually to account for changes 

to inventories. 

The DLA TF utilizes a formalized Site ID process to identify, 

track, and evaluate environmental events where the potential 

for an out-year EL exists but the EL is not probable and 

measurable. These environmental events will be re-evaluated 

in the following fiscal year to determine if any changes have 

taken place and sufficient information/data is available to 

create an estimate of future costs that would be included in the 

DLA TF EL balance.

Unrecognized Costs: The DLA TF systematically 

recognizes asset-related EL over the useful life of PP&E 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 94

assets in accordance with DoD FMR Volume 4, Chapter 13 - 

Environmental and Disposal Liabilities, Paragraph 130203 

(April 2018). The total recognized Environmental Closure 

Requirements liability EL is stated above in the footnote and 

the associated unrecognized Closure EL is $36 thousand. DLA 

TF has no reportable Asset-related EL for Asbestos or GE. 

Asset-related EL are amortized based on the useful life of the 

assets as defined in DoD FMR Volume 4, Chapter 24 – Real 

Note 8: Other Liabilities (Unaudited) 

Other Liabilities as of September 30, 2021 and 2020, respectively, consist of the following (dollars in thousands):

Accrued Funded Payroll and Benefits (Other than Intragovernmental) include salaries, wages, and 

other compensation earned by employees but not yet disbursed.

FY 2021

Current Noncurrent Total

Other than Intragovernmental Other Liabilities

Accrued Funded Payroll and Benefits $ 262 $ - $ 262

Total Other than Intragovernmental Other Liabilities $ 262 $ - $ 262 

FY 2020

Current Noncurrent Total

Other than Intragovernmental Other Liabilities

Accrued Funded Payroll and Benefits $ 299 $ - $ 299 

Total Other than Intragovernmental Other Liabilities $ 299 $ - $ 299 

Property, Paragraph 240206.B, Table 24-1: DoD Useful Lives 

for Depreciable Real Property Assets (October 2019).

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Environmental and Disposal Liabilities and Commitments and 

Contingencies; Note 5, Liabilities not Covered by Budgetary 

Resources; and Note 9, Commitments and Contingencies.)

DLA Flu Program – 

Ahead of the Curve for 2021

Army Sgt. Martin Manalo prepares to administer 

a flu shot at the chapel annex Jan. 15, 2021, on 

Caserma Ederle. The Defense Logistics Agency 

Troop Support Medical supply chain ensures 

warfighters like this have the vaccines available 

to administer on members, dependents and 

retirees on time each flu season. Photo By: Army
Section 2 | Financial Section (Unaudited)

95 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Note 9: Commitments and Contingencies (Unaudited)

Accrued and reasonably possible environmental and legal contingent liabilities as of September 30, 2021 and 2020, respectively, 

consist of the following (dollars in thousands):

FY 2021

Accrued 

Liabilities

Estimated Range of Loss

 Lower End Upper End

Environmental Contingencies

Probable $ 9,800 $ - $ -

Reasonably Possible $ - $ -

Legal Contingencies

Probable $ - $ - $ -

Reasonably Possible $ - $ -

FY 2020

Accrued 

Liabilities

Estimated Range of Loss

 Lower End Upper End

Environmental Contingencies

Probable $ 11,115 $ - $ -

Reasonably Possible $ - $ -

Legal Contingencies

Probable $ - $ - $ -

Reasonably Possible $ - $ 300

Environmental Contingencies: The DLA TF has 

developed a process to identify, estimate, and record contingent 

EL. DLA TF does not estimate a potential range of loss in this 

process. Where DLA TF is aware of probable and measurable 

future outflow of resources due to a past event or exchange 

transaction, the appropriate program categories are reported 

in Note 7, Environmental and Disposal Liabilities.

Legal Contingencies: The DLA TF was a party in 

various administrative proceedings and legal actions related to 

claims for environmental damages, equal opportunity matters, 

and contractual bid protests as of September 30, 2020. DLA’s 

Automated Workflow and Reporting System (AWARS) is used 

by the Office of General Counsel to report the outcomes and 

possible liability amounts of open cases.

Cases for which legal counsel determines an adverse outcome 

is reasonably possible and the possible financial outflow is 

measurable, are not recorded, but disclosed as reasonably 

possible for financial reporting purposes. 

DLA has zero matters that are identified as a probable, 

reasonably possible, or remote liability as of September 30, 

2021.

Commitments: The DLA TF does not have obligations 

related to canceled appropriations for contractual commitments 

or amounts for contractual arrangements that may require 

future financial obligations.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Environmental and Disposal Liabilities and Commitments and 

Contingencies; Note 5, Liabilities Not Covered by Budgetary 

Resources; and Note 7, Environmental and Disposal Liabilities.)
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 96

Note 10: Undelivered Orders (Unaudited)

Undelivered Orders (UDOs) for the years ended September 30, 2021 and 2020, respectively, consist of the following (dollars in 

thousands):

FY 2021 FY 2020

Intragovernmental Undelivered Orders

Unpaid $ 19,945 $ 13,718

Total Intragovernmental Undelivered Orders 19,945 13,718

Other than Intragovernmental Undelivered Orders

Unpaid 8,497 23,467

Paid 915 -

Total Other than Intragovernmental Undelivered Orders 9,412 23,467

Total Undelivered Orders $ 29,357 $ 37,185

UDOs represent the amount of goods and/or services 

ordered to perform DLA TF's mission objectives that have 

not been received. Unpaid UDOs represent obligations for 

goods and services that have not been received or paid. 

Whereas, paid UDOs represent obligations for goods and 

services that have been paid for in advance of receipt. For 

the years ended September 30, 2021 and 2020, respectively, 

DLA TF does not have intragovernmental paid UDO 

balances. 

Due to system limitations, DLA TF is unable to determine 

the Intragovernmental and Other than Intragovernmental 

allocation of unpaid UDOs. DLA TF estimates the allocation 

of Intragovernmental and Other than Intragovernmental 

unpaid UDOs based on funded liabilities, and excluding 

payroll and employee benefit liabilities.

(Refer to Note 1.C., Departures from U.S. GAAP, related 

to Intragovernmental/Intra-departmental and Other than 

Intragovernmental Transactions and Accounts Payable, 

Expenses, Undelivered Orders.)

Corps Combat

Marines disembark from 

an amphibious combat 

vehicle during a training 

exercise at Marine Corps 

Air Ground Combat Center 

Twentynine Palms, Calif., 

April 7, 2021. Photo By: 

Marine Corps Cpl. Jamin 

M. Powell
Section 2 | Financial Section (Unaudited)

97 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Note 11: Reconciliation of Net Cost to Net Outlays (Unaudited)

Reconciliation of Net Cost to Net Outlays for the years ended September 30, 2021 and 2020, consist of the following (dollars in 

thousands):

FY 2021

Intragovernmental Other than 

Intragovernmental Total

NET COST $ 14,075 $ (123,764) $ (109,689)

Components of Net Cost That 

are Not Part of Net Outlays

General Property Plant and Equipment Depreciation - (222) (222)

Cost of Goods Sold - (72,156) (72,156)

Net Gains/(Losses) - 85 85 

Net Gains/(Losses) Related to Inventory Valuation 

Adjustment - 135,224 135,224

Increase/(Decrease) in Assets:

Accounts Receivable, Net - (34) (34)

Advances and Prepayments - (240) (240)

(Increase)/Decrease in Liabilities:

Accounts Payable 743 3,288 4,031 

Environmental and Disposal Liabilities - 1,315 1,315 

Federal Employee Benefits Payable - 618 618 

Advances from Others and Deferred Revenue - 2,795 2,795 

Other Liabilities 89 37 126 

Other Financing Sources:

Imputed Financing (488) - (488)

Total Components of Net Cost That are 

Not Part of Net Outlays 344 70,710 71,054 

Components of Net Outlays 

That are Not Part of Net Cost

Acquisition of Inventory - 5,732 5,732

Total Components of Net Outlays That are 

Not Part of Net Cost - 5,732 5,732 

NET OUTLAYS $ 14,419 $ (47,322) (32,903)

Outlays, Net, Statement of Budgetary Resources (32,903)

Reconciling Difference $ -
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 98

The Net Cost to Net Outlays Reconciliation schedule 

reconciles the Net Cost (reported in the Statements of 

Net Cost) to the Net Outlays (reported in the Statements 

of Budgetary Resources). The reconciliation clarifies the 

relationship between budgetary and proprietary accounting 

information. Examples of the reconciling items identified are: 

(1) Transactions which did not result in an outlay but did 

result in a cost; and (2) Unpaid expenses included in the net 

cost in this reporting period but not yet included in outlays. 

Components of net cost that are not part of net outlays are 

most commonly (a) the result of allocating assets to expenses 

over more than one reporting period (e.g., depreciation); (b) 

the temporary timing differences between outlays/receipts 

and the operating expense/revenue during the period; and (c) 

costs financed by other entities (imputed inter- entity costs).

More specifically, for FY 2021, the key reconciling differences 

between the net cost and net outlays for DLA TF include: (1) 

the cost of goods sold, which related to stockpile material 

transactions, representing the sales activity for Other than 

FY 2020

Intragovernmental Other than

Intragovernmental Total

NET COST $ 11,958 $ 27,190 $ 39,148 

Components of Net Cost That 

are Not Part of Net Outlays

General Property Plant and Equipment Depreciation - (223) (223)

Cost of Goods Sold - (41,222) (41,222)

Net Gains/(Losses) - 2,485 2,485 

Net Gains/(Losses) Related to Inventory Valuation 

Adjustment - - -

Increase/(Decrease) in Assets:

Accounts Receivable, Net - 12 12 

Advances and Prepayments - 1,155 1,155 

(Increase)/Decrease in Liabilities:

Accounts Payable 6 2,022 2,028 

Environmental and Disposal Liabilities - 6,440 6,440 

Federal Employee Benefits Payable - 110 110 

Advances from Others and Deferred Revenue - (2,795) (2,795)

Other Liabilities (6) (49) (55)

Other Financing Sources:

Imputed Financing (495) - (495)

Total Components of Net Cost That are 

Not Part of Net Outlays (495) (32,065) (32,560)

Components of Net Outlays 

That are Not Part of Net Cost

Acquisition of Inventory - - - 

Total Components of Net Outlays That are 

Not Part of Net Cost - - - 

NET OUTLAYS $ 11,463 $ (4,875) 6,588 

Outlays, Net, Statement of Budgetary Resources 6,588 

Reconciling Difference $ - 
Section 2 | Financial Section (Unaudited)

99 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Intragovernmental customers; (2) Increases in Net Gains 

Related to Inventory Valuation Adjustment which were due 

to the stockpile materials value adjustments; and (3) the 

acquisition of Inventory.

For FY 2020, the key reconciling differences between 

the net cost and net outlays for DLA TF include: (1) the 

cost of goods sold, which related to stockpile material 

transactions, representing the sales activity for Other than 

Intragovernmental customers; (2) the net gains, which 

was primarily due to inventory movements related to the 

acquisition and upgrade/recondition of stockpile materials; 

and (3) the decrease in Environmental and Disposal 

Liabilities, which was primarily attributed to the decline in the 

Non-BRAC Environmental corrective actions.

The DLA TF does not have an established policy to identify 

and reconcile net cost to net outlays and/or identify 

components of net cost or net outlays that have not been 

properly accounted for. For FY 2020, acquisition of inventory 

balances should be but are not included in the Components 

of Net Outlays That are Not a Part of Net Cost. However, DLA 

TF will continue to investigate and resolve the causes of the 

items not included in the reconciliation and any reconciling 

differences. 

The prior year presentation was modified to the current 

year presentation to facilitate the: (1) comparability between 

years for related activity; and (2) understanding of amounts 

reported in the reconciliation above to the principal financial 

statements and other related notes. The modification in 

the presentation had no net effect on the reconciliation as 

previously reported.

(Refer to Note 1.C., Departures from U.S. GAAP, related 

to Accounts Receivable, Revenue, and Gains, Inventory 

and Related Property, Net, and Accounts Payable, and 

Undelivered Orders, Reconciliation of Net Cost to Net 

Outlays.)

Mountain Flight

Navy Petty Officers 2nd Class Aaron White and Richard Derrick participate in a mountain flying training event 

in Fallon, Nev., April 9, 2021. Photo By: Navy Chief Petty Officer Shannon Renfroe
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 100

Note 12: Restatements of the FY 2020 Balance Sheet, Statement of Net 

Cost, and Statement of Changes in Net Position (Unaudited)

In FY 2021, DLA TF restated its FY 2020 financial statements 

in response to errors in the Balance Sheet, Statement of Net 

Cost, and Statement of Changes in Net Position. The impact 

of these errors resulted in DLA TF’s net position reported on 

the financial statements being overstated by $5.8 million. DLA 

TF made adjustments to its recognition of: (1) inventory and 

related gains and losses; (2) advances and prepayments and 

accounts payable and the related gross cost; (3) accounts 

payable and the related gross cost. DLA TF recorded the 

restatement adjustments in three categories:

Physical Inventory Quantity Adjustments:

The DLA TF performs weight re-verifications on certain 

stockpile materials to verify inventory quantities are accurate. 

The inventory and related gain and loss balances were 

adjusted to reflect the results of the weight re-verification 

performed during FY 2020 and not recorded as of September 

30, 2020. The correction impacted the FY 2020 Balance 

Sheet, Statement of Net Cost, and Statement of Changes in 

Net Position by decreasing Inventory and Related Property 

by $6.0 million, increasing gross cost and earned revenue 

by $9.3 million and $3.3 million, respectively, resulting in an 

overall increase in Net Cost and decrease in Net Position 

of $6.0 million. The adjustments were applied entirely to FY 

2020, without performing an analysis to determine what was 

attributable to FY 2019 and prior years. 

Recycling and Reuse Program: As part of the 

Strategic Material Recycling and Reuse Program (SMRRP), the 

government provides excess-to-need or end-of-life aerospace 

turbine engine parts to a Contractor for sorting, demilitarizing, 

removing any precious-metal containing coatings, and sending 

the inventory item back to DLA SM. During FY 2020, DLA 

TF improperly recognized expenses upon being invoiced by 

the contractor. DLA TF should have recorded advances and 

prepayments for the amounts paid prior to receiving inventory 

and then capitalized the incurred costs upon receipt. No 

liability should have been recorded for amounts invoiced by 

the contractor for undelivered inventory. The adjustment 

recorded by DLA TF impacted the FY 2020 Balance Sheet, 

Statement of Net Cost, and Statement of Changes in Net 

Position by increasing advances and prepayments by $1.2 

million, decreasing accounts payable by $89.0 thousand, and 

reducing gross cost by a net amount of $1.2 million, resulting 

in an overall decrease in Net Cost and increase Net Position 

of $1.2 million. 

Liability for Return of Material: The FY 2020 

gross cost and related accounts payable balances were corrected to reflect materials owed back to a contractor after having received a refund for the material that did not conform to 

the specified requirements. The correction impacted the FY 

2020 Balance Sheet, Statement of Net Cost, and Statement of 

Changes in Net Position by increasing accounts payable and 

the related gross cost by $1.1 million, resulting in an overall 

increase in Net Cost and a decrease in Net Position of $1.1 

million. 

(Refer to Note 1.C., Departures from U.S. GAAP, related to Advances and Prepayments; Accounts Payable, Expenses, and 

Undelivered Orders; and Inventory and Related Property, Net).

Ramstein Support

Air Force Capt. Ranon Barber 

stacks dinner meals at Ramstein 

Air Base, Germany, Aug. 26, 2021. 

Barber supported Operation 

Allies Refuge through building 

pods, replacing old cots with 

new ones and stocking meals for 

evacuees from Afghanistan. 

Photo By: Air Force Airman Jared 

Lovett
Section 2 | Financial Section (Unaudited)

101 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Balance Sheet

(dollars in thousands)

As of September 30, 2020

Unaudited

FY 2020 

As Previously 

Reported12

Unaudited

FY 2020 

Adjustments

Unaudited

FY 2020 

As Restated

ASSETS 

Intragovernmental

Fund Balance with Treasury (Note 2) $ 280,730 $ - $ 280,730 

Total Intragovernmental 280,730 - 280,730 

Other than Intragovernmental

Accounts Receivable 38 - 38 

Inventory and Related Property, Net (Note 3) 746,382 (5,955) 740,427 

General Property Plant and Equipment, Net (Note 4) 1,019 - 1,019 

Advances and Prepayments - 1,155 1,155 

Total Other than Intragovernmental Assets 747,439 (4,800) 742,639 

TOTAL ASSETS $ 1,028,169 $ (4,800) $ 1,023,369 

LIABILITIES (Note 5)

Intragovernmental

Accounts Payable $ 1,505 $ - $ 1,505 

Other Liabilities (Note 6) 371 - 371 

Total Intragovernmental Liabilities 1,876 - 1,876 

Other than Intragovernmental

Accounts Payable 2,574 1,035 3,609 

Environmental and Disposal Liabilities (Note 7) 11,115 - 11,115 

Federal Employee Benefits Payable (Note 6) 2,790 - 2,790 

Advances from Others and Deferred Revenue 2,795 - 2,795 

Other Liabilities (Note 8) 299 - 299 

Total Other than Intragovernmental 19,573 1,035 20,608 

TOTAL LIABILITIES 21,449 1,035 22,484 

Commitments and Contingencies (Note 9)

NET POSITION

Cumulative Results of Operations-Funds 

from Other than Dedicated Collections 1,006,720 (5,835) 1,000,885 

TOTAL NET POSITION 1,006,720 (5,835) 1,000,885 

TOTAL LIABILITIES AND NET POSITION $ 1,028,169 $ (4,800) $ 1,023,369 

12 Certain balances were reclassified on the FY 2020 Balance Sheet to conform to the FY 2021 financial statement presentation requirements in 

accordance with OMB Circular A-136, as amended.
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 102

Statement of Net Cost

For the Year Ended September 30, 2020 

(dollars in thousands)

Unaudited

FY 2020 

As Previously 

Reported

Unaudited

FY 2020 

Adjustments

Unaudited

FY 2020 

As Restated

Operations, Readiness & Support

Gross Cost $ 95,815 $ 9,157 $ 104,972 

Less: Earned Revenue (62,502) (3,322) (65,824)

Net Cost 33,313 5,835 39,148 

NET COST OF OPERATIONS $ 33,313 $ 5,835 $ 39,148 

Statement of Changes in Net Position 

For the Year Ended September 30, 2020 

(dollars in thousands)

Unaudited

FY 2020 

As Previously 

Reported

Unaudited

FY 2020 

Adjustments

Unaudited

FY 2020 

As Restated

Cumulative Results of Operations

Beginning Balances $ 1,039,538 $ - $ 1,039,538 

Imputed Financing 495 - 495 

Net Cost of Operations 33,313 5,835 39,148 

Net Change in Cumulative Results of Operations (32,818) 5,835 (26,983)

Cumulative Results of Operations: Ending Balance 1,006,720 (5,835) 1,000,885 

TOTAL NET POSITION $ 1,006,720 $ (5,835) $ 1,000,885 

Aid for Haiti

Navy Petty Officer 2nd Class Michael Kane unloads boxes of food in Saint-Louis-du-Sud, Haiti, Aug. 28, 2021, to 

support humanitarian assistance and disaster relief efforts following a 7.2 magnitude earthquake.

Photo By: Navy Petty Officer 2nd Class John Bellino
Section 3 | Other Information (Unaudited)

103 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Fast Rope ►

Marines fast-rope during training aboard the USS Makin Island 

in the Pacific Ocean, Oct. 16, 2020.

 Photo Credit: Navy Petty Officer 3rd Class Ethan Morrow

SECTION 3

Other Information(Unaudited)

103

Section 3 | Other Information (Unaudited)

105 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

In this section

106 Management Challenges 

110 Summary of Financial Statement Audit 

 and Management Assurances

114 Payment Integrity

SECTION 3

Double Pump Deployment

Sailors aboard the aircraft carrier Dwight D. Eisenhower prepare for a replenishment-at-sea on 

Feb. 4 in the Atlantic Ocean. It’s been a long year for everyone, but doubly so for the men and 

women of the aircraft carrier Dwight D. Eisenhower, who are days away from commencing their 

second deployment in the past 12 months.

 Photo Credit: Mass Communication Specialist Seaman Apprentice Mo Bourdi/Navy
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 106

Management Challenges

DEFENSE LOGISTICS AGENCY

HEADQUARTERS

8725 JOHN J. KINGMAN ROAD

FORT BELVOIR, VIRGINIA 22060-6221

July 27, 2021

MEMORANDUM FOR VICE ADMIRAL MICHELLE C. SKUBIC, DIRECTOR, DLA

SUBJECT: Major Management and Performance Challenges Facing the Defense Logistics 

 Agency

Although significant progress has been made in the management of DLA and the 

reduction of risks facing the organization, especially due to the actions of the Enterprise Risk 

Management Office, the Office of the Inspector General (OIG) sees 15 areas where major 

challenges remain. The 15 challenge areas are:

a. Sales of DoD Property. Insufficient policy and oversight of DLA sales of property 

requires action to establish clear policy guidelines and oversight authority. This 

concern was formally recognized in a finding in FY18 during an Agency 

Management Review and has not been corrected to date. Multiple components of 

DLA are involved in sales of DoD property. DLA Headquarters has limited expertise 

within the staff. Sales procedures and process are impacted by law and rules from 

several governmental agencies. An unclear policy proponent and corresponding lack 

of oversight of execution within DLA is an area of risk that requires mitigation and 

remediation.

b. Contracting Officers Representatives. Although this area was identified last year, this 

challenge remains on the list because of the significant concerns about the quality of 

Contracting Officers Representatives work. Contracting Officers Representative files 

almost always contained inadequate evidence supporting monitoring of contractors. 

These results are important to DLA because the preponderance of our supplies and 

services are acquired through contract. Given the significant number of DLA 

contracts, to improve audit readiness, it is essential to improve Contracting Officer 

Representative performance and quality of work.

c. Financial Liability Investigations. Based on numerous OIG investigations, financial 

liability investigation of property losses were inadequate and failed to hold 

responsible officials accountable for failure to maintain accountability of property 

under their control. The OIG audit division has begun research on this topic and 

anticipates issuing an audit report in FY 2022.

d. Critical Warfighter Items and Whole of Government. Despite the pandemic and the 

shortage of supplies, DLA has maintained outstanding support to the Warfighters. 

However, as continuing emphasis is placed on the Whole of Government effort, DLA 

must remain vigilant that the Whole of Government effort doesn’t overshadow 
Section 3 | Other Information (Unaudited)

107 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Warfighter support since both efforts will be competing for many of the same product 

lines – e.g., pharmaceuticals, clothing and textiles, food and water, and fuel. 

e. Supply Chain Security and Risk Management. DLA needs to continually evaluate 

our supply chains for single-point failures to prevent disruptions to DLA’s Warfighter 

and Whole of Government customers. The supply risk management process is 

critical to identify risks to our supply chains while developing mitigation strategies, to 

reduce the risk to acceptable levels when feasible or develop mitigating strategies 

when mitigation isn’t feasible. This challenge highlights the lack of domestically 

based integrated supply chains, just-in-time inventory management, as well as other 

risks in DLA’s reliance on the Defense industrial base – that individually and 

collectively increase risk to the process.

f. Nonconforming Inventory. The induction of repair parts from commercial suppliers 

must be continuously monitored and reviewed to prevent nonconforming and 

counterfeit parts from entering the DLA supply chains and causing major risks to our 

Warfighters and Whole of Government customers.

g. Activity Pricing and Cost Recovery Rate. Until DLA develops an accounting system 

that is sufficiently designed to assign and record accurate costs (and achieves an

unqualified audit opinion), then assigning costs to appropriate cost centers will be 

difficult and making decisions will be based on unauditable and potentially incorrect 

information.

h. DLA Cybersecurity and Resiliency. Cybersecurity is an inherent risk and the most 

persistent threat to DLA operations. The resiliency of DLA to identify and counter 

cyber intrusions is paramount to DLA success. With the majority of the DLA 

workforce now teleworking via potentially less secure home networks, DLA’s 

cybersecurity risk profile is increased. DLA must continually stress that employees

have a personal responsibility for network security. While the DLA J6 achieved 

impressive sustainment of DLA networks during the pandemic, it is imperative that 

continued and innovative resources be employed to retain this resiliency. These 

efforts are essential to ensure that employees remain as productive as possible and 

that new software, as well as major updates, are conducted in as seamless a manner as 

possible with minimal disruption. 

i. Evidential Matter. Both financial and operating audit work continues to show that 

DLA’s ability to locate appropriate evidential matter for audit readiness is just as 

important as appropriately processing the transaction.

j. Knowledge Management. DLA needs to move from the reactionary data 

management mentality to a more proactive ability to appropriately summarize our 

vast data into useful and actionable knowledge that management can act upon.

k. Business Process Documentation. DLA needs to sustain a robust organizational 

approach to address business process documentation in a manner that covers 
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 108

inception to conclusion. Over the past several years, there has been improvement in 

creating process maps that document processes from beginning to end (to include 

inputs from other organizations as well as handoffs to others). However, much 

remains to be done in: the identification of risks associated with a process, 

management evaluation and either acceptance or addressing the risk, and 

implementation of internal controls associated with all phases of the process. 

l. Special Emphasis Programs. DLA has at least three special emphasis programs –

PTAP (Procurement Technical Assistance Program), NWRM (Nuclear Weapons

Related Material), and Strategic Materials – that, while currently in good shape,

requires continual management emphasis. While the PTAP program may transition

to DoD, we will continue to include it on this list until the transition is complete.

m. Trade Security Controls. DoD delegates Export Control requirements for Trade

Security Controls (TSC) policy, controls, and enforcement for the DoD to DLA. The

required functions include policy, issuance of End Use Certificates (EUC) to qualified

entities, and enforcement through Post Sales Investigations. As noted in paragraph a.

above, DLA has inadequate sales oversight structure and execution policy. This

shortfall in guidance results in conflict between TSC and sales contracts at

Disposition Services that requires both policy and contracting changes to realign.

Disposition Services implemented a new business model that sells export-controlled

DoD personal property to the contractor. The contractor becomes the first non-DoD

owner and is issued a single EUC that is renewed on a periodic basis. This permits

the contractor to sell controlled property to anyone, nullifying the EUC process for

export-controlled DoD personal property. DLA must resolve the guidance and

execution for export controls.

n. Post-Pandemic Reduction of Telework. DLA executed a superlative pivot to full time

telework by the eligible office workforce while maintaining operational readiness and

providing a safe secure workplace for employees in industrial operations. The

reduction of telework and return to onsite offices represents a significant challenge.

Numerous studies and reports indicate a fundamental change in attitudes by the

workforce across the nation. Employees are seeking greater control over schedules,

flexibility, and how work is conducted. Other structural supports such as childcare,

school schedules and methods, and availability of public transport affect the

willingness and mobility of the workforce. Balancing telework and return to

centralized offices could present a significant challenge through employee turnover

leading to a loss of knowledge and experience in critical skill areas, while extenuating

the efforts to acculturate new employees. DLA is addressing this challenge in the

strategic plan and by encouraging senior leaders to be as flexible as possible.

Although this challenge is being addressed through the Future of Work Line of Effort

it nonetheless presents a situation that requires much thought, understanding,

flexibility, and adaptability to retain the well-qualified and resilient workforce DLA

requires.
Section 3 | Other Information (Unaudited)

109 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

o. Climate Change Management. DLA J3 has begun addressing this topic. However,

because it is a reasonably new topic, additional senior leader focus is required as the

expectation is that DLA will be required to assist DoD by leading the way in

procuring carbon-pollution free electricity, developing alternative fuel costing policy,

and incorporating the social cost of greenhouse gases into product costs. DLA must

have a deliberate plan in place before the requirements outpaces the current capability

of both DLA Energy and the DLA Environmental Office.

It is important that DLA leadership recognize these challenges facing the organization for 

DLA to provide the best value to the taxpayer and the best support to the warfighter. Addressing 

each of these challenges will improve the internal control structure of DLA and thereby help the 

organization in achieving an unmodified financial statement opinion. 
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 110

Summary of Financial Statement Audit 

and Management Assurances

The audit reports on the FY 2021 and FY 2020 DLA TF 

financial statements identified six material weaknesses for 

DLA TF. Table 1 below provides a summary of the financial 

statement audit results for FY 2021 and FY 2020, as restated. 

Although the material weaknesses overall are not resolved, 

DLA is continuing to develop CAPs to resolve specific findings 

associated with the material weaknesses.

The DLA SOA package only includes self- identified material 

weaknesses and significant deficiencies for internal DoD 

reporting; however, DLA continues to monitor the financial 

statement audit material weakness areas separately. DLA’s 

FY 2021 Material Weaknesses and Significant Deficiencies 

template included a total of three self-identified material 

weaknesses in the area of ICOR-O, summarized in the table 

below. In FY 2021, the five ICOR material weaknesses and 

four ICOFS non-conformances were based on financial 

statement audit NFRs across all funds. However, DLA has 

determined these audit identified ICOR material weaknesses 

and ICOFS non-conformances are still present and have 

not been remediated in FY 2021. The DLA Audit Task Force 

continues to separately track financial statement audit findings 

and CAPs related to the ICOR material weaknesses and 

ICOFS non-conformances and report these to the ODCFO.

Table 1: FY 2021 Summary of the Financial Statement Audit

Audit Opinion Disclaimer

Restatement Yes

Material Weaknesses Beginning 

Balance New Resolved Consolidated Ending Balance

Inventory 1 - - - 1

Fund Balance with Treasury 1 - - - 1

Accounts Payable and Expenses 1 - - - 1

Financial Reporting 1 - - - 1

Oversight and Monitoring 1 - - - 1

Information Systems 1 - - - 1

Total Material Weaknesses 6 - - - 6
Section 3 | Other Information (Unaudited)

111 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Table 2: Summary of Management Assurances

Effectiveness of Internal Control over Financial Reporting (FMFIA § 2)

Statement of 

Assurance No Assurance

Material 

Weaknesses

Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

Oversight and 

Monitoring 1 - - - - 1

Financial Reporting 1 - - - - 1

Fund Balance with 

Treasury 1 - - - - 1

Plan-to-Stock: 

Inventory 1 - - - - 1

Procure-to-Pay: 

Accounts Payable 

and Expenses

1 - - - - 1

Total Material

 Weaknesses 5 - - - - 5

Table 2 summarizes DLA’s FY2021 material weaknesses associated with DLA TF.

Capsule Crew

Air Force pararescue jumpers and combat rescue officers practice retrieving astronauts from a SpaceX capsule 

mockup during the Rescue Force Qualification Course at Cape Canaveral Air Force Station, Florida, Feb. 23, 

2021. Photo By: Air Force Staff Sgt. Christopher Muncy
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 112

Table 2: Summary of Management Assurances

Effectiveness of Internal Control over Operations (FMFIA § 2)

Statement of 

Assurance No Assurance

Material 

Weaknesses

Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

Supply Operations: 

Lack of policy and 

procedures in place 

over the management and oversite of 

First Article Test

 Exhibits 

1 - - - - 1

Contract Administration: Nonverification 

of supplier invoices

1 - - - - 1

Business Process 

Controls: Lack of 

procedures over the 

scrap management 

program

 1 - - - - 1

Total Material

 Weaknesses 3 - - - - 3

Table 2: Summary of Management Assurances

Conformance with Federal Financial Management System Requirements (FMFIA § 4)

Statement of 

Assurance Federal Systems do not conform to financial management system requirements

NonConformancesBeginning 

Balance New Resolved Consolidated Reassessed Ending Balance

Security 

Management 1 - - - - 1

Access Controls 1 - - - - 1

Segregation of 

Duties 1 - - - - 1

Configuration 

Management 1 - - - - 1

Total NonConformances 4 - - - - 4
Section 3 | Other Information (Unaudited)

113 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Based on DLA management’s analysis of relevant FFMIA compliance indicators available at the time of this report, DLA 

identified a lack of compliance associated with all three FFMIA Section 803(a) requirements across all funds summarized in the 

table below.

Table 2: Summary of Management Assurances

Compliance with Section 803(a) of the FFMIA

Agency Auditor

1. Federal Financial Management 

System Requirements Lack of compliance noted Lack of compliance noted

2. Applicable Federal Accounting 

Standards Lack of compliance noted Lack of compliance noted

3. USSGL at the Transaction Level Lack of compliance noted Lack of compliance noted

Sea Ops

Military Sealift Command fleet replenishment oiler USNS Yukon conducts a consolidated cargo replenishmentat-sea with the MSC long-term chartered motor tanker ship Empire State off the coast of Southern California 

April 25-26, 2020. The CONSOL was part of MSC’s COVID-19 precautions, with many of the supplies provided 

by the Defense Logistics Agency. Photo By: Sarah Burford, Military Sealift Command Pacific
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 114

The Payment Integrity Information Act of 2019 (PIIA) (Pub. L. 

116-117), requires Agencies to review and assess all programs 

and activities they administer and identify those determined to 

be susceptible to significant improper payments (IPs), estimate 

the annual amount of IPs, and submit those estimates to 

Congress. In accordance with DoD 7000.14-R FMR, Volume 4, 

Chapter 14, Improper Payments, DoD components that entitle 

(i.e. process or compute) payments conduct risk assessments 

of their payment processes and random post- payment reviews 

to estimate IPs.

The OUSD(Comptroller) Accounting & Finance Policy 

Directorate (A&FP) compiles the Department-wide results 

annually as part of DoD’s AFR. As DLA’s Service Provider, 

DFAS entitles payments and provides the results of postpayment reviews to OUSD(Comptroller) A&FP on behalf of 

its customers. OMB Circular A-123, Appendix C defines an 

IP as any payment that should not have been made or that 

was made in an incorrect amount (including overpayments and 

underpayments) under statutory, contractual, administrative, 

or other legally applicable requirements. It includes duplicate 

payments, any payment made to an ineligible recipient, any 

payment for an ineligible good or service, any payment for a 

good or service not received (except for such payments where 

authorized by law), and any payment that does not account for 

credit for applicable discounts.

In accordance with the PIIA, and Appendix B of the OMB 

Bulletin No. 21-04, Audit Requirements for Federal Financial 

Statements, dated June 11, 2021, DoD reports payment 

integrity information (i.e., IPs) at the Agency-wide level in 

the consolidated DoD AFR. In addition, DoD provides data 

for display on https://paymentaccuracy.gov. For detailed 

reporting on DoD payment integrity, refer to the OI section of 

the consolidated DoD AFR at: https://comptroller.defense.gov/

odcfo/afr2021.aspx.

Payment Integrity

Pentagon Sunrise

Officers salute an American flag unfurled over the side of the Pentagon at sunrise on the 20th anniversary of the 

9-11 terrorist attacks at the Pentagon in Arlington, Virginia. Photo Credit: E.J. Hersom/DoD
Island Wave ►

Air Force Brig. Gen. Jeremy T. Sloane, center left, the 36th 

Wing commander, and loadmasters assigned to the 36th Airlift 

Squadron wave to the people of the Angaur, Palau, Dec. 7, 

2020, during the second day of 2020 Operation Christmas Drop 

airdrops. The operation is the Defense Department’s longestrunning humanitarian operation, allowing the U.S. and its allies 

to deliver food, tools and clothing to people who live on remote 

southeastern Pacific islands. 

 Photo Credit: Air Force Staff Sgt. Gabrielle Spalding

A / B / C

115

APPENDIX

Appendix A | Summary of FMFIA Definitions and Reporting

117 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

Appendix A: Summary of FMFIA Definitions 

and Reporting

Category Definition Reporting

Control Deficiency

A. Exists when the design, implementation, or 

operation of a control does not allow management 

or personnel, in the normal course of performing 

their assigned functions, to achieve control 

objectives and address related risks. 

B. Deficiency in Design: A deficiency in design 

exists when: 

(1) a control necessary to meet a control objective 

is missing 

(2) an existing control is not properly designed so 

that even if the control operates as designed, 

the control objective would not be met. 

C. Deficiency in Implementation: A deficiency in 

implementation exists when a properly designed 

control is not implemented correctly in the internal 

control system. 

D. Deficiency in Operation: A deficiency in 

operation exists when a properly designed control 

does not operate as designed, or when the person 

performing the control does not possess the 

necessary authority or competence to perform the 

control effectively.

Internal to the organization and not reported externally. Progress 

against CAPs must be 

periodically assessed 

and reported to Agency 

management.

Significant Deficiency

A significant deficiency is a deficiency, or 

combination of deficiencies, in internal control 

that is less severe than a material weakness yet 

is important enough to merit attention by those 

charged with governance.

Self-identified 

significant deficiencies 

are reported to OUSD. 

Progress against CAPs 

must be periodically 

assessed and reported 

to Agency management.
 Summary of FMFIA Definitions and Reporting | Appendix A

Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report 118

Appendix A: Summary of FMFIA Definitions and Reporting (continued)

Category Definition Reporting

Material Weakness

A. A material weakness is a significant deficiency 

that the Agency Head or Director determines to 

be significant enough to report outside of the 

Agency as a material weakness. In the context of 

the Green Book (https://www.gao.gov/greenbook), 

non-achievement of a relevant principle and 

related component results in a material weakness. 

B. Internal Control Over Operations: A material 

weakness in internal control over operations might 

include, but is not limited to conditions that: 

● Impact the operating effectiveness of entrylevel controls;

● Impair fulfillment of essential operations or 

missions;

● Deprive the public of needed services; or

● Significantly weaken established safeguards 

against fraud, waste, loss, unauthorized use, 

or misappropriation of funds, property, assets, 

or conflicts of interest. 

C. Internal Control Over Reporting: A material 

weakness in internal control over external 

financial reporting is a deficiency, or a 

combination of deficiencies, in internal control, in 

that there is a reasonable possibility a material 

misstatement of the entity’s financial statements 

will not be prevented, or detected and corrected 

before issuance. 

Material weaknesses 

and a summary of 

corrective actions 

must be reported to 

OMB and Congress 

through the AFR or 

other management 

reports. Self-identified 

material weaknesses 

are reported to OUSD. 

Progress against CAPs 

must be periodically

assessed and reported 

to Agency management.
119 Defense Logistics Agency | FY2021 Transaction Fund | Agency Financial Report

Appendix B: J/D Codes, DLA HQ 

Program Support Structure, Roles and 

Responsibilities

The following are DLA Enterprise-wide J/D Codes and DLA HQ 

Program Support Structures:

DLA HUMAN RESOURCES (J1) provides the full 

range of human resource services to include Operational, 

Human Performance, Talent Management, Performance 

Management, Labor Relations and Human Resources Policy 

for the DLA workforce. DLA Human Resources recruits, hires, 

trains, and sustains a mission-ready workforce for DLA and 

Human Resources customers, using world-class policies, 

processes, programs, and tools.

DLA LOGISTICS OPERATIONS (J3) is responsible for the end-to-end supply chain management of DLA’s supply chains, providing logistics and material process-management policy, guidance, and oversight. J3 integrates strategic, 

operational, and tactical perspectives, as well as commands 

and controls functions for contingency operations and logistics 

supply chain planning. J3 maximizes the readiness and logistics combat power by leveraging enterprise solutions to support 

DLA’s global customer base.

DLA INFORMATION OPERATIONS (J6) as 

DLA’s knowledge broker, provides comprehensive, best 

practice IT support to the DoD/DLA Logistics Business 

Community, resulting in customer support; efficient and 

economical computing; data management; electronic business; 

telecommunication services; key management; and secure 

voice systems for DoD, DLA, and geographically separated 

operating locations. The Director of Information Operations 

serves as DLA’s CIO. DLA Information Operations also 

manages DLA’s R&D IT program.

DLA ACQUISITION (J7) is responsible for 

planning, organizing, directing, and managing the procurement 

and contract administration functions for DLA acquisition 

in support of both internal operations and other supported 

activities. The Director of DLA Acquisition also serves as the 

Agency’s Component Acquisition Executive. DLA Acquisition 

provides oversight of DLA Contracting Services Office.

DLA FINANCE (J8) is responsible for obtaining and 

allocating resources; analyzing execution; and providing fiscal 

guidance and advice to support the Agency, its business areas, 

and its MSCs in accomplishing DLA’s mission. DLA Finance 

prepares the AFRs and guides DLA in its Audit Remediation 

efforts. The Director of Finance also serves as DLA’s CFO.

DLA JOINT RESERVE FORCE (J9) provides DLA 

with trained, ready, and available reservists from the Army, 

Air Force, Navy, and Marine Corps for worldwide contingency 

operations and support of ongoing operations, surge 

requirements, and logistics planning.

DLA OFFICE OF SMALL BUSINESS 

PROGRAMS (DB) provides small business advocacy 

and promotes small business utilization to strengthen the competency, capability, and commitment of the industrial base that 

fulfills DLA’s mission as the Nation’s Combat Logistics Support 

Agency. DLA Office of Small Business Programs is responsible 

for implementation of the Procurement Technical Assistance 

Program to expand the number of businesses capable of participating in contracts with DoD, other Federal Agencies, state 

and local governments, and government prime contractors.

DLA GENERAL COUNSEL (DG) delivers professional, candid, and independent legal advice and services to 

DLA.

DLA COMMAND CHAPLAIN (DH) serves as the 

program manager for religious support logistics. This office 

provides the DLA Director and the staff a clear picture of 

workforce morale as affected by religion, ensuring the free 

exercise of religion to support the Warfighter and the employees 

in the workplace at DLA. 

DLA INSTALLATION MANAGEMENT (DM) 

provides enterprise-wide Agency policy, program, and 

Appendix B | J/D Codes, DLA HQ Program Support Structure, Roles and Responsibilities 
Defense Logistics Agency | FY2021 Transaction Fund | Agency Financial Report 120

worldwide operational support in environmental management; 

safety and occupational health; installation management; 

public safety; forms and policy management; and morale, 

welfare, and recreation for DLA. 

DLA EQUAL EMPLOYMENT OPPORTUNITY 

AND DIVERSITY OFFICE (DO) provides DLA senior 

leadership, staff, and subordinate commands enterprisewide respondent and subject matter expertise on all Equal 

Employment Opportunity Compliance oversight, Affirmative 

Employment and Diversity and Inclusion.

DLA PUBLIC AFFAIRS (DP) provides public 

affairs support, communication strategy development, and 

engagement guidance to DLA senior leadership, staff, and 

subordinate commands. The DLA Public Affairs office develops 

and administers internal news and information; manages DLA 

social media and public engagement policies; and develops 

programs that communicate DLA’s role as a Combat Support 

Agency that adds value to the Defense Department, military 

services, CCMDs and the American people.

DLA TRANSFORMATION (DT) directorate synchronizes strategy, policy, and process to support the Warfighter, strengthen alliances and drive innovation. DT manages 

DLA’s strategic plan, executive governance forums, and the 

Agency-wide deployment of Enterprise Process Management, 

Continuous Process Improvement, Enterprise Organizational 

Alignment, and Enterprise Policy Management programs.

DLA OFFICE OF THE INSPECTOR 

GENERAL (OIG) coordinates and synchronizes GAO 

and Department of Defense Office of Inspector General 

(DoDIG) audits with all DLA components; tracking, monitoring, 

and assessing the implementation of audit corrective actions 

and communicating completion results. They sustain strategic 

engagement with the Defense Counsel on Integrity and 

Efficiency and their subcommittees, as well as relationships 

with DoDIG Criminal Investigative Services, Military Criminal 

Investigation Services, and other Law Enforcement Agencies. 

DLA OIG also conducts administrative investigations and 

crime vulnerability assessments that align with Agency risks 

and strategic goals. The DLA OIG internal audit plan is derived 

from DLA’s ERM efforts, and also encompasses external audit 

projects derived from GAO’s high-risk list.

J/D Codes, DLA HQ Program Support Structure, Roles and Responsibilities | Appendix B
121 Defense Logistics Agency | FY2021 Transaction Fund | Agency Financial Report

Appendix C: Abbreviations & Acronyms

A/BO Approving/Billing Officials

A&FP Accounting & Finance Policy Directorate 

ADA Anti-Deficiency Act

AFR Agency Financial Report

AMP Annual Materials Plan

A/OPC Agency/Organization Program Coordinators

APR Annual Performance Report

ASP Annual Sales Plan

AWARS Automated Workflow and Reporting System

BRAC Base Realignment and Closure

CAC Common Access Card

CAPs Corrective Action Plans

CARS Central Accounting and Reporting System

CCs Critical Capabilities

CFO Chief Financial Officers

Charge Card Act Charge Card Abuse Prevention Act

CIO Chief Information Officer

COLA Cost of Living Adjustments

COTS Commercial Off-The-Shelf

COVID-19 Coronavirus-19

CPM Component Program Manager

CRO Chief Risk Officer

CSRS Civil Service Retirement System

CTC Cost-to-Complete

DAI Defense Agencies Initiative

DATA Act Digital Accountability and Transparency Act

DCIA Debt Collection Improvement Act

DERP Defense Environmental Restoration Program

DFAS Defense Finance and Accounting Service

DISA Defense Information System Agency

DLA Defense Logistics Agency

DoD Department of Defense

DOL Department of Labor

DSA Defense Supply Agency

DCSA Defense Contract Administration Services

DSS Distribution Standard System

DQP Data Quality Plan

EBS Enterprise Business System

ECC Resource Planning Central Component

EL Environmental and Disposal Liabilities

ERM Enterprise Risk Management

FASAB Federal Accounting Standards Advisory Board

FBwT Fund Balance with Treasury

FECA Federal Employees’ Compensation Act

FERS Federal Employees Retirement System

FFMIA Federal Financial Management Improvement Act

FFMSRs Federal Financial Management System Requirements

FMFIA Federal Managers’ Financial Integrity Act

FMR Financial Management Regulations

FPAs Federal Program Agencies

FRDAA Fraud Reduction and Data Analytics Act

FY Fiscal Year

GAAP Generally Accepted Accounting Principle

GAO Government Accountability Office

GF General Fund

GMRA Government Management Reform Act

GPC Government Purchase Card

GPRA Government Performance and Results Act

GSA General Services Administration

HC Historic Cost

ICOFS Internal Controls over Financial Systems

ICOR-O Internal Control over Operations

ICOR Internal Control over Reporting

ID Identification

Appendix C | Abbreviations & Acronyms
Defense Logistics Agency | FY2021 Transaction Fund | Agency Financial Report 122

IOD Insight on Demand

IPA Independent Public Accounting

IPERIA Improper Payments Elimination and Recovery Improvement Act

IT Information Technology

IUS Internal Use Software

LOEs Lines of Effort

MAC Moving Average Cost

NDAA The National Defense Authorization Act

NDS National Defense Stockpile

NFRs Notice of Findings and Recommendations

NSA National Security Agency

OCONUS Outside the Continental United States

ODCFO Office of the Deputy Chief Financial Officer

ODOs Other Defense Organizations

OI Other Information

OMB Office of Management and Budget

OPM Office of Personnel Management

OSHA Occupational Safety and Health Administration

OUSD Office Under Secretary of Defense

P3 Public-Private Partnerships

PMO Program Management Office

POL Petroleum, Oil, and Lubricant

PPE Personal Protective Equipment

PP&E Property, Plant and Equipment

PPA Prompt Payment Act

PPE Personal Protective Equipment

RACER Remedial Action Cost Engineering and Requirements

RCRA Resource Conservation and Recovery Act

S&C Strategic & Critical

S/L Straight-Line

RMIC Risk Management and Internal Control

SAP Systems Applications and Product

SFFAS Statement of Federal Financial Accounting Standards

SFIS Standard Financial Information Structure

SLOA Standard Line of Accounting

SM Strategic Materials

SMC Senior Management Council

SOA Statement of Assurance

TAS Treasury Account Symbol

TDD Treasury Direct Disbursing

TF Transaction Fund

TFM Treasury Financial Manual

U.S. United States

UDOs Undelivered Orders

USSGL U.S. Standard General Ledger

VV&A Validated, Verified, and Accredited

WCF Working Capital Fund

WMS Warehouse Management System

 Abbreviations & Acronyms | Appendix C
Appendix A | Summary of FMFIA Definitions and Reporting

123 Defense Logistics Agency | FY 2021 Transaction Fund | Agency Financial Report

 Acknowledgments | Appendix 

This AFR was prepared with the energies and talents of many 

employees across DLA and contract partners. A special note 

of appreciation is extended to the many diligent employees in 

the Financial Reporting Division within the Office of the CFO, 

for your time and efforts in preparing the AFR.

The DLA also would like to thank the Audit Task Force for 

coordinating the external audit of the Agency’s financial 

statements. 

The DLA offers our sincerest thanks and acknowledgment 

to the DLA Director, Senior Executive Leaders and their 

respective staff for their commitment to improve financial 

accountability and transparency, while executing the primary 

mission of Sustaining the Warfighter.

Acknowledgments