♦♦♦

 Andrew T. McNamara Building | 8725 John J. Kingman Road Fort Belvoir, VA 22060-6221 | Visit us at www.dla.mil

The Defense Logistics Agency (DLA) headquarters, also known as the Andrew T. McNamara Headquarters Complex, 

at Fort Belvoir, Virginia. The headquarters contains numerous offices responsible for supporting the overall agency. 

DLA provides supplies to the military services and supports their acquisition of weapons, fuel, repair parts, and other 

materials. The agency also disposes of excess or unusable equipment through various programs.

The Defense Logistics Agency (DLA) Headquarters

DEFENSE LOGISTICS AGENCY

FY 2022 | Transaction Fund

AGENCY FINANCIAL REPORT
Agency Financial Report | FY 2022 TRANSACTION FUND | Defense Logistics Agency i

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 due 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:

● 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;

● Payment Integrity Information Act of 

(PIIA) 2019

● 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.

Financial Section (Unaudited)

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

management’s response to the audit reports, as well as financial statements and the accompanying notes.

Other Information (Unaudited)

This section details DLA TF’s compliance with, and commitment to, specific regulations. It includes Summary of Financial 

Statement Audit and Management Assurances, management 

and performance challenges, and payment integrity reporting.

1 Refer to the Financial Section Introduction for definition of 

 principal financial statements.

TABLE OF CONTENTS

IV

Message from the Director

2 SECTION 1

Management’s Discussion 

and Analysis (Unaudited)

4 Mission and Organizational Structure

10 Performance Goals, Objectives, and 

Results

20 Analysis of Financial Statements and 

Stewardship Information 

26 Analysis of Systems, Controls, and 

Legal Compliance 

36 Forward-Looking Information

40 SECTION 2

Financial Section (Unaudited)

42 Message from the Chief Financial 

Officer

43 Audit Reports 

74 Management’s Response to Audit 

Reports 

75 Introduction to the Principal Financial 

Statements

76 Principal Financial Statements 

(Unaudited) 

80 Notes to the Principal Financial 

Statements (Unaudited)

The AFR is available on the DLA website at: 

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

106 SECTION 3

Other Information (Unaudited)

108 Summary of Financial Statement Audit 

and Management Assurances 

112 Management Challenges

116 Payment Integrity

118 APPENDIX

119 Appendix A: Summary of FMFIA 

Definitions and Reporting

121 Appendix B: J/D Codes, DLA HQ 

Program Support Structure, Roles and 

Responsibilities 

123 Appendix C: Abbreviations & Acronyms 

125 Acknowledgments

Air Force Staff Sgt. Amanda Kopecky participates in 

a joint operations field training exercise at Joint Base 

Elmendorf-Richardson, Alaska, Feb. 26, 2022.

Photo by: Air Force Airman 1st Class Patrick Sullivan

◄ Field Training
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report iv

Message from the Director

MESSAGE FROM THE DIRECTOR

FY 2022 | Transaction Fund

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

Fiscal Year (FY) 2022 Agency Financial Report. Over the last year, DLA 

celebrated its accomplishments spanning the past six decades. We are laserfocused on serving the Warfighter, and remaining 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. 

Notwithstanding the dramatic increases in fuel costs driven by the Ukraine conflict and 

continued impacts of the pandemic on global supply chains, we effectively and efficiently 

supported our customers. Additionally, the Agency continued to support efforts to combat 

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

military service members and families and to other Department of Defense customers. As always, our support to relief efforts for 

natural disasters, including hurricanes, flooding in Tennessee, and wildfires in California demonstrate our critical role in supporting 

the Nation.

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

Transaction Fund (TF) Financial Statements. Information obtained through this report will be 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 continues to 

track and remediate material weaknesses in these 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’s efforts have increased accountability, communication, and 

support across all levels of the organization to better focus our attention and align resources to areas with the most critical need 

and potential impact. DLA fully supports the overall Department of Defense priorities to deliver transparent financial reporting with 

integrity and agility in support of the National Defense Strategy. DLA will review audit results, identify root causes, prioritize 

resources, and develop corrective action plans. This effort will rely on continued identification of risks and establishing firm internal 

controls to address the risks throughout every process. 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.
Agency Financial Report | FY 2022 TRANSACTION FUND | Defense Logistics Agency v

Message from the Director

♦♦♦

As we close out DLA’s Diamond Anniversary year, I am of proud of our legacy and our 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.” 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.

Soldiers move an M142 high mobility artillery rocket system at Joint 

Base Lewis-McChord, Wash., Nov. 9, 2021, during Rainier War, a 

semiannual readiness exercise.

Management’s Discussion 

and Analysis

SECTION 1

DEFENSE LOGISTICS AGENCY

◄ RAINIER WAR - JBLM, WASHINGTON

2

Page no. 

PHOTO BY: ARMY CAPT. IAN SANDALL

UNAUDITED

FY 2022 | Transaction Fund
IN THIS SECTION:

4 Mission and Organizational Structure

10 Performance Goals, Objectives, and Results

20 Analysis of Financial Statements and Stewardship Information

26 Analysis of Systems, Controls, and Legal Compliance

36 Forward-Looking Information

SECTION 1 UNAUDITED

Management’s Discussion 

and Analysis

FY 2022 | Transaction Fund

Sunrise Honors

Hawaii Air National Guard Tech. Sgt. Darrell Bactad, Capt. Kalani Guillermo and Master Sgt. Russell 

Mesinas demonstrate ceremonial military honors at Joint Base Pearl Harbor-Hickam, Hawaii, Sept. 12, 

2021. Photo Credit: Air Force Master Sgt. Mysti Bicoy
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 4

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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

military buildup required the rapid procurement of vast amounts 

of 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.

Forged by History, Focused on the Future: 

A Short History of the Defense Logistics Agency

Aerial View of Columbus General Depot, 1962

In 1918, the U.S. Army established the installation known today as the Defense Supply Center Columbus 

to support the heavy demands of World War I. Originally opened as the Columbus Quartermaster Reserve 

Depot, the center underwent many name changes as its mission and scope fluctuated with the nation’s needs. 

Today, many longtime employees still refer to the installation as “the depot.”

MISSION AND ORGANIZATIONAL STRUCTURE

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5 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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 in 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 DoD recognized this expanded 

mission by renaming DSA the DLA. 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 most manufactured 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 (DCMC).

A robust contract management capability proved indispensable after Iraq invaded Kuwait in 1990. While DCMC revitalized an industrial base weakened by the end of the Cold War, 

the rest of the Agency housed, fed, equipped, and fueled a 

500,000-person force in an austere land. In all, DLA processed 

1.7 million requisitions, shipped $32 billion in spare parts, and 

contracted for $4.6 billion more: exemplary support that earned 

it its first joint unit meritorious award. 

The Agency continued reorganizing after troops returned 

home. In April 1990, DoD gave DLA the mission of overseeing 

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 

1961

The DSA 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. 
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 6

Management’s Discussion and Analysis (Unaudited) | SECTION 1

of Base Realignment and Closure (BRAC) 88, DLA HQ moved 

from Cameron Station, VA, to Fort Belvoir, VA. In the mid1990s, 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 Support Center collocated 

with Defense Industrial Supply Center in northern Philadelphia 

to form Defense Supply Center Philadelphia. Finally, Defense 

Automated Publishing Service (formerly 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 $6.9 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.

DLA continues to provide logistics, acquisition, and technical 

services to DoD and other customers and 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.

2020-22

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.
7 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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, Air Force, Marine Corps and Space 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 56 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

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.
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 8

Management’s Discussion and Analysis (Unaudited) | SECTION 1

How DLA TF Accomplishes its Mission

The DLA Strategic Materials (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 strategic and critical (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 S&C materials 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 operational 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 end-of-life Government items and disposes of excess stocks via a public sales 

program. The Stockpile Sales Program provides operational 

funding for the NDS. DLA SM performs analyses, planning, 

procurement, and management of materials critical to National 

security. DLA SM serves clients through a unique combination 

of technical expertise, global/geopolitical S&C material supply 

analyses, management of existing critical materials, and broad 

range tracking of future critical materials.

The DLA SM revenues are generated through public sales offerings to pre-qualified customers of stocks determined excess 

to DoD needs. The Annual Materials Plan serves as notification 

to Congress of NDS material plans for a given fiscal year. The 

Annual Sales Plan (ASP) is the execution plan for disposals via 

the Stockpile Sales Program and designates inventory available for sale. Receipts collected represent the source of funding for operational expenditures and new material acquisitions.

On the Move

Charles Knight, a materials handler assigned to the Air Force’s 436th Aerial Port Squadron, uses a forklift to move packages 

of body armor and helmets bound for Ukraine during a foreign military sales mission at Dover Air Force Base, Del., March 

8, 2022. Since 2014, the United States has committed more than $5.4 billion in total assistance to Ukraine for security and 

non-security purposes. Photo By: Air Force Tech. Sgt. J.D. Strong II
9 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 10

Management’s Discussion and Analysis (Unaudited) | SECTION 1

The DLA has established performance assessments of its 

programs for purposes of evaluating 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 2022 

APR with its FY 2024 Congressional Budget Justification. The 

APR is located at: https://dam.defense.gov/Publications/Annual-Performance-Plan-and-Performance-Report/. 

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.

PERFORMANCE GOALS, OBJECTIVES, AND RESULTS

Internal Inspection

Air Force Tech. Sgt. Justin St 

Thomas inspects the liner of 

an F-16 jet engine at Morris 

Air National Guard Base, 

Ariz., Jan. 9, 2022. Photo By:

Air Force Senior Master Sgt. 

Charles Givens

Figure 2: Lines of Effort and Critical Capabilities

Critical Capabilities (CC):

Success across all Lines of Effort

Lines of Effort (LOE): Core strategic outcomes of DLA's Targeted Transformation

CC-A: People & Culture >

 Supporting our people

CC-B: Fiscal Stewardship >

 Investing in outcomes

CC-C: Digital-Business Transformation >

 Embracing the Future 

LOE 1 LOE 2 LOE 3 LOE 4 LOE 5 

Tailors solutions to 

drive readiness

Deliberate approach, 

without tradeoff to 

the Warfighter

Transparency and 

accountability to 

our customers

Leading in logistics 

to deliver best value 

and manage risk

Adapting to new 

ways of working

Warfighter

Always

Support

to the

Nation

Trusted

Mission

Partner

Modernized

Acquisition and

Supply Chain

Management

Future

of Work
11 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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 Service-specific 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, enterprise-wide

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 problem-solving 

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 problem- solving 

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

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.
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 12

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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

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.

(continued on next page)
13 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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.

Ammo Supply

An MH-60S Knighthawk helicopter retrieves ammunition from the dry cargo and ammunition ship USNS Medgar 

Evers during a replenishment with the aircraft carrier USS George H.W. Bush in the Atlantic Ocean, Feb. 4, 2022. 

Photo Credit: Navy Petty Officer 3rd Class Novalee Manzella
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 14

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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 52 competitive offerings in FY 2022. The results were 41 sales contracts: 4 less 

than in FY 2021. FY 2022 contract awards totaled $103.2 million.

The variance between contract awards and sales is driven by 

differences between the time of award and the time of sale, 

and by differences between the unit price of the award and the 

unit price of the sale for contracts using formula-based pricing. For the year ended September 30, 2022, the sales total 

of $101.6 million is 2% lower than contract awards of $103.2 

million. 

Performance Measures (Unaudited)

Figure 3: DLA SM Sales and Contract Awards
15 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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 offerings. 

Pricing tolerances are established in advance based upon fair 

This performance measure relates to the objectives described above:

Objective B2: Cost visibility and management

Performance Measure 2: DLA SM Actual Collections versus Anticipated Collections

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 Annual Sales Plan (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 2022 collections totaled $102.3 million through September 

30, or 97.8% of anticipated total year collections of $104.6 million. 

There were seven contracts awarded with negotiated terms 

resulting in period of performance more than thirty days and 

not to exceed one year. Contracts awarded under negotiated 

terms can be fixed priced or formula-based. This translated 

to awards being made in nearly every offering (41 contracts 

awarded in 52 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.

Flight Ops

A Marine Corps UH1Y Huey conducts flight 

operations in Norway, 

April 19, 2022. Photo By:

Air Force Senior Airman 

Dallin Wrye
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 16

Management’s Discussion and Analysis (Unaudited) | SECTION 1

Figure 4: DLA SM Actual Collections versus Anticipated Collections

(From Standard Form 133, Report on Budget Execution and Budgetary Resources) 

Martinique Visit

Navy Petty Officer 3rd Class Emily Cauldwell throws a heaving line off the deck of the USS Milwaukee during sea and 

anchor detail as the ship arrives in Martinique, France, Feb. 17, 2022. Photo Credit: Navy Petty Officer 2nd Class 

Danielle Baker
17 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

Performance Measure 3: Future of Work 

This performance measure relates to the objectives described above:

Objective 5.1: Redefine virtual work models to enable our next generation workforce; 

Objective 5.2: Assess DLA Contiguous United States (CONUS) facilities footprint to maximize space 

utilization; and Objective 5.3: Build skillsets of the future.

DLA Human Resources is tasked with advancing a cooperative and supportive workplace culture. That culture was instrumental in allowing the Department to quickly adapt to 

extensive telework for many employees in the early days of the 

pandemic, while also allowing the Department to meet mission 

requirements under the unprecedented conditions.

The U.S. Office of Personnel Management (OPM) conducted 

an employee survey for DLA for FY 2021; the survey indicated 

that department-wide teleworking three or more days a week 

increased approximately 250% from 2019 (pre-pandemic) to 

2021. In 2021, 73.0% of DLA employees note that DLA has 

increased opportunities to telework versus 2019. Overall 

employee satisfaction with the DLA organization also increased 

by approximately 7.5% from 2019 to 2021. As the employee 

survey is conducted annually during October/November, the 

FY 2021 data is the latest available for the FY 2022 AFR.

Figure 5: How often do you telework?

Figure 6: Has DLA provided increased opportunities for Telework?

*2019 survey data is N/A 

0.0%

20.0%

40.0%

60.0%

80.0%

2019 results

(Pre Pandemic)

2020 results 2021 results

19.3%

71.5% 67.7%

How often do you Telework 

(3 or more days/week)

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2020 results 2021 results

70.2% 73.0%

Has DLA responded to employee Pandemic-driven needs by 

providing increased opportunities for Telework? 

(% who responded "yes")
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 18

Management’s Discussion and Analysis (Unaudited) | SECTION 1

Based on this data, it is expected that continuing the increased 

virtual work environment after COVID will support attracting 

and sustaining a competitive workforce, increased productivity, 

and heightened employee satisfaction.

While the Federal government has encouraged its workforce 

to work remotely as possible during the pandemic, specific 

guidance has been tailored to each organization’s work 

requirements. The target for percentage telework for the 

Federal workforce or total DLA has not yet been determined. 

DLA Human Resources is taking action to foster the culture 

of workplace creativity and caring to allow DLA to apply a 

collaborative and innovative spirit, enabling the workforce of 

the future by additional virtual work options, and by maximizing 

space utilization and building newly required skill sets.

Our greatest challenge will be finding the right balance of 

onsite and virtual work. The optimum balance will result in 

meeting employee health, wellness needs, and recruitment 

and retention goals. In addition, maintaining a strong workplace 

culture and continuing to build on interpersonal relationships 

will allow us to exceed expectations when faced with a global 

crisis.

The DLA is taking a thoughtful, holistic approach to shaping 

DLA’s future workplace policies, guided, and informed by efforts 

underway throughout the Federal government, with input from 

our employees, and in cooperation with our labor partners. For 

example, DLA is awaiting guidance from the White House on 

expanded telework opportunities for the Federal workforce so 

DLA can ensure DLA is in compliance with all guidelines and 

directives.

Secure Shipment

Sr. Airman Jansen Esteves, 

436th Aerial Port Squadron 

special handler, verifies 

shipment information for 

supplies bound for Ukraine 

during a foreign military 

sales mission at Dover Air 

Force Base, Del., March 20, 

2022. Photo By: Air Force 

Staff Sgt. Marco A. Gomez

Figure 7: How satisfied are you with your organization?

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2019 results

(Pre Pandemic)

2020 results 2021 results

65.2%

72.7% 72.7%

How satisfied are you with your organization?
19 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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 

This performance measure relates to the objectives described above: Objective B1: Auditability

Performance Measure 4: DLA Roadmap to Auditability

the AFR by addressing Notice of Findings and Recommendations (NFRs); and (2) developing, improving, and refining the 

underlying end-to-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 8: DLA Auditability Timeline

2010

NDAA mandates the DoD 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 FY17 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).

2022

The IPA issued a disclaimer of 

opinion on DLA’s FY22 financial 

statements. DLA continues to support 

the audit by identifying root causes of 

conditions, prioritizing resources, and 

developing corrective action plans. 

DLA Audit Coordination and Liaison 

group replaces Audit Task Force. 

Twilight Training

Army troopers discuss the 

next phase of a training 

rotation at a remote 

location of the National 

Training Center, Fort 

Irwin, Calif., May 25, 2022. 

Photo By: Army Staff Sgt. 

Christopher Stewart
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 20

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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.

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 2022 and FY 2021 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.

ANALYSIS OF FINANCIAL STATEMENTS AND STEWARDSHIP INFORMATION

Twilight Transit

The aircraft carrier USS Carl Vinson transits the Pacific Ocean, Feb. 9, 2022. Photo Credit: Navy Ensign Sarah Weinstein
21 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

Changes In Key Financial Measures

As of and for the Years Ended September 30, 2022 and 2021 (dollars in millions)

Condensed Principal Financial Statements

FY 2022 FY 2021 Increase/Decrease

Financial Condition (Unaudited) (Unaudited) $ %

Fund Balance with Treasury $ 500.6 $ 313.6 $ 187.0 59.6%

Inventory and Related Property, Net 762.6 809.4 (46.8) -5.8%

General PP&E, Net 0.6 0.8 (0.2) -25.0%

Advances and Prepayments 1.5 0.9 0.6 66.7%

TOTAL ASSETS $ 1,265.3 $ 1,124.7 $ 140.6 12.5%

Accounts Payable $ 1.5 $ 1.1 $ 0.4 36.4%

Environmental and Disposal Liabilities 12.2 9.8 2.4 24.5%

Federal Benefits and Other Liabilities 2.7 2.7 - 0.0%

Advances from Others and Deferred Revenue 0.6 - 0.6 N/A

TOTAL LIABILITIES $ 17.0 $ 13.6 $ 3.4 25.0%

Unexpended Appropriations $ 125.0 $ - $ 125.0 N/A

Cumulative Results of Operations 1,123.3 1,111.1 12.2 1.1%

TOTAL NET POSITION 

(ASSETS LESS LIABILITIES) $ 1,248.3 $ 1,111.1 $ 137.2 12.3%

Total Gross Cost $ 90.0 $ 141.3 $ (51.3) -36.3%

Less: Total Earned Revenue (101.7) (251.0) 149.3 -59.5%

NET COST OF OPERATIONS $ (11.7) $ (109.7) $ 98.0 -89.3%

Figure 9: Changes In Key Financial Measures

Dinner Time

Soldiers eat dinner at a dining facility tent in Mielec, Poland, Feb. 25, 2022. Using its Logistics Civil Augmentation 

Program, the 405th Army Field Support Brigade has established life support operations for thousands of U.S.-based 

soldiers deployed to Europe. Photo Credit: Army Lt. Col. Alan Manzo
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 22

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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 $762.6 

million or 60.3% of Total Assets as of September 30, 2022. 

DLA TF FBwT increase of $187.0 million or 59.6% from 

September 30, 2021 was primarily attributed to an appropriation 

received on March 24, 2022, under Public Law 117-103, 

Consolidated Appropriations Act, 2022 for $125.0 million. In 

addition, collections increased due to higher global demand of 

stockpile materials.

Figure 10: Total Assets by component as of September 30, 2022 and 2021.

Financial Results Summary

Assets – What DLA TF Owns and Manages

Total Assets (Unaudited)

As of September 30, 2022 and 2021 

($ in millions)

Total Assets (Unaudited)

As of September 30, 2022 

($ in millions)

FBwT

$500.6 

39.6%

Inventory and 

Related Property, 

Net

$762.6 

60.3%

General PP&E, 

Net and Other 

Assets

$0.6 

0.01% 

Advances and 

Prepayments

$1.5 

0.1%

FBwT

Inventory and Related Property, Net

General PP&E, Net and Other Assets

Advances and Prepayments

Total = $1,265.3M

 $-

 $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

Advances

and

Prepayments

$500.6 

$762.6 

$0.6 

$1.5 

$313.6 

$809.4 

$0.8 

$0.9 

FY 2022 Assets FY 2021 Assets
23 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

Liabilities - What DLA TF Owes

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

entities (Other than Intragovernmental) for goods and services 

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

for wages and future benefits, Other Liabilities; (3) owed for 

Environmental and Disposal Liabilities (E&DL); and related to 

(4) Advances from Others and Deferred Revenue. The largest 

liability as of September 30, 2022 was E&DL, and the increase 

of $2.4 million or 24.5% was primarily associated with extended 

environmental remediation requirements for a Non-Base 

Realignment and Closure (Non-BRAC) site. The E&DL balance 

of $12.2 million represented 71.8% of Total Liabilities as of 

September 30, 2022. Federal Benefits and Other Liabilities of 

$2.7 million represented 15.9% of Total Liabilities. Accounts 

Payable represented $1.5 million or 8.8% of Total Liabilities. 

Advances from Others and Deferred Revenue of $0.6 million 

represented 3.5% of Total Liabilities. 

Figure 11: Total Liabilities by component as of September 30, 2022 and 2021.

Total Liabilities (Unaudited)

As of September 30, 2022 

($ in millions)

Two Year Trend in Components 

of Total Liabilities (Unaudited)

As of September 30, 2022 and 2021 

($ in millions)

Accounts 

Payable

$1.5 

8.8%

Federal 

Benefits, 

Other 

Liabilities

$2.7 

15.9%

Environmental & 

Disposal 

Liabilities

$12.2 

71.8%

Advances from 

Others and 

Deferred 

Revenue

$0.6

3.5%

Accounts Payable

Federal Benefits, Other Liabilities

Environmental & Disposal Liabilities

Advances from Others and Deferred Revenue

 $- Total = $17.0M

 $2.0

 $4.0

 $6.0

 $8.0

 $10.0

 $12.0

 $14.0

Accounts

Payable

Federal

Benefits,

Other

Liabilities

Environmental

& Disposal

Liabilities

Advances

from Others

and Deferred

Revenue

$1.5 $2.7 

$12.2 

$0.6 

$1.1 

$2.7 

$9.8 

$-

FY 2022 Liabilities FY 2021 Liabilities
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 24

Management’s Discussion and Analysis (Unaudited) | SECTION 1

 $-

 $50.0

 $100.0

 $150.0

 $200.0

 $250.0

 $300.0

 $350.0

 $400.0

 $450.0

 $500.0

Total Budgetary Resources New Obligations

$310.7 

$49.0 

$483.0 

$54.6 

FY 2021 FY 2022

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 

primarily consisted of Cumulative Results of Operations of 

$1,123.3 million and $1,111.1 million as of September 30, 2022 

and 2021, respectively. DLA TF Net Position also includes 

Unexpended Appropriations of $125.0 million as of September 

30, 2022 due to appropriations received under Public Law 117-

103 in FY 2022.

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 ($11.7) million for the year ended September 30, 2022 

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

Net Cost of Operations increased ($98.0) million due to a 

decrease in total earned revenue that exceeded the decrease 

in total gross cost. Gross Cost decreased ($51.4) million or 

36.4% and Earned Revenue decreased ($149.3) million or 

59.5% primarily due to a decrease in losses and gains as a 

result of inventory adjustments recorded in FY 2021 that did 

not occur in FY 2022. 

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 forgoods 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, 2022, Total Budgetary Resources were $483.0 million and Obligations were $54.6 million. Total Budgetary Resources increased by $172.3 million or 

55.5%, which was primarily due to the receipt of $125.0 million 

in appropriations under Public Law 117-103 in FY 2022. 

Figure 12: Total Budgetary Resources and New Obligations for year ended September 30, 2022 and 2021.

Two Year Trend in Status of Budgetary Resources and Obligations(Unaudited)

As of September 30, 2022 and 2021 

($ in millions)
25 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

The DLA TF principal financial statements2 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 

requests for systems changes. DLA has begun migrating to the 

2 Refer to the Financial Section Introduction for definition of principal 

financial statements.

4th version of System Applications and Products (SAP’s) Data 

processing Enterprise Resource Planning (ERP) Business 

Suite 4 SAP HANA (SAP S/4HANA). Phase 1 of the two phased 

ERP Migration has been completed and Phase 2 is currently in 

process, with a planned completion date of FY 2027. 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.

Limitations of the Financial Statements 

Sighting Seattle

Navy Petty Officer 3rd Class 

Michael John locates navigational aids as the aircraft carrier 

USS Nimitz passes Seattle while 

transiting through Puget Sound 

in Bremerton, Wash., July 7, 2022. 

Photo By: Navy Petty Officer 3rd 

Class David Rowe
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 26

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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. L. 104-208), as 

Management Assurances

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.
27 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 28

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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 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. The self-identified deficiencies are tied to one or 

more of the three reporting categories: Internal Control over 

Reporting – Financial Reporting (ICOR-FR), Internal Controls 

over Reporting – Operations (ICOR-O) and Internal Control 

over Financial Reporting – Financial Systems (ICOR-FS). DLA 

organizations who identify deficiencies are required to create 

Corrective Action Plans (CAPs) to address those deficiencies. 

CAP owners provide periodic updates to DLA leadership and 

CAPs related to Material Weaknesses and Significant Deficiencies are reported to the Office of the Under Secretary of 

Defense (Comptroller) (OUSD(C)). Upon completion of a CAP, 

the CAP owner submits the CAP to the Enterprise Risk Management Program Management Office (ERM PMO) for review 

and validation. The ERM PMO coordinates through the ERM 

Governance Process to obtain management approval of CAP 

completion. If approved, the ERM PMO will submit the closed 

CAP information to OUSD (C) as part of the Statement of 

Assurance (SOA). After submitting two material weaknesses for closure in FY 2022, DLA’s SOA Material Weaknesses and Significant Deficiencies template included a total of 

one Internal Controls over Reporting - Operations (ICOR-O) 

material weakness.

Summary of Internal Control Assessment

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 
29 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

In response to an auditor-identified NFR regarding the lack of 

a comprehensive A-123 program, DLA performed a rebaseline of our Assessable and Sub-Assessable Unit (AU/SAU) 

Structure in FY 2022. This will help improve the coverage of 

DLA’s end-to-end business processes to ensure more thorough 

and complete internal control testing is performed in accordance with OMB A-123. DLA continues to build the institutional 

capacity to execute an effective OMB Circular A-123 Program 

and demonstrates measurable progress that includes:

● Revising 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;

● Updating the Enterprise-wide Corrective Action 

Plan (CAP) to document the implementation of 

DLA’s A-123 program on DLA’s Audit Roadmap and 

provide more accurate milestones to support accountability and oversight. The corrective actions 

detailed in the CAPs are in process and have a 

completion date of FY 2024. 

● Rebaselining DLA’s population of Assessable and 

Sub-Assessable Units to provide more comprehensive coverage of end-to-end business processes;

● Implementing DLA’s Fraud Risk Management 

Strategy, that defines the framework to protect our 

agency’s assets and resources from fraud, waste, 

and, abuse;

● 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;

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.

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 2023 

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.

Effectiveness of Internal Control over Operations (FMFIA § 2)

Material Weaknesses Corrective Action Summary

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.
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 30

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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:

● Federal Financial Management System (FFMSRs)

● Federal Accounting Standards

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

transaction level

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.

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

Departures from U.S. GAAP.

FFMSRs:

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

include: the disclaimer of opinion on the FY 2021 and FY 2022 

financial statements; and material weaknesses over internal 

controls over reporting and information system non-compliance related to financial system security were reported in FY 

2021 and FY 2022 in areas that corresponded to FFMSRs.

Federal Accounting Standards3:

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

include: the disclaimer of opinion on the FY 2021 and FY 2022 

financial statements and material weaknesses over internal 

controls over reporting reported by DLA in FY 2021 and FY 

2022 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 2021 and FY 2022 

financial statements and material weaknesses over internal 

controls over reporting reported in FY 2021 and FY 2022 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.

Stowing Equipment

Marines assigned to the 2nd 

Battalion, 11th Marine Regiment, 1st Marine Division, load 

a crate with 155 mm M777 towed 

howitzer stock list-level 3 equipment for transportation at Camp 

Pendleton, Calif., April 20, 2022. 

The howitzers and munitions are 

part of the security assistance for 

Ukraine. Photo By: Marine Corps 

Cpl. Mackenzie Binion
31 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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 2023 - 

FY 2026

• 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 2023 - 

FY 2026

• 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 2023 - 

FY 2026

• Finance

• Information Operations

• Acquisition

• Logistics Operations
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 32

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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.

DLA developed a 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. 

During FY 2022, DLA continued implementation of its DQP, as 

well as test plans to assess controls and monitor and improve 

procurement data quality in the core financial system, Enterprise Business 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 2022, 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.

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 

Compliance with Laws and Regulations
33 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

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 

semi- annual 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 2022, 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 Corrective Action 

Plans (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-toend 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.

Financial Management Systems Framework

The DLA relies on the 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 
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 34

Management’s Discussion and Analysis (Unaudited) | SECTION 1

Component (ECC) version 6.0. This is a cloud-based, 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 migrated 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 second year of a two phased ERP Migration. 

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

phase all applications that were within the EBS accreditation boundary were migrated to SAP’s Secure HANA Cloud 

platform. Phase 1 was successfully completed on February 

22, 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/4 HANA 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 mandated implementation deadline is October 2022 

for Federal Program Agencies (FPAs) for new 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. Currently, DLA’s G-Invoicing system solution is on track for production by April 

2024.

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.

Munitions Transport

Pallets holding munitions are 

transported off an aircraft 

cargo loader into an aircraft at 

Travis Air Force Base, Calif., 

April 26, 2022. The United 

States continues to reaffirm 

its unwavering support for 

Ukraine’s sovereignty and 

territorial integrity. Photo 

Credit: Air Force Senior 

Airman Jonathon Carnell
35 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

Insertion and Extraction

A service member participates in helicopter insertion and extraction training during International Maritime Exercise/

Cutlass Express, a multinational training event, in the Persian Gulf, Feb. 15, 2022. Photo by: Navy Petty Officer 2nd Class 

Helen Brown
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 36

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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. We must attract, develop, and 

retain a diverse, skilled and agile workforce. The two 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 

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, 

accessibility, 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 

than on site or in person. DLA developed a COVID-19 Vaccination Documentation System that replaced the manual email 

and spreadsheet tracking previously 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 is able to ascertain the percentage 

of the workforce that has been vaccinated against COVID-19. 

This information was used to aid in distribution at locations with 

shortfalls and assisted 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 high-performing, 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 continue to 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 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. The DoD Workplace Guidance 

for Final Reentry of DoD Civilian Personnel, dated March 16, 

FORWARD-LOOKING INFORMATION

(continued on next page)
37 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 1 | Management’s Discussion and Analysis (Unaudited)

2022, the Consolidated Department of Defense Coronavirus Disease 2019 Force Health Protection Guidance, dated 

August 29, 2022, and the DLA COVID-19 Reentry and Safety 

Plan, dated May 11, 2022 provides DLA-specific guidance on 

reentry and safety protocols. The DLA COVID-19 Coordination Team (CCT) continues to routinely conduct meetings to 

develop, implement, and monitor DLA’s compliance with the 

DLA COVID-19 Reentry and Safety Plan. This newly issued 

guidance includes the Health Protection Condition (HPCON) 

Level Framework & Authority which establishes the appropriate categorization of each location according to Center 

for Disease Control and Prevention COVID-19 Community 

Levels. This framework includes Occupancy Limit Authority, 

Reentry Options, Physical Distancing Requirements, Vaccination Reporting, Testing Protocols, Travel Restrictions and 

Meeting Approval Procedures. The DLA Notice of Reentry to 

the Workforce memorandum was signed on April 6, 2022, that 

provided a 30-day advance notice prior to initially recalling 

or adjusting employees’ work schedules within the HPCON 

framework occupancy limits. 

DLA leaders are committed to protecting our workforce from 

the effects of the COVID-19 pandemic while preserving the 

Agency’s ability to be mission ready. As DoD revises and 

develops new policies to protect the workforce, the DLA CCT 

will continue to provide implementation guidance as appropriate for DLA worksites. Each DLA major population center 

has its own plan for returning employees to the workplace, all 

based on common guidance for a condition- based, 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. 

The DLA is currently assessing the existence and potential 

impact of Climite-Related Risk relatives to DLA operations. 

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 

Always.

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 conducted a 

review of our current strategy against the FY 2022 National 

Defense Authorization Act and the 2022 Acquisition and Sustainment (A&S) Goals and Priorities to assess their impact and 

ensure alignment and DLA’s 2021-2026 Strategic Plan remains 

in effect. Our Strategic Plan is designed to meet the evolving 

requirements of the Warfighter and the Nation with a targeted 

transformative approach encompassing the most critical priorities for the next four years. DLA’s Strategic Plan reaffirms 

and extends DLA’s commitment to Warfighter readiness and 

lethality and to self- accountability. 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, 

mission- oriented, 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.
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 38

Management’s Discussion and Analysis (Unaudited) | SECTION 1

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:

● 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.

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.

Technological Advancement and Initiatives

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

Landstuhl Vaccinations

Army Sgt. Heidy Bucheli, noncommissioned officer in charge of anesthesiology at Landstuhl Regional Medical Center, 

prepares a COVID-19 vaccination for children ages 5 to 11 at LRMC in Landstuhl, Germany, Nov. 18, 2021. LRMC, the 

largest American hospital overseas, began COVID-19 vaccinations for children ages 5 to 11, becoming one of the first 

military treatment facilities overseas to vaccinate that patient population. Photo Credit: Marcy Sanchez

A Navy MH-60S Seahawk helicopter conducts a vertical replenishment 

alongside the USS Harry S. Truman in the Mediterranean Sea, Jan. 29, 

2022.

Financial Section

SECTION 2

◄ HAWK VIEW - MEDITERRANEAN SEA

40

Page no. 

 PHOTO BY:

NAVY PETTY OFFICER 3RD CLASS TATE CARDINAL

UNAUDITED

DEFENSE LOGISTICS AGENCY FY 2022 | Transaction Fund
SECTION 2 Financial Section

UNAUDITED

FY 2022 | Transaction Fund

Boarding Line

Marines board a CH-53E Super Stallion at Camp Schwab, Okinawa, Japan, Feb. 15, 2022, during Jungle 

Warfare, a large-scale field training exercise. Photo Credit: Marine Corps Cpl. Jackson Dukes

IN THIS SECTION:

42 Message from the Chief Financial Officer

43 Audit Reports

74 Management’s Response to Audit Reports

75 Introduction to the Principal Financial Statements

76 Principal Financial Statements (Unaudited)

80 Notes to the Principal Financial Statements 

(Unaudited)

Balance Sheets Statements of Net Cost

Statements of Changes 

in Net Position

Statements of 

Budgetary Resources

76 77

78 79
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 42

Financial Section (Unaudited) | SECTION 2

MESSAGE FROM THE CHIEF FINANCIAL OFFICER

NOVEMBER 2022

I 

am proud to join the Director in issuing our Fiscal Year (FY) 2022 Agency Financial 

Report (AFR), the sixth Defense Logistics Agency (DLA) has issued since an 

Independent Public Accounting firm commenced the financial statement audit of the 

Transaction Fund Fund (TF). The FY 2022 DLA TF AFR highlights valuable insights into 

the overall financial operations, accomplishments, and challenges of the Agency. This 

section of the AFR provides a comprehensive view of DLA TF financial activities. DLA 

remains committed to providing services and ensuring value, efficiency, and effectiveness, 

as well as ensuring outstanding stewardship to protect against fraud, waste, and abuse in 

everyprogram 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 across all levels of the enterprise consist of establishing the framework 

to correct material weaknesses by reviewing, establishing, and reengineering 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 efforts include initiatives to improve financial operations (budgeting, accounting, and reporting) to enhance 

the value provided to the Warfighter and our partners. DLA continues to focus efforts and resources towards upgrading financial 

and operational systems, remediating audit findings in areas with the greatest impact to readiness and lethality, while improving 

financial data and internal controls to achieve an unmodified audit opinion.

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

our business operations and financial 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, and implement actions to remediate 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

DLA REMAINS COMMITTED TO ENSURING VALUE, 

EFFICIENCY, AND EFFECTIVENESS, AS WELL AS 

ENSURING OUTSTANDING STEWARDSHIP 

TO PROTECT AGAINST FR AUD, WASTE, 

AND ABUSE IN EVERY PROGR AM WE MANAGE.
43 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

AUDIT REPORTS

INSPECTOR GENERAL

DEPARTMENT OF DEFENSE

4800 MARK CENTER DRIVE

ALEXANDRIA, VIRGINIA 22350-1500

November 7, 2022

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 2022 and FY 2021 (Project No. D2022-D000FE-0061.000, 

Report No. DODIG-2022-025)

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, 2022, and 2021. 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 2022, Volume 1, Volume 2 

(Updated, June 2022), and Volume 3 (Updated, June 2022). 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 2022 and FY 2021 Financial Statements and related 

notes. 
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 44

Financial Section (Unaudited) | SECTION 2

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’s report stated that the DLA did not 

design or implement internal controls to: 

 support Inventory balances, document procurements and disbursements, 

perform periodic physical counts, and accumulate the cost of Inventory;

 assess the completeness and accuracy of Fund Balance with Treasury 

reconciliation data and evaluate the impact of transactions held in suspense 

accounts;

 review, approve, record and support Accounts Payable, expenses, and related 

budgetary balances;

 validate financial statement account balances, monitor reporting variances, and 

provide detailed listings for accounts that reconcile to the general ledger;

 identify and address significant risks, to include documenting end-to-end 

business processes, monitoring internal control risks, and remediating audit 

findings; or

 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 did not comply with the Federal Financial Management 

Improvement Act of 1996 and the 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 2022 and FY 2021 Financial Statements and related notes. 

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

 

* 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.
45 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

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 

respects, with GAGAS. EY is responsible for the attached November 7, 2022 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
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 46

Financial Section (Unaudited) | SECTION 2

Report of Independent Auditors

The Director of the Defense Logistics Agency and the

Inspector General of the Department of Defense

Report on the Audit of the Financial Statements

Disclaimer of Opinion

We were engaged to audit the financial statements of the National Defense Stockpile Transaction 

Fund of the Defense Logistics Agency (DLA), which comprise the balance sheets as of September 

30, 2022 and 2021, 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 (collectively referred to as 

the “financial statements”).

We do not express an opinion on the accompanying financial statements of DLA. Because of the 

significance of the matters described in the Basis for Disclaimer of Opinion section of our report,

we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit 

opinion on these financial statements.

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 of these matters, we were unable to determine 

whether any adjustments might have been found necessary in respect of recorded or unrecorded 

balances and the elements making up DLA’s financial statements as of and for the years ended 

September 30, 2022 and 2021.

Departures 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 DLA’s financial statements

as of and for the years ended September 30, 2022 and 2021 is not currently determinable by DLA 

and could be material.

Responsibilities of Management for the Financial Statements

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

accordance with accounting principles generally accepted in the United States of America, and for 

the design, implementation, and maintenance of internal control relevant to the preparation and 

A member firm of Ernst & Young Global Limited

Ernst & Young LLP

1775 Tysons Blvd

Tysons, VA 22102

Tel: +1 703 747 1000

Fax: +1 703 747 0100

ey.com
47 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

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

fraud or error.

Auditor’s Responsibilities for the Audit of the Financial Statements

Our responsibility is to conduct an audit of DLA’sfinancial statements in accordance with auditing 

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

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

Comptroller General of the United States (Government Auditing Standards), and in accordance 

with the provisions of Office of Management and Budget Bulletin No. 22-01, Audit Requirements 

for Federal Financial Statements, and to issue an auditor’s report. However, because of the matters

described in the Basis for Disclaimer of Opinion section of our report, we were not able to obtain 

sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial 

statements.

We are required to be independent of DLA and to meet our other ethical responsibilities in 

accordance with the relevant ethical requirements relating to our audit.

Required Supplementary Information

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

Management’s Discussion and Analysis and Required Supplementary Information, as listed in the 

Table of Contents, be presented to supplement the financial statements. Such information is the 

responsibility of management and, 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 section of our report. We do not express an opinion or provide any assurance on the 

information.

Other Reporting Required by Government Auditing Standards

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

November 7, 2022, 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 and 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 

A member firm of Ernst & Young Global Limited
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 48

Financial Section (Unaudited) | SECTION 2

reporting or on compliance. Those reports are an integral part of an audit performed in accordance 

with Government Auditing Standards in considering DLA’s internal control over financial 

reporting and compliance.

November 7, 2022



A member firm of Ernst & Young Global Limited
49 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

1

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 (Government Auditing 

Standards) and the provisions of Office of Management and Budget (OMB) Bulletin No. 22-01,

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, 2022, and the related statements of net cost and changes in net 

position and statement of budgetary resources for the year then ended, and the related notes

(collectively referred to as the “financial statements”), and have issued our report thereon dated 

November 7, 2022. Our report disclaims an opinion on the financial statements because DLA has

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.

Report on 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 preceding

paragraph 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 and in more 

detail in Appendix A, 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 

A member firm of Ernst & Young Global Limited

Ernst & Young LLP

1775 Tysons Blvd

Tysons, VA 22102

Tel: +1 703 747 1000

Fax: +1 703 747 0100

ey.com
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 50

Financial Section (Unaudited) | SECTION 2

2

combination of deficiencies, in internal control such that there is a reasonable possibility that a 

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 

A member firm of Ernst & Young Global Limited
51 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

3

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 in accordance with 

U.S. generally accepted accounting principles (GAAP). 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 five areas of deficiency which, when aggregated, 

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

• Access Controls

• Configuration Management

• Segregation of Duties Controls

• Security Management / Governance Over Implementation of Security Controls

• Contingency Planning

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

A member firm of Ernst & Young Global Limited
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 52

Financial Section (Unaudited) | SECTION 2

4

Significant Deficiencies

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

operation that we consider to be a significant deficiencies, 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. 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.

DLA’s Response to Findings

Government Auditing Standards require the auditor to perform limited procedures on DLA’s 

response to the findings identified in our engagement to audit and described in the accompanying 

Management’s Response to Audit Reports dated November 7, 2022. DLA’s response was not 

subjected to the other auditing procedures applied in the engagement to audit the financial 

statements and, accordingly, we express no opinion on the response.

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.

Other Reporting Required by Government Auditing Standards

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

November 7, 2022 on our tests of DLA’s compliance with certain provisions of laws, regulations, 

contracts and grant agreements, and other matters. The purpose of that 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 compliance. That report is an integral part of an audit performed in accordance with 

Government Auditing Standards in considering DLA’s compliance.

November 7, 2022



A member firm of Ernst & Young Global Limited
53 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

5

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 inventory counts 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. 

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: 

• SFFAS No. 3 states that entities should value inventory on the basis of historical cost. DLA 

is unable to support the valuation of inventory at historical cost as required by SFFAS No. 

3 and should apply the alternative valuation methods provided under SFFAS No. 48 to 

establish the value of inventory at the beginning of the reporting period. DLA has not

implemented SFFAS No. 48, and, as such, is unable to support that inventory is valued in 

accordance with U.S. GAAP.

• SFFAS No. 3 states that the carrying amount of inventory that has suffered a permanent 

decline in value to an amount less than the cost should be reduced to the expected net 

realizable value of the materials. 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
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 54

Financial Section (Unaudited) | SECTION 2

6

document the basis for determining that the benchmarks and inputs used for assessing 

whether a decline in value has occurred are appropriate. 

• 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.

DLA does not have sufficient policies and procedures to identify and capitalize all 

appropriate costs incurred in acquiring inventory. In addition, inventory received from 

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

No. 3.

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:

• Applying the alternative valuation methods provided under SFFAS No. 48 and ensuring 

that all reporting and disclosure requirements relating to implementation of SFFAS No. 48 

are met and that policies and procedures are sufficient to record and present inventory 

completely and accurately in accordance with SFFAS No. 3 subsequent to implementation 

of SFFAS No. 48. 

• 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 and location are properly 

capitalized and that inventory received from federal entities without reimbursement is 

properly valued in accordance with U.S. GAAP.

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 5125 requires 

agencies to implement effective and efficient reconciliation processes and perform timely 
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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.

• Suspense Accounts. The documentation does not include the process to reconcile and 

resolve the amounts recorded in suspense accounts.

• Reconciling Items to Treasury. The documentation does not include the process to

research and resolve differences between U.S. Treasury, disbursing system records and 

accounting system records within a timely basis.

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. 

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.

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.
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• 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 FBwT.

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; accruing for liabilities incurred not yet 

invoiced; 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.

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.

For example, in one of our three samples selected, DLA did not record the downward 

adjustment in the correct period.
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• 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 goods received were recorded in the proper period 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. 

• 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 (MIPRs) that do not have a fixed monthly cost, the 
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straight-line method is not appropriate. For example, in nine out of the ten samples selected,

DLA did not accrue for liabilities incurred but not yet invoiced in the proper period.

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 UDOs accurately and 

timely; controls to review and close invalid UDOs 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. 

• 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 
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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 Policies, 

Procedures, and Controls. DLA has not documented the end-to-end process related to 

financial reporting and funds management.

• Financial Reporting. The documentation does not include the processes to review and 

reconcile system generated reversals of prior year JVs which impact opening balances.

• 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. Furthermore, DLA did not implement the TFM 

update to add USSGL account 425400 – Reimbursements and Other Income Earned –

Collected From Non-Federal Sources. 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. 

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 
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the Defense Departmental Reporting System (DDRS) as “top-side” adjustments and are 

identified as “unsupported” by Defense Finance and Accounting Services (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.

• 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.

• 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. 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

• Transactions Recorded Using Elevated Privileges. DLA does not have controls to 

review and approve transactions recorded 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 
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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 Policies, 

Procedures, and Controls.

• Financial Reporting. Document the financial reporting process, to accurately reflect all 

aspects of the end-to-end process, including processes and controls performed to reconcile 

prior year activity to opening balances. 

• Funds Management. Document the funds management process and controls to accurately 

reflect all aspects of the end-to-end budget to execute process, including process 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. 

• 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.
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• Monthly or Quarterly JV 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; to review that the financial statements and disclosures are complete and

prepared in accordance with U.S. GAAP; and to analyze the impact of and implement new 

accounting standards, as appropriate.

• 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 

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 
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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. 

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, configuration management, and contingency planning 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. 
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Control deficiencies in the design and operation of financially significant information systems 

continue to occur in the information systems environment controls. The deficiencies relate to the 

following areas:

• Access controls 

• Configuration management 

• Segregation of duties controls

• Security management/governance over implementation of security controls

• Contingency planning

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.

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 one financially significant application, 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 
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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 two financially significant applications, 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. 

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 allows 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 and periodically monitor 

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. 
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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. 

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.

• Management internal control procedures do not identify financially significant risks, establish 

and implement controls, track known risk exposure and remediate control gaps. 

Contingency Planning Controls

Contingency planning controls should be part of an entity-wide program designed to achieve 

continuity of operations for organizational mission and business functions and should be 

effectively monitored. Contingency planning should be considered throughout the system 

development life cycle, be a fundamental part of the system design, and reflect applicable laws, 

executive orders, directives, regulations, policies, standards, guidelines, organizational risk 

tolerance, and system impact level. Without a well-designed program, issues with systems that do 

not process to completion may not be addressed or may be addressed inappropriately, and relevant 

servers and information contained on them may not be included in the backup schedule.

The identified contingency planning weaknesses in aggregate represent a significant risk to the 

DLA financial statements, IT environment, and financial applications. Absent or ineffective 

controls around contingency planning increases the risk that hardware or software issues will result 

in the loss of financial data or the ability to accurately process that data. 

The identified contingency planning control weaknesses that represent a significant risk to the 

DLA financial management information systems environment include the following:

• Contingency planning (CP) processes and controls failed in allowing management to backup 

system data.
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SECTION 2 | Financial Section (Unaudited)

19

Recommendations

Implement controls to address deficiencies in access controls, configuration management, 

segregation of duties, security management procedures and contingency planning to include:

Access 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 

terminated and inactive users. 

• Monitor user activity, identify and audit security violations and assess privileged and sensitive 

users and transactions.

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. 

Segregation of Duties Controls

• Identify, periodically review and document sensitive and 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. 

Security Management/Governance Over Implementation of Security Controls

• Document risks and controls in place, identify gaps, and complete corrective actions to 

strengthen the internal control environment. Improve documentation, test and validate 

controls, and remediate findings. 

• Establish a process to evaluate and incorporate service provider reports, findings, and controls 

into management’s security documentation, governance process, and application control 

environment. 

Contingency Planning Controls

• Design and implement controls to periodically backup and monitor system data to 

successfully respond to incidents and prevent the permanent loss of data. 
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 68

Financial Section (Unaudited) | SECTION 2

20

Appendix B – Significant Deficiencies

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 isrecorded 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 analysis to retrospectively review the estimate, which includes comparing

actual costs to estimates to validate the estimation methodology. 
69 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

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. 
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 70

Financial Section (Unaudited) | SECTION 2

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 (Government Auditing 

Standards) and the provisions of Office of Management and Budget (OMB) Bulletin No. 22-01,

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, 2022, and the related statements of net cost and changes in net 

position and statement of budgetary resources for the year then ended, and the related notes 

(collectively referred to as the “financial statements”), and have issued our report thereon dated 

November 7, 2022. Our report disclaims an opinion on the financial statements because DLA has

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.

Report on Compliance and Other Matters

In connection with our engagement to audit the financial statements, we performed tests of DLA’s

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). 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 or other matters that are required to be reported 

under Government Auditing Standards and the provisions of OMB Bulletin No. 22-01, 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 7, 2022, 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.

A member firm of Ernst & Young Global Limited

Ernst & Young LLP

1775 Tysons Blvd

Tysons, VA 22102

Tel: +1 703 747 1000

Fax: +1 703 747 0100

ey.com
71 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

As referenced in the Fiscal Year (FY) 2022 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 Management’s Responsibility for 

Enterprise Risk Management and Internal Control, OMB Circular No. A-123 Appendix D.

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,

security management and contingency planning. 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.

A member firm of Ernst & Young Global Limited
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 72

Financial Section (Unaudited) | SECTION 2

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 

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 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 2022 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.

DLA’s Response to Findings

Government Auditing Standards require the auditor to perform limited procedures on DLA’s 

response to the findings identified in our engagement to audit and described in the accompanying

Management’s Response to the Audit Reports dated November 7, 2022. DLA’s response was not 

subjected to the other auditing procedures applied in the engagement to audit the financial 

statements and, accordingly, we express no opinion on the response.

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 in accordance with Government Auditing 

Standards in considering the entity’s compliance. Accordingly, this communication is not suitable 

for any other purpose.

A member firm of Ernst & Young Global Limited
73 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

Other Reporting Required by Government Auditing Standards

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

November 7, 2022 on our consideration of DLA’s internal control over financial reporting. The 

purpose of that report is solely to describe the scope of our testing of internal control over financial 

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

internal control over financial reporting. That report is an integral part of an audit performed in 

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

financial reporting.

November 7, 2022



A member firm of Ernst & Young Global Limited
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 74

Financial Section (Unaudited) | SECTION 2

MANAGEMENT’S RESPONSE TO AUDIT REPORTS
75 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

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, 2022 and 2021.

The Statements of Net Cost present the net cost 

of DLA TF operations for the years ended September 

30, 2022 and 2021. 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, 2022 and 2021.

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, 2022 and 2021.

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:

INTRODUCTION TO THE PRINCIPAL FINANCIAL STATEMENTS

DLA Supplier '22

Defense Logistics Agency 

Director Navy Vice Adm. 

Michelle Skubic (right) 

speaks to retired Army Maj. 

Gen. James Boozer (left), 

Executive Vice President 

for the National Defense 

Industrial Association, and 

the Honorable Michael 

Bayer, of the NDIA Executive 

Committee, during a 

networking break April 6 

at the 2022 DLA Land and 

Maritime Supplier Conference 

and Exhibition. Photo by:

Shannon Mormon
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 76

Financial Section (Unaudited) | SECTION 2

Unaudited

FY 2022

Unaudited 

FY 2021 

ASSETS 

Intragovernmental

Fund Balance with Treasury (Note 2) $ 500,627 $ 313,633 

Total Intragovernmental 500,627 313,633 

Other than Intragovernmental

Accounts Receivable 34 4 

Inventory and Related Property, Net (Note 3) 762,581 809,312 

General Property, Plant and Equipment, Net (Note 4) 574 797 

Advances and Prepayments 1,460 915 

Total Other than Intragovernmental 764,649 811,028 

TOTAL ASSETS $ 1,265,276 $ 1,124,661 

LIABILITIES (Note 5)

Intragovernmental

Accounts Payable $ 790 $ 762 

Other Liabilities (Note 8) 234 282 

Total Intragovernmental 1,024 1,044 

Total Other than Intragovernmental

Accounts Payable 715 321 

Environmental and Disposal Liabilities (Note 7) 12,181 9,800 

Federal Employee Benefits Payable (Note 6) 2,050 2,172 

Advances from Others and Deferred Revenue 644 - 

Other Liabilities (Note 8) 366 262 

Total Other than Intragovernmental 15,956 12,555 

TOTAL LIABILITIES 16,980 13,599 

Commitments and Contingencies (Note 9)

NET POSITION

Unexpended Appropriations - Funds from Other than Dedicated Collections 125,000 -

Cumulative Results of Operations - Funds from Other than Dedicated Collections 1,123,296 1,111,062

TOTAL NET POSITION 1,248,296 1,111,062

TOTAL LIABILITIES AND NET POSITION $ 1,265,276 $ 1,124,661 

The accompanying notes are an integral part of these statements.

Balance Sheets

As of September 30, 2022 and 2021 (dollars in thousands)
77 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

The accompanying notes are an integral part of these statements. 

Unaudited

FY 2022

Unaudited 

FY 2021 

Operations, Readiness & Support

 Gross Cost $ 89,973 $ 141,358 

 Less: Earned Revenue (101,704) (251,047)

Net Cost (11,731) (109,689)

NET COST OF OPERATIONS $ (11,731) $ (109,689)

Statements of Net Cost

For the Years Ended September 30, 2022 and 2021 (dollars in thousands)

Keflavik Refueling Operations

Sgt. Matthew Dungan, center right, a native of Lebanon, Missouri, assigned to Marine Wing Support Squadron 271, 

monitors members of MWSS 271 and Navy Cargo Handling Battalion 1 testing fuel during a fixed wing refueling 

operation as part of exercise Northern Viking 22 on Keflavik Air Base, Iceland, April 4, 2022. Photo By: Communication 

Specialist 2nd Class Nicholas Carter
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 78

Financial Section (Unaudited) | SECTION 2

Unaudited

FY 2022

Unaudited 

FY 2021 

Unexpended Appropriations

Beginning Balances $ - $ -

Appropriations Received 125,000 -

Net Change in Unexpended Appropriations 125,000 -

Total Unexpended Appropriations: Ending $ 125,000 $ -

Cumulative Results of Operations 

Beginning Balance $ 1,111,062 $ 1,000,885 

Imputed Financing 503 488

Net Cost of Operations (11,731) (109,689)

Net Change in Cumulative Results of Operations 12,234 110,177 

Cumulative Results of Operations: Ending Balance 1,123,296 1,111,062

TOTAL NET POSITION $ 1,248,296 $ 1,111,062 

The accompanying notes are an integral part of these statements. 

Statements of Changes in Net Position

For the Years Ended September 30, 2022 and 2021 (dollars in thousands)

Alaska Airman

Air Force Senior Airman Bryan Guerrero participates in airborne training at Joint Base Elmendorf-Richardson, Alaska, 

Feb. 10, 2022. Photo By: Alejandro Pena, Air Force
79 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

Unaudited

FY 2022

Unaudited 

FY 2021

BUDGETARY RESOURCES

Unobligated Balance From Prior Year Budget Authority, Net $ 263,408 $ 229,822 

Appropriations 125,000 -

Spending Authority From Offsetting Collections 94,582 80,850 

TOTAL BUDGETARY RESOURCES $ 482,990 $ 310,672 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments $ 54,649 $ 48,953 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 166,499 44,743 

Unapportioned, Unexpired Accounts 261,842 216,976 

Unexpired Unobligated Balance, End of Year 428,341 261,719 

Total Unobligated Balance, End of Year 428,341 261,719 

TOTAL BUDGETARY RESOURCES $ 482,990 $ 310,672 

OUTLAYS, NET

Outlays, Net $ (61,994) $ (32,903)

AGENCY OUTLAYS, NET $ (61,994) $ (32,903)

The accompanying notes are an integral part of these statements. 

Statements of Budgetary Resources

For the Years Ended September 30, 2022 and 2021 (dollars in thousands)

On the Horizon

Marine Corps F/A-18 Hornet aircraft sit on the tarmac at Hyakuri Air Base, Japan, Dec. 14, 2021. Photo By: Courtesy Photo
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 80

Financial Section (Unaudited) | SECTION 2

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, Air Force, Marine Corps and 

Space 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 FASAB4 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 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 

 4 FASAB is the official body for setting accounting standards of the U.S. 

government.

NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS (UNAUDITED)

Note 1: Summary of Significant Accounting Policies(Unaudited) 
81 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

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 obligated5 

amounts and unobligated6 amounts for the fiscal year); and 

(3) Outlays7, Net for the fiscal year, which is comprised of 

Outlays less Offsetting Receipts (cash transactions). DLA 

TF’s budgetary resources8 include unobligated balances of 

resources from prior years and new resources, consisting of 

spending authority from offsetting collections and appropriations.

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.

5 Per OMB Circular A-11, Section 20, “Obligation means a legally binding 

agreement that will result in outlays, immediately or in the future.”

6 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. 

7 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.”

8 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."
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 82

Financial Section (Unaudited) | SECTION 2

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., Note 10, and Note 11): 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 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, 
83 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

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DLA 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 Sheet as of September 30, 2021.

(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.)

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.)

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:

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 
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 84

Financial Section (Unaudited) | SECTION 2

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 accordance with SFFAS 5, Accounting for Liabilities of the Federal Government. In addition, 

DLA TF is unable to support the UDO balance in the accounting system.

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 E&DL 

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.

Sorting Donations

Sailors assigned to the Arleigh Burkeclass guided-missile destroyer USS 

Forrest Sherman participate in a 

community relations event by helping 

pack, sort and distribute donations to 

Ukrainian refugees in Poland’s Gdansk 

region, March 28, 2022. The Forrest 

Sherman is deployed to Europe to 

participate in maritime activities in 

support of the U.S. 6th Fleet and NATO 

allies. Photo By: Navy Lt. J.G. Kathleen 

Barrios
85 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

E. Appropriations and 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.

The DLA TF received an appropriation from Public Law 

117–103, Consolidated Appropriations Act, 2022, for the 

acquisition and retention of certain stockpile materials. 

For the year ended September 30, 2022, DLA TF received 

direct appropriations in the amount of $125.0 million. The 

appropriations will remain available until September 30, 

2024.

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 

FASAB

Statement No SFFAS 54 SFFAS 57 (paragraphs 3 – 8, 11, and 12) SFFAS 60

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

Omnibus Amendments 

FY 2021

Adoption 

Required in FY Deferred to FY 2024 Effective FY 2024 Effective 2023

(continued on next page)

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.

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, and SFFAS 60, Omnibus Amendments 

2021: Leases-Related Topics, amend certain references to 

leases affected by SFFAS 54, as well as other minor changes 

in order to improve clarity of existing statements.
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Financial Section (Unaudited) | SECTION 2

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.

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. 

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Accounts Receivable.)
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SECTION 2 | Financial Section (Unaudited)

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 evaluates all contingent liabilities based on three criteria: 

probable, reasonably possible, and remote. 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. DLA TF discloses those contingencies that are reasonably possible in Note 9, Commitments and 

Contingencies. DLA TF does not disclose or record contingent 

liabilities when the loss is considered remote.

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.

In the event of an adverse judgment against the Government, 

some of the liabilities may be payable from the U.S. Treasury. 

For legal contingency matters where DLA Counsel is unable 

to express an opinion regarding the likely outcome of the case 

and an estimate of the potential legal liability cannot be made, 

the total amount claimed against the government is classified 

as “Reasonably Possible” and disclosed if available.

The DLA TF records an accrual for and discloses probable 

E&DL contingencies in Note 7, Environmental and Disposal Liabilities, and Note 9, Commitments and Contingencies. 

(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).

Asset Classes Depreciation 

Method Useful Life (Years)

General

 Equipment S/L 5 or 10
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Financial Section (Unaudited) | SECTION 2

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

E&DL 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 E&DL 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 E&DL through its annual cost- to-complete 

(CTC) process. DLA TF’s accrued E&DL 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; 

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 twoyear 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 
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SECTION 2 | Financial Section (Unaudited)

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.

Unexpended Appropriations: Unexpended appropriations consist of unobligated and undelivered order 

balances. Unobligated balances are amounts of remaining 

budgetary resources available for obligation, which have 

not been rescinded or withdrawn. Undelivered orders are 

the amount of obligations incurred for goods and/or services 

ordered, but not yet received. For the year ended September 

30, 2022, DLA TF has not obligated appropriations received.

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: 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.

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, 2022 and 2021, 

respectively, DLA TF does not have activity related to non-exchange 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. DLA TF’s other financing 

sources come from appropriations received and recognized as 

financing sources when used. 

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.)
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 90

Financial Section (Unaudited) | SECTION 2

Note 2: Fund Balance with Treasury (Unaudited)

Fund Balance with Treasury as of September 30, 2022 and 2021, respectively, consist of the following (dollars in thousands):

FY 2022 FY 2021

Status of Fund Balance with Treasury

Unobligated Balance:

Available $ 166,499 $ 44,743 

Unavailable 291,545 238,999 

Obligated Balances Not Yet Disbursed 42,583 29,891 

Total Fund Balance with Treasury $ 500,627 $ 313,633 

Status of Fund Balance with Treasury presents 

the budgetary and proprietary resources that constitute DLA 

TF FBwT. It consists of unobligated and obligated balances. 

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 unapportioned 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 non-fiduciary deposit funds. As of September 30, 2022 and 2021, 

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, 2022 

and 2021, respectively:

Loading Equipment

Air Force crewmen guide a medium 

tactical vehicle from Bravo Company, 

87th Division Sustainment Support 

Battalion, 3rd Division Sustainment 

Brigade, 3rd Infantry Division, onto 

a C-17 Globemaster at Hunter Army 

Airfield, Savannah, Ga., March 11, 

2022. Photo By: Army Staff Sgt. Joel 

Salgado

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).
91 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

(Refer to Note 1.C., Departures from U.S. GAAP, related to Fund Balance with Treasury)

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)

FY 2022 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 $ 102,262 $ 102,262 $ 0

Disbursements $ 40,268 $ 39,675 $ 593

Note 3: Inventory and Related Property, Net (Unaudited)

Inventory and Related Property, Net as of September 30, 2022 and 2021, respectively, include stockpile materials and consist of 

the following (dollars in thousands):

Valuation Method FY 2022 FY 2021 

Inventory and Related Property, Net

Stockpile Materials Held for Sale HC $ 11,877 $ 10,143 

Stockpile Materials Held in Reserve for Future Use HC 750,704 799,169 

Total Inventory and Related Property, Net $ 762,581 $ 809,312 

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 (ASP). The Stockpile Materials Held for Sale in FY 2022 includes Ores, Metals, 

Minerals, and Alloys. As of September 30, 2022 and 2021, 

Stockpile Materials Held for Sale estimated selling price is 

$39.1 million and $16.5 million, respectively. The difference 

between the carrying amount of the Stockpile Materials Held 

for Sale and the estimated selling price as of September 30, 

2022 and 2021 is $27.3 million and $6.4 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.)

9The 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 Cost9
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 92

Financial Section (Unaudited) | SECTION 2

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 

The table below discloses activity for General Property, Plant and Equipment, Net as of September 30, 2022 and 2021 (dollars in 

thousands):

Note 4: General Property, Plant and Equipment, Net (Unaudited)

General Property, Plant and Equipment, Net as of September 30, 2022 and 2021, respectively, consist of the following (dollars in 

thousands):

FY 2022

Acquisition Value Accumulated 

Depreciation Net Book Value

Major Asset Class:

General Equipment $ 2,223 $ (1,649) $ 574 

Total General Property, Plant and Equipment, Net $ 2,223 $ (1,649) $ 574 

FY 2022 FY 2021

General Property, Plant and Equipment, Net - Beginning Balances $ 797 $ 1,019

Depreciation Expense (223) (222)

General Property, Plant and Equipment, Net - Ending Balances $ 574 $ 797

Propane Inspection

Jason Webb, 341st Missile Wing occupational 

safety and health specialist, inspects a 

propane tank Aug. 1, 2016, at Malmstrom 

Air Force Base, Montana. In January 2022, 

Defense Logistics Agency Energy launched 

a pilot program for the LOGFUEL card 

so military and federal customers can use 

commercial sources for propane and other 

fuel sources worldwide when short-notice 

requirements arise. Photo By: U.S. Air Force 

Airman 1st Class Daniel Brosam
93 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

Note 5: Liabilities not Covered by Budgetary Resources (Unaudited)

FY 2022 FY 2021

Intragovernmental Liabilities

Other Liabilities $ 178 $ 180 

Total Intragovernmental Liabilities 178 180 

Other than Intragovernmental Liabilities

Environmental and Disposal Liabilities 11,600 6,658 

Federal Employee Benefits Payable 2,050 2,172 

Total Other than Intragovernmental Liabilities 13,650 8,830 

Total Liabilities not Covered by Budgetary Resources 13,828 9,010 

Total Liabilities Covered by Budgetary Resources 3,152 4,589 

Total Liabilities $ 16,980 $ 13,599 

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, 2022 and 2021, the 

total liabilities covered by budgetary resources for environmental and disposal liabilities consist of $581.7 thousand and 

$3,142.2 thousand, respectively.

Liabilities not Covered by Budgetary Resources as of September 30, 2022 and 2021, 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.)

Delivering Supplies

Airmen in the Indo-Pacific partnered 

with the U.S. Embassy Timor-Leste to 

deliver medical supplies to assist with 

the mitigation of COVID-19 in TimorLeste, March 31, 2022. Airmen assigned 

to the 374th Airlift Wing out of Yokota 

Air Base, Japan provided support by 

prepping and delivering 109 boxes of 

supplies. Photo By: Courtesy photo
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 94

Financial Section (Unaudited) | SECTION 2

Note 6: Federal Employee Benefits Payable and Related Other 

Liabilities (Unaudited)

Federal Employee Benefits Payable and Related Other Liabilities as of September 30, 2022 and 2021, respectively, consist of 

the following (dollars in thousands):

Employer Contributions and Payroll Taxes 

Payable (Intragovernmental) is the employer portion 

of payroll taxes and benefit contributions for health benefits, 

retirement, life insurance and voluntary separation incentive 

payments.

Unfunded FECA Liability (Intragovernmental) includes the accrued FECA liability paid by DOL but not 

yet reimbursed by DLA TF.

Actuarial FECA Liability (Other than Intragovernmental) is 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 2022

Liabilities

(Less: Assets 

Available to 

Pay Benefits)

Unfunded 

Liabilities

Intragovernmental Other Liabilities

Employer Contributions and Payroll Taxes Payable $ 56 $ (56) $ -

Unfunded FECA Liability 178 - 178 

Total Intragovernmental Other Liabilities $ 234 $ (56) $ 178 

Other than Intragovernmental Federal Employee Benefits Payable

Actuarial FECA Liability $ 1,320 $ - $ 1,320 

Accrued Unfunded Annual Leave 730 - 730 

Total Other than Intragovernmental Federal Employee Benefits Payable $ 2,050 $ - $ 2,050 

FY 2021

Liabilities

(Less: Assets 

Available to 

Pay Benefits)

Unfunded 

Liabilities

Intragovernmental Other Liabilities

Employer Contributions and Payroll Taxes Payable $ 102 $ (102) $ - 

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 
95 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

Note 7: Environmental and Disposal Liabilities (Unaudited)

FY 2022 FY 2021

Environmental and Disposal Liabilities

Environmental Corrective Action $ 12,090 $ 9,717 

Environmental Closure Requirements 91 83

Total Environmental and Disposal Liabilities $ 12,181 $ 9,800 

The DLA TF E&DL are comprised of two primary elements: (1) 

existing obligations supporting DLA SM environmental restoration programs, and (2) the Cost to Complete (CTC) which 

includes anticipated future costs necessary to complete environmental restoration requirements at DLA SM environmental 

restoration sites.

In FY 2022 and FY 2021, DLA TF utilized the Remedial Action 

Cost Engineering and Requirements (RACER) software to 

generate the CTC estimates of anticipated future costs. FY 

2022 CTC cost estimates were generated for 14 sites: seven 

sites with environmental corrective action costs and seven 

sites with environmental closure requirements costs.

Types of Environmental and Disposal 

Liabilities: The DLA TF is responsible for the recognition, 

measurement, reporting, and disclosure of E&DL not eligible 

for funding under the Defense Environmental Restoration 

Program (DERP), also known as Non-BRAC E&DL, and Environmental Disposal for General Equipment (GE). Non-BRAC 

E&DL are specifically related to past and current installation 

restoration activities and operations, and closure and disposal 

of PP&E. All cleanup and disposal actions are done in coordination with regulatory Agencies, other responsible parties, and 

current property owners.

The DLA TF reportable E&DL is under Other Accrued E&DL – 

Non- BRAC and includes the following line items:

Environmental Corrective Action includes E&DL 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 E&DL 

associated with the future closure/decommissioning of facilities on an installation that have environmental closure requirements to include fuel storage tanks and pipelines. DLA 

assessed its PP&E inventory and does not currently have reportable TF E&DL for Asbestos. DLA TF assessed its general 

equipment inventory and does not currently have reportable TF 

E&DL for these or any other E&DL categories as listed on the 

DoD Financial Management Regulations (FMR) Volume 6B, 

Chapter 10 – Notes 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 

to E&DL 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 PP&E assets 

such as Petroleum, Oil, and Lubricant (POL) storage tanks and 

GE in accordance with applicable Federal, State, and local 

laws and regulations. DLA TF reports E&DL associated with 

closures of PP&E in accordance with SFFAS 5, Accounting for 

Environmental and Disposal Liabilities as of September 30, 2022 and 2021, respectively, consist of the following (dollars in 

thousands):
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 96

Financial Section (Unaudited) | SECTION 2

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. 

Additionally, DLA TF is required to report E&DL associated 

with Non-Nuclear Powered GE, commonly known as General 

Equipment, in accordance with SFFAS 6, Accounting for 

Property, Plant, and Equipment and FASAB Federal Financial 

Accounting and Auditing Technical Release 11: Implementation Guidance on Cleanup Costs Associated with Equipment, 

and 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 E&DL 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 E&DL Site 

Identification (ID) process tracks environmental events such 

as spills and releases in an Environmental Event Repository 

and evaluates each event annually for E&DL potentiality to 

determine the annual CTC inventory. DLA TF E&DL 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. Processes are conducted in accordance 

with DLA policies and procedures, the DoD 7000.14-R FMR 

Volume 4, Chapter 13 – Environmental and Disposal Liabilities 

(March 2022).

CTC estimates revised through Roll Forward, as applicable, 

and prior year obligations are reported in the balance as of 

September 30. As of the reporting date, no material changes 

in the total estimated cleanup costs were identified through 

the Roll Forward review due to changes in laws, technology, 

or plans. In addition, DLA is not aware of any changes to TF 

E&DL estimates that would result from inflation, deflation, technology, plans, and or pending changes to applicable laws and 

regulation. 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. 

E&DL 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 E&DL includes prior year obligations and the 

estimates of future costs necessary to complete requirements. 

DLA TF has instituted extensive controls to ensure that these 

estimates are accurate and reproducible. The cost estimates 

produced through the ELM 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. TF E&DL can be further affected if investigation of 

the environmental sites reveals contamination levels that differ 

from the estimate parameters.

The calculation of DLA TF E&DL relies on site/asset inventories. An asset inventory obtained from DLA SM provides the 

basis for asset-related EL estimates. The E&DL 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 E&DL exists but the E&DL is not probable and 

measurable. These environmental events will be re-evalu-
97 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

ated 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 

TF E&DL balance.

Unrecognized Costs: The DLA TF systematically 

recognizes asset-related E&DL over the useful life of PP&E 

assets in accordance with DoD FMR Volume 4, Chapter 13 - 

Environmental and Disposal Liabilities, Paragraph 3.2 (March 

2022). The total recognized Environmental Closure Requirements liability E&DL is stated above in the footnote and the associated unrecognized Environmental Closure Requirements 

E&DL is $35.5 thousand and $36.0 thousand as of September 

Note 8: Other Liabilities (Unaudited) 

Other Liabilities as of September 30, 2022 and 2021, 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 2022

Current Noncurrent Total

Other than Intragovernmental Other Liabilities

Accrued Funded Payroll and Benefits $ 366 $ - $ 366 

Total Other than Intragovernmental Other Liabilities $ 366 $ - $ 366 

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 

30, 2022, and 2021, respectively. DLA TF has no reportable 

Asset-related EL for Asbestos or general equipment. Asset-related EL are amortized based on the useful life of the assets 

as defined in DoD FMR Volume 4, Chapter 24 – Real Property, 

Paragraph 240206, 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.)

Scrub Down

Airmen perform a full 

scrub down during 

hazardous materials 

decontamination training 

at Kunsan Air Base, South 

Korea, March 11, 2022. 

Photo By: Air Force Staff 

Sgt. Gabrielle Spalding
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 98

Financial Section (Unaudited) | SECTION 2

Note 9: Commitments and Contingencies (Unaudited)

Accrued and reasonably possible environmental contingent liabilities as of September 30, 2022 and 2021, respectively, consist 

of the following (dollars in thousands):

FY 2022

Accrued 

Liabilities

Estimated Range of Loss

 Lower End Upper End

Environmental Contingencies

Probable $ 12,181 $ - $ -

Reasonably Possible $ - $ -

FY 2021

Accrued 

Liabilities

Estimated Range of Loss

 Lower End Upper End

Environmental Contingencies

Probable $ 9,800 $ - $ -

Reasonably Possible $ - $ -

Environmental Contingencies: The DLA TF has 

developed a process to identify, estimate, and record contingent E&DL. 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 not a party in 

administrative proceedings or legal actions as of September 

30, 2022 and 2021. 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.

As of September 30, 2022, DLA does not have any matters that 

are identified as a probable or reasonably possible liability, and 

zero matters that are identified as remote liabilities.

Commitments: The DLA TF does not have obligations 

related to canceled appropriations for contractual commitments.

(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.)
99 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

Note 10: Undelivered Orders (Unaudited)

UDOs for the years ended September 30, 2022 and 2021, respectively, consist of the following (dollars in thousands):

FY 2022 FY 2021

Intragovernmental Undelivered Orders

Unpaid $ 21,324 $ 19,945 

Total Intragovernmental Undelivered Orders 21,324 19,945 

Other than Intragovernmental Undelivered Orders

Unpaid 19,334 8,497 

Paid 1,460 915 

Total Other than Intragovernmental Undelivered Orders 20,794 9,412 

Total Undelivered Orders $ 42,118 $ 29,357 

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, 2022 and 2021, 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.)

Equipment Runners

Pararescuemen load equipment onto a Marine Medium Tiltrotor Squadron 161 during a fast rope exercise at Camp 

Lemonnier, Djibouti, Feb. 8, 2022. Troops specialize in technical rescue, extraction, battlefield trauma and extended care 

in the event that a service member or partner nation requests casualty evacuation. Photo By: Air Force Senior Airman 

Blake Wiles
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 100

Financial Section (Unaudited) | SECTION 2

Note 11: Reconciliation of Net Cost to Net Outlays (Unaudited)

Reconciliation of Net Cost to Net Outlays for the years ended September 30, 2022 and 2021, consist of the following (dollars in 

thousands):

FY 2022

Intragovernmental Other than 

Intragovernmental Total

NET COST $ 16,977 $ (28,708) $ (11,731)

Components of Net Cost That 

are Not Part of Net Outlays

General Property Plant and Equipment Depreciation - (223) (223)

Cost of Goods Sold - (50,276) (50,276)

Net Gains/(Losses) - (15) (15) 

Net Gains/(Losses) Related to Inventory Valuation 

Adjustment - - -

Increase/(Decrease) in Assets:

Accounts Receivable, Net - 30 30

Advances and Prepayments - 545 545 

(Increase)/Decrease in Liabilities:

Accounts Payable (28) (394) (422)

Environmental and Disposal Liabilities - (2,381) (2,381)

Federal Employee Benefits Payable - 122 122 

Advances from Others and Deferred Revenue - (644) (644)

Other Liabilities 48 (104) (56)

Financing Sources:

Imputed Financing (503) - (503)

Total Components of Net Cost That are 

Not Part of Net Outlays (483) (53,340) (53,823)

Components of Net Outlays 

That are Not Part of Net Cost

Acquisition of Inventory - 3,560 3,560

Total Components of Net Outlays That are 

Not Part of Net Cost - 3,560 3,560

NET OUTLAYS $ 16,494 $ (78,488) (61,994)

Outlays, Net, Statement of Budgetary Resources (61,994)

Reconciling Difference -
101 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

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).

For FY 2022, 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 

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 

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 $ -
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 102

Financial Section (Unaudited) | SECTION 2

customers; (2) the increase in Non-BRAC Environmental Corrective Action E&DL; and (3) the acquisition of inventory. 

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 Intragovernmental 

customers; (2) Net Gains Related to Inventory Valuation Adjustment, which were due to the stockpile materials value adjustments; and (3) the acquisition of Inventory.

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. However, DLA TF will continue to investigate and resolve 

the causes of the items not included in the reconciliation and 

any reconciling differences.

(Refer to Note 1.C., Departures from U.S. GAAP, related to 

Accounts Receivable, Revenue, and Gains, Inventory and 

Related Property, Net, Intragovernmental/Intra-departmental and Other than Intragovernmental Transactions, Accounts 

Payable, Undelivered Orders, and Reconciliation of Net Cost 

to Net Outlays.)

Preparing Samples

Air Force Tech. Sgt. Max-Eddie Ibarrientos prepares a sample to test for COVID-19 at Joint Base Elmendorf-Richardson, 

Alaska, March 16, 2022. Photo By: Air Force Senior Airman Samuel Colvin
103 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 2 | Financial Section (Unaudited)

Eagle Formation

Air Force F-15C/D Eagles line up in formation behind an HH-60 Pave Hawk during a routine wing readiness exercise at 

Kadena Air Base, Japan, March 2, 2022. Photo by: Air Force Airman 1st Class Stephen Pulter
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 104

Financial Section (Unaudited) | SECTION 2

THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY 

The guided missile destroyer USS Ross transits the Mediterranean Sea, 

March 17, 2022.

Other Information

SECTION 3

◄ MEDITERRANEAN TRANSIT - MEDITERRANEAN SEA

106

Page no. 

 PHOTO BY:

NAVY PETTY OFFICER 2ND CLASS CLAIRE M. DUBOIS

UNAUDITED

DEFENSE LOGISTICS AGENCY FY 2022 | Transaction Fund
IN THIS SECTION:

108 Summary of Financial Statement Audit 

and Management Assurances

112 Management Challenges

116 Payment Integrity

SECTION 3 Other Information

UNAUDITED

FY 2022 | Transaction Fund

Light the Way

Soldiers ride in M1126 Stryker vehicles before Cobra Gold, an international training exercise, at Fort 

Bhumibol Lopburi Artillery Centre in Thailand, Feb. 20, 2022. Photo Credit: Army 1st Lt. Joshua Lieb
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 108

Other Information (Unaudited) | SECTION 3

The audit reports on the FY 2022 and FY 2021 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 2022 and FY 2021, 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. For FY 2022, DLA has 

completed and validated corrective actions for two of the three 

ICOR-O Material Weaknesses summarized in the table below. 

In FY 2022, 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 audits identified ICOR material weaknesses and ICOFS 

non-conformances are still present and have not been remediated in FY 2022. The DLA Audit Coordination & Liaison 

group 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 2022 Summary of the Financial Statement Audit

Audit Opinion Disclaimer

Restatement No

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

SUMMARY OF FINANCIAL STATEMENT AUDIT 

AND MANAGEMENT ASSURANCES

Gathering Supplies

Air Force 2nd Lt. Kaelan Hayes, a 

clinical nurse assigned to a military medical team, gathers medical 

supplies as part of the COVID-19 

response operations at Signature 

Healthcare Brockton Hospital in 

Brockton, Mass., March 15, 2022. 

Photo By: Army Sgt. Kaden D. Pitt
109 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 3 | Other Information (Unaudited)

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 FY2022 material weaknesses associated with DLA TF.

Food Inspection

Navy Petty Officer 2nd Class David Tuil conducts a health inspection of food vendors at the Navy Exchange Mall, Joint Base 

Pearl Harbor-Hickam, Hawaii, March 21, 2022. The Navy is working closely with the Hawaii Department of Health, Environmental Protection Agency and the Army to restore safe drinking water to Joint Base Pearl Harbor-Hickam housing communities through sampling and flushing. Photo By: Navy Petty Officer 2nd Class MarQueon Tramble
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 110

Other Information (Unaudited) | SECTION 3

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 - - 0

Contract Administration: Nonverification 

of supplier invoices

1 - - - - 1

Business Process 

Controls: Lack of 

procedures over the 

scrap management 

program

 1 - 1 - - 0

Total Material

 Weaknesses 3 - 2 - - 1

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

Contingency 

Planning - 1 - - - 1

Total NonConformances 4 1 - - - 5
111 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 3 | Other Information (Unaudited)

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

Boat Operator

Navy Petty Officer 1st Class Genedonabelle Hernando operates a patrol boat during training in Long Beach, Calif., March

9, 2022. Photo By: Navy Chief Petty Officer Nelson Doromal Jr.

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. 
Defense Logistics Agency | FY2022 TRANSACTION FUND | Agency Financial Report 112

Other Information (Unaudited) | SECTION 3

MANAGEMENT CHALLENGES
113 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 3 | Other Information (Unaudited)
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 114

Other Information (Unaudited) | SECTION 3
115 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

SECTION 3 | Other Information (Unaudited)

Hawaii Formation

Sailors man the rails as the USS Abraham Lincoln pulls into Joint Base Pearl Harbor-Hickam, Hawaii, June 26, 2022, 

during Rim of the Pacific, the world’s largest international maritime exercise. Photo by: Navy Seaman Kassandra Alanis
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 116

Other Information (Unaudited) | SECTION 3

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 post- payment 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 OMB Circular A-136 Section II.4.5 and PIIA, 

each Executive Branch agency must complete the Annual Data 

Call issued by OMB and provide a link to PaymentAccuracy.

gov in their AFR or PAR to fulfill reporting requirements. In 

addition, each Executive Branch agency should report on the 

actions taken in their AFR or PAR. For detailed reporting on 

DoD payment integrity, refer to the OI section of the consolidated DoD AFR at: https://comptroller.defense.gov/odcfo/afr/

Classroom Time

Marine Corps Lance Cpl. Adrian Moreno instructs at Lonestar Academy, an educational facility that expands upon the 

curriculum already offered to Afghan evacuees at Fort Pickett, Va., Dec. 29, 2021. Photo By: Navy Chief Petty Officer 

John Pearl

PAYMENT INTEGRITY

Marines participate in a chemical, biological, radioactive and nuclear 

training exercise during Spartan Fury at Pohakuloa Training Area, 

Hawaii, March 5, 2022. Spartan Fury is designed to refine longrange communications through naval asset integration and mission 

processing from battalion to firing sections.

APPENDIX

118

Page no. 

PHOTO BY: MARINE CORPS STAFF SGT. OLIVIA KNAPP

DEFENSE LOGISTICS AGENCY FY 2022 | Transaction Fund

◄ SPARTAN FURY - SAN DIEGO, PTA HAWAII
119 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

APPENDIX A | Summary of FMFIA Definitions and Reporting

119

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; or

(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.

APPENDIX A: SUMMARY OF FMFIA DEFINITIONS AND REPORTING
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 120

Summary of FMFIA Definitions and Reporting | APPENDIX A 

120

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. 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 entry-level 

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.

APPENDIX A: CONTINUED
121 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

APPENDIX B | J/D Codes, DLA HQ Program Support Structure, Roles and Responsibilities

121

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 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 enterprise-wide respondent 

and subject matter expertise on all Equal Employment Opportunity Compliance oversight, Affirmative Employment and Diversity and Inclusion.
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 122

J/D Codes, DLA HQ Program Support Structure, Roles and Responsibilities | APPENDIX B 

122

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.

Relief Supplies

Army Spc. Marc Dube, a health care specialist assigned to the Headquarters and Headquarters Company, 192nd Military 

Police Battalion, Connecticut Army National Guard, distributes COVID-19 relief supplies to Hamden school district representatives at the Connecticut Army National Guard Training Center East Haven Rifle Range, East Haven, Conn., March 

3, 2022. Photo Credit: Army Sgt. Matthew Lucibello
123 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

APPENDIX C | Abbreviations & Acronyms

123

A/BO Approving/Billing Officials

A&FP Accounting & Finance Policy Directorate 

A/OPC Agency/Organization Program Coordinators

AU/SAU Assessable and Sub-Assessable Unit 

BPR/LRP Business Process Engineering/Laws Regulations and Policy

ADA Anti-Deficiency Act

AFR Agency Financial Report

AMP Annual Materials Plan

APR Annual Performance Report

ASP Annual Sales Plan

AWARS Automated Workflow and Reporting System

BRAC Base Realignment and Closure

BTS Business Transformation Study

CAC Common Access Card

CAPs Corrective Action Plans

CARS Central Accounting and Reporting System

CCs Critical Capabilities

CCT COVID-19 Coordination Team 

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

DCMC Defense Contract Management Command

DERP Defense Environmental Restoration Program

DFAS Defense Finance and Accounting Service

DLA Defense Logistics Agency

DoD Department of Defense

DoDIG Department of Defense Office of the Inspector General

DOL Department of Labor

DSA Defense Supply Agency

DSS Distribution Standard System

DQP Data Quality Plan

EBS Enterprise Business System

ECC Resource Planning Central Component

E&DL 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

FY Fiscal Year

GAAP Generally Accepted Accounting Principle

GAO Government Accountability Office

GE General Equipment

GF General Fund

GMRA Government Management Reform Act

GPC Government Purchase Card

GPRA Government Performance and Results Act

GSA General Services Administration

HPCON Health Protection Condition 

HQ Headquarters

ICOR-FS 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 | FY 2022 TRANSACTION FUND | Agency Financial Report 124

Abbreviations & Acronyms | APPENDIX C 

124

IOD Insight on Demand

IP Improper Payments

IPA Independent Public Accounting

IUS Internal Use Software

LOEs Lines of Effort

MAC Moving Average Cost

MSC Major Subordinate Command

NDAA The National Defense Authorization Act

NDS National Defense Stockpile

NFRs Notice of Findings and Recommendations

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

PIIA Payment Integrity Information Act 

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

RMIC Risk Management and Internal Control

S&C Strategic & Critical

S/L Straight-Line

SAP Systems Applications and Product

SFFAS Statement of Federal Financial Accounting Standards

SFIS Standard Financial Information Structure

SHC Secure HANA Cloud

SLOA Standard Line of Accounting

SM Strategic Materials

SMC Senior Management Council

SOA Statement of Assurance

SOD Statement of Difference 

TAS Treasury Account Symbol

TF Transaction Fund

TFM Treasury Financial Manual

TI Treasury Index

TROR Treasury Report on Receivables 

U.S. United States

UDOs Undelivered Orders

UOT Universe of Transaction

USSGL U.S. Standard General Ledger

VV&A Validated, Verified, and Accredited

WCF Working Capital Fund

WMS Warehouse Management System
125 Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report

APPENDIX | Acknowledgments

This Agency Financial Report (AFR) was prepared with the talents, energies and dedication of the Defense Logistics Agency workforce and our contract partners. A special note of appreciation is extended to the many diligent employees in the 

Financial Reporting Division within in the Office of the Chief 

Financial Officer, for your time and efforts in preparing the AFR.

ACKNOWLEDGMENTS

We offer our sincerest thanks and acknowledgement 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. 

Icons created by Sahab Uddin, Gregor Cresnar, 

Made x Made and Vectors Point and from Noun Project.

Desert Landing

Marines practice confined landing drills outside of Naval Air Facility El Centro, Calif., Feb. 7, 2022. Photo by: Marine 

Corps Cpl. Jonathan Gonzalez
Defense Logistics Agency | FY 2022 TRANSACTION FUND | Agency Financial Report 126

Other Information (Unaudited) | APPENDIX 

Patient Input

Army Sgt. Matthew Vela, a respiratory therapist at Fort Hood, Texas, inputs data after treating a COVID-19 patient at 

the University of Arkansas for Medical Sciences Hospital in Little Rock, Ark., Sept. 25, 2021. Photo by: Army Spc. James 

Alegria