◄ Guard Support

Arizona National Guard airmen and 

soldiers fill bags with groceries to be 

distributed to local citizens at a food 

bank in Tucson, Arizona, Jan. 5, 2021. 

Photo Credit: Air Force Tech. Sgt. 

Michael Matkin

▼ Explosive Ordnance

Counter Unmanned Aerial Systems (UAS) 

training Tech. Sgt. Brook A. Hamilton, 379th 

Expeditionary Civil Engineer Squadron 

noncommissioned officer in charge of 

explosive ordnance disposal training, 

during an exercise at Al Udeid Air Base, 

Qatar, Jan. 20, 2021. Photo Credit: Tech. Sgt. 

Brigette Waltermire/Air National Guard

▲ Vaccine Arrival

COVID-19 vaccine arrives at Aviano Six airmen 

assigned to the 31st Medical Group receive the first 

Moderna COVID-19 vaccines at Aviano Air Base, Italy, 

Jan. 8, 2021. Photo Credit: Staff Sgt. K. Tucker Owen/

Air Force

► Colorful Crew

Sailors move a pallet on the flight deck of the USS 

Theodore Roosevelt during a replenishment in the 

Pacific Ocean, Jan. 1, 2021. Photo Credit: Navy Petty 

Officer 3rd Class Dartanon D. De La Garza
Agency Financial Report | FY 2021 Working Capital Fund | Defense Logistics Agency i

 About the Agency Financial Report

About the Agency Financial Report

All information within this report pertains to DLA WCF 

unless specifically noted otherwise. DLA WCF’s financial 

results are unaudited because there are limitations due 

to underlying processes and internal controls that support 

the principal financial statements. DLA WCF 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 WCF, 

including DLA’s history, mission, and organizational 

structure; DLA WCF’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) Working Capital 

Fund (WCF) 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 WCF 

financial statements and other reports. The principal 

financial statements1 have been prepared to report the 

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

financial statements and accompanying notes have been 

prepared from the books and records of DLA WCF using 

guidance from the following applicable laws and regulations

for which DLA WCF 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;

♦ Improper Payments Elimination and 

Recovery Improvement Act (IPERIA) of 2012;

♦ Fraud Reduction and Data Analytics Act 

 (FRDAA) of 2015;

♦ Office of Management and Budget 

(OMB) Circular A-136, Financial Reporting 

 Requirements, as amended;

♦ OMB Circular A-123, Management’s 

Responsibility for Enterprise Risk Management 

(ERM) and Internal Control; and

♦ OMB Circular A-11, Preparation, Submission, 

 and Execution of the Budget.

Financial Section (Unaudited)

This section contains a message from the CFO, audit 

reports, management’s response to the audit reports, 

financial statements and the accompanying notes, as well 

as required supplementary information (RSI).

Other Information (Unaudited)

This section details DLA WCF’s compliance with, and 

commitment to, specific regulations. It includes foregone 

revenue reporting, performance and management analyses, 

recommendations, and payment integrity reporting.

1 Refer to the Financial Section Introduction for definition of 

principal financial statements.
Vehicle Check

Marine Corps Lance Cpl. Haleigh Rankin, left, assigned 

to Headquarters Company, Headquarters Battalion, 3rd 

Marine Division, speaks to another Marine during final 

checks on vehicles at Camp Courtney, Okinawa, Japan, 

April 17, 2020. The 3rd Marine Division continues to 

maintain its readiness by implementing control measures 

to preserve the health of the force.

 Photo Credit: Marine Corps Cpl. Savannah Mesimer

FY 2021 Working Capital Fund

Defense Logistics Agency
Table of Contents

iv

Message from the Director

1 SECTION 1

Management’s Discussion 

and Analysis (Unaudited)

4 Mission and Organizational Structure

12 Performance Goals, Objectives, and 

Results

28 Analysis of Financial Statements and 

Stewardship Information 

36 Analysis of Systems, Controls, and Legal 

Compliance 

46 Forward-Looking Information

49 SECTION 2

Financial Section (Unaudited)

52 Message from the Chief Financial Officer

53 Audit Reports 

94 Management’s Response to Audit Reports 

95 Introduction to the Principal Financial 

Statements

96 Principal Financial Statements 

(Unaudited) 

100 Notes to the Principal Financial 

Statements (Unaudited)

143 Required Supplementary Information

The AFR is available on the DLA website at: 

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

147 SECTION 3

Other Information (Unaudited)

150 Foregone Revenue

151 Management Challenges 

155 Summary of Financial Statement Audit 

and Management Assurances 

159 Payment Integrity

160 APPENDIX

162 Appendix A: Summary of FMFIA 

Definitions and Reporting

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

Support Structure, Roles and 

Responsibilities 

167 Appendix C: Abbreviations & Acronyms 

170 Acknowledgments
iv

Message from the Director

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

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

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

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

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

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

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

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

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

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

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

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

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

transformational initiative alignment ahead of schedule, creating increased effectiveness 

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

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

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

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

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

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

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

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

Working Capital Fund (WCF) Financial Statements. Information obtained through this report will be extremely valuable in our 

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

policies and procedures, critical asset accounting procedures, financial information systems and reporting, and completeness 

of records. DLA also continues to identify material weaknesses in those areas.

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

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

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

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

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

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

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

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

complete, accurate and reliable.

Message from the Director

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

 Message from the Director

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

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

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

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

WARFIGHTER ALWAYS!

M.C. SKUBIC

VADM, SC, USN

Director

DLA CONTINUED TO FULFILL OUR KEY MISSION TO DELIVER 

READINESS AND LETHALITY TO THE WARFIGHTER ALWAYS 

AND TO PROVIDE SUPPORT TO OUR NATION 

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

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

Humvee Hitch ►

Army Pfc. Pablo Aguirre secures a trailer to the back of a 

Humvee in Jordan, Dec. 22, 2020, while deployed to the Middle 

East to support operations Spartan Shield and Inherent Resolve.

 Photo Credit: Army Sgt. Dustin D. Biven

SECTION 1

Management’s Discussion 

and Analysis (Unaudited)

1

SECTION 1

Sunlit Sail 

The aircraft carrier USS Theodore Roosevelt transits the Pacific Ocean, Jan. 1, 2021.

 Photo Credit: Navy Petty Officer 3rd Class Wade Costin

In this section

4 Mission and Organizational Structure

12 Performance Goals, Objectives, and Results 

28 Analysis of Financial Statements and Stewardship Information 

36 Analysis of Systems, Controls, and Legal Compliance 

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 4

Mission and Organizational Structure

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

military buildup required the rapid procurement of vast amounts 

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

by former President Herbert Hoover recommended the central 

management of items common to more than one military 

service. The Department of Defense (DoD) responded by 

assigning procurement responsibilities to individual services. 

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

general supplies, and construction supplies; the Navy 

purchased medical supplies, petroleum, and industrial parts for 

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

Although centralizing wholesale stocks, this “single manager” 

system did not provide the uniform methods recommended by 

the Hoover Commission. Each single manager operated under 

its own rules, giving customers as many sets of procedures 

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

of Defense Robert McNamara eliminated this complexity 

by forming the Defense Supply Agency (DSA). Beginning 

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

fewer people and keeping less inventory.

Forged by History, Focused on the Future: 

A Short History of the Defense Logistics Agency

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

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

Force, Coast Guard, 11 combatant commands, other Federal Agencies, and partner and allied nations.
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

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

Restricted to the continental United States, it was perfectly 

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

placement of nuclear missiles on Cuba. The Agency supported 

the military during the crisis by supplying fuel and photographic 

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

DSA grew substantially following the Cuban Missile Crisis. In 

1963 and 1964, it assumed control of additional warehouses 

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

Contract Administration Services (DCAS), DSA oversaw most 

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

manufacturing items for the National Aeronautics and Space 

Administration (NASA).

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

of 1965, the clothing and textile supply chain doubled its 

employees to produce enough warm-weather uniforms and 

jungle boots for the 44 battalions deployed by President 

Lyndon B. Johnson. Warehouses also increased hiring, adding 

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

subsistence supply chain received permission to establish 

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

DSA received additional responsibilities Outside the Continental 

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

it started conducting property disposal overseas and oversaw 

the worldwide procurement, management, and distribution of 

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

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

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

systems America sold to partner nations needed repair parts, 

and DSA was the logical provider.

On January 1, 1977, the Department of Defense recognized 

this expanded mission by renaming DSA the Defense Logistics 

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

demonstrated its acquisition prowess by acquiring meals, 

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

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

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

DLA grew in purpose and scope when Congress designated 

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

important to DoD when the General Services Administration 

(GSA) transferred strategic materials oversight to it. The 

following year, the Department consolidated nearly all contract 

administration activities under the Agency. To handle the 

increased workload, DLA elevated DCAS to a command: the 

Defense Contract Management Command. 

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

1990, it began overseeing the services’ distribution depots. 

This mission eventually became the responsibility of DLA 

Distribution. In March 1993, the Agency reengineered its HQ 

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

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

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

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

Agency merged its Defense Electronic Supply Center in Dayton, 

OH, with its Defense Construction Supply Center in Columbus, 

OH. It called the consolidated center Defense Supply Center 

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

1961

The Defense Supply Agency

 is established.

1965 1977 1986

Active combat units deploy 

to Vietnam. By 1969, more 

than 500,000 U.S. troops 

in the country.

DSA is redesignated 

the Defense Logistics 

Agency in recognition of 

its broadened mission 

responsibilities.

The Goldwater-Nichols 

Reorganization Act 

designates DLA a combat 

support Agency.

History of DLA

1988

DLA assumes management 

of the nation’s strategic 

stockpile from the General 

Services Administration 

and Federal Emergency 

Management Agency. 

Headquarters and Defense 

Fuel Supply personnel 

learn that they will be 

moving from Cameron 

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 6

Support Center collocated with Defense Industrial Supply 

Center in northern Philadelphia to form Defense Supply Center 

Philadelphia. Finally, Defense Printing Services, renamed 

Defense Automated Printing Service, transferred to the Agency 

in October 1996.

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

The Agency responded rapidly to terrorist attacks in 2001, 

providing logistical support to multiple commands in Operation 

Enduring Freedom. Beginning that year, DLA supported the 

conflict by processing more than 6.8 million requisitions worth 

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

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

of fuel. To sustain service members fighting Operation Iraqi 

Freedom, DLA processed 6.4 million requisitions worth more 

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

nearly 2 million humanitarian daily rations, and sourced more 

than 3 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), 

and military hospitals, the Agency provided personal protective 

equipment (PPE), ventilators, food, construction material, 

and repair parts. Among those DLA helped were inhabitants 

of hard-hit cities, residents of assisted-living facilities, and 

school children. In addition to supplying mass quantities of 

scarce goods at low prices, the Agency developed domestically 

sourced face masks, used additive manufacturing to produce 

face shields, and tracked PPE data for the entire Federal 

government. Starting in December 2020, it began distributing 

vaccines to the military’s overseas locations.

As DLA commemorates its 60th anniversary on October 1, 

2021, it continues to provide logistics, acquisition, and technical 

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

the Agency adds effectiveness and efficiency to governmental 

logistics. Forged in history, it remains focused on supporting 

Warfighters and the Nation they serve. 

1993

DLA forms integrated 

business units for supply 

management, distribution, 

and contract management, 

reducing the number of 

organizations reporting 

directly to the DLA director 

from 42 to 6.

2005

DLA provides support in 

the wake of Hurricane 

Katrina.

2012

DLA delivers more than 

6.2 million meals, 172,500 

blankets, and 14 million 

gallons of fuel to areas 

affected by Hurricane 

Sandy.

2014-15

DLA helps West Africa 

combat the Ebola virus 

by providing goods and 

services in Operation 

United Assistance.

2020-21

DLA supports efforts to combat the 

coronavirus by providing personal 

protective equipment and ventilators 

to the American people through the 

Federal Emergency Management 

Agency and Department of Health 

and Human Services. It also acts as 

a purveyor of information, feeds naval 

crews on lockdown, reutilizes life-saving 

equipment, and delivers vaccines to the 

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

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

The DLA reports to the Office of the Under Secretary of Defense 

(OUSD) for Acquisition and Sustainment through the Assistant 

Secretary of Defense for Sustainment. As the Nation’s Combat 

Logistics Support Agency, DLA manages the global supply 

chain – from raw materials to end user to disposition – for the 

components of the DoD (including the U.S. Army, Navy, and 

Air Force), other Federal Agencies, and public entities. DLA 

sources and provides nearly all the consumable items America’s 

military forces need to operate, from food, fuel and energy to 

uniforms, medical supplies, and construction material. DLA 

provides support around the clock and around the world to meet 

the needs of America’s Armed Forces and other designated 

customers in times of peace, national emergency, and war. DLA 

supports DoD objectives and missions with involvement in the 

full range of military operations from participation with multinational forces engaged in large-scale combat operations, 

weapons and spares provisions, peacekeeping efforts, and 

emergency support to humanitarian assistance.

The DLA WCF employs approximately 24,194 civilian 

personnel, 3 active-duty military personnel, and 709 reserve 

personnel, who operate a global enterprise in 3 countries and 

22 states. Civilian personnel are paid from DLA WCF while 

active duty military personnel and reserve personnel are paid 

from their respective Military Departments.

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

Federal law specifying annual budget and expenditures of the 

What DLA Does

Mission and Vision

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

through its efforts and impact around the world.

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

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

VISION

MISSION

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

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 8

DoD. As part of fulfilling the government’s duty to be publicly 

accountable for budgetary resources, DLA WCF maintains 

accountability primarily through contract authority for its 

operating and capital programs, as it relates to its two major 

activity groups: Energy and Supply Chain Management (SCM). 

DLA WCF rigorously plans, executes and monitors budgetary 

resources, sales patterns, and rates of obligation in excess of 

$47.5 billion annually, while ensuring its mission of supplying 

American Warfighters with critical support. These resources 

are utilized in accordance with prevailing laws and regulations.

The DLA WCF has three major activity groups: Energy, SCM, 

and Document Services. Energy and SCM collaborate with 

Distribution and Disposition Services to form the six Major 

Subordinate Commands (MSCs) (as depicted in Figures 1 and 

3). The Energy activity group manages the Energy MSC, and 

the SCM activity group manages the other five MSCs. The 

term MSC was devised by DLA’s Director to reflect the flow of 

acquiring supplies, distributing supply materials, and disposing 

of excess supplies. In its support role, Distribution provides 

worldwide storage and distribution services to the eight supply 

chains described on the next page, while Disposition Services 

partners with DLA WCF’s supply chains, DoD components 

(including the U.S. Army, Navy, and Air Force), other Federal 

Agencies, and public entities to reutilize, transfer, sell, and 

donate surplus property and dispose of hazardous waste.

The third DLA WCF activity, Document Services, operates 

primarily through spending authority from offsetting collections 

and outside of the MSCs. Its role is to provide preferred DoD 

document and printing services, as well as provide those 

services to other Federal Agencies.

The DLA WCF manages eight supply chains through the 

Energy and SCM activity groups and supports more than 

approximately 2,300 weapon systems. The eight supply chains 

are: Aviation Systems, Land Systems, Maritime Systems, Fuel/

Energy, Subsistence, Medical, Clothing and Textiles (C&T), 

and Construction and Equipment (C&E). In FY 2020, Industrial 

Hardware (IH) was absorbed and transferred between Aviation 

Systems, Land Systems, and Maritime Systems. Over the 

course of FY 2021 through FY 2022, the IH national stock 

numbered items and workload will be divided between Land 

Systems, Maritime Systems, and Aviation Systems. The Energy 

activity group manages the Energy supply chain, and the SCM 

activity group manages the other seven supply chains. Agency 

leaders are committed to the continuous assessment and 

transformation of the organizational culture, size, structure, 

and alignment through enterprise integration and partnering 

with the private sector. Organizing as a single, integrated 

business enterprise enables DLA WCF to focus on supporting 

DoD components, other Federal Agencies, and public entities, 

enhancing the Armed Forces’ readiness, and providing for the 

Warfighter during contingency operations.

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

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

How DLA WCF Accomplishes its Mission

The DLA WCF has three major activity groups: Energy, SCM, and Document Services. 

The three major activity groups are described below:

Energy

The DLA Energy activity group provides the DoD 

components (including the U.S. Army, Navy, and Air 

Force), other Federal Agencies, and public entities with 

comprehensive energy solutions worldwide. To do so, DLA 

Energy manages the Energy supply chain for energyrelated products and services from jet fuel and natural 

gas to quality assurance and utility services, and many 

more. DLA Energy manages the following major product 

areas: Aerospace Energy, Bulk Petroleum Products, Direct 

Delivery Fuels, and Installation Energy. Additionally, DLA 

Energy provides services such as Government Fuel Cards, 

quality-related services, international fuel agreements, utility 

services contracts, and research and development (R&D) of 

alternative fuels to customers.

Supply Chain Management

The DLA SCM activity group is responsible for managing

seven supply chains and associated weapons systems. 

DLA SCM also provides logistics and material process 

management policy, guidance, and oversight while 

conducting continuous assessments of supply chain 

performance. DLA SCM integrates strategic, operational, 

and tactical perspectives, command and control functions 

for contingency operations, and adaptive planning in order 

to influence the logistics supply chain. Additionally, DLA 

SCM operates a global network of distribution centers 

and disposal services. DLA WCF’s warehousing strategy 

is driven by the commitment to better serve Warfighters, 

collocating with the Armed Forces while placing supplies 

where they are most needed.

Document Services

Operating independently and apart from the two activity groups 

discussed above, DLA Document Services is the preferred 

provider for document automation services to the DoD and 

is also designated as the single manager for printing and 

high-speed, high-volume duplicating in the DoD. Document 

Services provides printing, duplicating, and document 

automation services within the DoD to include document 

workflow conversion, electronic storage and output, multifunction devices, office printers, and distribution of hard copy 

and digital information. Through Document Services, DLA WCF 

helps customers reduce storage costs, increase efficiency 

of information sharing, and provide more functionality at a 

significantly lower cost.

Food Distribution

Army Spc. Jermareya Frederick, a financial management technician assigned to the 160th Financial 

Management Support Detachment, Arizona Army National Guard, fills boxes with groceries to be distributed at 

a food bank in Phoenix, March 8, 2021. Photo By: Air Force Tech. Sgt. Michael Matkin
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 10

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

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

DLA Organizational Structure

Figure 3: DLA Organizational Structure

DLA CENTCOM & SOCOM

MacDill Air Force Base, FL

DLA EUCOM & AFRICOM

Stuttgart, Germany

DLA INDOPACOM

Joint Base Pearl Harbor-Hickam, HI

Defense Logistics Agency

Fort Belvoir, VA

DLA Aviation

Richmond, VA

Provides parts for aviation 

weapons systems, flight 

safety equipment, maps, 

environmental products, 

industrial hardware and 

industrial plant equipment.

DLA Land and Maritime

Columbus, OH

Provides repair parts for 

ground-based and Maritime 

weapons systems, small 

arms parts, fluid handling, 

industrial hardware, and 

electronic components.

DLA Troop Support

Philadelphia, PA

Provides food, textiles, 

construction material, 

medical supplies and 

equipment, to include 

pharmaceuticals.

DLA Energy

Fort Belvoir, VA

Provides bulk fuel, 

alternative fuel/renewable 

energy. aerospace energy, 

fuel quality/ technical 

support, fuel card programs 

and installation energy 

services.

DLA Distribution

New Cumberland, PA

Provides storage and 

distribution solutions/

management, transportation 

planning/management 

and logistics planning and 

contingency operations; 

operates a global network 

of distribution centers.

DLA Disposition Services

Battle Creek, MI

Disposes of excess property by reutilization, transfer 

and demilitarization; 

conducts environmental 

disposal and reuse.

Office of the Secretary of Defense

Under Secretary of Defense

(Acquisition and Sustainment)

Assistant Secretary of Defense

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 12

Performance Goals, Objectives, and Results

Figure 4: Lines of Effort and Critical Capabilities

The DLA has established performance assessments 

of its programs to evaluate Agency performance and 

improvement, based on the GPRA Modernization Act of 

2010. DoD produces an Annual Performance Report (APR) 

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

its FY 2021 APR with its FY 2023 Congressional Budget 

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

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

The Performance Goals, Objectives, and Results within this 

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

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

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

objectives and forward-looking initiatives are designed to 

strengthen DLA’s efforts in sustaining Warfighter readiness 

and the Nation’s responsiveness as described:

Lines of Effort: Key strategic priority used to link multiple objectives that when combined achieve an operational or 

strategic outcome.

Critical Capabilities: Agency enablers which are 

essential to accomplishing DLA’s strategic objectives and 

LOEs.

Objectives: Specific goals to be achieved and are 

the most important actions essential to LOEs and Critical 

Capabilities – the “how” of the strategy.

The key initiatives that have the Director’s specific 

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

in the LOEs and CCs below.
LOE 1: WARFIGHTER ALWAYS

Objective 1.1:Improve end-to-end readiness 

and cost-effectiveness in support of Combatant 

Commander Campaign Plans and Integrated 

Contingency Plans in competitive and contested 

logistics environments

Objective 1.2: Partner with customers at the 

wholesale and retail levels to address Servicespecific challenges and develop solutions

Objective 1.3: Proactively support the DoD 

Nuclear Enterprise and Space Enterprise

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

strategic priority. We must provide the right support in the 

right places at the right times.

The Military Services and Combatant Commands have unique 

needs and capabilities requiring customized solutions.

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

in innovative tailored logistics solutions to increase and sustain 

weapons system and warfighting readiness – including our 

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

prepare for the future fight.

LOE 2: SUPPORT TO THE NATION

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

Capitalizing on our scope, scale and skills in acquisition, 

storage, distribution, and surge capabilities, the Nation has 

increasingly called upon DLA to provide Whole of Government 

support.

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

drives creative solutions to crises, to guarantee that we lead 

from a position of strength.

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

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

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

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

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

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

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

the Warfighter.

LOE 3: TRUSTED MISSION PARTNER

Objective 3.1: Implement customer-centric 

performance metrics and predictive problemsolving culture

Objective 3.2: Provide greater financial 

transparency to customers

Objective 3.3: Provide next generation customer 

service, including a customer feedback mechanism

Building trust begins with understanding our customers’ 

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

challenges.

DLA will improve trust and transparency by enhancing 

customer-facing tools and software, formalizing customer 

feedback and increasing collaboration at all levels. We will align 

performance metrics and targets to ensure we are accountable 

to our customers.

LOE 4: MODERNIZE ACQUISITION AND 

SMALL CHAIN MANAGEMENT 

Objective 4.1: Expand industry engagement 

to foster innovation and maximize value for our 

customers

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

segment to enable collaborative customer support, 

increase responsiveness, and manage costs

Objective 4.3: Develop a market intelligence 

capability to manage supply chain risk and drive 

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 14

Objective 4.4: Enhance our acquisition 

capabilities to improve readiness for contingencies

The global logistics environment is rapidly evolving and 

increasingly interconnected. DLA must work closely with 

industry partners to modernize and streamline our acquisition 

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

and maintain our competitive advantage.

Through strong partnerships with our suppliers, and an 

enhanced focus on market intelligence capabilities, DLA will 

continue building a diverse, resilient, and agile industrial base 

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

customers.

Given the increasing number of global contingencies, this will 

better position us and our partners to meet the accelerating 

challenges in an ever-changing world.

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

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

customer outcomes for routine and contingency operations. 

LOE 5: FUTURE OF WORK

Objective 5.1: Redefine virtual work models to 

enable our next generation workforce

Objective 5.2: Assess DLA CONUS facilities 

footprint to maximize space utilization

Objective 5.3: Build skillsets of the future

The workplace is increasingly virtual, reducing the need for a 

large physical footprint. Ongoing modernization efforts such as 

the use of mobile tablets, voice technology, autonomous guided 

vehicles and other advances to optimize warehouse operations 

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

changes as it attracts and sustains a competitive workforce to 

drive increased productivity and employee satisfaction.

Creating an optimal work environment for employees that is 

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

retention and expand our access to diverse talent pools.

DLA Critical Capabilities

The three Critical Capabilities are fundamental to our successful 

transformation. They intersect and support the five LOEs with 

specific underlying objectives, initiatives, and metrics.

• CC-A: People and Culture 

 Supporting our people

• CC-B: Fiscal Stewardship 

 Investing in outcomes

• CC-C: Digital-Business Transformation 

 Embracing the future

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

embrace change to improve our organizational efficiency and 

effectiveness.

Critical Capability A: People and Culture

Objective A1: People

Objective A2: Culture

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

capability aligns DLA’s proven human capital strategies with 

our mission, LOEs, and objectives.

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

agile workforce is vital to our continued success.

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

all DLA organizations, employees and leaders must work 

together to fortify the culture, reward high performance, build 

connections, and prioritize safety of the workforce.

Critical Capability B: Fiscal Stewardship

Objective B1: Auditability

Objective B2: Cost visibility and cash 

management

Objective B3: Investment to drive efficiency and 

effectiveness

In an increasingly resource-constrained environment we will 

drive cost effectiveness while maintaining Service readiness. 
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

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 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.

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 Working Capital Fund.

We will assess our work processes and the effectiveness of 

current internal controls to provide greater transparency, 

improve auditability and prevent fraud, waste, and abuse.

Critical Capability C: Digital Business 

Transformation

Objective C1: Transformational information 

technology capabilities

Objective C2: Advanced analytics and automation

Objective C3: Cybersecurity

Welcome to America

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

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 16

Performance Measures (Unaudited)

DLA Supply Chain Management (Non-Energy) Performance Measure 1: 

Supply Chain Management Availability to Warfighters

This performance measure relates to the objectives described above:

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; and Objective 4.4: Enhance our acquisition capabilities 

to improve readiness for contingencies

The DLA SCM strives to predict supply needs to equip the 

Warfighter efficiently and effectively. For FY 2021, DLA 

SCM met its target of having a total average of 90% supply 

availability across the board for all Military Departments; The 

following analysis applies to Non Mission Critical Supplies 

(NMCS); the results display acquisition and supply activities 

for regular procurement items. 

DLA continues its efforts in meeting high supply availability 

expectations by employing smart budgetary resource use 

techniques and leveraging rapid acquisition opportunities 

to meet expectations. WCF Supply Chain Management will 

continue to evaluate purchase, storage, and distribution 

processes, planning to implement modifications which are costjustified and will increase efficiency and product availability in 

future periods. 

Figure 5: Supply Availability to Warfighters by Military Command

64%

69%

74%

79%

84%

89%

94%

FY 2018 FY 2019 FY 2020 FY 2021

Army 88.1% 90.8% 91.7% 92.1%

Air Force 88.7% 90.4% 91.6% 91.2%

Marines 87.9% 88.9% 89.2% 89.8%

Navy 87.5% 88.6% 89.0% 88.1%

Average 88.1% 89.7% 90.4% 90.3% Supply Availability

Supply Availability to Warfighters
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

DLA Supply Chain Management (Non-Energy) – Performance Measure 2: 

“Wait Time” to Fill Supply Orders for Supply Chains

The DLA WCF tracks the average amount of wait time that 

occurs to fill backorders for its SCM. DLA WCF aims to minimize 

the amount of time required to fill backorders to increase the 

readiness of the Warfighter. Over the past two years, the 

average SCM wait time results have trended upwards, with 

the most significant increase in C&T. DLA WCF’s emphasis 

on filling high priority non-mission capable supply backorders 

and weapon system readiness-based orders has allowed 

lower priority orders to age more than in the past. When those 

lower priority orders are not filled, they drive up the average 

wait time. Additionally, FY 2021 supply chain disruptions were 

driven by the COVID-19 Pandemic, also having an unfavorable 

impact on wait time. 

The DLA SCM wait time to fill backorders for the Military 

Departments over the past four fiscal years is illustrated below 

for the following SCM supply chains: Aviation, Land, Maritime, 

C&E, Medical, C&T, Food (Subsistence), and IH. DLA WCF 

SCM applies variable strategic acquisition techniques to 

minimize supply wait times to supply the Warfighters efficiently 

and effectively. WCF Supply Chain Management will continue 

to evaluate purchase, storage, and distribution processes, 

planning to implement modifications which are cost-justified 

and will increase efficiency and product availability in future 

periods. 

This performance measure relates to the objectives described above:

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; and Objective 4.4: Enhance our acquisition capabilities to improve readiness for contingencies

Figure 6: Wait Time to Fill Supply Orders for Supply Chain Management (in days)

0

20

40

60

80

100

120

140

Aviation Land Maritime C&E Medical C&T Food IH Average

FY 2018 96.4 75.6 86.3 93.0 70.7 77.0 59.8 77.9 79.6

FY 2019 111.8 96.3 99.1 111.0 70.0 74.2 94.1 94.1 93.8

FY 2020 109.1 89.7 101.7 114.5 63.5 131.0 80.6 99.0 98.6

FY 2021 102.9 84.6 93.7 110.1 71.4 138.5 76.4 109.2 98.4 Days

Wait Time to Fill Backorders for Supply Chain Management 
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 18

DLA Supply Chain Management (Non-Energy) – Performance Measure 3: 

“COVID-19 Support”

This performance measure relates to the objective described above:

Objective 2.1: Implement a deliberate, enterprise-wide approach to Whole of Government support

The DLA provides Agency-wide pandemic support to aid the 

whole-of-government COVID-19 response, which became 

apparent in February 2020. For instance, DLA Disposition 

provides reutilized medical supplies, while DLA Land and 

Maritime provides repair parts for hospital ships and DLA 

Energy provides the fuel.

The DLA WCF, in partnership with HHS, FEMA and other 

Federal Agencies, works to support the President in responding 

to COVID-19 challenges in procuring personal protective 

equipment (PPE) and replenishing the nearly depleted 

Strategic National Stockpile (SNS). DLA Troop Support is 

primary in this effort, coordinating procurement and delivery 

activities for COVID-19 supplies and SNS replenishment. The 

supplies procured in FY 2021, as illustrated below, include 

test components, gloves, respirators, masks, gowns, and 

COVID-19 tests. WCF Supply Chain Management will continue 

to evaluate purchase, storage, and distribution processes 

for COVID-19 supplies, planning to implement modifications 

which are cost-justified and will increase efficiency and product 

availability in future periods. 

For FY 2021, DLA Troop Support’s procurement goal based on 

customer orders was to supply 4.2 million Test Components, 

350.2 million Gloves, 26.7 million N95 Respirators, 0.6 million 

Hand Sanitizers, 21.1 million Masks, 82.9 million Gowns, and 

1.3 million COVID-19 Tests. Differences between customer 

orders and procurement were due to backorders of remaining 

supplies.

*Test Components included Specimen Collection Swabs, Transport Medium, and Viral Transport Swab Kits.

Figure 7a: Procurement of Critical Medical Supplies & PPE versus target

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

*Test

Components

Gloves Hand

Sanitizers

Masks N95

Respirators

Gowns COVID-19

Tests

4.2

350.2

0.6

21.1 26.7

82.9

1.3

4.1

338.9

0.5

20.2

8.3

82.6

0.9

Units in Millions

Procurement of Critical Medical Supplies & PPE

FY2021 Goal (Customer Order) FY2021 Actual Procurement
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

Figure 7b: Procurement of Critical Medical Supplies & PPE versus FY 2020

COVID-19 Procurement has increased for all supply types in FY 2021 versus the prior year:

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

*Test

Components

Gloves Hand

Sanitizers

Masks N95

Respirators

Gowns COVID-19

Tests

4.9

169.8

1.2

14.7

4.6 2.2 4.1 0.2

338.9

1.5

25.2

10.4

83.1

0.9

Units in Millions

Procurement of Critical Medical Supplies & PPE

FY 2020 FY 2021

Air Force, Army Joint Petroleum Training

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

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

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 20

DLA Supply Chain Management (Non-Energy) Performance Measure 4: “COVID-19 

Vaccine Distribution”

This performance measure relates to the objective described above:

Objective 2.1: Implement a deliberate, enterprise-wide approach to Whole of Government support

The DLA provided support to DoD health initiatives by partnering 

with DHA to create a COVID-19 vaccine distribution plan in 

October 2020. Since Fall 2020, DLA representatives have been 

embedded in the DoD COVID-19 Vaccine Operational Planning 

Team, working extensively to leverage interagency partnerships 

in planning, executing, and tracking vaccine shipments to 102 

military treatment facilities and fleet sites overseas. DLA plans 

COVID-19 vaccine shipments according to orders placed 

by the Military Services, who receive requirements from 

combatant commands and verify allotments through a DoD 

allocation board. By September 30, 2021 DLA had delivered 

over 825,000 Moderna, Janssen and Pfizer vaccine doses to 

DoD vaccination sites in 35 countries. Overall, 99.9% of doses 

allocated have been delivered. About 10.0% of those doses 

were delivered through intermediate distribution facilities in 

Europe, Asia, and the Middle East. From there, shipments are 

scheduled for onward movement to treatment facilities and 

clinics using local transportation and military airlift.

WCF Supply Chain Management will continue to evaluate 

purchase, storage, and distribution processes for COVID-19 

supplies, planning to implement modifications which are costjustified and will increase efficiency and product availability in 

future periods. 

Figure 8: Non-Energy Performance Measure 4: COVID-19 Vaccine Distribution

0

100,000

200,000

300,000

400,000

500,000

600,000

Moderna (M1) Janssen (J1) Pfizer (P1)

534,580

185,300

106,470

534,440

185,200

106,470

COVID-19 Vaccine Distribution

DLA Doses Allocated DLA Doses Delivered
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

DLA Energy – Performance Measure 1: Fuel Sales in Barrels by DoD Component

The DLA WCF supports other DoD Agencies through fuel 

sales. This allows for increased interagency support through 

self-sustainment of fuel. For FY2021, DLA Energy budgeted to 

sell 82.8 million barrels to DoD Agencies, and actual fuel sales 

to DoD components were 78.1 million barrels. Demand affects 

actual fuel sales year-over-year, and DoD's mission dictates 

the amount of fuel DoD purchases. For example, if training or 

This performance measure relates to the objectives described above:

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; and Objective 2.1: Implement a 

deliberate, enterprise-wide approach to Whole of Government support.

flying hours decreased for DoD components, less fuel would 

be purchased during the year. Due to the operational impact of 

COVID-19 the actual sales did not meet the budgeted sales for 

the year. WCF Energy will continue to evaluate fuel purchase, 

storage, and distribution processes, planning to implement 

modifications which are cost-justified and will increase 

efficiency and fuel availability in future periods.

Figure 9: Fuel Sales in Barrels by DoD Component

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Air Force Army Navy Marines and Other

DoD

FY 2018 46.4 9.2 28.0 1.8

FY 2019 45.3 9.0 28.1 1.1

FY 2020 41.2 7.8 27.9 0.7

FY 2021 42.9 7.2 27.0 1.0

46.4

9.2

28.0

1.8

45.3

9.0

28.1

1.1

41.2

7.8

27.9

0.7

42.9

7.2

27.0

1.0

Barrels in millions

Fuel Sales in Barrels by DoD Component
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 22

DLA Energy – Performance Measure 2: Fuel Sales in Dollars by DoD Component

Figure 10: Fuel Sales in Dollars by DoD Component

This performance measure relates to the objectives described above:

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; and Objective 2.1: Implement a 

deliberate, enterprise-wide approach to Whole of Government support 

For FY 2021, DLA Energy budgeted to sell $8.2 billion of fuel to 

DoD Agencies, and actual fuel sales to DoD components were 

Air Force $4,273.3 

Army $768.3 

Marines and Other DoD $98.2 

Navy $2,718.8 

FY 2021 Fuel Sales in Dollars by DoD Component

($ in Millions)

Air Force Army Marines and Other DoD Navy

$7.9 billion. DLA Energy reports revenues on a net basis (gross 

revenues less direct cost). 
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

DLA Energy – Performance Measure 3: Fuel Sales in Barrels by Non-Federal Customer

This performance measure relates to the objectives described above: 

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; and Objective 2.1: Implement a 

deliberate, enterprise-wide approach to Whole of Government 

The DLA is authorized to provide its services to the public by 

selling fuel to various non-Federal parties. By doing so, DLA 

is building partnerships with non-Federal customers (including 

commercial entities/Agencies), as well as international 

partners. For FY 2021, DLA Energy budgeted to sell 7.0 million 

barrels to non-Federal customers, and actual fuel sales to 

non-Federal customers was 5.1 million barrels. Due to the 

operational impact of COVID-19, the actual sales did not meet 

the budgeted sales for the year. WCF Energy will continue to 

evaluate fuel purchase, storage, and distribution processes, 

planning to implement modifications which are cost-justified 

and will increase efficiency and fuel availability in future 

periods.

Figure 11: Fuel Sales in Barrels by Non-Federal Customers 

0

0.5

1

1.5

2

2.5

3

3.5

International

Partners

Commercial

Entities

All Other

FY 2018 3.4 3.1 0.5

FY 2019 3.1 3.4 0.5

FY 2020 2.6 3.1 0.0

FY 2021 2.4 2.7 0.0

3.4

3.1

0.5

3.1

3.4

0.5

2.6

3.1

0.0

2.4

2.7

Barrels in millions

0.0

Fuel Sales in Barrels by Non-Federal Customers
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 24

DLA Energy – Performance Measure 4: Fuel Sales in Barrels by Federal Civilian Agency

This performance measure relates to the objectives described above: 

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; and Objective 2.1: Implement a 

deliberate, enterprise-wide approach to Whole of Government

In addition to providing fuel to DoD components and nonFederal entities, DLA WCF also sells fuel to Federal Civilian 

Agencies. DLA WCF supports other Federal Agencies as they 

embark on their daily activities and accomplish their missions. 

DLA wholly supports the government and the entire Nation 

through its supply of fuel. For FY 2021, DLA Energy budgeted 

to sell 4.2 million barrels to Federal Civilian Agencies. DLA 

Energy did not achieve its goal with actual fuel sales of 3.7 

million barrels to Federal Civilian Agencies. Due to the 

operational impact of COVID-19 the actual sales did not meet 

the budgeted sales for the year. WCF Energy will continue to 

evaluate fuel purchase, storage, and distribution processes, 

planning to implement modifications which are cost-justified 

and will increase efficiency and fuel availability in future 

periods.

Figure 12: Fuel Sales in Barrels by Civilian Agency

 -

 0.2

 0.4

 0.6

 0.8

 1.0

 1.2

 1.4

 1.6

Coast Guard DHS Postal Service NASA Other Fed

Agencies

FY 2018 1.4 0.5 0.4 0.2 1.5

FY 2019 1.3 0.5 0.4 0.2 1.3

FY 2020 1.3 0.6 0.4 0.1 1.4

FY 2021 1.3 0.6 0.4 0.1 1.3

1.4

0.5 0.4

0.2

1.5

1.3

0.5

0.4

0.2

1.3 1.3

0.6

0.4

0.1

1.4

1.3 

0.6 

0.4 

0.1 

1.3 

Barrels in millions

Fuel Sales in Barrels by Federal Civilian Agency
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

DLA Working Capital Fund Performance Measure: 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 20202; the survey indicated 

that department-wide teleworking increased dramatically from 

2019 (pre-pandemic) to 2020 (peak pandemic) (the year-overyear increase was approximately 70%). Employee satisfaction 

with DLA’s teleworking program increased 13% from 2019 to 

2020, with overall employee job satisfaction also higher at 

approximately 6% year over year. 

Figure 13: Do you telework every work day?

Figure 14: How satisfied are you with the Telework program in your Agency?

(% Satisfied or Very Satisfied)

2

 The survey included responses from 6,692 DLA employees, 

and was conducted between 

September 24 and November 4, 

2020. As the survey had been 

taken annually beginning 2010, 

it provides visibility into employee satisfaction trending.

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2020 results (Pre Pandemic) 2020 results (during Pandemic)

Survey Question: Do you telework every work day?

2.3%

72.1%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2019 results (Pre Pandemic) 2020 results

Survey Question: How satisfied are you with the 

Telework program in your agency? (% Satisfied or 

Very Satisfied)

74.5%

87.6%
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 26

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; a general target for % telework for the Federal 

workforce or for total DLA has not been determined to date.

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 to meet employee health and 

wellness needs, recruitment and retention goals while also 

maintaining our strong workplace culture to ensure that skills 

and wisdom will be passed from more experienced leaders to 

newer team members, essentially continuing to build on the 

strong interpersonal relationships that allowed 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. 

Figure 15: How satisfied are you with your job?

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

2019 results (Pre Pandemic) 2020 results

Survey Question - How satisfied are you 

with your job?

70.6%

76.1%
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

Currently, DLA WCF receives a disclaimer of opinion on 

its financial statements. DLA WCF 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 

through FY 2020, DLA WCF has taken a two track approach 

in resolving major impediments in efforts to strive for an 

unmodified audit opinion: (1) improving the reliability and fair 

presentation of financial data reported in the AFR by virtue of 

This performance measure relates to the objective described above: 5.2 Auditability.

DLA Roadmap to Auditability

addressing Notice of Findings and Recommendations (NFRs); 

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

instilling sound fundamental practices in developing the AFR 

in accordance with OMB Circular A-136 financial reporting 

requirements, and the financial statements in accordance with 

U.S. Generally Accepted Accounting Principles (GAAP).

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).

2021

The IPA issued a disclaimer of 

opinion on DLA’s FY21 financial 

statements. DLA continues to support 

the audit by identifying root causes of 

conditions, prioritizing resources, and 

developing corrective action plans.

Figure 16: DLA Auditability Timeline

Water Works

Army Sgt. 1st Class Glenn Malo and 

Sgt. Jorge Mercado prepare a water 

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

3, 2021. The Defense Department 

is providing support for Afghan 

evacuees. Photo By: Army Sgt. 

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 28

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

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

Analysis of Financial Statements and 

Stewardship Information

Overview of Financial Position

The principal financial statements of DLA WCF include the 

Balance Sheets, Statements of Net Cost, Statements of 

Changes in Net Position, and the Combined Statements of 

Budgetary Resources. These principal financial statements 

and accompanying notes are included in the Financial Section 

of this AFR.

Preparing DLA WCF 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 WCF’s 

management is responsible for the integrity and objectivity of 

the financial information presented in the statements. DLA WCF 

is dedicated in its pursuit of financial management excellence. 

A summary of DLA WCF’s changes in key financial measures 

for FY 2021 and 2020 is presented in the following Analysis.

DLA Energy Commander Visits Texas Aerostat Site

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

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

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

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

Photo courtesy of DLA Energy Aerospace. Photo By: DLA Energy Aerospace
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

Figure 17: Changes In Key Financial Measures

3In FY 2021, DLA WCF restated its FY 2020 financial statements to correct errors in the Balance Sheet, Statement of Net Cost, 

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

financial statement presentation requirements in accordance with OMB Circular No. A-136, Financial Reporting Requirements. 

Changes In Key Financial Measures

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

Condensed Principal Financial Statements

FY 2021

FY 20203

As Restated Increase/Decrease

Financial Condition (Unaudited) (Unaudited) $ %

Fund Balance with Treasury $ 2,706.2 $ 3,915.4 $ (1,209.2) (30.9%)

Accounts Receivable, Net and Other Assets 3,040.5 3,199.3 (158.8) (5.0%)

Inventory and Related Property, Net 22,348.7 21,837.9 510.8 2.3%

General PP&E, Net 810.4 754.6 55.8 7.4%

TOTAL ASSETS $ 28,905.8 $ 29,707.2 $ (801.4) (2.7%)

Accounts Payable $ 2,451.2 $ 2,721.0 $ (269.8) (9.9%)

Environmental and Disposal Liabilities 1,272.4 1,187.1 85.3 7.2%

Federal Benefits and Other Liabilities 1,068.8 2,314.0 (1,245.2) (53.8%)

TOTAL LIABILITIES $ 4,792.4 $ 6,222.1 $ (1,429.7) (23.0%)

TOTAL NET POSITION (ASSETS LESS 

LIABILITIES) $ 24,113.4 $ 23,485.1 $ 628.3 2.7%

Total Gross Cost $ 50,648.1 $ 41,575.1 $ 9,073.0 21.8%

Less: Total Earned Revenue (50,945.5) (42,376.0) (8,569.5) 20.2%

NET COST OF OPERATIONS $ (297.4) $ (800.9) $ 503.5 (62.9%)
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 30

Financial Results Summary

Assets – What DLA WCF Owns and Manages

Assets represent amounts owned and managed by DLA WCF 

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

Combat Logistics Support Agency and consist of: Fund Balance 

with Treasury (FBwT); Accounts Receivable, Net and Other 

Assets; Inventory and Related Property, Net; and General 

PP&E. DLA WCF’s largest asset was Inventory and Related 

Property, Net, representing $22.3 billion or 77.3% of Total Assets 

as of September 30, 2021. Inventory and Related Property, Net 

consist of supply chain materials, equipment and repair parts, 

worldwide military supplies, and IH, primarily all held for sale.

FBwT represented $2.7 billion or 9.4% of Total Assets 

as of September 30, 2021. At the onset of the COVID-19 

pandemic, DLA received significant cash advances from the 

Department of Health and Human Services (HHS) in support 

of COVID-19 activities in FY 2020. DLA continues to execute 

the obligated funding in FY 2021, resulting in a decrease in 

FBwT of ($1.2) billion or (30.9%) from September 30, 2020. 

Accounts Receivable, Net and Other Assets were $3.0 billion 

or 10.5% of Total Assets as of September 30, 2021. The 

overall net change in Accounts Receivable, Net and Other 

Assets was approximately ($158.8) million or (5.0%) and was 

primarily due to decreases in sales to the Air Force and Navy.

Figure 18: Total Assets by component as of September 30, 2021 and 2020

 $-

 $5,000.0

 $10,000.0

 $15,000.0

 $20,000.0

 $25,000.0

$2,706.2 

$3,040.5 

$22,348.7 

$810.4 

$3,915.4 

$3,199.3 

$21,837.9 

$754.6 

Two Year Trend in Components 

of Total Assets (Unaudited)

As of September 30, 2021 and September 30, 2020

FY 2021 Assets FY 2020 Assets As Restated

($ in millions)

Total Assets (Unaudited) 

= $28,905.8M

As of September 30, 2021

($ in millions)

General PP&E, Net ($810.4)

AR, Net and Other ($3,040.5) 

FBwT ($2,706.2)

Inv. and Related Property, Net ($22,348.7)
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

Liabilities – What DLA WCF Owes

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

entities for goods and services provided but not yet paid; 

(2) to DLA WCF employees for wages and future benefits; 

(3) for Environmental and Disposal Liabilities (EL); and (4) 

for Other Liabilities. The largest liability as of September 30, 

2021 was Accounts Payable reported at $2.5 billion or 51.1% 

of Total Liabilities. Federal Benefits and Other Liabilities 

Figure 19: Total Liabilities by component as of September 30, 2021 and 2020

as of September 30, 2021 was approximately $1.1 billion 

or 22.3% of Total Liabilities. The net decrease of ($1.4) 

billion or (23.0%) since September 30, 2020 was primarily 

due to an increase in the liability for Advances from Others 

and Deferred Revenue received from HHS in support of 

COVID-19 activities in FY 2020 as compared to FY 2021. 

 $-

 $500.0

 $1,000.0

 $1,500.0

 $2,000.0

 $2,500.0

 $3,000.0

$2,451.2 

$1,272.4 $1,068.8 

$2,721.0 

$1,187.1 

$2,314.0 

Two Year Trend in Components 

of Total Liabilities (Unaudited)

As of September 30, 2021 and September 30, 2020

FY 2021 Liabilities FY 2020 Liabilities As Restated

Total Liabilities (Unaudited) 

= $4,792.4M

As of September 30, 2021

($ in millions)

Federal Benefits & Other Liabilities ($1,068.8)

Environmental & Disposal Liabilities ($1,272.4)

Accounts Payable ($2,451.2)
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 32

Net position represents the accumulation of revenue and 

expenses, and unexpended appropriations and other financing 

sources transferred in/out since inception, as represented in 

DLA WCF balances reflected in the Statements of Changes 

in Net Position. As of September 30, 2021, Total Net Position 

largely consisted of Cumulative Results of Operations of $23.9 

billion, derived from producing goods and providing services for 

sale to Federal and public entities. This function is the primary 

source of sustaining DLA WCF in its key role of logistically 

supporting missions of America’s Warfighters.

The DLA WCF operates under the mission of Sustain Warfighter 

readiness and lethality by delivering proactive global logistics 

in peace and war. DLA WCF has three activity groups: Energy, 

SCM, and Document Services. The three activity groups 

comprise a single, integrated business enterprise. For the year 

ended September 30, 2021, these three activity groups incurred 

Total Gross Cost of $50.6 billion and recognized Total Earned 

The net increase in Net Position of $628.3 million or 2.7% from 

September 30, 2020 was largely attributable to the correction 

of errors. 

Net Position – What DLA WCF has Done Over Time

Revenue of $50.9 billion, resulting in Net Cost of Operations 

(Total Earned Revenue exceeded Total Gross Cost) of ($297.4) 

million. The decrease in Total Earned Revenue exceeding Total 

Gross Cost of $503.5 million was mostly attributable to higher 

acquisition costs in DLA SCM-Troop Support within Medical’s 

overall growth in business volume due to COVID-19 pandemic 

relief efforts.

Net Cost of Operations – DLA WCF Net Operating Results

Figure 20: Gross Cost by Activity for the years ended September 30, 2021 and 2020

Total Gross Cost (Unaudited) 

= $50,648.1M

For the Year Ended September 30, 2021

($ in millions)

Document Services($238.1)

Energy ($8,981.2)

SCM ($41,428.9)

 $-

 $5,000.0

 $10,000.0

 $15,000.0

 $20,000.0

 $25,000.0

 $30,000.0

 $35,000.0

 $40,000.0

 $45,000.0

$8,981.2 

$41,428.9 

$238.1 

$9,696.4 

$31,657.1 

$221.6 

Two Year Trend in Gross Cost by Activity Group 

For the Years Ended 

September 30, 2021 and 2020

FY 2021 Gross Cost FY 2020 Gross Cost As Restated
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

Figure 21: Earned Revenue by Activity for the years ended September 30, 2021 and 2020

Total Earned Revenue (Unaudited) 

= $50,945.5M

For the Year Ended September 30, 2021

($ in millions)

Document Services($212.4)

Energy ($9,371.1)

SCM ($41,362.0)

 $-

 $5,000.0

 $10,000.0

 $15,000.0

 $20,000.0

 $25,000.0

 $30,000.0

 $35,000.0

 $40,000.0

 $45,000.0

Energy SCM Document

Services

$9,371.1 

$41,362.0 

$212.4 

$10,734.1 

$31,435.8 

$206.1 

Two Year Trend in Earned Revenue by Activity Group 

For the Years Ended 

September 30, 2021 and 2020

FY 2021 Earned Revenue FY 2020 Earned Revenue As Restated

($ in millions)

Securing PPE

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

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

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

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

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 34

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 WCF 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 WCF to incur obligations, to pay 

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

Budgetary Activity - DLA WCF Budgetary Resources and Obligations

Figure 22: Total Budgetary Resources and New Obligations for the years ended September 30, 2021 and 2020

Obligations are balances for which there has been legally 

binding action during the year.

For the year ended September 30, 2021, Total Budgetary 

Resources were $48.0 billion and Total Obligations were 

$47.7 billion. Total New Obligations increased by $1.2 billion 

or 2.6% since September 30, 2020 due to the increase in 

supply demand as the global markets and economy reopened 

following the COVID-19 shutdown in FY 2020.

 $45,500.0

 $46,000.0

 $46,500.0

 $47,000.0

 $47,500.0

 $48,000.0

 $48,500.0

Total Budgetary

Resources

New Obligations

$48,026.3 

$47,724.4 

$46,932.5 $46,510.1 

Two Year Trend in Status of Budgetary Resources 

and New Obligations (Unaudited) 

For the Years Ended September 30, 2021 and 2020

FY 2021 FY 2020 As Restated

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

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

Limitations of the Financial Statements 

The DLA WCF principal financial statements4 and accompanying 

notes are prepared to report the financial position and results 

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

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

The DLA WCF 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 WCF 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 WCF 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 

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

processing Enterprise Resource Planning (ERP) Business 

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

enhanced reporting of financial information on the full accrual 

accounting basis and streamline data between IT systems, 

which DLA continues to consolidate and rationalize through the 

migration of major legacy systems.

The DLA WCF 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 WCF continues 

to implement interim mitigation processes to address known 

limitations; additionally, DLA WCF is remediating material 

weaknesses to the financial statement preparation process. 

DLA WCF 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.

4 Refer to the Financial Section Introduction for definition of principal 

financial statements.

Fresh Produce

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

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

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 36

Analysis of Systems, Controls, 

and Legal Compliance

The DLA management is responsible for establishing, 

maintaining, and assessing internal controls to provide 

reasonable assurance that the objectives of OMB Circular 

A-123, Management’s Responsibility for Enterprise Risk 

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

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

Management Assurances

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

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

the Federal Government, are met. The appendices referenced 

within the annual Statement of Assurance (SOA) below are 

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

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

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 38

Summary of Internal Control Assessment

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; however, the financial statement audit NFRs continue 

to be monitored by management. The audit related ICOR and 

ICOFS material weaknesses that have not yet been remediated 

are reported in the Summary of Financial Statement Audit and 

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

SOA Package FY 2021 Material Weaknesses and Significant 

Deficiencies template included a total of three ICOR-O material 

weaknesses. 

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

assurance of: 

● Effectiveness and efficiency of operations; 

● Reliability of financial and nonfinancial reporting; 

● Compliance with applicable laws and regulations; and 

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

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

Effectiveness of Internal Control over Operations (FMFIA § 2)

Material Weaknesses Corrective Action Summary

Supply Operations: Lack of policy and procedures in 

place over the management and oversight of First Article 

Test Exhibits

The DLA will establish and implement policies and procedures for identified 

areas, train affected personnel on new procedures, and conduct compliance 

reviews, tests of design, and tests of effectiveness for internal controls.

Contract Administration: Non-verification of supplier 

invoices

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

risks), define, develop, and publish policy and procedures and controls to 

correct OCONUS Scrap Program. 

Business Process Controls: Lack of procedures 

over the scrap management program

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

controls, and conduct implementation procedures to remediate the deficiencies 

associated with this finding.

The DLA is working to improve the documentation around 

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

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

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

material weaknesses that remain unremediated from the FY 

2020 SOA package. 

To address these deficiencies, the DLA Enterprise Risk 

Management (ERM) Program Management Office (PMO), 

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

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

across all organizational and business aspects. This oversight 

enables DLA to integrate the diverse groups performing 

elements of risk management and internal control activities 

under a single umbrella with the goal of improved mission 

delivery, reduced costs, and response actions focused on key 

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

capacity to execute an effective OMB Circular A-123 Program 

and demonstrates measurable progress that includes:

● Publishing two comprehensive manuals, DLAM 5010.40 

Risk Management (Vol I) and Internal Control (Vol II) that 

provide the concepts for implementing and executing an 

effective A-123 program;

● Publishing DLA’s Fraud Risk Management Strategy, that 

defines the framework to protect our Agency’s assets 

and resources from fraud, waste, and, abuse;

● Conducting a Fraud Risk Maturity Assessment across 

major DLA programs to identify and build upon activities 

to mitigate the risks of fraud, waste, abuse, and 

mismanagement;

● Performing regular reviews of ERM and A-123 efforts 

and work products through a robust, multi-layered 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; and

● Publishing a comprehensive A-123 Program instruction 

(DLAI 5010.40) that is sought after by the DOD Enterprise 

Risk Management Community of Practice and other 

DOD organizations to use as benchmark for developing 

the Department’s DODI 5010.40.

The DLA consistently strives to create a “culture of 

accountability” to ensure compliance with laws, regulations, 

policies and the execution of key processes. Examples of this 

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

at the Top” message and monthly employee accountability 

assessments and supervisory assurance certifications.

The DLA has also synchronized its efforts between the ERM 

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

Circular A-123 Program and audit infrastructure. This new 

approach leverages a risk-based methodology to facilitate the 

integration of internal controls, risk management activities and 

audit remediation.

The DLA’s Summary of Financial Statement Audit and Management Assurances for SOA package and audit related 

material weaknesses are presented in the OI section of this 

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 40

Federal Financial Management 

Improvement Act

FFMIA was enacted to advance Federal financial management 

by ensuring that Federal financial management systems 

can routinely provide reliable financial information uniformly 

across the Federal government following OMB Circular A-123 

Appendix D, Compliance with the Federal Financial Management 

Improvement Act of 1996. The FFMIA requires Agencies to 

establish and maintain financial management systems that 

substantially comply with the following three FFMIA Section 

803(a) requirements:

OMB Circular A-123, Appendix D provides the compliance 

determination framework to evaluate compliance with the 

FFMIA requirements. The FFMIA compliance determination 

framework includes a series of Federal financial management 

goals applicable across all Federal Agencies and associated 

compliance indicators that assist the Agency head in 

determining whether the Agency has substantially complied 

with the requirements of FFMIA.

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

compliance determination framework to perform a review of data 

for each of the FFMIA compliance indicators and associated 

analysis in order to determine compliance with FFMIA. Based 

on the application of the framework and associated analysis 

of relevant FFMIA compliance indicators available, DLA had 

identified high-risk factors associated with all three FFMIA 

Section 803(a) requirements.

FFMSR:

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

include: the disclaimer of opinion on the FY 2020 financial 

statements; and material weaknesses over internal controls 

over reporting and information system non-compliance related 

to financial system security were reported in FY 2020 and FY 

2021 in areas that corresponded to FFMSRs.

Federal Accounting Standards5:

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

include: the disclaimer of opinion on the FY 2020 financial 

statements and material weaknesses over internal controls 

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

areas that related to compliance with Federal accounting 

standards.

USSGL at the Transaction Level:

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

include the disclaimer of opinion on the FY 2020 financial 

statements and material weaknesses over internal controls 

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

related to implementation of the USSGL at the transaction 

level.

The table below summarizes the status of unresolved 

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

requirements and remediation activities that are planned or 

underway, target dates, and offices responsible for bringing 

systems into compliance. 

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

Departures from U.S. GAAP.

● Federal Financial Management System 

Requirements (FFMSRs)

● Federal Accounting Standards

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

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

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

FFMIA Section 803(a) 

Requirement

Remediation 

Activities Target Date Responsible Offices

Federal Financial 

Management System 

Requirements

The DLA will continue to 

develop and document 

policies, procedures, 

and controls in order to 

comply with standards, 

laws, and regulations that 

promote reliable financial 

reporting and effective 

and efficient operations.

FY 2022 - 

FY 2023

• Finance

• Information Operations

• Acquisition

• Logistics Operations

Federal 

Accounting 

Standards 

Advisory

 Board (FASAB)

The DLA will continue 

to perform a root cause 

analysis to identify underlying issues as well as 

develop and document 

policies, procedures, 

and controls to maintain 

accounting data to permit 

reporting in accordance 

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

FY 2022 - 

FY 2023

• Finance

• Information Operations

• Acquisition

• Logistics Operations

USSGL at the 

Transaction Level

To reduce the material 

risks of procedural and 

posting logic deficiencies 

and achieve compliance 

with applicable accounting regulations, DLA will 

identify non-compliant 

areas with a financial impact in processes across 

the enterprise. This 

approach will include 

creating and updating 

policies, procedures 

and internal controls, as 

well as requesting the 

implementation of system 

changes to address 

underlying errors in the 

systemic posting logic.

FY 2022 - 

FY 2023

• Finance

• Information Operations

• Acquisition

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 42

Compliance with Laws and Regulations

Anti-Deficiency Act

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

Federal employees from obligating funds in excess of an 

appropriation or before funds are available, or from accepting 

voluntary services. As required by the ADA, DLA WCF notifies 

all appropriate authorities of any potential ADA violations. For 

the one potential DLA WCF ADA violation reported in FY 2020 

(Case 20-01 Audit of DLA Use of Security Assistance Funds 

and Asset Accountability), the preliminary review in FY 2021 

did not reveal any ADA violations. The aforementioned case 

has been resolved and at this time, there are no known ADA 

violations for DLA WCF.

The DLA WCF 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 WCF is continuously evaluating the existing processes 

and controls to identify areas of improvement.

Digital Accountability 

and Transparency Act of 2014

The Digital Accountability and Transparency Act of 2014 

(DATA Act) expands the Federal Funding Accountability 

and Transparency Act of 2006 to increase accountability 

and transparency in Federal spending, making Federal 

expenditure information more accessible to the public. It 

directs the Federal Government to use government-wide data 

standards for developing and publishing reports and to make 

more information, including award-related data, available on 

USASpending.gov. The standards and data allow stakeholders 

to track Federal spending more effectively.

In accordance with OMB M-20-21, Implementation Guidance 

for Supplemental Funding Provided in Response to the 

Coronavirus Disease 2019, as implemented by Office of the 

Under Secretary of Defense (Comptroller) memorandum, 

Coronavirus Disease 2019 Disaster and Emergency Relief 

Accounting and Reporting Requirements, April 9, 2020, DLA 

has identified data elements in EBS, the accounting system 

of record, to address the COVID-19 reporting requirements. 

These include a fund code for new appropriations specific to 

funding for COVID-19, and the use of specific internal order 

numbers to track additional expenses resulting from COVID-19.

In FY 2021, DLA completed a comprehensive Data Quality 

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

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

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

data quality and sets forth the DLA process for reviewing, 

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

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

DLA began implementation of its DQP and executed test plans 

to assess controls impacting data quality in the core financial 

system, EBS.

The DLA is unable to provide assurance over compliance with 

the DATA Act.

Debt Collection Improvement Act of 

1996

For the purpose of administrative offset, the Debt Collection 

Improvement Act of 1996 requires Federal Agencies to refer 

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

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

Accountability and Transparency Act of 2014 amended the 

Debt Collection Improvement Act of 1996 to reduce the time 

period to 120 days.

 

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

Finance and Accounting Service (DFAS) prepares the Treasury 

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

Treasury of receivables due from the public aged more than 

120 days.

In FY 2021, DLA 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.
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

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 

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

oversight questions related to appointment and training, and 

the Component Program Managers (CPMs) review the monthly 

A/OPC reports within IOD to include corrective actions taken 

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

oversight data, including the number of transactions flagged for 

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

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

semi-annual head of activity report within IOD that captures 

program oversight data at the Agency level and briefs to the 

Senior Procurement Executive.

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

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

overall program compliance reviews in order to mitigate the 

risk of fraud and misuse. MSC audit teams also conduct GPC 

reviews. As a result of IOD and DLA processes, transactions 

are reviewed by A/BOs, A/OPCs, and CPMs daily, monthly, 

semi-annually, and annually with corrective action assigned as 

appropriate.

Daily, management approves all requirements before the 

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

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

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

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

corrective action and provide results to the CPM for review. 

The A/OPCs and CPMs also review all monthly statement 

approval and certifications to identify any A/BO violations of 

segregation of duty policies.

CPM also conducts an annual comprehensive program 

review of each DLA GPC Activity, which includes a random 

sampling of cardholder transactions, appointment and training 

documentation, and overall program oversight responsibilities. 

The CPM assigns corrective actions as appropriate and 

provides results to senior leadership.

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

a result of reviews or audits.

Going Green

Air Force C-17 Globemaster III pilots take off for a mission from Al Udeid Air Base, Qatar, Oct. 27, 2020. 

Photo By: Air Force Master Sgt. Larry Reid Jr.
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 44

Financial Systems

Financial Systems Strategy

The DLA Information Operations is DLA’s knowledge broker, 

providing comprehensive, best practice IT support to DoD/DLA 

Logistics Business Community. Information Operations provides 

dynamic information systems, customer support, efficient and 

economical computing, data management, electronic business, 

telecommunication services, key management, and secure 

voice systems for DoD and DLA. Although DLA is unable to 

provide assurance that the financial systems are in compliance 

with Federal system security and accounting requirements, 

DLA Information Operations endeavors to improve the control 

posture of systems and processes by testing and correcting 

deficiencies to ensure that DLA’s systems are compliant.

The DLA Information Operations continues to review audit 

findings from prior and current financial statement audits. 

DLA Information Operations works with DLA Finance and 

other business stakeholders to develop CAPs and resolve 

findings. Identified deficiencies are prioritized and aligned to 

the appropriate plans and system enhancements. In addition 

to identified audit findings, DLA Information Operations is 

working to become compliant with the Standard Financial 

Information Structure (SFIS) and Standard Line of Accounting 

(SLOA) in accordance with applicable Federal requirements. 

Improvements to general ledger posting logic to comply with 

the USSGL are also being implemented proactively to ensure 

all business events are mapped to the proper general ledger 

accounts. DLA Information Operations works with DLA Finance 

to build a roadmap for future financial system improvements 

based on budget availability, resource and system constraints. 

The financial systems strategy will support the overarching 

strategy of DLA to make an end-to-end process review 

aligned to financial statements line items with focus on risk 

and controls. DLA Information Operations will also continue 

to focus on remediating any issues associated with material 

weaknesses and DoD Chief Information Officer (CIO) priorities.

Effective April 1, 2020, DLA reduced onsite operations to 

emergency and mission-essential/critical personnel only 

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

present to perform necessary functions) in response to the 

COVID-19 pandemic. While operating in an emergency status 

due to COVID-19 precautions, telework-ready personnel not 

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

with the Defense Information Systems Agency (DISA) to 

ensure the sustainment of DLA mass telework capability and 

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

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

Internet Protocol Router Network for teleworkers. 

 

Financial Management Systems 

Framework

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

its accounting system of record to process, track and report 

all business transactions which impact DLA WCF. The core of 

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

Resource Planning Central Component (ECC) version 6.0. 

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

software which has been configured to meet DLA's business 

requirements. However, due to system limitations, accurate 

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

assurance that the financial systems are in compliance with 

Federal system security and accounting requirements. There 

are numerous systems which interface with EBS. These 

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

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

legacy inventory warehouse management system and multiple 

DFAS systems for the creation of financial statements, reports 

and Treasury cash management. DLA EBS ECC 6.0 has a 

single, enterprise general ledger which resides in SAP and is 

used for all funds.

Future Financial Management 

Systems Framework

The DLA has begun migrating the existing SAP Enterprise 

Resource Planning (ERP) application environment to SAP’s 

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

the process for migrating the core financial management 

system. SAP ECC 6.0 to SAP S/4 HANA 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 its first year of a two phased ERP Migration. 

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

all applications that are within the EBS accreditation boundary 

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

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

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

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

Study (BTS), Business Process Engineering/Laws Regulations 
Section 1 | Management’s Discussion and Analysis (Unaudited)

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

of orders with an open balance and a period of performance 

extending beyond September 30, 2023.

The implementation of DoD SLOA will improve interoperability 

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

successful audits in DoD.

The DLA will begin implementation of the SAP Warehouse 

Management System (WMS) in FY 2022 with a target 

to implement all Distribution and Disposition Centers by 

Q2 FY 2024. Utilizing Cloud based development, DLA is 

taking advantage of significant inherent benefits related to 

configuration, integration and deployment to reduce legacy 

costs and posture the Agency to maintain alignment with next 

century IT trends. This industry standard software will enable 

a comprehensive warehousing solution that is integrated 

within the larger SAP framework of financial accounting. The 

modernization of software from the legacy DSS will remove 

system limitations, transactional data impediments and known 

audit gaps that created challenges while operating in a nonSAP warehousing application. DLA intends to capitalize on the 

software upgrade to enhance overall operations by leveraging 

warehouse automation and business process re-engineering to 

increase inventory accuracy and warehouse productivity.

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

and Execution.

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

will conduct BPR/LRP analysis to identify and challenge DoD 

LRPs that impede the ability to adopt standard capability. DLA 

will consider BPR to use standard capability to the maximum 

extent possible to reduce cost, streamline business processes 

to adopt industry best practices, and allow for better innovation 

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

fourth quarter of FY 2027.

The DLA will also be implementing system changes to meet the 

requirements of Treasury’s G-Invoicing system. G-Invoicing will 

help address government-wide accounting elimination problems 

by ensuring trading partners have the same information for 

intragovernmental transactions. The G-Invoicing required use 

date for Federal Program Agencies (FPAs) for new orders has 

been delayed from June 2021. The mandated implementation 

deadline of October 2022 for new orders includes orders 

with a period of performance beginning October 1, 2022, or 

later. FPAs must implement G-Invoicing for “In-Flight” orders 

by October 2023. The mandated implementation deadline of 

October 2023 for “In-Flight” orders includes the conversion 

Midshipman receives the COVID-19 Vaccine

Midshipman 4th Class Matthew Downey receives the COVID-19 vaccine at the U.S. Naval Academy in Annapolis, 

Maryland, on March 11, 2021. All Defense Department personnel and beneficiaries are eligible for vaccination as 

of April 19. Photo By: MC2 Nathan Burke/Navy
 Management’s Discussion and Analysis (Unaudited) | Section 1

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 46

Forward-Looking Information

The following areas present insights into how the Agency 

shapes its programs and responds to challenges posed to DLA 

WCF’s goals and missions.

An Ever-Changing Workforce

 

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

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

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

and Culture objectives are the strategies that will assist DLA 

in mitigating several significant external factors that will affect 

DLA and its workforce.

Changing demographics are the first significant external factor. 

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

DLA workplace and DLA civilians are playing an increasingly 

critical role in supporting global DoD missions. These 

changing demographics will require continued assessment 

of DLA’s current human resources initiatives and new 

strategies to excel in areas such as recruitment, training and 

development, work-life balance, managing in a geographically 

dispersed environment while maintaining strong connections 

to DLA culture, knowledge transfer, leadership skills, labor 

management relations and a culture that fosters diversity, 

equity, inclusion and employee engagement.

Our economy is the second external factor that influences 

the Federal government’s ability to recruit top talent and 

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

retain a diverse workforce, but also ensures the workforce 

has the critical skills necessary to operate in this constrained 

environment.

Technology is the third external factor. COVID-19 has 

accelerated the use of digital technology and has changed the 

way work is being performed. More work is being performed 

virtually than on site or in person. DLA developed a COVID-19 

Vaccine Questionnaire that will replace the manual email 

and spreadsheet tracking currently being performed. The 

Department of Defense expanded efforts to gather data as 

it relates to COVID-19 vaccinations to better focus vaccine 

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

percentage of the workforce that has been vaccinated against 

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

at locations with shortfalls and assist in prioritizing Agency/

DoD vaccination efforts. DLA must recruit, develop, and 

sustain a workforce that is technically proficient and agile to 

adopt emerging technologies, which requires innovative human 

capital management strategies.

The work environment is the last significant external factor to 

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

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

light of changes to demographics, economics, and technology. 

These factors will impact each segment of DLA, and DLA 

Human Resources must strategically partner with leadership 

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

change management techniques will assist in decreasing 

the uncertainty associated with changes as well as mitigate 

resistance to those changes.

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

Combatant Commands, and other Federal Agencies; that 

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

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

professionally and swiftly to mission requirements related to 

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

inform our workforce. The workforce that has been designated 

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

workplace throughout the crisis to continue DLA’s vital work 

of supporting Warfighters and the whole-of-government 

response to the pandemic. This includes deploying overseas; 

executing our wholesale distribution operations; supporting 

our Disposition Services customers; enabling our Service 

customers at shipyards, readiness centers, and depots; keeping 

our installations safe and secure; performing necessary IT 

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

fingerprinting new employees; performing classified work; 

and many other functions requiring physical presence. As 

an employer, DLA will follow DoD policies and guidelines in 

taking any actions to address or mitigate the threat posed by 

COVID-19. This includes disseminating official information by 

appropriate public or military health authorities, leveraging 

workplace policies and flexibilities designed to protect our 

workforce, and activating “continuity of operations” plans 

should it become necessary. In response to both Families First 

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

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

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

be able to record excused absences for virus prevention or for 

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

population center has its own plan for returning employees to 

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

through the various phases on different timelines accounting 

for local conditions. DLA is monitoring workforce availability 

and conducting site capability and capacity assessments. DLA 

will continue to encourage completion of COVID-19 worksite 

related trainings and to develop methods to effectively hire 

and onboard personnel with a plan for virtual training and 

orientation.

External Threats 

In response to the President’s call for governmental reform 

and under the Direction of the Chief Management Officer, 

DoD is reviewing, changing, and setting up processes where 

appropriate to gain efficiencies and maximize savings to 

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

Warfighter First.

The DoD as a whole faces numerous challenges – ranging 

from strategic competition and aggression from other nations 

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

necessary to accomplish the mission. These threats directly 

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

Logistics Support Agency, DLA monitors these external threats 

to ensure readiness and support of the Warfighter.

In addition, DLA continuously reviews its strategy to meet 

global mission requirements as prescribed by DoD. DLA 

developed a 2021-2026 Strategic Plan and amended the 

plan in April 2021 to meet the evolving requirements of the 

Warfighter and the nation with a targeted transformative 

approach encompassing the most critical priorities for the next 

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

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

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

solutions: Warfighter Always, Support to the Nation, Trusted 

Mission Partners, Modernized Acquisition and Supply Chain 

Management, Future of Work, People and Culture, Fiscal 

Stewardship, and Digital-Business Transformation. Each LOE 

or CC has specific objectives. 

The DoD and the DLA share the responsibility for implementing 

effective ERM to maintain operational efficiency and to protect 

the achievement of mission. ERM is a strategic capability that 

enables DLA to effectively deal with uncertainty and associated 

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

strategy and objectives. ERM enables the identification of 

potential risks and subsequent responses to those risks. ERM 

enables DLA to more effectively manage enterprise risks, 

consider constraints and dependencies between key risks, 

while creating and preserving the value DLA contributes to 

the National Defense Strategy, National Defense Business 

Operations Plan, and DoD objectives. ERM and Internal 

Control are components of the governance framework.

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

Thorough risk assessments can identify, document, and 

communicate risk before it becomes an issue. Through ERM 

and Internal Control, DLA is taking a strategic approach to 

manage risk and drive DLA’s mission.

The DLA faces current and future cyber threats that must 

be countered in a sustained effort to secure and defend the 

Agency’s critical operational data, network, and business 

systems by applying key security principles, which include: 

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

in the areas of material support, planning, and acquisition 

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

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

resources and people around the world, both within and outside 

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

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

communities are responding to the threat. DLA is fully engaged 

and monitoring COVID-19 changes from Occupational Safety 

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

continual communication with employees through staff and site 

directors. DLA host site services are operating based on local 

and state guidance. DLA is continuing to monitor the readiness 

of first responders and documenting the execution of the 

risk manage process and risk acceptance at the appropriate 

leadership levels.

● Operations-level Situational Awareness;

● Layered perimeter defenses; 

● Least privilege for access to data and IT 

capabilities; and

● Physical or logical segmentation of networks, 

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

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 48

Technological Advancement 

and Initiatives

 

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

Finally, DLA provides Congressionally appropriated funding 

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

The DAI mission is to deliver auditable, CFO Act compliant 

business environments for Defense Agencies. The goal is to 

provide accurate, timely, and authoritative financial data in 

support of DoD goals to standardize financial management 

practices, improve financial decision support, and support 

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

the Defense Agencies’ financial management capabilities. 

DLA Distribution Norfolk fulfills resupply mission for Operation Pacer Goose

Navy Capt. Tommy Neville, commander of Defense Logistics Agency Distribution Norfolk, Virginia, forefront left, 

escorts Navy Rear Adm. Jacquelyn McClelland, commander of the Navy Expeditionary Support Group, around 

DDNV’s Pier 8 to watch cargo operations supporting Operation Pacer Goose, the annual resupply mission to Thule 

Air Base, Greenland.. Photo By: DDNV
Food Distibution ►

Army Spc. Jermareya Frederick, a financial management 

technician assigned to the 160th Financial Management Support 

Detachment, Arizona Army National Guard, fills boxes with 

groceries to be distributed at a food bank in Phoenix, March 8, 

2021. The Arizona Guard has responded domestically in such 

emergencies as airport security after 9/11, Monument Fire in 

2011, Hurricane Harvey in 2017 and the Havasupai Floods in 

2018.

 Photo Credit: Air Force Tech. Sgt. Michael Matkin, 

 Arizona Air National Guard

SECTION 2

Financial Section (Unaudited)

49

Section 2 | Financial Section (Unaudited)

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

SECTION 2

Noble Defender

Alaska Air National Guard Tech. Sgt. Matthew O’Brien practices radio communications in 

Southcentral Alaska, Jan. 21, 2021, during Noble Defender, a North American Air Defense 

Command Arctic air defense operation.

 Photo Credit: Air Force Senior Airman Kelly Willett

In this section

52 Message from the Chief Financial Officer

53 Audit Reports

94 Management’s Response to Audit Reports

95 Introduction to the Principal Financial Statements

96 Principal Financial Statements (Unaudited)

100 Notes to the Principal Financial Statements (Unaudited)

143 Required Supplementary Information

Balance Sheets Statements of Net Cost

Statements of Changes 

in Net Position

Combined Statements 

of Budgetary Resources

96

98 99

97
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 52

Message from the Chief Financial Officer

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

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

financial statement audit process. DLA Working Capital Fund’s (WCF) FY 2021 AFR 

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

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

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

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

waste, and abuse in every program we manage.

Although DLA received a Disclaimer of Opinion on the Agency’s WCF financial 

statements, which denotes that the auditor conducted audit procedures but was unable 

to express an opinion on the financial statements, DLA continues to make tremendous 

strides. DLA’s continued efforts consist of establishing the framework to correct material 

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

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

and implementing the appropriate controls to address those risks.

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

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

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

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

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

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

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

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

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

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

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

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

prudent use of the American taxpayer funds entrusted to us.

WARFIGHTER ALWAYS!

J.ARTHUR HAGLER

Director, DLA Finance

Chief Financial Officer

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

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

Audit Reports

INSPECTOR GENERAL

DEPARTMENT OF DEFENSE

4800 MARK CENTER DRIVE

ALEXANDRIA, VIRGINIA 22350-1500

November 8, 2021

MEMORANDUM FOR UNDER SECRETARY OF DEFENSE (COMPTROLLER)/

CHIEF FINANCIAL OFFICER, DOD

DIRECTOR, DEFENSE LOGISTICS AGENCY

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

Agency Working Capital Fund Financial Statements and Related Notes for 

FY 2021 and FY 2020 (Project No. D2021-D000FE-0058.000, Report No. 

DODIG-2022-032)

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

to audit the Defense Logistics Agency (DLA) Working Capital Fund Financial Statements 

and related notes as of and for the fiscal years ended September 30, 2021, and 2020. 

The contract required EY to provide a report on internal control over financial 

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

and grant agreements, and to report on whether the DLA’s financial management 

systems substantially complied with the requirements of the Federal Financial 

Management Improvement Act of 1996. The contract required EY to conduct the audit 

in accordance with generally accepted government auditing standards (GAGAS); Office 

of Management and Budget audit guidance; and the Government Accountability 

Office/Council of the Inspectors General on Integrity and Efficiency, “Financial Audit 

Manual,” June 2018, Volume 1 (Updated, April 2020), Volume 2 (Updated, March 2021), 

and Volume 3 (Updated, September 2021). EY’s Independent Auditor’s Reports are

attached.

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

appropriate audit evidence to support the reported amounts within the DLA Working 

Capital 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 Working Capital Fund FY 2021 and FY 2020 Financial Statements and 

related notes. 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 54

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

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

controls over financial reporting.* Specifically, EY’s report concluded that the DLA did 

not design or implement effective internal controls to:

• document and validate Inventory balances and transactions;

• reconcile Fund Balance With Treasury;

• record Accounts Receivable and revenue transactions properly;

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

• review inaccurate financial statement balances and footnote disclosures;

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

remediate audit findings in a timely manner; and

• ensure the effective design and operation of financial reporting information 

systems.

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

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

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

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

Federal Financial Management Improvement Act of 1996 and 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 

Working Capital Fund FY 2021 and FY 2020 Financial Statements and related notes. 

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

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

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

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

 

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

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

material misstatement in the financial statements in a timely manner.
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agreements. Our review disclosed no instances where EY did not comply, in all material 

respects, with GAGAS. EY is responsible for the attached November 8, 2021 reports, 

and the conclusions expressed within the reports. 

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

questions to me.

Lorin T. Venable, CPA

Assistant Inspector General for Audit

Financial Management and Reporting

Attachments: 

As stated
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Ernst & Young LLP

1775 Tysons Blvd

Tysons, VA 22102

Tel: +1 703 747 1000

Fax: +1 703 747 0100

ey.com

Report of Independent Auditors

The Director of the Defense Logistics Agency and the

Inspector General of the Department of Defense

Report on the Financial Statements

We were engaged to audit the accompanying financial statements of the Working Capital Fund of 

the Defense Logistics Agency (DLA), which comprise the balance sheets as of September 30, 2021

and 2020, and the related statements of net cost and changes in net position and combined 

statements of budgetary resources for the years then ended, and the related notes to the financial 

statements (the financial statements).

Management’s Responsibility for the Financial Statements

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

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

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

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

or error.

Auditor’s Responsibility

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

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

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

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

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

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

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

Departure from U.S. Generally Accepted Accounting Principles

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

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

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

material.
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Basis for Disclaimer of Opinion

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

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

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

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

September 30, 2021 and 2020.

Disclaimer of Opinion

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

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

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

Other Matters

Required Supplementary Information

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

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

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

not a part of the financial statements, is required by the Federal Accounting Standards Advisory 

Board who considers it to be an essential part of financial reporting for placing the financial 

statements in an appropriate operational, economic, or historical context. We were unable to apply

certain limited procedures to the required supplementary information in accordance with auditing 

standards generally accepted in the United States of America because of the significance of the 

matters described in the Basis for Disclaimer of Opinion paragraph. We do not express an opinion 

or provide any assurance on the information.

Other Information

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

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

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

statements.

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

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

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

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

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

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

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

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

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

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

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

over financial reporting and compliance.

November 8, 2021


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Ernst & Young LLP

1775 Tysons Blvd

Tysons, VA 22102

Tel: +1 703 747 1000

Fax: +1 703 747 0100

ey.com

Report of Independent Auditors on Internal Control Over Financial Reporting 

Based on an Engagement to Audit the Financial Statements

Performed in Accordance with Government Auditing Standards

The Director of the Defense Logistics Agency and the

Inspector General of the Department of Defense

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

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

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

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

financial statements of the Working Capital Fund of the Defense Logistics Agency (DLA), which 

comprise the balance sheet as of September 30, 2021, and the related statement of net cost,

statement of changes in net position and combined statement of budgetary resources for the year 

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

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

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

in the Basis for Disclaimer of Opinion paragraph.

Internal Control Over Financial Reporting

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

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

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

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

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

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

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

preparing performance information ensuring efficient operations.

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

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

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

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

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

deficiencies.

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

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

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

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

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

items I through VII 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 items held by DLA for resale. DLA also holds 

inventory items on behalf of the military services. Policies, procedures and internal controls 

surrounding documentation of procurements and disbursements, tracking of inventory by 

owner, 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 the FBwT ending balances 

from the general ledger directly to the U.S. Treasury. DLA, in conjunction with Defense 

Finance and Accounting Services (DFAS), has implemented the Cash Management 

Reconciliation (CMR) and Department 97 Report Reconciliation Tool (DRRT) processes as 

mechanisms to reconcile DLA’s general ledger to U.S. Treasury. However, these tools have 

known control deficiencies and reconciling issues. In addition, DLA does not have sufficient 

policies, procedures and internal controls in place for the end-to-end FBwT process. 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 Receivable (AR) and Revenue – AR consists of amounts owed to DLA primarily 

related to the resale of goods and the provision of services. Revenue is earned when DLA 

sells goods and services to the public or other federal entities. DLA was unable to support 

the balances recorded as AR and validate the significant balance of aged receivables and 

unfilled customer orders. In addition, DLA did not have procedures to estimate valuation 

allowances against receivables and had not supported transactions recorded. Furthermore, 

DLA did not have adequate policies, procedures and controls to record AR and revenue 
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transactions accurately and in the proper period in accordance with U.S. generally accepted 

accounting principles (GAAP). The combination of these deficiencies in aggregate results in 

a material weakness in internal control related to AR and revenue. The matters identified 

related to AR and revenue are further described in Appendix A.

IV. 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 goods and services from the public or other federal entities. DLA was unable to 

support the AP balance, expenses and related budgetary balances. In addition, DLA did not 

have overall 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; to review and close invalid obligations; and it 

recorded transactions in the procure to pay process in incorrect periods. The combination of

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

AP and expense. The matters identified related to AP and expense are further described in 

Appendix A.

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

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

statement preparation process lacks sufficient controls to review and identify inaccurate 

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

DLA lacks policies and procedures to validate account balances and monitor reporting 

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

(JV) to correct the variances. In addition, DLA does not have controls to review and approve 

transactions recorded with elevated access privileges. Furthermore, DLA is unable to provide 

detailed listings for budgetary 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.

VI. 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,

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

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

in aggregate results in 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.
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VII. Information Systems – Our assessment of DLA’s information technology (IT) controls and 

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

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

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

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

• Access controls

• Configuration management

• Segregation of duties controls

• Security management/governance over implementation of security controls

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

Significant Deficiencies

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

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

I. Property, Plant and Equipment (PP&E) – PP&E includes general equipment, internal use 

software and construction-in-progress. DLA has not completed an analysis of the existence 

and completeness of PP&E assets or their process to value PP&E beginning balances and 

has weaknesses in the processes of maintaining and reconciling PP&E records. In addition, 

DLA does not have sufficient policies to account for leasing arrangements and whether the 

leasing arrangements should be accounted for as a capital or operating lease. Therefore, DLA 

is unable to support the existence, completeness, rights and obligations, or valuation of its 

PP&E. In addition, DLA does not have signed memorandums of agreement with the military 

services that outline the reporting responsibilities, such as depreciation and maintenance 

costs, for real property assets for which DLA is the primary user. The matters identified 

related to PP&E 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 reconcile these liabilities to the corresponding real property and 

to validate its estimation methodology. The matters identified related to EL are further 

described in Appendix B.

Management’s Response to Findings

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

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

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

financial statements and, accordingly, we express no opinion on it.
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Purpose of this Report

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

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

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

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

communication is not suitable for any other purpose.

November 8, 2021


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Appendix A – Material Weaknesses

I. Inventory

DLA’s inventory is comprised of petroleum and aerospace products, weapon system repair parts, 

food, clothing and medical supplies. Inventory also includes material from the military services 

designated for disposal or reutilization. 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 Documentation of Inventory Accounting Policies, Procedures and 

Controls. DLA has not documented the processes related to the significant business activities 

for acquisition, movement, warehousing and disposition of inventory; the related risks for each 

business activity; and the control activities designed to mitigate risks of material misstatement 

in the financial statements. The documentation lacks an accurate description of the following: 

financial reporting, records management, physical count policies, accounting for third-party 

managed inventory, the Inventory Reconciliation Framework (IRF) and various other business 

processes.

B. Lack of or Inadequate Documentation to Substantiate Inventory and Inventory-Related 

Transactions. DLA was unable to provide documentation that inventory balances exist, or 

inventory transactions occurred and are accurately recorded in the financial statements. 

Specifically, documentation was not available to support:

• The completeness and accuracy of transactions recorded or the existence of balances in the 

general ledger and the accountable property system of record (APSR).

• Shipping terms for sales transactions to evidence when the title and risk of loss are 

transferred to the buyer.

• Balances recorded in the inventory detail reports from the financial reporting system that 

do not reconcile to the site-specific end-of-month report and component financial 

statements.

• Balances of fuel inventory held in pipelines or in-transit.

• Posting of transactions in the general ledger resulting from financial events (i.e., sales, 

purchases, gains and losses, including gains and losses resulting from physical inventory 

counts).

C. 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:

• Inadequately Designed Controls Over Inventory Processes. For controls that have been 

implemented over significant Energy and Distribution processes, the controls are not 
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designed to align with DLA policies or are not executed consistently. In addition, sufficient 

documentation does not exist to evidence the performance of the control activities.

• Inventory Held for Others. Inventory held on behalf of the military services is not always 

stored in physically segregated locations and instead, is commingled with similar inventory 

that could be owned by multiple owners. DLA lacks controls over the commingled 

inventory. DLA does not have policies and procedures to reconcile quantities of inventory 

by owner to the total physical inventory counts on a regular basis. As a result, gain/loss 

adjustments are not assigned to the appropriate owner and not recorded in compliance with 

DLA’s policy. 

• In-Transit and Pipeline Inventory (In-Transit). In-transit inventory relates to items that 

were accepted at the point of origin (free on board shipping point) and are in-transit to a 

DLA destination. Controls related to monitoring and reconciling in-transit inventory 

balances do not exist. As a result, inventory recorded as in-transit from procurement points 

of origin has remained in-transit for several fiscal years, including amounts dating back to 

2012.

• Energy Inventory. DLA policy requires that monthly or quarterly automated tank gauging 

(ATG) verifications be performed. In addition, DLA requires that manual readings of fuel 

tank levels be obtained by calibrated tape or calibrated rod in the absence of functional 

ATG systems. However, DLA lacks controls to monitor field-level sites for compliance 

with DLA Energy policies. In addition, DLA does not monitor or review documentation to 

validate that field-level sites are performing the monthly or quarterly verifications or that 

manual readings are obtained in the absence of functional ATG systems. 

• Posting Inventory Adjustments in the General Ledger. DLA policy requires that errors 

between the APSR and the general ledger be reviewed and corrected by assigned users. 

Adjustments to correct the errors above a certain dollar threshold are reviewed by a 

supervisor. However, DLA does not have controls in place to prevent users from posting 

adjustments above the threshold or to detect that adjustments posted above the threshold 

were not reviewed. 

• 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. 

D. Inadequate Policies, Procedures and Related Controls Over Inventory Physical Counts. 

The Department of Defense Financial Management Regulation (DoD FMR) requires that all 

inventory be counted at least annually, either in a full physical count or through cycle counts, 

to validate perpetual inventory accuracy. DLA has not adequately designed controls related to 

physical counts to validate the existence and completeness of inventory related to Supply or 

Disposition as required. For example:

• Supply Inventory. DLA policy requires an annual physical count of all items on hand as 

of the beginning balance sheet date. DLA is not in compliance with this policy or the DoD 

FMR.

• Disposition Inventory. Inventory physical counts are not required to be performed on all 

Disposition inventory received from the military services.
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E. Lack of Controls for the Reconciliation Between Inventory APSR and the General 

Ledger. DLA utilizes the IRF to reconcile the inventory quantity balance in the general ledger 

to the inventory quantity balance in the APSRs. However, the IRF was not performed 

completely, accurately or timely. For example:

• The inventory reconciliations are not completed on a timely basis or within the normal 

financial statement close period (approximately 40-45 days from month-end).

• There were significant unreconciled variances totaling $281 million in the reconciliation 

for June 2021.

• The IRF does not include all appropriate general ledger accounts, including inventory intransit between storage locations and inventories/stock on hand.

F. Lack of Controls over Inventory Held by Third Parties. DLA does not have a detailed 

listing of inventory by vendor that reconciles to the inventory recorded in DLA’s general 

ledger, nor does DLA have a listing of all vendors who hold inventory on DLA’s behalf. DLA 

is unable to support the balances of inventory held at third parties for each vendor. In addition, 

DLA recorded inventory at inactive vendors (i.e., vendors with which DLA no longer has a 

contractual relationship). As a result, DLA is unable to substantiate the existence and 

completeness of inventory held at third parties. 

G. 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:

• DLA values inventory using the moving average price (MAP). However, DLA is unable 

to provide supporting documentation of costs that are included or excluded to calculate the 

MAP.

• DLA began implementing inventory costing methodologies in accordance with SFFAS 

No. 48 in fiscal year (FY) 2016. However, DLA did not completely and accurately value 

inventory in accordance with SFFAS No. 48. For example, the values assigned for certain 

inventory items were based on the latest acquisition cost (LAC). The LAC values did not 

properly consider inventory acquired through the implementation date. 

• DLA assigned zero-dollar values to unique material numbers and was not able to provide 

the basis for the zero-dollar valuation for all materials.

• Work in process (WIP) inventory items or components are provided to a production facility 

for kitting, assembly or modification, or to make an end item. Policies and procedures are 

not in place to record all costs, such as the assembly and labor costs, incurred during the 

kitting, assembly or modification process.
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• Valuation allowances for various inventory items, including excess, obsolete and 

unserviceable (EOU) inventory, inventory held for repair, inventory held at net realizable 

value, etc., are not appropriately documented or supported. The documentation for the 

valuation allowance for inventory held for repair does not sufficiently describe the 

methodology used to estimate the allowance or describe the rationale for adopting the 

methodology being used and the factors used in the estimation process.

H. Inadequate or Lack of Controls Over Financial Reporting of Inventory. DLA lacks 

controls to classify and present inventory appropriately in the financial statements. DLA 

accounting policy states that inventory balances are based on the following categories: 

inventory held for current sale, inventory held for future sale, EOU and inventory held for 

repair. DLA uses the inventory condition codes as the basis to classify inventory between each 

category. Controls are not in place to assign inventory the appropriate condition codes. In 

addition, DLA is unable to determine whether inventory classified as EOU meets the definition 

in SFFAS No. 3. As a result, DLA was unable to substantiate the amounts classified, presented 

or disclosed.

Recommendations

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

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

Controls. Document, update and finalize the process cycle memoranda (PCM) that document 

the end-to-end processes for inventory, including receiving, distributing, recording, processing 

and reporting. Perform a risk analysis and document risks associated with the DLA inventory 

business process. Review current control documentation and perform a gap analysis for 

internal controls at the financial statement assertion level.

B. Lack of or Inadequate Documentation to Substantiate Inventory and Inventory-Related 

Transactions.

• Develop and maintain documentation to support that inventory transactions occurred and 

are accurately recorded in the financial statements, including: 

o Standardizing data elements included in data extracts from APSRs and the general 

ledger. For example, data elements to tie material movements to the related 

financial postings.

o Standardizing documentation requirements to support financial events.

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

• Inadequately Designed Controls Over Inventory Processes. Design and implement 

internal control activities and include criteria, analyses, reviews and supporting thresholds 

used in the execution of all relevant internal controls. The control activities should align to

and be executed consistently with DLA policies, and maintain sufficient documentation to 

evidence these control activities. 
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• Inventory Held for Others. Develop policies and procedures related to inventory held for 

others to include the following:

o Properly identifying the inventory owner of the material, as appropriate, such as 

identifying the owner on material labels upon receipt or segregating the inventory 

by owner.

o Recording inventory gains/losses for inventory held on behalf of others to the 

appropriate owner to properly account for the gains/losses in accordance with DLA 

policy.

• In-Transit and Pipeline Inventory. Develop and implement policies and procedures to 

properly validate and reconcile in-transit and pipeline inventory and to validate that 

balances are complete and accurate.

• Energy Inventory. Design policies, procedures and controls to monitor field-site 

compliance with DLA Energy policies. The controls should monitor the performance of 

monthly or quarterly verifications. In addition, DLA should monitor the performance of 

manual readings on tanks with malfunctioning ATGs.

• Posting Inventory Adjustments in the General Ledger. Design application-level 

controls that prevent users from posting transactions above their approved thresholds. 

Further, DLA’s inventory process should include procedures to review transactions posted 

to verify that unauthorized transactions were not posted. 

• Inventory Recorded in the Appropriate Period. Design policies, procedures and 

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 but have not 

been resolved to reflect recording in the proper period. 

D. Inadequate Policies, Procedures and Related Controls Over Inventory Physical Counts. 

DLA should design and implement policies, procedures and controls as follows:

• The inventory count for Supply and Disposition should include a requirement whereby 

quantities in the perpetual inventory system are supported via physical counts at least once 

a year, either through a wall-to-wall, year-end count or adequately designed cycle counts 

in compliance with the DoD FMR. 

E. Lack of Controls for the Reconciliation Between Inventory APSR and the General 

Ledger. Design policies and procedures to perform the IRF completely, accurately and timely. 

The policies should consider the following:

• Reconciling or resolving variances timely, including establishing thresholds for variances 

that require a review to be performed.

• Including all inventory general ledger accounting codes in the IRF.

F. Lack of Controls Over Inventory Held by Third Parties. Design controls over inventory 

held by third parties by performing a reconciliation of third-party managed inventory balances 

to the general ledger balances and developing a comprehensive listing of vendors and military 

services that hold DLA-owned inventory on behalf of DLA. The control activities should 

include assessing the existence and completeness of inventory held at third parties.
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G. Lack of Policies, Procedures and Controls to Effectively Implement Accounting 

Standards. Design policies and procedures to implement the appropriate accounting 

standards, specifically SFFAS No. 3 and SFFAS No. 48. The policies and procedures should 

include:

• Substantiating that the inputs to the MAP calculation include or exclude costs as 

appropriate.

• Establishing opening inventory balances by valuing inventory using the deemed cost 

valuation methodologies in accordance with SFFAS No. 48 and verifying that inventory 

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

No. 48.

• Assigning a proper value and unit of measure at the time of receipt.

• Tracking and recording all costs incurred during the kitting or assembly process to the 

WIP inventory.

• Documenting the methodology, rationale and processes used to estimate valuation 

allowances for items, including EOU inventory, inventory held for repair, inventory held 

at net realizable value, etc. 

H. Inadequate or Lack of Controls Over Financial Reporting of Inventory. Design and 

implement controls to assign inventory items to the appropriate condition code, including 

controls over EOU inventory classification in accordance with SFFAS No. 3.

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 5120 requires 

agencies to implement effective and efficient reconciliation processes and perform timely 

reconciliations. However, deficiencies exist in DLA’s processes of recording and reconciling 

transactions involving FBwT. 

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

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

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

determine the amounts recorded in suspense accounts; correct and review Defense Automatic 

Addressing System (DAAS) rejects; research and resolve differences between U.S. Treasury, 

disbursing system records, and accounting system records within a timely basis; and properly 

review cash balances throughout the year to prepare cash projections and determine whether 

DLA has enough cash to meet financial obligations.

B. Inappropriate Policies and Procedures for Recording Cash Collections. DLA does not 

have an appropriate process to record FBwT (cash collections) upon receipt. Interfund 

transactions are not processed by U.S. Treasury until month-end reporting; however, DLA

records the cash collection transaction in the general ledger prior to when the transactions 

occur, resulting in a misstatement of FBwT. 
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C. Lack of Controls for the Reconciliation of FBwT Between the General Ledger and the 

U.S. Treasury. DLA, in conjunction with DFAS, has implemented the CMR and DRRT 

processes as mechanisms to attempt to tie the general ledger to U.S. Treasury. However, the 

CMR and DRRT processes are not sufficient to produce a complete and accurate reconciliation 

of DLA’s general ledger to U.S. Treasury. As a result, DLA is unable to accurately reconcile 

to U.S. Treasury.

Recommendations

Consider the following corrective actions related to the deficiencies identified 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; the process to identify and correct DAAS rejects timely; the process to research 

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

system records on a timely basis; and the process to determine that DLA has sufficient cash on 

hand to meet current financial obligations.

B. Inappropriate Policies and Procedures for Recording Cash Collections. Design and 

implement policies and procedures to properly record a debit to FBwT and a credit to accounts 

receivable (AR) when the cash transaction has occurred and cash has been received at U.S. 

Treasury.

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

U.S. Treasury. In coordination with DFAS, obtain a system and organization controls (SOC) 

report for the processes and controls relevant to DLA, including the CMR and DRRT, and 

reconcile the transactions recorded in the general ledger to the transactions sent to U.S. 

Treasury Systems in order to verify that the data was processed correctly.

III. Accounts Receivable and Revenue

Accounts receivable (AR) consists of amounts owed to DLA. Revenue is earned when DLA sells 

goods and services to the public or other federal entities. AR and revenue fall within the scope of 

DLA’s order to cash process. 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. Because of the 

nature of DLA’s services, DLA has a significant volume of transactions in the order to cash 

process. This balance represents a substantial portion of their activity that involves receipt of funds 

by DLA in order to provide inventory to their ultimate consumers. The volume of these 

transactions makes it critical for DLA to properly record and reconcile these transactions to ensure 

timely, appropriate recognition of costs to the end users. However, DLA is unable to support the 
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existence of accounts receivable and unfilled customer orders and the occurrence of revenue 

transactions.

A. Lack of or Inadequate Documentation of AR and Revenue Accounting Policies, 

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

Unfilled Customer Orders (UCO), revenue and AR transactions.

• UCOs. Documentation does not include the process to identify, research and resolve 

unreconciled amounts for UCOs and the process to review the validity of significantly aged 

UCOs in the general ledger despite being closed through other business processes and 

systems. Additionally, documentation does not include the processes to account for and 

report UCOs with public customers.

• AR. Documentation does not include the process to evaluate the collectability and validity 

of significantly aged AR (receivables include a significant amount of aged receivables 

(greater than 180 days)); the process to review, reconcile or clear negative accounts 

receivable balances in a periodic and consistent manner; and the process to account for, 

calculate and post the allowance for doubtful accounts.

• Nonstandard Revenue. Documentation does not include the process for the proper 

accounting treatment for cash advances received and sales transactions related to 

nonstandard revenue, such as emergency management situations and disaster relief efforts. 

• Scrap Sales Process. Documentation does not include the process for the proper 

accounting treatment for sales transactions related to the scrap sales process. 

• Non-Monetary Exchange Transactions. Documentation does not include the process for 

the accounting treatment for non-monetary exchange transactions. 

• Offsetting Transactions. Documentation does not include the process and controls to 

analyze AR and AP transactions to determine proper offsetting, recording and presentation 

in accordance with the customer or vendor agreement. Additionally, the documentation 

does not include processes to account for the related budgetary accounts. 

B. Lack of or Inadequate Controls Over AR, Revenue and Cash Collection Processes. DLA 

lacks or has inadequate controls, including the design of controls, over the following:

• AR and Cash Collections. DLA lacks controls to substantiate the validity of AR balances, 

including the use of a single account for multiple customers, and to apply collections from 

customers accurately and timely. As a result, invalid AR transactions were recorded in the 

financial statements. 

• Intragovernmental Transactions. Intragovernmental transactions, including Military 

Interdepartmental Purchase Requests (MIPRs), are sales orders received from other federal 

agencies. DLA lacks controls to prevent services from being performed beyond the terms 

of the agreement and to prevent duplicate transactions from being recorded in the general 

ledger. As a result, duplicate sales orders were recorded in the general ledger. In addition, 

there were instances where revenue recorded, in aggregate, exceeded the total funding 

amount, or the services were performed outside the period of performance. For example, 

in 4 of our 14 samples of revenue arrangements, DLA was unable to provide sufficient 

documentation to support whether the appropriate accounting guidance was used.
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• Revenue Recorded Accurately and in the Appropriate Period. DLA lacks controls to 

review pricing updates and record revenue transactions appropriately and accurately in the 

period that the transaction occurred. As a result, a significant number of transactions were 

not posted using the correct price or were not recorded in the proper accounting period. In 

addition, the controls to validate that the accruals are recorded at the appropriate amount 

and in the correct period are not designed effectively.

• Fuel Exchange Agreements. DLA does not have adequately designed controls around the 

fuel exchange agreement (FEA) process. For example, DLA does not reconcile the 

amounts receivable from, or payable to, foreign governments. In addition, sufficient 

documentation does not exist to evidence the performance of the control activities. As such, 

DLA is unable to demonstrate that the control was operating effectively.

C. Lack of or Inadequate Documentation to Substantiate AR and Revenue Transactions. 

DLA was unable to provide documentation that AR and UCO balances exist, or that revenue 

transactions occurred and are accurately recorded in the financial statements. Specifically, 

documentation was not available to support that:

• The AR balances (federal and with the public), UCO and deferred revenue transactions are 

complete and accurate, and reconcile to the general ledger and that the balances exist. 

• The revenue transactions recorded, including emergency management situations and 

disaster relief efforts, are complete and accurate and have occurred.

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. 7, Accounting for Revenue and Other Financing Sources and Concepts 

for Reconciling Budgetary and Financial Accounting. DLA performs services for other federal 

agencies without funding and records receivables from these transactions. DLA is unable to 

support revenue recognized from unfunded agreements, nor is an analysis performed on the 

collectability of the receivable related to those agreements. Uncollected billings related to 

unfunded agreements have been outstanding since FY 2017. 

Recommendations

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

A. Lack of or Inadequate Documentation of AR and Revenue Accounting Policies, 

Procedures and Controls. Document, update and finalize the PCMs that document the endto-end processes for AR and revenue.

• UCOs. The documentation should include the process to reconcile UCOs between the 

general ledger and sales legacy module completely, accurately and timely, to review the 

aged UCO balances for validity and to account for UCOs with public customers. 

• AR. The documentation should include the process to evaluate the collectability and 

validity of significantly aged AR (AR includes a significant amount of aged receivables 
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(greater than 180 days)); the process to review, reconcile or clear negative AR balances in 

a periodic and consistent manner; and the process to account for calculating and posting 

the allowance for doubtful accounts. 

• Nonstandard Revenue. The documentation should include the financial reporting 

requirements during emergency management situations, including disaster relief efforts. 

The policies should include acceptable deviations from the normal business process, 

documentation requirements and timelines for completion. 

• Non-Monetary Exchange Transactions. The documentation should include the 

accounting and financial reporting requirements for non-monetary exchange transactions. 

• Scrap Sales Process. The documentation should include the accounting and financial 

reporting requirements for the scrap sales process.

• Offsetting Transactions. The documentation should include the process and controls 

implemented to analyze customer and vendor agreements to determine proper offsetting, 

recording, and presentation of AR and AP transactions and the accounting for the related 

budgetary accounts. 

B. Lack of or Inadequate Controls Over AR, Revenue and Cash Collection Processes.

• AR and Cash Collections. Design and implement controls to assess the existence and 

completeness of the receivable balances, including significantly aged receivables; controls 

to limit transactions in a customer account to a single customer, rather than a group of 

customers; and controls to properly, accurately and timely post payments and credits to 

customer accounts. 

• Intragovernmental Transactions. Design and implement controls for intragovernmental 

transactions that include system controls to prevent services from being provided beyond 

the terms of the agreement (e.g., period of performance, funding amount) and to prevent 

duplicate transactions from being recorded in the general ledger.

• Revenue Recorded Accurately and in the Appropriate Period. Design and implement 

controls to properly record revenue transactions in the appropriate period; controls to 

review and validate pricing updates; controls to monitor sales transactions at or near periodend; controls to record revenue based on the proper triggering event; controls to manage

and maintain documentation to substantiate the revenue transaction; and controls to 

validate that the accruals are recorded at the appropriate amount and in the correct period. 

• Fuel Exchange Agreements. Design, document and implement controls around the FEA 

process and include criteria, analyses, reviews and supporting thresholds used in the 

execution of all relevant internal controls. 

C. Lack of or Inadequate Documentation to Substantiate AR and Revenue Transactions.

• Develop documentation, including detailed listings of account balances, to substantiate that 

the population of AR (federal and with the public), UCO and deferred revenue transactions 

are complete and accurate and that the balances in the population exist. The listing should 

be reconciled to the general ledger. 
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• Develop documentation to substantiate that the population of revenue transactions 

recorded, including emergency management situations and disaster relief efforts, are 

complete and accurate and have occurred.

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

Standards. Design and implement policies, procedures and controls to properly recognize 

revenue earned and to assess the collectability of the receivable related to unfunded work 

orders in accordance with SFFAS No. 7 and the DoD FMR. 

IV. Accounts Payable and Expense

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 services, 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 AP, expenses and the related budgetary balances; recording 

transactions in the proper period; documenting policies, procedures and controls; and designing 

and executing controls over the processes to create and approve obligations and to review, record 

and pay invoices.

A. Lack of or Inadequate Documentation of UDO, Unliquidated Obligation (ULO), AP and 

Expenses Accounting Policies, Procedures and Controls. DLA has not documented the endto-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. As a result, there is a significant number of UDO transactions that 

had no current-year activity.

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

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

including interfund transactions received, in the general ledger and submitted to DFAS for 

timely payment; and the process to pay invoices timely or assess interest penalties for late 

payments in accordance with the Prompt Payment Act. 

• Non-Monetary Exchange Transactions. Documentation does not include the process for 

the proper accounting treatment for non-monetary exchange transactions. 

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

significantly aged ULO.

• Offsetting Transactions. Documentation does not include the process and controls to 

analyze AR and AP transactions to determine proper offsetting, recording and presentation 

in accordance with the customer or vendor agreement.
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• Foreign Currency Transactions. Documentation does not include the processes and 

controls to account for transactions made in foreign currency, including the respective 

gains and losses. 

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

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

following:

• Inadequately Designed Controls Over AP and Expense Processes. Controls that have 

been implemented are not designed effectively. For example, the information used in the 

control activity is not assessed for completeness and accuracy. In addition, sufficient 

documentation does not exist to evidence the performance of the control activities.

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

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

to close invalid UDO in a timely manner.

• 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 awarded did not have an 

obligation 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 post payments, including payments that fail 

to post systematically, in a timely manner.

• AP and Expenses Recorded in the Appropriate Period. DLA lacks controls to record 

AP and expense transactions appropriately and accurately in the period that the transaction 

occurred.

• 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. Additionally, DLA lacks controls to properly classify 

vendors as federal or with the public at the transaction level.

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, including AP, negative payables, UDO (paid and unpaid) and upward and 

downward adjustments to delivered and undelivered orders.

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 
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set forth by SFFAS No. 1, Accounting for Selected Assets and Liabilities, No. 4, Managerial 

Cost Accounting Standards and Concepts; SFFAS No. 4, Managerial Cost Accounting 

Standards and Concepts; SFFAS No. 5, Accounting for Liabilities of the Federal Government; 

and SFFAS No. 7, Accounting for Revenue and Other Financing Sources and Concepts for 

Reconciling Budgetary and Financial Accounting. For example:

• DLA inappropriately expensed costs that should have been capitalized. For example, 

inventory purchased for resale was inappropriately expensed. 

• AP and accrued liabilities are not recorded appropriately. For example, DLA policy allows 

for a liability to be recorded without confirming whether a transfer of title has occurred or 

service has been rendered. Further, DLA policy requires that only activities submitted by 

the contractors on the last day of the month are accrued and liabilities incurred prior to the 

last day of the month are not accrued. 

• DLA does not match revenue with the related cost of sales where the customers place the 

order directly with the vendor, such as medical, clothing and textile sales. DLA does not 

record the revenue earned at the same time the liability is recorded.

• 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. 

Recommendations

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

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

Policies, Procedures and Controls. Update and finalize the PCMs that document the end-toend 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 AP, including 

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

interfund transactions received, in the general ledger and submitted to DFAS for payment 

timely; and the process to pay invoices timely or assess interest penalties for late payments 

in accordance with the Prompt Payment Act. 

• Non-Monetary Exchange Transactions. The documentation should include the 

accounting and financial reporting requirements for non-monetary exchange transactions. 

• ULO. The documentation should include the process to review the validity of significantly 

aged ULO, including the process to write off residual ULO for completed transactions. 

• Offsetting Transactions. The documentation should include the process and controls 

implemented to analyze customer and vendor agreements to determine proper offsetting, 

recording, and presentation of AR and AP transactions. 
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• Foreign Currency Transactions. The documentation should include the process and 

controls to identify, monitor, and account for foreign currency transactions. 

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

Processes.

• Inadequately Designed Controls Over AP and Expense Processes. Design and 

implement internal control activities and include criteria, analyses, reviews and supporting 

thresholds used in the execution of all relevant internal controls. In addition, evidential 

matter should be available to demonstrate that the control activity was performed; the scope 

of the review should be sufficient to identify and correct errors in the 

procedures performed; and the assessment of any variances should be performed 

appropriately.

• UDO. Design and implement controls to approve and record obligations in a timely 

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

timely; and controls to close invalid UDO in a timely manner.

• Vendor Contracts. Design and implement controls to execute contracts in accordance 

with the FAR and record obligations timely for contracts, including IQC. 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 post payments, including payments 

that fail to post systematically, in a timely manner.

• AP and Expenses Recorded in the Appropriate Period. Design and implement controls 

to record AP and 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, procedures and controls to record expenses 

incurred in the proper period; to properly classify costs; and to match revenue with the related 

cost of sales in accordance with SFFAS No. 1, No. 4, No. 5 and No. 7.

V. 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 
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environment that is effective and efficient to manage identified risks. In accordance with FMFIA, 

management is responsible for establishing and maintaining internal controls to achieve reliable 

financial reporting. However, deficiencies exist in DLA’s processes related to the accumulation 

and presentation of their financial position and results of operations.

A. Lack of or Inadequate Documentation of Financial Reporting and Budgetary Processes. 

DLA has not documented the end-to-end processes for funds management. Specifically, DLA 

has not documented the end-to-end processes to account for budgetary receipt. 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 posting logic in the general 

ledger to be compliant with the USSGL and apply TFM updates timely, nor controls to link 

business events to the correct posting logic. As a result, transactions are not recorded 

appropriately. For example, DLA inappropriately uses a general ledger account (negative 

payables) to track payments made without goods received and inappropriately combines 

entries to record the movement of budgetary funds through the apportionment and allotment 

process, which should be recorded separately. As a result, DLA did not implement the FY 2021 

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

Collected From Non-Federal Sources during FY 2021. In addition, the posting logic for various 

inventory transactions, such as recoupment from returns, disposal and material transfers, and 

service revenue transactions 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 Total Actual Resources 

Collected and Contract Authority Carried Forward accounts. As a result, DLA is unable to 

substantiate beginning balances recorded on the financial statements.

• Trading Partner Transactions. DLA does not have controls in place to validate and 

reconcile trading partner eliminations. Adjustments made to AR, AP, 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 Defense Departmental Reporting 

System (DDRS) as “top-side” adjustments and are identified as “unsupported” by DFAS. 

• Contingent Liabilities. DLA does not have adequate controls to identify and account for 

contingent legal liabilities that should be recorded or disclosed in the financial statements. 

• Interfaces Between Feeder Systems and the General Ledger. DLA does not have 

adequate controls to interface and post transactions between feeder systems and the general 

ledger appropriately. As a result, failed interface transactions are not reviewed and resolved 

in a timely manner. 
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• Financial Statement Close Process. DLA does not have adequately designed controls 

around the annual close and reconciliation processes, such as the monthly or quarterly 

reconciliation between the unadjusted trial balance (UTB) and the adjusted trial balance 

(ATB) is not performed sufficiently and timely; the information used in the reconciliation 

of UTB to ATB is not complete and accurate; and the review of the procedures performed 

during the financial statement close process is not adequate. In addition, DLA has not 

designed processes or controls to implement new accounting standards. As a result, DLA 

has not implemented accounting standards such as SFFAS No. 53 Budget and Accrual 

Reconciliation and SFFAS 55 Amending Inter-Entity Cost Provisions.

• 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 the 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 and proper 

recording 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 were not 

appropriately classified between federal and with the public; supporting documentation did 

not support the balances recorded in the notes; and the financial statements are not prepared 

in conformity with U.S. GAAP as described in Note 1, Significant Accounting Policies, 

which did not sufficiently describe changes or noncompliance in U.S. GAAP reporting.

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

to review and approve transactions recorded with elevated access privileges. There were 

more than 13.4 million transactions recorded totaling approximately $2.6 trillion using user 

roles with elevated access privileges. 

• Accounting for Direct Appropriations. DLA does not have adequate controls to account 

for the receipt and expenditure of direct appropriations in the general ledger accurately and 

in a timely manner.

• Accounting for Assets Held in Deposit Funds and Related Liabilities. DLA does not 

have adequate controls in place to account for assets held in deposit funds and the related 

liabilities in accordance with SFFAS No. 1 and No. 5. 

D. Lack of or Inadequate Documentation to Substantiate Budgetary Execution. 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. As such, the budgetary accounts are not appropriately supported.
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Recommendations

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

A. Lack of or Inadequate Documentation of Financial Reporting and Budgetary Processes.

Document the funds management process and controls to accurately reflect all aspects of the 

end-to-end budget to execute process, including processes and controls performed by DLA and 

service providers. 

B. Lack of Controls Over Compliance with the TFM United States Standard General 

Ledger (USSGL). Design and implement controls that configure posting logic in the general 

ledger to be compliant with the USSGL; apply TFM updates in a timely manner; link business 

events to the correct posting logic; and post transactions as intended.

C. Lack of or Inadequate Controls Over Financial Reporting Processes.

• Beginning Balances for Budgetary Accounts. Design and implement control activities to 

accurately state the beginning balance for carryforward budgetary accounts.

• Trading Partner Transactions. Design and implement controls to perform a 

reconciliation at the agreement level to validate trading partner eliminations, which 

includes identifying, researching and resolving variances between DLA general ledger data 

and trading partners.

• Contingent Liabilities. Design and implement controls related to litigation to identify, 

estimate, record and disclose contingent liabilities in the financial statements. 

• Interfaces Between Feeder Systems and the General Ledger. Design and implement 

controls to review and resolve interface transactions that fail to post to the general ledger. 

• Financial Statement Close Process. Develop and implement controls around the annual 

close and reconciliation process, which includes a complete, accurate and timely 

reconciliation of the UTB to the ATB and processes and controls to analyze the impact of 

and implement new accounting standards, as appropriate.

• Budgetary to Proprietary Tie Points. Design and implement controls to reconcile 

budgetary to proprietary tie points and investigate variances. 

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

prepared in accordance with U.S. GAAP. 

• Transactions Recorded Using Elevated Privileges. Design and implement controls to

review and approve transactions recorded with elevated access privileges to assess for 

completeness, accuracy and validity. The review and approval should be performed by 

authorized individuals, such as financial management.
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• Accounting for Direct Appropriations. Develop and implement policies, procedures and 

internal controls to properly record direct and expended appropriations in the general 

ledger in an accurate and timely manner.

• Accounting for Assets Held in Deposit Funds. Develop and implement policies, 

procedures and internal controls to properly record assets held within deposit funds and the 

related liabilities in accordance with U.S. GAAP.

D. Lack of or Inadequate Documentation to Substantiate Budgetary Execution. Develop and 

implement procedures to generate complete and accurate listings of budgetary accounts at the 

PO and SO levels that reconcile to the general ledger. 

VI. 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 

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. 
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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; judgmentally 

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 CUECs are properly 

identified, designed and operating effectively. 

VII. Information Systems

Information systems controls are a critical component of the federal government’s operations to 

manage the integrity, confidentiality and reliability of its programs and activities and assist with 

reducing the risk of errors, fraud or other illegal acts. Information management security, access 

controls, segregation of duties, and configuration management controls are fundamental to the 

integrity of financial data and can help manage risks such as unauthorized access, changes to 

critical data, and prevent compromised data. The nature, size, and complexity of DLA’s operations 

require DLA to administer its programs under a decentralized business model by using numerous 

geographically dispersed operating locations and complex, extensive information systems. 

We have noted progress in DLA’s ability to define the IT risks relevant to the financial statement

audit, configuration changes to the entity level tool for managing approvals required for initial 

access to DLA financially significant systems, and monitoring of an IT service provider. However, 

several repeat control deficiencies in the design and operation of financially significant 

information systems controls continue to remain unresolved.
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The deficiencies relate to the following areas:

• Access controls

• Configuration management

• Segregation of duties controls

• Security management/governance over implementation of security controls

Access Controls

Access controls include those related to protecting system boundaries, user identification and 

authentication, authorization, protecting sensitive system resources, audit and monitoring, and 

physical security. When properly implemented, access controls can help ensure that critical 

systems assets are physically safeguarded and that logical access to sensitive computer programs 

and data is granted to users only when authorized and appropriate. Weaknesses in such controls 

can compromise the integrity of sensitive data and increase the risk that such data may be 

inappropriately used and disclosed.

The identified access control weaknesses in aggregate represent a significant risk to the DLA 

financial statements, Information Technology (IT) environment, and financial applications. Absent 

or ineffective preventative controls and compensating detective controls expose financial systems 

and financial data to inappropriate access, unauthorized inputs, and inaccurate entries, resulting in 

significant risk to the financial statements.

The identified access control weaknesses that represent a significant risk to the DLA financial 

management information systems environment include the following:

• For a selection of users of financially significant applications, access is not restricted to 

authorized users with a business need, is not reviewed and documented prior to provisioning, 

and is not assigned in accordance with the principle of least privilege.

• For a selection of account management controls for financially significant applications, user 

access and activity are not monitored and tracked for routine access recertification, revalidation 

of privileged access, and terminated or inactive users. 

• For a selection of audit logging controls for financially significant applications, audit logs, 

security violations, and sensitive user activity are not tracked, monitored, resolved, or 

configured appropriately within systems.

Configuration Management

Configuration management involves the identification and management of security features for all 

hardware and software components of an information system at a given point and systematically 

controls changes to that configuration during the system’s life cycle. By implementing 

configuration management controls, DLA can ensure that only authorized applications and 

software programs are placed into production through establishing and maintaining baseline 

configurations and monitoring changes to these configurations. Weaknesses in such controls can 
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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 three 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 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.

• For one financially significant application, the authorization for the security state of the 

organizational information system and the environment in which that system operates, is not 

documented, tracked, and reported.

• For one financially significant application, DLA management internal control procedures do 

not identify financially significant risks, establish and implement controls, track known risk 

exposures, and remediate control gaps.

Recommendations

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

segregation of duties and security management procedures to include:

Access and Segregation of Duties Controls

• Restrict access to authorized users in accordance with the least privilege principle. Review and 

approve all access, including justification of business needs.

• Routinely monitor and revalidate access needs for business users, privileged users, and inactive 

users.

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

users and transactions.
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• Identify and document conflicting roles, enforce established segregation of duties processes, 

and assess conflicts during account provisioning and management. Segregate conflicting roles 

where possible, and if unavoidable, document business rationale and monitor user activity. 

Configuration Management

• Review, approve, and test changes prior to implementation, to include user testing and 

functionality assessments. Monitor source code, configurations, and production environments 

for unauthorized changes.

• Segregate conflicting roles between development and production environments.

Security Management/Governance Over Implementation of Security Controls

• 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.
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Appendix B – Significant Deficiency

I. Property, Plant and Equipment

Property, plant and equipment (PP&E) is comprised of general equipment, internal-use software 

(IUS) and construction-in-progress (CIP). In accordance with FMFIA, management is responsible 

for establishing and maintaining effective controls to achieve proper accountability for property 

and other assets for which the agency is responsible. However, DLA was unable to support the 

existence, completeness, rights and obligations, or valuation of its PP&E.

A. Lack of or Inadequate Documentation of PP&E Accounting Policies, Procedures and 

Controls. PP&E process documentation, policy memoranda and standard operating 

procedures fail to document the end-to-end processing of PP&E transactions and related 

internal control activities. Specifically, a complete inventory of IUS and CIP has not been 

performed. DLA is in the process of establishing or revising its policies and procedures for 

performing these inventories on an ongoing basis. In addition, DLA does not have signed 

memorandums of understanding with the military services that outline the reporting 

responsibilities, such as depreciation and maintenance costs, for real property assets for which 

DLA is the primary user.

B. Lack of or Inadequate Documentation to Substantiate PP&E and PP&E-Related 

Transactions. DLA was unable to provide documentation that PP&E balances exist, that 

transactions occurred or that DLA has rights to the PP&E recorded in the financial statements. 

Specifically, documentation was not available to support:

• The completeness and existence of general equipment assets.

• The validity of PP&E additions and disposals. 

C. Lack of or Inadequate Policies, Procedures and Controls Over PP&E Processes. DLA 

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

the following:

• Inadequately Designed Controls Over PP&E Processes. Controls that have been 

implemented are not designed adequately. For example, the information used in the control 

activity is not assessed for completeness and accuracy. In addition, sufficient 

documentation does not exist to evidence the performance of the control activities. As a 

result, DLA is unable to demonstrate that control activities are operating effectively. 

• IUS. DLA policy states that IUS assets are recorded as in-service PP&E upon the 

completion of the asset. However, IUS activity is not evaluated to determine whether the 

activity should be capitalized or expensed and to identify when assets are completed and 

should be placed in service.
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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, causing an inaccurate presentation of PP&E on the balance sheet and in 

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

accounting and valuation methodologies set forth by SFFAS No. 5, Accounting for Liabilities 

of the Government; SFFAS No. 6, Accounting for Property, Plant and Equipment; SFFAS 

No. 10, Accounting for Internal Use Software; and SFFAS No. 50, Establishing Opening 

Balances for Property, Plant and Equipment. For example:

• DLA is unable to support the values assigned to general equipment assets, including 

substantiating that the application of SFFAS No. 6 and SFFAS No. 50 was consistent and 

appropriate. For example, DLA could not support the value of 1 of 5 samples selected. To 

account for a significant number of assets that have not been valued, DLA assigned 

placeholder values to these assets until the valuation process is completed, resulting in 

misstatements in the financial statements.

• DLA is unable to support the values assigned to IUS assets in accordance with SFFAS 

No. 10. 

• DLA has not established a policy to account for its leasing arrangements, nor has DLA 

assessed whether the leasing arrangements should be accounted for as a capital or an 

operating lease. As a result, the financial statements do not include disclosures for its policy 

to account for lease arrangements, any operating lease commitments and future minimum 

payments due. 

Recommendations

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

A. Lack of or Inadequate Documentation of PP&E Accounting Policies, Procedures and 

Controls. Document, update and finalize the PCMs that document the end-to-end processes 

and controls for PP&E. Complete the inventory of IUS and CIP to verify the existence and 

completeness of the accounting records. In addition, obtain signed memorandums of agreement 

with the military services that outline the reporting responsibilities, such as depreciation and 

maintenance costs, for real property assets owned by the services for which DLA is the primary 

user.

B. Lack of or Inadequate Documentation to Substantiate PP&E and PP&E-Related 

Transactions.

• Develop documentation to substantiate that all of DLA’s general equipment assets are 

recorded accurately and completely. 

• Assess the data elements in the APSR to allow DLA to differentiate between assets that 

have been added to or removed from the capital PP&E population and assets that have 

changed or to assign a unique identifier to each asset that allows for additions and disposals 

to be identified. 
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C. Lack of or Inadequate Policies, Procedures and Controls Over PP&E Processes

• Inadequately Designed Controls Over PP&E Processes. Design and implement internal 

control activities that include criteria, analyses, reviews and supporting thresholds used in 

the execution of all relevant internal controls. 

• IUS. Design and implement policies and procedures that require IUS activity to be 

reviewed for proper capitalization, recorded in the appropriate period and classified 

appropriately when assets are completed and placed in service. 

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

Standards. Design policies, procedures and controls to implement the appropriate accounting 

standards, specifically SFFAS No. 5, SFFAS No. 6, SFFAS No. 10 and SFFAS No. 50. The 

policies, procedures and controls should include:

• Substantiating the values, including the alternate values, assigned to general equipment 

assets and that the application of SFFAS No. 6 and SFFAS No. 50 is consistent and 

appropriate. 

• Assessing whether the values assigned to IUS assets are in accordance with SFFAS No. 10. 

In addition, evaluate alternative valuation methodologies available under SFFAS No. 50. 

SFFAS No. 50 permits the exclusion of IUS and IUS under development from the opening 

balance as of the opening balance date. 

• Establishing 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.

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. Inability to Reconcile EL Associated with the Corresponding Real Property. DLA is 

unable to completely and accurately reconcile EL associated with the corresponding real 

property, such as buildings, fuel storage tanks and pipelines, that it manages.

B. 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. In addition, DLA has not 

designed processes and controls to calculate environmental liabilities associated with general 

equipment.
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Recommendations

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

A. Inability to Reconcile EL Associated with the Corresponding Real Property. Design and 

implement policies and procedures to reconcile the buildings, tanks and pipelines in the 

environmental closure and asbestos liabilities estimate to the PP&E listings and investigate 

differences. 

B. Inadequate Controls Over Estimation Processes. Design and implement adequate controls 

to estimate environmental liabilities associated with general equipment and compare actual 

costs to estimates to see if any changes to the estimation methodology are necessary. 
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Ernst & Young LLP

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Report of Independent Auditors on Compliance and Other Matters

Based on an Engagement to Audit the Financial Statements Performed

in Accordance with Government Auditing Standards

The Director of the Defense Logistics Agency and the

Inspector General of the Department of Defense

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

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

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

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

financial statements of the Working Capital Fund of the Defense Logistics Agency (DLA), which 

comprise the balance sheet as of September 30, 2021, and the related statement of net cost, 

statement of changes in net position and combined statement of budgetary resources for the year

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

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

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

in the Basis for Disclaimer of Opinion paragraph.

Compliance and Other Matters

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

of its compliance with certain provisions of laws, regulations, contracts and grant agreements,

noncompliance with which could have a direct and material effect on the financial statements, as 

well as the requirements referred to in the Federal Financial Management Improvement Act of 

1996 (FFMIA) (P.L. 104-208). However, providing an opinion on compliance with those 

provisions was not an objective of our engagement, and accordingly, we do not express such an 

opinion.

The results of our tests disclosed instances of noncompliance and other matters that are required 

to be reported under Government Auditing Standards and OMB Bulletin No. 21-04, as described 

below. Additionally, if the scope of our work had been sufficient to enable us to express an opinion 

on the financial statements, other instances of noncompliance or other matters may have been 

identified and reported herein.

Our Report on Internal Control Over Financial Reporting dated November 8, 2021, includes 

additional information related to the financial management systems and internal controls that were 

found not to comply with the requirements, relevant facts pertaining to the noncompliance, and 

our recommendations to the specific issues presented.

As referenced in the Fiscal Year (FY) 2021 DLA Statement of Assurance, DLA provides no 

assurance that the internal controls over operations, financial systems, reporting and compliance 
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are operating effectively in compliance with the Federal Managers’ Financial Integrity Act 

(FMFIA), Section 4; FFMIA of 1996, Section 803; and OMB Circular No. A-123.

FFMIA

Under FFMIA, we are required to report whether DLA’s financial management systems 

substantially comply with federal financial management system requirements, applicable federal 

accounting standards, and the United States Standard General Ledger (USSGL) at the transaction 

level. To meet this requirement, we performed tests of compliance with FFMIA Section 803(a) 

requirements. The results of the tests disclosed instances in which DLA’s financial management 

systems did not substantially comply with federal financial management system requirements, 

applicable federal accounting standards or the USSGL.

(a) Federal financial management system requirements

EY identified as part of the Financial Information Systems material weakness, contained in the 

Report on Internal Control Over Financial Reporting, noncompliance with federal financial 

management system requirements for multiple systems. Weaknesses identified include those 

associated with user access, configuration management/change controls, segregation of duties and 

security management. These financial system deficiencies prevent DLA from being compliant 

with federal financial management system requirements and inhibit DLA’s ability to prepare 

complete and accurate financial reporting.

(b) Noncompliance with applicable federal accounting standards

As referenced in Note 1 to the financial statements, DLA self-identified that the design of their 

financial and nonfinancial systems does not allow DLA to comply with applicable federal 

accounting standards, including not being able to collect and record financial information as 

required by U.S. generally accepted accounting principles. EY also identified noncompliance with 

federal accounting standards during our testing, which was included in our Report on Internal 

Control Over Financial Reporting.

(c) Noncompliance with USSGL posting logic at the transaction level

EY also identified noncompliance with USSGL posting logic during our testing, which was

included in our Report on Internal Control Over Financial Reporting.

FMFIA

Federal Managers’ Financial Integrity Act (FMFIA) of 1982 requires federal entities to establish 

internal controls, perform ongoing evaluations of the adequacy of the entity’s system of internal 

control, and prepare related reports. The Government Accountability Office’s (GAO’s) Standards 
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for Internal Control in the Federal Government (commonly referred to as the “GAO Green Book”) 

issued under the authority of FMFIA, establishes five components of internal control: Control 

Environment, Risk Assessment, Control Activities, Information and Communication and 

Monitoring. To determine if an entity’s internal control system is effective, the Green Book 

requires management to assess the design, implementation and operating effectiveness of the five 

components of the entity’s internal control system.

DLA has not yet implemented a formal internal control program that would allow it to substantially 

comply with FMFIA and the related GAO Green Book requirements, leading to inadequate control 

environment, risk assessment and monitoring processes.

DLA was not able to provide evidence that they are in compliance with significant aspects of OMB 

Circular A-123, which implemented FMFIA. DLA provided a FY 2021 Statement of Assurance, 

however, there was not sufficient evidence that DLA fully completed an organizational risk 

assessment, identified relevant risks related to the financial statement assertions, documented the 

internal control standards as it relates to those assertions, performed internal control testing, and 

reported and tracked control deficiencies at the control level for each process identified. DLA 

provided evidence demonstrating that DLA has started to implement a testing strategy, however,

DLA is unable to provide evidence that the extent of testing and review performed is sufficient to 

meet the requirements of FMFIA.

Management’s Response to Findings

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

management responsible for addressing the noncompliance are provided in the accompanying

letter dated November 8, 2021. Management’s response was not subjected to the auditing 

procedures applied in the engagement to audit the financial statements and, accordingly, we 

express no opinion on it.

Purpose of this Report

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

results of that testing, and not to provide an opinion on the entity’s compliance. This report is an 

integral part of an engagement to perform an audit performed in accordance with Government 

Auditing Standards in considering the entity’s compliance. Accordingly, this communication is 

not suitable for any other purpose.

November 8, 2021


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Management’s Response to Audit Reports
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Pallet Partners

Airmen prepare to offload a pallet 

of bottled water in Galveston, 

Texas, Feb. 19, 2021. A team of 30 

airmen traveled from California 

to Texas to support the Federal 

Emergency Management Agency's 

request to airlift 64 tons of bottled 

water to storm-ravaged areas.

Photo Credit: Air Force

Introduction to the Principal Financial Statements

The principal financial statements and the accompanying notes 

(financial statements) included in this report are prepared 

pursuant to the requirements of the CFO Act of 1990 (Pub. L. 

101-576) and expanded by GMRA (Pub. L. 103-356) and other 

applicable legislation. Other reporting requirements include the 

OMB Circular A-136, as amended. The responsibility for the 

integrity of the financial information included in these financial 

statements rests with the management of DLA WCF. The IPA 

was engaged to perform the audit of DLA WCF’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 WCF that represent future economic 

benefits (assets), amounts owed by DLA WCF that will 

require payments from those resources or future resources 

(liabilities), and residual amounts retained by DLA WCF 

comprising the difference (net position) as of September 

30, 2021 and 2020. 

The Statements of Net Cost present the net cost of DLA 

WCF operations for the years ended September 30, 2021 

and 2020. DLA WCF’s net cost of operations is the gross 

cost incurred by DLA WCF activities, less any exchange 

revenue earned and inter-entity eliminations from DLA 

WCF activities.

The Statements of Changes in Net Position present 

the change in DLA WCF’s net position resulting from the 

net cost of DLA WCF’s operations, budgetary financing 

sources, and other financing sources for the years ended 

September 30, 2021 and 2020. 

The Combined Statements of Budgetary Resources 

present how and in what amounts budgetary resources 

were made available to DLA WCF, the status of these 

resources, and the net outlays of budgetary resources for 

the years ended September 30, 2021 and 2020. 

The Notes to the Principal Financial Statements provide 

detail and clarification for amounts in the principal financial 

statements.

The DLA WCF financial statements consist of the following:
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 96

Unaudited

FY 2021

Unaudited 

FY 2020 

As Restated

ASSETS (Note 2)

Intragovernmental

Fund Balance with Treasury (Note 3) $ 2,706,222 $ 3,915,418 

Accounts Receivable, Net:

Accounts Receivable, Net (Note 4) 2,265,316 2,262,830 

Strategic Petroleum Reserve 123,306 123,306 

Total Intragovernmental Accounts Receivable, Net 2,388,622 2,386,136 

Total Intragovernmental 5,094,844 6,301,554 

Other than Intragovernmental

Cash and Other Monetary Assets - 7,074 

Accounts Receivable, Net (Note 4) 556,207 717,098 

Inventory and Related Property, Net (Note 5) 22,348,772 21,837,879 

General Property, Plant and Equipment, Net (Note 6) 810,370 754,564 

Advances and Prepayments 95,645 89,068 

Total Other than Intragovernmental 23,810,994 23,405,683 

TOTAL ASSETS $ 28,905,838 $ 29,707,237 

LIABILITIES (Note 7)

Intragovernmental

Accounts Payable $ 175,668 $ 225,139 

Advances from Others 552,166 1,798,994 

Other Liabilities:

 Benefits Program Contributions Payable and Other (Note 8) 54,493 52,716 

 Other Liabilities (Note 9) 2,897 1,007 

Total Intragovernmental Other Liabilities 57,390 53,723 

Total Intragovernmental 785,224 2,077,856

Other than Intragovernmental

Accounts Payable 2,275,581 2,495,823 

Environmental and Disposal Liabilities (Note 10) 1,272,377 1,187,141 

Federal Employee Benefits Payable (Note 8) 156,838 159,850 

Advances from Others and Deferred Revenue 3,642 6,407 

Other Liabilities (Note 9) 298,804 295,028 

Total Other than Intragovernmental 4,007,242 4,144,249 

TOTAL LIABILITIES 4,792,466 6,222,105 

Commitments and Contingencies (Note 11)

NET POSITION

Unexpended Appropriations - Funds from Other than Dedicated Collections 198,884 291,494 

Cumulative Results of Operations - Funds from Other than Dedicated Collections 23,914,488 23,193,638 

TOTAL NET POSITION 24,113,372 23,485,132 

TOTAL LIABILITIES AND NET POSITION $ 28,905,838 $ 29,707,237 

Defense Logistics Agency - Working Capital Fund

BALANCE SHEETS

As of September 30, 2021 and 2020

(dollars in thousands)

The accompanying notes are an integral part of these statements. 
Section 2 | Financial Section (Unaudited)

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

Defense Logistics Agency - Working Capital Fund

STATEMENTS OF NET COST

For the Years Ended September 30, 2021 and 2020 

(dollars in thousands)

Unaudited

FY 2021

Unaudited 

FY 2020 

As Restated

Energy

Gross Cost $ 8,981,168 $ 9,696,362 

Less: Earned Revenue (9,371,148) (10,734,135)

Net Cost (389,980) (1,037,773)

Supply Chain Management

Gross Cost 41,428,876 31,657,203 

Less: Earned Revenue (41,361,988) (31,435,772)

Net Cost 66,888 221,431 

Document Services

Gross Cost 238,056 221,567 

Less: Earned Revenue (212,356) (206,091)

Net Cost 25,700 15,476 

Total Gross Cost 50,648,100 41,575,132 

Less: Total Earned Revenue (50,945,492) (42,375,998)

NET COST OF OPERATIONS $ (297,392) $ (800,866)

The accompanying notes are an integral part of these statements. 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 98

Defense Logistics Agency - Working Capital Fund

STATEMENTS OF CHANGES IN NET POSITION

For the Years Ended September 30, 2021 and 2020

(dollars in thousands)

Unaudited

FY 2021

Unaudited 

FY 2020 

As Restated

Unexpended Appropriations

Beginning Balances $ 291,494 $ 291,040 

Appropriations Transferred-in/out 49,821 579,285

Appropriations Used (142,431) (578,831)

Net Change in Unexpended Appropiations (92,610) 454 

Total Unexpended Appropriations: Ending Balance 198,884 291,494 

Cumulative Results of Operations

Beginning Balances 23,193,638 23,315,727 

Corrections of Errors - 483,571 

Beginning Balances, as Adjusted 23,193,638 23,799,298 

Appropriations Used 142,431 578,831 

Non-exchange Revenue 3,395 475 

Transfers-in/out Without Reimbursement 117,340 (2,140,452)

Imputed Financing 163,152 155,107 

Other (2,860) (487)

Net Cost of Operations (297,392) (800,866)

Net Change in Cumulative Results of Operations 720,850 (605,660)

Cumulative Results of Operations: Ending Balance 23,914,488 23,193,638 

TOTAL NET POSITION $ 24,113,372 $ 23,485,132 

The accompanying notes are an integral part of these statements. 
Section 2 | Financial Section (Unaudited)

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

Defense Logistics Agency - Working Capital Fund

 COMBINED STATEMENTS OF BUDGETARY RESOURCES

For the Years Ended September 30, 2021 and 2020 

(dollars in thousands)

Unaudited

FY 2021

Unaudited 

FY 2020

BUDGETARY RESOURCES

Unobligated Balance From Prior Year Budget Authority, Net $ 508,695 $ 222,506 

Appropriations 49,821 579,285 

Contract Authority 47,204,090 45,645,928 

Spending Authority From Offsetting Collections 263,705 484,783 

TOTAL BUDGETARY RESOURCES $ 48,026,311 $ 46,932,502 

STATUS OF BUDGETARY RESOURCES

New Obligations and Upward Adjustments $ 47,724,371 $ 46,510,140 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 301,940 422,362 

Unexpired Unobligated Balance, End of Year 301,940 422,362 

Total Unobligated Balance, End of Year 301,940 422,362 

TOTAL BUDGETARY RESOURCES $ 48,026,311 $ 46,932,502 

OUTLAYS, NET

Outlays, Net $ 1,259,017 $ (2,343,308)

AGENCY OUTLAYS, NET $ 1,259,017 $ (2,343,308)

The accompanying notes are an integral part of these statements. 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 100

Notes to the Principal Financial Statements

(Unaudited)

Note 1: Summary of Significant Accounting Policies (Unaudited)

A. Reporting Entity

Created in 1961, DLA is a component of the U.S. DoD 

and reports to the OUSD for Acquisition and Sustainment 

through the Assistant Secretary of Defense for Sustainment. 

DLA provides material and services to components of DoD 

(including the U.S. Army, Navy, and Air Force), other Federal 

Agencies, and public entities. DLA accomplishes its mission 

and goals through the operations of the DLA WCF, DLA GF, 

and DLA TF. These financial statements and accompanying 

notes herein only refer to the activities of DLA WCF.

The DLA WCF has the three major activity groups (DLA 

Energy, DLA SCM, and DLA Document Services) and two 

support programs, included within DLA SCM, as described 

below, to execute its mission to provide supply, logistics, distribution, and disposition service support. These activities are 

the primary revenue generators within DLA WCF.

DLA Energy (Fort Belvoir, Virginia) - provides petroleum 

products/lubricants, supply chain services, sustainment, 

restoration and modernization, transportation, aerospace 

energy, fuel quality/technical support, installation energy and 

utility services.

DLA Supply Chain Management:

Troop Support (Philadelphia, Pennsylvania) - consists of 

four commodities:

● Subsistence – food support for the military all over the 

world;

● C&T - clothing, textiles and equipment to U.S. service 

members, other Federal Agencies, and partner nations;

● C&E - construction materials, heavy equipment, tactical 

gear, firefighting equipment, minerals and precious 

metals to wood products, imaging and information 

equipment; and

● Medical - medical and pharmaceutical supplies.

Aviation (Richmond, Virginia) - provides repair parts and 

industrial items such as screws, nuts, and bolts, typically 

referred to as bench stock for aviation weapons systems.

Land and Maritime (Columbus, Ohio) - provides repair parts 

and industrial items such as screws, nuts, and bolts, typically 

referred to as bench stock for ground-based, maritime, aviation, 

and foreign military systems.

DLA Support Services Programs DLA’s Support 

Services Programs provide distribution support to SCM and 

may also perform disposition services on behalf of the three 

DLA Activity Groups, as well as other Federal and public 

entities.

● DLA Distribution (New Cumberland, Pennsylvania) - 

provides storage and distribution solutions, transportation 

planning, logistics planning and contingency operations, 

as well as operating a global network of 34 distribution 

centers.

● DLA Disposition Services (Battle Creek, Michigan) - 

disposes of excess property by reutilization, transfer, and 

demilitarization, and conducts environmental disposal and 

reuse.

● DLA Document Services (New Cumberland, Pennsylvania) 

– provides automated document production, printing 

services, digital conversion, and document storage. 

DLA Activity Groups
Section 2 | Financial Section (Unaudited)

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

B. Basis of Presentation and Accounting

Basis of Presentation and Accounting: The 

DLA WCF fiscal year ends September 30. The accompanying 

financial statements account for all resources for which DLA 

WCF is responsible. These financial statements present 

the financial position, results of operations, changes in net 

position, and the combined budgetary resources of DLA 

WCF, 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 

WCF activities in accordance with U.S. GAAP promulgated 

by the FASAB6 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 WCF 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, 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 WCF 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 WCF are unable 

to meet all full accrual and budgetary accounting requirements 

as many of the financial and nonfinancial feeder systems and 

processes were not designed to collect and record financial 

information on the full accrual accounting basis as required 

by U.S. GAAP. These systems were designed to support 

reporting requirements for maintaining accountability over 

assets, reporting the status of Federal appropriations, and 

recording information on a budgetary basis, rather than 

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

government.

Travis AFB C-17 delivers aid to support two COCOMs

U.S. Air Force Senior Airman Shea Taylor, 60th Aerial Port Squadron traffic management inbound technician, 

unloads skids with N-95 masks Jan. 27, 2021, at Travis Air Force Base, California. The 60th APS palletized one 

million of N-95 masks bound for Ramstein Air Base, Germany. Photo By: U.S. Air Force photo by Chustine 

Minoda
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 102

preparing financial statements in accordance with U.S. GAAP. 

Therefore, DLA WCF 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 WCF identifies non-conforming 

data issues, the Agency will continue to implement interim 

mitigation processes to address these limitations. In addition, 

DLA WCF is remediating material weaknesses found in all endto-end business process cycles pertaining to reconciliations 

and adequacy of the supporting documentation identified 

through audits and other compliance reporting.

Combined Statements of Budgetary 

Resources: The budgetary accounting concepts are recognized in the Combined Statements of Budgetary Resources. 

The Combined Statements of Budgetary Resources present: 

(1) budgetary resources for the fiscal year; (2) status of those 

budgetary resources (includes obligated7 amounts and unobligated8 amounts for the fiscal year); and (3) Outlays, Net for 

the fiscal year, which is comprised of Outlays9 less Actual Offsetting Receipts (cash transactions). DLA WCF’s budgetary 

resources10 include unobligated balances of resources from 

prior years and new resources, consisting of appropriations, 

contract authority, and spending authority from offsetting collections. 

In FY 2020, Congress approved the Defense Working Capital 

Fund Prior Approval Request Reprogramming Actions: 20-10 

and 20-13. As a result, the Combined Statements of Budgetary 

Resources includes transactions totaling $4.0 million and 

$241.0 million, respectively, for the non-expenditure transfer 

of prior year balances from DLA WCF, which increased 

Spending Authority from Offsetting Collections and reduced 

Unobligated Balance from Prior Year Budget Authority, net. 

The transactions did not increase the DLA WCF’s available 

budgetary resources and were recorded in accordance with 

required posting logic under OUSD(C) guidance.

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 WCF. Intragovernmental liabilities are 

claims DLA WCF 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 WCF against public entities. Other 

than Intragovernmental liabilities are amounts that DLA WCF 

owes to public entities. DLA WCF is unable to accurately map 

its trading partners to separate Intragovernmental and Other 

than Intragovernmental transactions in accordance with TFM, 

Volume I, Part 2 Central Accounting and Reporting, Chapter 

4700, Federal Entity Reporting Requirements for the Financial 

Report of the United States Government.

The DLA WCF engages in transactions with other DoD and 

Federal entities that generate inter-DoD and intragovernmental 

balances; however, DLA WCF 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/Intra-departmental 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 WCF is ultimately responsible for the accuracy of its trading 

partner data and initiating actions to reconcile balances with 

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

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

8 Per OMB Circular A-11, Section 20, “Unobligated amount means the 

cumulative amount of budget authority that remains available for obligation 

under law in unexpired accounts. The term "expired balances available for 

adjustment” only refers to unobligated amounts in expired accounts.” 

9 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.”

10 Per OMB Circular A-11, Section 20, "Budgetary resources are amounts 

available to incur obligations in a given year. Budgetary resources consist 

of new budget authority and unobligated balances of budget authority 

provided in previous years."
Section 2 | Financial Section (Unaudited)

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

its trading partners; however, DLA WCF is unable to resolve 

the reconciling differences in amounts reported for the buyer/

seller transactions reciprocal category with Other Defense 

Organizations (ODO), (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.

Inter-fund Transactions: Inter-fund transactions 

and balances among DLA WCF activities (Energy, SCM, and 

Document Services) are eliminated from the Balance Sheets, 

the Statements of Net Cost, and the Statements of Changes 

in Net Position. The Combined Statements of Budgetary 

Resources is presented on a combined basis in accordance 

with OMB Circular A-136; therefore, inter-fund transactions 

have not been eliminated from this statement. DLA WCF 

presents the Statements of Net Cost based on activities rather 

than program costs, which is not in accordance with OMB 

Circular A-136. 

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

to Intragovernmental/Intra-departmental and Other than 

Intragovernmental Transactions and Statements of Net Cost).

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 WCF management has 

made certain estimates and assumptions when reporting 

assets, liabilities, revenue, and expenses and disclosures in 

the notes. Uncertainties associated with these estimates exist 

and actual results may differ from these estimates; however, 

DLA WCF’s estimates are based on historical experience, 

current events and other assumptions that are believed to be 

reasonable under the circumstances. Significant estimates 

underlying the accompanying financial statements include: (1) 

contingent liabilities; (2) environmental and disposal liabilities 

(EL); (3) accruals for accounts receivable related to aerospace, 

customer direct, Fuel Exchange Agreements (FEA), and 

inventory accruals; (4) allowance for doubtful accounts; (5) 

accounts payable MOCAS and outbound MIPR accruals; (6) 

undelivered orders; (7) Federal Employees’ Compensation Act 

(FECA) liability; (8) inventory defined as Excess, Obsolete, 

and Unserviceable (EOU); and (9) allowance for inventory 

held for repair as of the date of these financial statements.

C. Departures from U.S. GAAP

Financial management systems and processes continue to 

be evaluated and modified as DLA WCF strives to remediate 

its material weaknesses and record and report its financial 

activity in accordance with U.S. GAAP. Therefore, DLA WCF 

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 WCF financial statements although other departures 

from U.S. GAAP may exist that have not been identified.

Definition of Reporting Entity: The DLA WCF 

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 WCF is unable to determine if there are 

consolidation entities that are required to be consolidated 

and disclosed in DLA WCF 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 WCF does not 

have policies and compliant processes in place to present 

its major program costs aligned with DLA WCF mission and 

goals by responsibility segments in accordance with SFFAS 

4, Managerial Cost Accounting Concepts and Standards, and 

OMB Circular A-136.

Intragovernmental/Intra-departmental and 

Other than Intragovernmental Transactions 

(Note 1.B.): The DLA WCF 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. U.): The DLA WCF 

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 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 104

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.G. and 

Note 3): The DLA WCF is not able to account for FBwT 

in accordance with SFFAS 1, Accounting for Selected Assets 

and Liabilities, due to its inability to identify and reconcile the 

reported differences between DLA WCF’s accounting system 

and Treasury. Monthly unsupported journal vouchers are made 

to adjust the FBwT balances in DLA WCF financial statements 

to match U.S. Treasury records. 

Accounts Receivable, Net, Revenue, and 

Unfilled Customer Orders (Notes 1.H. 1.U. 

and 1.W., Notes 4; Note 5; and Note 12): The 

DLA WCF does not have policies and compliant processes 

in place to: (1) recognize revenue and record the related 

accounts receivable, net and unfilled customer order (UCO) 

balances from goods sold and services provided in the proper 

period; (2) identify, evaluate, record, and report an allowance 

for doubtful accounts related to intragovernmental receivables 

in accordance with SFFAS 1, Accounting for Selected Assets 

and Liabilities, and Technical Bulletin 2020-1, Loss Allowance 

for Intragovernmental Receivables; and (3) adjust revenue to 

the extent that realization of the full amount is not probable in 

accordance with SFFAS 1, Accounting for Selected Assets and 

Liabilities, and SFFAS 7, Accounting for Revenue and Other 

Financing Sources and Concepts for Reconciling Budgetary 

and Financial Accounting. More specifically:

Direct Sales - DLA WCF Holds the Inventory to be 

Sold: In some instances, the current distribution system that 

DLA WCF uses is not in accordance with SFFAS 7, Accounting 

for Revenue and Other Financing Sources and Concepts for 

Reconciling Budgetary and Financial Accounting, as revenue 

may be recognized before materials are shipped or delivered 

to the customer;

Consignment/Direct Sales - Third Party Holds the 

Inventory to be Sold: For inventory that is managed by 

a third party, revenue is recognized on the date DLA WCF 

bills the customer which may occur before DLA WCF releases 

control of the materials, which is not in accordance with SFFAS 

7, Accounting for Revenue and Other Financing Sources and 

Concepts for Reconciling Budgetary and Financial Accounting;

Customer Direct Sales: The customer direct process is 

where DLA WCF permits its customers to order goods directly 

from DLA WCF’s authorized vendors. Under DLA WCF’s 

business structure, DLA WCF has the obligation to pay the 

vendor and the right to collect payment from the customer. 

Therefore, DLA WCF incurs a liability and earns revenue at 

the time the customer accepts the goods from the vendor. 

However, while DLA WCF records an accrual for the liability 

incurred, DLA WCF does not account for the revenue earned 

at the same time in accordance with SFFAS 7, Accounting 

for Revenue and Other Financing Sources and Concepts for 

Reconciling Budgetary and Financial Accounting;

Customer Returns: The DLA WCF does not match the 

customer returns to the original sales orders and improperly 

decreases revenue, cost of goods sold, and contract 

authority liquidated for the amount of the return which is not 

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;

Fuel Exchange Agreement Business Process: The 

DLA WCF does not have policies and compliant processes 

in place to (1) properly adjust the budgetary accounts in 

accordance with SFFAS 7, Accounting for Revenue and Other 

Financing Sources and Concepts for Reconciling Budgetary 

and Financial Accounting, when the netting of individual 

sales and purchase transactions occur; (2) recognize and 

value appropriately the replacement-in-kind transactions 

in accordance with SFFAS 3, Accounting for Inventory and 

Related Property; and (3) demonstrate that the monthly 

accrual methodology for FEA is in accordance with SFFAS 

5, Accounting for Liabilities of the Federal Government, and 

SFFAS 1, Accounting for Selected Assets and Liabilities;

Unfilled Customer Orders: The DLA WCF does not 

properly record UCO activity and is unable to support the UCO 

balance in the accounting system in accordance with SFFAS 

7, Accounting for Revenue and Other Financing Sources and 

Concepts for Reconciling Budgetary and Financial Accounting;

Revenue: The DLA WCF performs services for other Federal 

entities and recognizes accounts receivable and revenue 

for these transactions without assessing the probability of 

collection which is not in accordance with Technical Bulletin 
Section 2 | Financial Section (Unaudited)

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

2020-1, Loss Allowance for Intragovernmental Receivables

SFFAS 1, Accounting for Selected Assets and Liabilities, 

and SFFAS 7, Accounting for Revenue and Other Financing 

Sources and Concepts for Reconciling Budgetary and 

Financial Accounting. In addition, DLA is unable to produce a 

population of customer disputes which impacts their ability to 

support the allowance for returns in accordance with SFFAS 

1, Accounting for Selected Assets and Liabilities, and SFFAS 

7, Accounting for Revenue and Other Financing Sources and 

Concepts for Reconciling Budgetary and Financial Accounting.

In FY 2021, DLA WCF made adjustments in response to the 

error of not recognizing accounts receivable in prior periods 

for deposit funds due from OUSD. As such, DLA WCF restated 

the FY 2020 balances reported in the prior year Balance Sheet 

and Statement of Changes in Net Position to recognize the 

funding as a DLA WCF asset in accordance with SFFAS 1, 

Accounting for Selected Assets and Liabilities (refer to Note 

17, Restatements of the FY 2020 Balance Sheet, Statement 

of Net Cost, and Statement of Changes in Net Position); and

Foreign Currency: The DLA WCF does not have a policy 

and compliant processes in place to determine the significant 

effects, if any, of changes in the exchange rate related to 

recording foreign currency transactions in accordance with 

SFFAS 7, Accounting for Revenue and Other Financing 

Sources and Concepts for Reconciling Budgetary and 

Financial Accounting. This also impacts accounts payable. 

Inventory and Related Property, Net (Note 

1.J. and Note 5): The DLA WCF does not have policies 

and compliant processes in place to account for inventory 

and related property, net or properly account for gains and 

losses on adjustments to inventory in situations where DLA 

WCF owns the same material as held for a customer or held 

as EOU in accordance with SFFAS 3, Accounting for Inventory 

and Related Property, and SFFAS 7, Accounting for Revenue 

and Other Financing Sources and Concepts for Reconciling 

Budgetary and Financial Accounting. Furthermore, DLA has 

not completed establishing inventory and related property 

beginning balances 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 FY2017). More specifically:

Excess, Obsolete, Unserviceable: The DLA WCF 

does not have procedures in place to review and determine 

if additional material in its accounting system should be 

classified as EOU in accordance with SFFAS 3, Accounting 

for Inventory and Related Property. Upon receipt of EOU from 

other components or military services, the asset is recorded 

incorrectly as a gain rather than a transfers-in. Upon disposition 

of EOU, the expense is recorded incorrectly as cost of goods 

sold rather than determining the gain or loss based on the 

difference of the sale price and Net Realizable Value (NRV) 

in accordance with SFFAS 3, Accounting for Inventory and 

Related Property. The accounting treatment for both transfersin and disposition of EOU are not in accordance with SFFAS 

7, Accounting for Revenue and Other Financing Sources and 

Concepts for Reconciling Budgetary and Financial Accounting. 

The DLA WCF is unable to provide the carrying value of 

the inventory before it was identified as EOU inventory, in 

accordance with SFFAS 3, Accounting for Inventory and 

Related Property;

Raw Materials and Inventory Work in Process: The 

DLA WCF does not properly account for inventory provided to 

Special Delivery

Soldiers deliver personal 

protective equipment to the 

mayor’s office in Djibouti, Dec. 

21, 2020. The delivery was part of 

U.S. Africa Command’s Overseas 

Humanitarian Disaster Assistance 

and Civic Aid program. 

Photo Credit: Navy Petty Officer 

3rd Class Colin Sens
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 106

vendors against contracts and work orders for manufacturing 

and assembly in accordance with SFFAS 3, Accounting for 

Inventory and Related Property. These items should be initially 

accounted for as Raw Material, and then as Inventory Work in 

Process;

Additional Inventory Costs: The DLA WCF does 

not properly account for additional inventory costs in the 

manufacturing and assembly process, in accordance with 

SFFAS 3, Accounting for Inventory and Related Property; 

Categories of Inventory: The DLA WCF does not have 

policies and procedures in place for management’s criteria to 

determine the category of inventory in accordance with SFFAS 

3, Accounting for Inventory and Related Property;

Customer Direct: In recording Customer Direct transactions, 

DLA WCF combines the purchase from the vendor and the 

cost of goods sold into a single entry in the accounting system 

that does not include the receipt or issuance of inventory; and

Goods Receipt: The DLA WCF does not have sufficient 

policies and procedures to properly account for receipts 

of goods when the receipted quantity does not match the 

purchase order quantity. In addition, under the contractual 

agreement, if the contractor delivers and DLA WCF receives 

quantities of any item in excess of the quantity called for, DLA 

WCF may retain such excess quantities without compensating 

the contractor. Rather than adjusting the unit cost based on 

the updated quantity received, DLA WCF is recording a gain 

to account for the excess items.

General Property, Plant and Equipment, Net 

(Note 1.K.; Note 6; and Note 17): The DLA WCF does 

not have policies and compliant processes in place to account 

for general PP&E, net, at historical cost, in accordance with 

SFFAS 6, Accounting for Property, Plant, and Equipment, and 

SFFAS 10, Accounting for Internal Use Software. Supportable 

general PP&E beginning balances have not been established 

for buildings, general equipment, Construction-in-Progress 

(CIP), Internal Use Software (IUS), and IUS in Development 

using the alternative valuation methods permitted by SFFAS 

50, Establishing Opening Balances for General Property, 

Plant, and Equipment, (effective FY2017). In addition, DLA 

WCF does not have compliant processes in place to account 

for impairment of facilities and equipment in accordance with 

SFFAS 44, Accounting for Impairment of General Property, 

Plant, and Equipment Remaining in Use. More specifically:

Transferred assets: The DLA WCF is unable to determine 

the valuation of general equipment assets previously 

transferred from the military services in accordance with 

SFFAS 6, Accounting for Property, Plant, and Equipment;

Internal-Use Software: The DLA WCF is unable to 

substantiate the valuation of internal-use software in 

accordance with SFFAS 10, Accounting for Internal Use 

Software, and SFFAS 50, Establishing Opening Balances for 

General Property, Plant, and Equipment;

Internal-Use Software in Development: The DLA WCF 

does not have the proper policies and compliant processes 

to identify IUS in Development balances in accordance with 

SFFAS 10, Accounting for Internal Use Software;

Construction-in-Progress Balances: The DLA WCF 

does not have the proper policies and compliant processes 

to identify aged CIP balances in accordance with SFFAS 6, 

Accounting for Property, Plant, and Equipment;

Capitalization: The DLA WCF does not properly follow 

the policies and procedures to effectively implement and 

consistently apply the capitalization threshold, in accordance 

with SFFAS 6, Accounting for Property, Plant, and Equipment,

and SFFAS 10, Accounting for Internal Use Software;

Depreciation: The DLA WCF does not properly follow 

the policies and procedures to effectively implement 

and consistently apply depreciation and amortization, in 

accordance with SFFAS 6, Accounting for Property, Plant, 

and Equipment, and SFFAS 10, Accounting for Internal Use 

Software; 

Rights and Obligations: The DLA WCF is unable to 

substantiate whether DLA WCF has the rights and obligations 

to the recorded general PP&E assets in accordance with 

SFFAS 6, Accounting for Property, Plant, and Equipment; and

Transfers of Property Restatement: The DLA WCF 

receives property transfers from DLA GF upon construction 

project completion. DLA GF identified assets transferred into 

DLA WCF in FY 2021 that were placed in service in FY 2020 

and prior fiscal years. The correction resulted in an increase 

to General Property, Plant and Equipment and Net Position by 

$123.4 million and $123.4 million, respectively (refer to Note 

17, Restatements of the FY 2020 Balance Sheet, Statement of 

Net Cost, and Statement of Changes in Net Position). 
Section 2 | Financial Section (Unaudited)

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

Leases (Note 1.L.): The DLA WCF does not have 

policies 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, and SFFAS 6, Accounting for Property, Plant, 

and Equipment. As such, DLA WCF does not have any capital 

or operating leases reported or disclosed as of September 30, 

2021 and 2020.

Advances and Prepayments - (Note 1.M.):

The DLA WCF does not have policies and compliant processes 

in place to record advances and prepayments related to organic 

manufacturing and outstanding contract financing payments 

in accordance with SFFAS 1, Accounting for Selected Assets 

and Liabilities. Specifically, the accounts payable adjustment 

methodology for negative payable is inaccurate and does not 

in comply with TFM/USSGL posting logic.

Accounts Payable, Expenses, and Undelivered 

Orders (Notes 1.O. and 1.W; Note 7; and Note 13):

The DLA WCF does not have policies and compliant processes 

in place to account for accounts payable, expense accruals, and 

the related Undelivered Orders (UDOs) in accordance with SFFAS 

1, Accounting for Selected Assets and Liabilities, and SFFAS 5, 

Accounting for Liabilities of the Federal Government. More specifically:

Accrual methodology for liabilities: The DLA WCF does 

not properly accrue liabilities in the period incurred, recognize 

the related expenses, and reduce UDOs in accordance with 

SFFAS 5, Accounting for Liabilities of the Federal Government.

Capitalized Expenses: The DLA WCF does not properly 

recognize in its accounting records the full cost of the goods or 

services it receives as an expense in accordance with SFFAS 

4, Managerial Cost Accounting Standards and Concepts.

Negative payable: The DLA WCF processes allow for 

payment without receipt, thus resulting in a negative payable 

that is not in accordance with SFFAS 5, Accounting for Liabilities 

of the Federal Government. This occurs when a payment is 

made prior to the goods receipts being posted in DLA WCF’s 

accounting system. This results in an understatement of 

current year expenses and payables, and an overstatement 

of UDOs; and

Undelivered Orders: The DLA WCF does not have sufficient 

policies and procedures in place to record obligations at the 

time contracts are awarded. In addition, DLA WCF is unable to 

support the UDO balance in the accounting system.

Environmental and Disposal Liabilities 

(Note 1.P; Note 10; and Note 11): The DLA WCF 

does not have policies and compliant processes in place to 

reconcile asset listings to the amounts recorded for EL related 

to cleanup, asset closure, and asbestos associated with 

general PP&E, in accordance with SFFAS 5, Accounting for 

Liabilities of the Federal Government; SFFAS 6, Accounting 

for Property, Plant, and Equipment, and Federal Financial 

Accounting and Auditing Technical Release 2, Determining 

Probable and Reasonably Estimable for Environmental 

Liabilities in the Federal Government. 

Commitments and Contingencies (Note 

1.N; Note 9; Note 10; and Note 11): The DLA 

WCF 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.

Reconciliation of Net Cost to Net Outlays 

(Note 15): The DLA WCF 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 WCF 

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.

Public-Private Partnerships: The DLA WCF has 

not completed analyzing all applicable business relationships 

to determine if these arrangements or transactions indicate 

the existence of Public-Private Partnership (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 FY2019). As a result, DLA 

WCF is unable to determine the nature of such partnerships, 

if applicable, and related Federal funding amounts required to 

be disclosed in a P3 note to the financial statements.
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 108

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 WCF upon 

implementation. DLA WCF has not completed the process of 

evaluating the effects of adopting these pronouncements and 

is unable to determine the materiality of changes that adopting 

will have on its financial position, results of operations, 

changes in net position, and combined 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, 

Leases: An Amendment of SFFAS 5, Accounting for Liabilities 

of the Federal Government, and SFFAS 6, Accounting for 

Property, Plant, and Equipment, 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 shortterm leases, or contracts or agreements that transfer ownership, 

or intragovernmental leases. SFFAS 57, Omnibus Amendments 

2019, amends certain references to leases affected by SFFAS 

54, as well as other minor changes in order to improve clarity of 

existing statements.

E. Appropriations and Funding

Initial Corpus: The DLA WCF received its initial corpus 

through an appropriation from the DWWCF. The corpus financed 

initial operations to obtain goods and services sold to customers 

on a reimbursable basis to maintain the corpus. In addition, DLA 

WCF receives direct or supplemental appropriations through 

DoD reprogramming actions, Title V (Revolving and Management 

Funds), IX (Overseas Contingency Operations), and X (Required 

Additional Appropriations). For the year ended September 30, 

2020, DLA WCF received $530.2 million in appropriations under 

the Coronavirus Aid, Relief, and Economic Security (CARES) 

Act in support of COVID-19 mission activities. The CARES Act 

appropriations and transfers were not intended to be used for new 

obligations in FY 2020. The amount of contract authority realized 

was reduced in the amount equal to the budget authority received 

from these appropriations and transfers. DLA WCF did not 

receive additional appropriations related to COVID-19 activities 

in FY 2021. In addition, for the years ended September 30, 2021 

and 2020, DLA WCF received direct appropriations in the amount 

of $49.8 million and $49.0 million, respectively (refer to Note 14, 

Contributed Capital).

The DWWCF consists of six activity groups. DLA WCF 

operates three of the six activity groups, which include DLA 

Energy, DLA SCM, and DLA Document Services. DFAS and 

the DISA operate the other three activity groups. DLA WCF is 

the cash manager for the DWWCF funding and is responsible 

for developing DWWCF activity group budget exhibits related 

to cash and monitoring cash execution. Although DLA WCF 

shares its accounting code with DFAS and DISA, each 

Agency receives their own separate Annual Operating Budget. 

OUSD(C) uses a data element referred to as a ‘limit’ to 

differentiate the various ODOs under Treasury Index (TI)-97. 

DLA WCF uses limits assigned to the TI-97 organizations to 

track spending at a level below the Treasury Account Symbol 

(TAS) level.

Contract Authority: The DLA Energy and DLA SCM 

receive contract authority for their operating and capital 

programs. Contract authority is a type of budget authority 

that permits obligations to be incurred in advance of an 

appropriation, offsetting collections, or receipts to make 

outlays to liquidate the obligations. Typically, the Congress 

provides contract authority in an authorizing statute to allow 

DoD components to incur obligations in anticipation of the 

collection of receipts or offsetting collections that will be 

used to liquidate the obligations. Subsequently, the contract 

authority liquidates through the receipt of customer funds.

Spending Authority from Offsetting 

collections: The DLA Document Services receives 

spending authority from offsetting collections for its operation 

program. Spending authority from offsetting collections 

represent authority that permits obligations and outlays to 

be financed by reimbursements from the funding Agencies 

and requires the receipt of customer orders prior to incurring 

obligations. 

FASAB

Statement No SFFAS 54 SFFAS 57 (paragraphs 

3 – 8, 11, and 12)

FASAB 

Standard

Leases: An Amendment 

of SFFAS 5, Accounting 

for Liabilities of the Federal 

Government, and SFFAS 

6, Accounting of Property,

Plant, and Equipment

Omnibus 

Amendments 

FY2019

Adoption 

Required in FY Deferred to FY 2024 Effective FY 2024
Section 2 | Financial Section (Unaudited)

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

F. Entity and Non-Entity Assets

The DLA WCF reports both entity and non-entity assets. Entity 

assets are assets that the reporting entity has authority to use 

in its operations. Management may have authority to decide 

how funds are used or it may be legally obligated to use the 

funds a certain way. Non-entity assets are not available for use 

in DLA WCF’s operations. DLA WCF maintains stewardship 

accountability and reporting responsibilities for non-entity 

assets and will subsequently remit these non-entity assets 

to the Treasury. DLA WCF records a corresponding liability, 

custodial liability, for these accounts receivable. (Refer to 

Note 2, Non-Entity Assets, and Note 9, Other Liabilities).

G. Fund Balance with Treasury

The DLA WCF does not maintain cash in a commercial bank, 

but rather in the U.S. Treasury. DLA WCF’s FBwT includes the 

amount available for DLA WCF 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 WCF’s cash collections, disbursements, and 

adjustments.

In recent years, DLA WCF implemented Treasury Direct 

Disbursing (TDD), which provides DLA WCF the capability 

to transmit directly from accounting systems to Treasury for 

disbursements. With the implementation of TDD, DLA WCF 

has a unique accounting code allowing DLA WCF to identify 

the transactions.

On a monthly basis, DLA WCF 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 using the Cash Management Report 

(CMR). The CMR provides a summary cash position for each 

ODO's FBwT account by fiscal year and appropriation at 

the limit level. The adjustments represent the undistributed 

disbursements and collections amounts that have been 

reported to Treasury, but have not yet been posted to DLA 

WCF’s accounting systems. Undistributed amounts can 

be a result of timing, invalid line of accounting, invalid TAS 

information, and unsupported and unreconciled differences.

The DLA WCF’s accounting service provider, DFAS, uses 

suspense accounts to hold transactions temporarily prior to 

identifying the correct funding. 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 WCF TAS. The 

transactions in suspense accounts include unidentified 

collections, disbursements, Recyclable Materials, and IntraGovernmental Payment and Collection Transactions at 

month end. DFAS researches suspense transactions to post 

them against the appropriate line of accounting. The current 

balances for DLA WCF 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. 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 3, Fund Balance with Treasury.)

H. Accounts Receivable, Net

Accounts Receivable, Net: Accounts receivable 

represents amounts due to DLA WCF from other Federal 

entities (Intragovernmental) and the public (Other than 

Intergovernmental). DLA’s accounts receivable arises from 

sales of inventory and services performed.

DLA WCF does not recognize an allowance for doubtful accounts 

from other Federal Agencies. All intragovernmental accounts 

receivable are presented as gross amounts in the Balance 

Sheets. DLA WCF presents its Other than Intragovernmental 

accounts receivable net of an allowance for doubtful accounts, 

which is based on a systematic methodology of grouped 

aged public accounts receivables. DLA WCF evaluates the 

allowance methodology and estimated allowance percentages 

quarterly based on historical average collections on aged public 

accounts receivable. The allowance for doubtful accounts is 

calculated based on the aged accounts receivable balances 

from the preceding month, with the exception of FEA accounts 

receivable, as these are reconciled in periodic settlements 

with the foreign governments (refer to Note 1.W, Transactions 

with Foreign Governments and International Organizations, 

for additional information on FEA sales and settlements).
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 110

Strategic Petroleum Reserve: DLA accounts 

receivable also includes other assets related to the Strategic 

Petroleum Reserve. DLA Energy’s Strategic Petroleum 

Reserve consists of crude oil held by the Department of 

Energy (DoE) on behalf of DoD. Public Law 102-396, Section 

9149 enacted in November 1992 established the requirement 

for DoE to acquire and maintain a strategic petroleum reserve 

for National defense purposes. Section 9149 provided 

appropriations for the acquisition, storage, and drawdown 

of such reserve. Proceeds from sales of this reserve will 

be deposited to DoD’s accounts and remain available until 

expended. DoE reports this crude oil in inventory in their 

financial statements, with an offsetting custodial liability to 

DoD. By law, the reserve cannot be drawn down or released 

to DoD without a Presidential Order along with the advice from 

the Secretary of Defense. As of September 30, 2021 and 2020, 

none of the reserve has been drawn upon, therefore the full 

inventory remains on hand with DoE. Due to the nature of this 

asset, an allowance for doubtful accounts is not applicable or 

recognized as all proceeds from sales of the reserve must be 

remitted to DLA by law based on the Presidential Order and 

advice from the Secretary of Defense if executed. 

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

Accounts Receivable, Net, Revenue, and Unfilled Customer 

Orders, and Note 4, Accounts Receivable, Net.)

I. Cash and Other Monetary Assets

The DLA WCF cash and other monetary assets consist of 

bid deposits received from public sale customers and refund 

receivable from overpayments to a vendor. The DLA WCF 

Disposition Services manages the sale of EOU inventory 

deemed appropriate and safe for the general public. Bid 

deposits must be received from the customers prior to the 

auction of EOU. The amounts are held in escrow by DLA 

WCF until settlement occurs. Due to OUSD policy, the escrow 

account and the accompanying liability are not reported by DLA 

WCF, but rather reported on the consolidated ODO General 

Fund financial statements. As of September 30, 2020, the DLA 

WCF’s Cash and Other Monetary Assets reported $7.1 million 

in bid deposit collections. As of September 30, 2021 these 

amounts are reported in the consolidated ODO General Fund 

financial statements.

J. Inventory and Related Property, Net

The DLA WCF inventory is comprised of material held at DLA 

Energy and DLA SCM and categorized into:

Inventory Held for Sale: Inventory that is in the process 

of production for sale or to be consumed in the production of 

goods for sale or in the provision of services for a fee (refer to 

Note 1.A., Reporting Entity), for items held for sale by activity 

group. Additionally, DLA WCF has inventory held for sale, intransit. This consists of material in transit from commercial 

and Government suppliers to the financial reporting entity or 

material in transit between storage locations.

Inventory Reserved for Future Sale: Inventory 

that is maintained and not readily available in the market or 

because there is more than a remote chance that they will 

eventually be needed (although not necessarily in the normal 

course of operations). Similar to the Inventory Held for Sale, 

the inventories primarily include weapon system repair parts 

from DLA Aviation and DLA Land and Maritime, and food and 

medical supplies from DLA Troop Support.

Inventory Held for Repair: Inventory that is 

damaged and requires repairs to make it suitable for sale, 

which includes consumable spares, repair parts and repairable 

items. Inventory Held for Repair is valued using the allowance 

method as described in SFFAS 3, Accounting for Inventory and 

Related Property, and DoD Financial Management Regulation 

(FMR), Volume 4, Chapter 4.

Excess, Obsolete, and Unserviceable 

Inventory: Excess inventory exceeds management 

requirements to meet DLA WCF’s mission. Obsolete inventory 

is no longer needed due to technology, laws, customs, or 

operations. Unserviceable inventory is damaged inventory 

that is more economical to dispose of than to repair.

Inventory Valuation: The DLA WCF uses the Moving 

Average Cost (MAC) method to value Inventory Held for Sale, 

Reserved for Future Sale and Held for Repair. Inventory Held 

for Repair is valued at MAC less an allowance for the estimated 

repair cost. The allowance is calculated based on 2.0% of the 

total value of Inventory Held for Repair. The MAC is calculated 

each time inventory is purchased dividing the total cost of 

units available by the number of total units available.

EOU inventory is valued at its expected NRV. An NRV factor 

is applied to the assets’ original acquisition value to determine 

NRV. In FY 2020, DLA WCF Disposition changed its NRV 

calculation of EOU inventory for scrap and usable material. 

Previously, EOU identified as scrap was valued using the 

average sales price per unit sold. Usable material was valued 

using: (1) all revenues including those that were not attributed to 
Section 2 | Financial Section (Unaudited)

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

Asset Classes Depreciation/

Amortization Method Useful Life (Years)

Buildings, Structures, and Facilities Straight-line 20, 40 or 45

IUS Straight-line 2, 5 or 10

General Equipment Straight-line 5 or 10

CIP Not Applicable Not Applicable

IUS in development Not Applicable Not Applicable

Depreciation Method and Useful Life

the sale or disposition of EOU, (2) the cost the customer would 

have incurred for purchasing the material (cost avoidance), 

and (3) less the costs of operations. DLA identified an error in 

the methodology to calculate the NRV factor which resulted in 

an updated NRV factor of zero and the reporting of EOU at a 

NRV of zero as of September 30, 2021 and 2020. 

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

Inventory and Related Property, Net, and Note 5, Inventory 

and Related Property, Net.)

K. General Property, Plant and Equipment, 

Net

The DLA WCF general PP&E consists of buildings, CIP, 

structures, linear structures, IUS, IUS in development, and 

general equipment that are used to facilitate the Agency’s 

mission. The land that these assets reside on is not owned by 

DLA WCF.

Capitalization Threshold: The DLA WCF general 

PP&E assets are recorded at historical acquisition cost plus 

improvements when an asset has a useful life of two or 

more years, and the acquisition cost exceeds the $250,000 

capitalization threshold, effective October 01, 2013. The 

general PP&E assets acquired prior to October 1, 2013, 

were capitalized at various thresholds and are carried at 

the remaining net book value. However, some of the assets 

capitalized after October 1, 2013 do not exceed the $250,000 

capitalization threshold.

In FY 2020, DLA WCF transferred real property assets to 

the Military Departments and is in process of establishing 

Memorandum of Agreements (MOAs) with the Military 

Departments for the use of real property and the recording of 

related imputed costs, in accordance with DoD policy. 

The DLA WCF continues to validate its general PP&E balances 

by verifying the existence and completeness, confirming rights 

and obligations by validating documentation from the military 

services to ensure DLA WCF is the appropriate Financial 

Reporting Organization (FRO), and documenting processes 

through reviewing and updating policy guidance to define 

the procedures used for the valuation method. DLA WCF 

has not yet finalized the inventory and valuation process for 

their general PP&E. Accordingly, DLA WCF has not made an 

unreserved assertion that the opening balances of general 

PP&E for FY 2021 are presented fairly in accordance with 

U.S. GAAP and SFFAS 50, Establishing Opening Balances for 

General Property, Plant, and Equipment.

The DLA WCF determines the useful life of its general PP&E 

using the asset classification and the type of assets based 

on the DoD FMR 7000.14-R Volume 4, Chapters 24, 25, 27 

and the OUSD Memorandum “Financial Reporting Policy for 

Real Property Estimated Useful Lives, Land Valuation, and 

Accounting for Real Property Outside of the United States.” 

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

to General Property, Plant and Equipment, Net; Note 6, 

General Property, Plant, and Equipment, Net; and Note 17, 

Restatements of the FY 2020 Balance Sheet, Statement of 

Net Cost, and Statement of Changes in Net Position.) 

L. Leases

As of September 30, 2021 and 2020, DLA WCF 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 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 112

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.)

M. Advances and Prepayments

Advances: Assets such as civil service employee pay and 

travel advances, and certain contract financing payments not 

reported elsewhere in DLA WCF Balance Sheets.

The DLA SCM conducts business with commercial contractors 

under two primary types of contracts: fixed price and cost 

reimbursable. To alleviate the potential financial burden on 

the contractor that long-term contracts can cause, DLA WCF 

may provide financing payments. The Federal Acquisition 

Regulation, Part 32, defines contract financing payments as 

“authorized disbursements to a contractor prior to acceptance 

of supplies or services by the Government”.

Prepayments: Payments made in advance of the receipt 

of goods and services. DLA WCF’s policy is to expense and/or 

properly classify assets when the related goods and services 

are received.

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

Advances and Prepayments.)

N. 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: An Amendment of 

SFFAS 5, Accounting for Liabilities of the Federal Government, 

DLA WCF recognizes contingent liabilities in DLA WCF’s 

Balance Sheets and Statements of Net Cost when the loss is 

determined to be probable and reasonably estimable. In the 

event of an adverse judgment against the Government, some 

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

WCF evaluates all contingent liabilities based on three criteria: 

probable, reasonably possible and remote. 

The DLA WCF recognizes that the estimated liability may be a 

specific amount or a range of amounts. If some amount within 

the range is a better estimate than any other amount within the 

range, that amount is recorded. If no amount within the range is 

a better estimate than any other amount, the minimum amount 

of the range is recorded and the range and a description of the 

nature of the contingency are disclosed.

The DLA WCF records an accrual for contingent liabilities if 

it is probable and reasonably estimable and discloses those 

contingencies that are reasonably possible in Note 11, 

Commitments and Contingencies, of the financial statements. 

DLA WCF does not disclose or record contingent liabilities 

when the loss is considered remote. 

For matters where DLA Counsel is unable to express an opinion 

regarding the likely outcome of the case and an estimate of 

the potential liability cannot be made, the total amount claimed 

against the government is classified as “Reasonably Possible” 

and disclosed if available.

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

Environmental and Disposal Liabilities and Commitments and 

Contingencies; Note 9, Other Liabilities; Note 10, Environmental 

and Disposal Liabilities; and Note 11, Commitments and 

Contingencies.)

O. 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. 

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 but will require future funding to liquidate the obligation. (Refer to Note 7, Liabilities Not Covered by Budgetary 

Resources.)

Liabilities not Requiring Budgetary 

Resources: Liabilities that have not in the past required 

and will not in the future require the use of budgetary resources 

are referred to as liabilities not requiring budgetary resources.

Current and Noncurrent Liabilities: The DLA 

WCF discloses its other liabilities between current and 

noncurrent liabilities in accordance with SFFAS 1, Accounting 

for Selected Assets and Liabilities. The current liabilities 
Section 2 | Financial Section (Unaudited)

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

represent liabilities that DLA WCF expects to settle within the 

12 months of the Balance Sheet dates. Noncurrent liabilities 

represent liabilities that DLA WCF does not expect to be 

settled within the 12 months of the Balance Sheet dates (refer 

to Note 9, 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 WCF. DLA WCF estimates and records 

accruals when services and goods are performed or received 

(i.e., Mechanization of Contract Administration Services 

(MOCAS) accrual related to contract financing and Negative 

Payable Accrual to adjust the timing issues that exist when an 

invoice is received and posted without a goods receipt). DLA 

WCF also accrues liabilities incurred at month-end but not 

yet recorded using data from Third Party Payment Systems, 

Government Purchase Card (GPCs), various feeder 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. 

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

Accounts Payable, Expenses, and Undelivered Orders, and 

Note 7, Liabilities Not Covered by Budgetary Resources.)

P. Environmental and Disposal Liabilities

ELs 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 WCF is responsible for accurate reporting of EL 

and expenses for the real property and/or equipment that it 

records and reports in its financial statements as assets. DLA 

identifies and estimates accrued EL through its annual costto-complete (CTC) process. DLA’s accrued EL comprises 

of environmental cleanup costs associated with restoration 

of environmental sites on real property that it does not own 

but has received contract 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. Due to noted deficiencies, DLA is not able to reconcile 

the population of real property assets that encompass the 

environmental sites closure and asbestos liabilities. 

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

Environmental and Disposal Liabilities and Commitments 

and Contingencies; Note 10, Environmental and Disposal 

Liabilities; and Note 11, Commitments and Contingencies.)

Q. 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 date. DLA 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 9, Other Liabilities).

R. 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 WCF 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 WCF. DLA WCF reimburses DOL for claims as funds 

are appropriated for this purpose. In general, there is a one to 

two-year period between payment by DOL and reimbursement 

to DOL by DLA WCF. As a result, DLA WCF recognizes 

an intragovernmental liability, not covered by budgetary 

resources, for the claims paid by DOL that will be reimbursed 

by DLA. (Refer to Note 7, Liabilities Not Covered by Budgetary 

Resources, and Note 8, 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 a liability 

Other than Intragovernmental, not covered by budgetary 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 114

resources. The actuarial FECA liability includes the expected 

liability for death, disability, medical, and miscellaneous 

costs for approved compensation cases. DOL determines the 

actuarial FECA liability annually, as of September 30, using 

an actuarial method that considers historical benefit payment 

patterns, wage inflation factors, medical inflation factors, and 

other variables. The projected annual benefit payments are 

discounted to present value. The methodology for billable 

projected liabilities includes, among other things: (1) an 

algorithmic model that relies on individual case characteristics 

and benefit payments (the FECA Case Reserve Model); and 

(2) incurred but not reported claims were estimated using 

historical incurred benefit liabilities and payments. (Refer 

to Note 7, Liabilities Not Covered by Budgetary Resources, 

and Note 8, Federal Employee Benefits Payable and Related 

Other Liabilities.)

S. Pension Benefits

Based on the effective Federal government start date, DLA 

WCF’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 applies to calculate and recognize imputed costs, as 

reported in its Statements of Net Cost, and a corresponding 

imputed financing sources in the Statements of Changes in 

Net Position. DLA WCF 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.

T. Net Position

Net position is the residual difference between assets and 

liabilities, and consists of Unexpended Appropriations and 

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. DLA WCF’s unexpended 

appropriations primarily consist of supplemental appropriations 

and overseas contingency operations.

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, Net, Revenue, and Unfilled Customer 

orders and Accounts Payable, Expenses, and Undelivered 

Orders, and Note 13, Undelivered Orders.)

U. Revenue and Other Financing Sources

Exchange and Non-exchange Revenue: The 

DLA WCF classifies revenue as either exchange revenue or 

non-exchange revenue. Exchange revenue arises when DLA 

WCF provides goods or services to intragovernmental or Other 

than Intragovernmental entities in exchange for inflows of 

resources. Exchange revenue is presented in the Statements 

of Net Cost and serves to offset the costs of these goods and 

services. 

The DLA WCF activities recognize exchange revenue from 

the sale of petroleum products from DLA Energy, weapon 

system repair parts from DLA Aviation and DLA Land and 

Maritime, food and medical supplies from DLA Troop Support, 

DLA Disposition sells eligible DoD excess personal property 

or its residual materials from disposal operations, or from the 

reimbursements for goods and services provided to other DoD 

activities, other Federal Agencies and the public. The sale of 

materials include DLA WCF’s Direct sales and Customer Direct 

sales. DLA WCF’s Direct sales are from DLA WCF stock to the 

customer, whereas Customer Direct sales are from the vendor 

directly to the customer.

Non-exchange revenue is derived from the government’s 

sovereign right to demand payment, such as specifically 

identifiable, legally enforceable claims. DLA WCF nonexchange revenue includes interest penalties and 

administrative fees. Non-exchange revenue is considered 

to reduce the cost of DLA WCF’s operations and is reported 

in the Statements of Changes in Net Position as a financing 

source.

DLA Energy Standard Fuel Price: The DLA WCF uses a 

Standard Fuel Price (SFP) per barrel of fuel sold to customers 

to include DoD, U.S. Coast Guard, and Foreign Governments. 
Section 2 | Financial Section (Unaudited)

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

DLA WCF is responsible for recommending a SFP to 

OUSD(C). In the process of determining the recommended 

SFP, DLA WCF considers the amount necessary to recover 

the cost of the products and services. Upon receiving DLA 

WCF’s proposed SFP, OUSD(C) performs an evaluation of the 

proposed SFP and determines the final SFP that DLA WCF is 

required to use for DLA WCF Energy sales. 

OUSD(C) sets the final SFP based on OMB derived product 

assumptions and approved non-product costs for DLA Energy. 

In FY 2020, OUSD directed DLA WCF to decrease the FY 

2020 SFP from $124.32 per barrel to $99.12 per barrel. On 

September 17, 2020, OUSD(C) set the SFP effective October 

1, 2020, at $99.54 per barrel. DLA WCF was able to recover the 

full costs of the goods and services provided by DLA Energy 

in FY 2020. Without the consideration of intragovernmental 

eliminations, during the fiscal year ended September 30, 

2021, DLA WCF did not recover the full costs of the goods and 

services provided based on the set SFP.

DLA Energy Cost Plus: Federal civilian Agencies and 

other authorized customers are charged cost plus as follows, 

(1) for Customer Direct sales, customers are charged the 

acquisition cost of fuel billed to DLA Energy by the vendor 

on the day of delivery plus the cost plus rate and (2) for DLA 

Direct Sales, customers are charged the average acquisition 

cost of fuel plus the cost plus rate. The cost plus rate for FY 

2021 is $0.06 per gallon. The cost plus rate for FY 2020 was 

$0.055 cents per gallon.

Supply Chain Cost Recovery Rate: The DLA WCF 

establishes the selling price in two separate methods 

depending on the type of items. For Non-National Stock 

Numbers (NSNs), which include part numbers, local stock 

numbers or service materials as described in a vendor’s 

product catalog or contract solicitation that a customer can 

order, the selling price is based on latest acquisition cost plus 

a Cost Recovery Rate (CRR). The latest acquisition cost is 

the cost of acquiring the goods and services. The CRR is a 

percentage added to the acquisition cost that allows DLA WCF 

to recover the full cost of the goods and services provided, 

including depreciation of capital assets, in accordance with 

U.S. Code Title 10, § 2208.

For NSNs, a standard price is established annually. The selling 

price is based on the average acquisition cost over the course 

of the previous twelve months, other material cost (testing, 

transportation, etc.) and the CRR. 

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 WCF’s other 

financing sources come from unexpended appropriation 

transfers-in and non-expenditure transfers-in initiated by 

OUSD, and are recognized as financing sources when used. 

Other financing sources also include: (1) transfers-in/out 

without reimbursement; and (2) imputed financing with respect 

to costs subsidized by another Federal entity.

Transfers-In/Out Without Reimbursement: Transfersin/out without reimbursement include intragovernmental 

transfers of capitalized assets. The amount of the transfer is 

the book value of the transferring entity and if the book value 

is not known, the amount is the estimated fair value at the date 

of transfer.

The DLA WCF receives property transfers from DLA GF upon 

construction project completion. DLA GF identified assets 

transferred into DLA WCF in FY 2021 that were placed in service 

in FY 2020 and prior fiscal years. The correction resulted in an 

increase to Transfers-In by $41.4 million (refer to Note 17, 

Restatements of the FY 2020 Balance Sheet, Statement of Net 

Cost, and Statement of Changes in Net Position).

Imputed Financing and Imputed Cost: In certain cases, 

DLA WCF 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 WCF 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 WCF 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 

Inter-Entity Costs Provisions, unreimbursed costs of goods and 

services other than those identified above are not included in 

DLA WCF financial statements. 

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

Accounts Receivable, Net; Revenue, and Unfilled Customer 

Orders and Inventory and Related Property, Net; Note 4, 

Accounts Receivable, Net; Note 5, Inventory and Related 

Property, Net; Note 12, Exchange Revenue; and Note 17, 

Restatements of the FY 2020 Balance Sheet, Statement of 

Net Cost, and Statement of Changes in Net Position.)
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 116

V. Expenses

Expenses are recognized when there are outflows, usage 

of assets, or incurrences of liabilities (or a combination) 

from carrying out functions related to DLA WCF’s activity 

groups, 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 and Note 17, 

Restatements of the FY 2020 Balance Sheet, Statement of 

Net Cost, and Statement of Changes in Net Position).

W. Transactions with Foreign Governments 

and International Organizations

The DLA WCF sells defense articles and services to foreign 

governments and international organizations. Foreign Military 

Sales (FMS) are governed under the provisions of the Arms 

Export Control Act of 1976.

DLA Energy enters into fuel supply and services transactions 

with foreign governments in accordance with DoD Directives 

5530.3 and 2010.9, under international agreement statutory 

authorities. Direct Bills and FEA are governed under the 

provisions of Acquisition Cross Servicing Agreements or Title 

10 Section 2922 (e). The FEAs are international acquisition 

and cross-servicing agreements established between DLA and 

the Military Departments of other nations. DLA Energy utilizes 

FEAs to account for fuel provided by foreign militaries to the 

U.S. Military as well as fuel provided by DLA to other nations. 

For FEA transactions, settlement occurs on a periodic basis 

as prescribed in the FEA. Upon settlement with the foreign 

country, the purchases of fuel from foreign governments net 

against sales to the foreign government. Settlement can be 

made either in fuel or cash. Settlement in fuel is based on 

the agreed upon price. For cash settlements, the agreements 

typically call for reciprocal pricing (i.e., prices cannot be more 

than the participants charge their military service components). 

Payment for fuel after offsetting quantities is based on a 

quantity and a price and is an arms-length transaction.

DLA Aviation, DLA Distribution, DLA Energy, DLA Troop 

Support and DLA Land & Maritime support FMS by working 

directly with Military Departments to fulfill orders for FMS 

customers. In these cases, the respective Military Department 

acts as the implementing Agency, and not DLA.

DLA Disposition Services conducts the sale of excess defense 

articles to authorized foreign governments. Property is issued 

free to grant aid eligible countries and for the adjusted present 

value for non-grant-aid-eligible countries. All FMS customers 

are charged for packing, crating and handling. DLA Disposition 

Services is reimbursed for administration costs only. This 

program is overseen and reported by the Defense Security 

Cooperation Agency (DSCA). 

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

Accounts Receivable, Net, Revenue, and Unfilled Customer 

Orders; and Accounts Payable, Expenses, and Undelivered 

Orders.)

X. Reclassifications 

The FY 2020 Balance Sheet was reclassified to conform to 

the FY 2021 financial statement presentation requirements in 

accordance with OMB Circular No. A-136, as amended, and 

included changes in the presentation to: Note 4, Accounts 

Receivable, Net; Note 7, Liabilities Not Covered by Budgetary 

Resources; Note 8, Federal Employee Benefits Payable and 

Related Other Liabilities; Note 9, Other Liabilities; and Note 15, 

Reconciliation of Net Cost to Net Outlays. The reclassifications 

had no effect on total assets, total liabilities, or net position.
Section 2 | Financial Section (Unaudited)

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

Note 2: Non-Entity Assets (Unaudited)

Non-Entity Assets as of September 30, 2021 and 2020, respectively, consist of the following (dollars in thousands):

FY 2021 FY 2020 

As Restated

Other than Intragovernmental Assets

Cash and Other Monetary Assets $ - $ 7,074 

Accounts Receivable, Net 2,897 1,007 

Total Other than Intragovernmental Assets 2,897 8,081 

Total Non-Entity Assets 2,897 8,081 

Total Entity Assets 28,902,941 29,699,156 

Total Assets $ 28,905,838 $ 29,707,237 

Cash and Other Monetary Assets consist of 

bid deposit collections received from public sales and held in 

escrow by DLA WCF until settlement occurs. 

Accounts Receivable, Net consists of administrative 

fees, interest, and penalties and fine receivables.

Food Pantry

Arizona National Guard service members prepare and distribute groceries for area residents at a food pantry 

in Snowflake, Ariz., June 22, 2021. The Arizona National Guard activated more than 800 Arizona guardsmen to 

support food banks during the COVID-19 emergency response. Photo By: Air Force Tech. Sgt. Dillon Davis, Air 

National Guard
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 118

Note 3: Fund Balance with Treasury (Unaudited)

Fund Balance with Treasury as of September 30, 2021 and 2020, respectively, consists of the following (dollars in thousands):

FY 2021 FY 2020

Status of Fund Balance with Treasury

Unobligated Balance:

Available $ 301,940 $ 422,362 

Obligated Balances Not Yet Disbursed 2,404,282 3,493,056 

Total Fund Balance with Treasury $ 2,706,222 $ 3,915,418 

Status of Fund Balance with Treasury presents 

the budgetary and proprietary resources that constitute 

DLA WCF FBwT. It primarily consists of unobligated and 

obligated balances. The balances reflect the budgetary 

authority remaining for disbursement against current or future 

obligations. Unobligated and obligated balances differ from 

the related amounts reported in the Combined Statements 

of Budgetary Resources because budgetary balances are 

supported by amounts other than FBwT (e.g., contract authority 

and budgetary receivables).

Unobligated Balance - Available represents 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 budget authority and funds not available 

for obligation from offsetting collections. As of September 

30, 2021 and 2020, DLA WCF does not have unobligated 

unavailable balances.

 

Obligated Balance Not Yet Disbursed represents 

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 budget 

authority and non-budgetary FBwT such as non-fiduciary 

deposit funds. As of September 30, 2021 and 2020, DLA WCF 

does not have non-budgetary FBwT.

Other Information includes the following tables 

summarizing the undistributed collections and disbursements 

between U.S. Treasury and DLA WCF as of September 30, 

2021 and 2020, respectively:

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

FY 2020 Adjustments of Undistributed Collections and Disbursements (dollars in thousands)

Transaction Type

Treasury 

Balance based on CMR DLA WCF Trial Balance

Balances Not Yet Recorded in DLA 

Accounting System - 

Undistributed 

Collections $ 42,583,412 $ 42,621,112 $ (37,700)

Disbursements $ 40,240,105 $ 40,249,417 $ (9,312)

FY 2021 Adjustments of Undistributed Collections and Disbursements (dollars in thousands)

Transaction Type

Treasury 

Balance based on CMR DLA WCF Trial Balance

Balances Not Yet Recorded in DLA 

Accounting System - 

Undistributed 

Collections $ 40,593,842 $ 40,658,374 $ (64,532)

Disbursements $ 41,852,859 $ 41,940,193 $ (87,334)
Section 2 | Financial Section (Unaudited)

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

FY 2021

Accounts 

Receivable

(Less: Allowance 

for Doubtful 

Accounts)

Accounts 

Receivable, Net

Intragovernmental Accounts Receivable, Net

Energy $ 144,853 $ - $ 144,853 

Supply Chain Management 2,083,015 - 2,083,015 

Document Services 37,448 - 37,448 

Total Intragovernmental Accounts Receivable, Net $ 2,265,316 $ - $ 2,265,316

Intragovernmental Strategic Petroleum Reserve

Strategic Petroleum Reserve $ 123,306 $ - $ 123,306 

Total Intragovernmental Strategic Petroleum Reserve $ 123,306 $ - $ 123,306 

Other than Intragovernmental Accounts 

Receivable, Net

Energy $ 241,778 $ (30,601) $ 211,177 

Supply Chain Management 356,558 (12,614) 343,944 

Document Services 1,086 - 1,086 

Total Other than Intragovernmental Accounts Receivable, Net $ 599,422 $ (43,215) $ 556,207 

Note 4: Accounts Receivable, Net (Unaudited)

Accounts Receivable, Net as September 30, 2021 and 2020, respectively, consists of the following (dollars in thousands):

(continued on next page)

FY 2020 As Restated

Accounts 

Receivable

(Less: Allowance 

for Doubtful 

Accounts)

Accounts 

Receivable, Net

Intragovernmental Accounts Receivable, Net

Energy $ 171,621 $ - $ 171,621 

Supply Chain Management 2,068,062 - 2,068,062 

Document Services 23,147 - 23,147 

Total Intragovernmental Accounts Receivable, Net $ 2,262,830 $ - $ 2,262,830 

Intragovernmental Strategic Petroleum Reserve

Strategic Petroleum Reserve $ 123,306 $ - $ 123,306 

Total Intragovernmental Strategic Petroleum Reserve $ 123,306 $ - $ 123,306 

Other than Intragovernmental Accounts 

Receivable, Net

Energy $ 399,346 $ (16,734) $ 382,612 

Supply Chain Management 671,800 (337,907) 333,893 

Document Services 593 - 593 

Total Other than Intragovernmental Accounts Receivable, Net $ 1,071,739 $ (354,641) $ 717,098 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 120

Of the total other than intragovernmental accounts receivable, 

net, criminal restitutions, net consist of $2.8 million and $6.0 

million, as of September 30, 2021 and 2020, respectively. 

The gross amount of criminal restitutions consists of $5.0 

million and $336.8 million with a related allowance of doubtful 

accounts of $2.2 million and $330.8 million as of September 

30, 2021 and 2020, respectively.

Interest Receivable totaled $1.3 million and $0.8 million as of 

September 30, 2021 and 2020, respectively. 

The Strategic Petroleum Reserve is for National defense 

purposes and includes crude oil held by the DoE on behalf 

of DoD. The strategic petroleum reserve is valued at historical 

acquisition cost. 

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

Accounts Receivable, Net, Revenue, and Unfilled Customer 

Orders.)

Note 5: Inventory and Related Property, Net (Unaudited)

Inventory and Related Property, Net as of September 30, 2021 and 2020, respectively, consist of the following (dollars in 

thousands):

Valuation Method FY 2021 FY 2020

Inventory Categories:

Held for Sale MAC $ 21,982,848 $ 21,493,330 

Reserved for Future Sale MAC 249,657 254,179 

Held for Repair MAC 118,640 92,215 

Less: Allowance for Repairs (2,373) (1,845) 

Total Inventory and Related Property, Net $ 22,348,772 $ 21,837,879 

As of September 30, 2021 and 2020, respectively, DLA SCM 

is holding $96.8 million and $111.8 million, respectively, of 

inventory not available for sale due to litigation. 

All inventory identified as EOU has an expected Net Realizable 

Value of zero as of September 30, 2021 and 2020.

In accordance with the CARES Act, HHS provided 20.0 million 

cloth facemasks to DLA at no cost, between April and May 

2020, for distribution to the DoD workforce in order to meet 

operational requirements during the COVID-19 public health 

emergency.

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

Inter-Entity Cost and Inventory and Related Property, Net.)

MAC = Moving Average Cost
Section 2 | Financial Section (Unaudited)

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

Note 6: General Property, Plant and Equipment, Net (Unaudited)

General Property, Plant and Equipment, Net as of September 30, 2021 and 2020, respectively, consist of the following (dollars in 

thousands):

The DLA WCF Building, Structures, and Facilities primarily 

consist of fuel storage tanks, tanker hydration systems, supply 

chain warehouses, and office buildings. These are transitory 

assets from DLA’s Construction-in-Progress (CIP) to real 

property to Military Department (MILDEPs). Software primarily 

consists of e-Procurement software, Risk Based Inspection 

software, and DAI software. General Equipment primarily 

consists of fuel handling systems, conveyor systems, scrap 

shredders, and electronic security systems.

FY 2021

Acquisition Value

Accumulated 

Depreciation/

Amortization

Net Book Value

Major Asset Classes:

Buildings, Structures, and Facilities $ 143,120 $ (11,610) $ 131,510 

Internal-Use Software 705,967 (655,674) 50,293 

General Equipment 431,323 (361,739) 69,584 

Internal-Use Software in Development 53,672 - 53,672 

Construction-in-Progress 505,311 - 505,311 

Total General PP&E, Net $ 1,839,393 $ (1,029,023) $ 810,370 

FY 2020 As Restated

Acquisition Value

Accumulated 

Depreciation/

Amortization

Net Book Value

Major Asset Classes:

Buildings, Structures, and Facilities $ 243,608 $ (106,865) $ 136,743 

Internal-Use Software 687,171 (615,950) 71,221 

General Equipment 466,878 (375,509) 91,369 

Internal-Use Software in Development 45,369 - 45,369 

Construction-in-Progress 409,862 - 409,862 

Total General PP&E, Net $ 1,852,888 $ (1,098,324) $ 754,564 

(continued on next page)
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 122

FY 2021 FY 2020 

As Restated

General PP&E, Net - Beginning Balances $ 754,564 $ 2,646,557

Capitalized Acquisitions 139,888 104,925

Dispositions (15,962) (15,225)

Depreciation (76,117) (216,192)

Transfers in/out without reimbursements 7,997 (1,765,501)

General PP&E, Net - Ending Balances $ 810,370 $ 754,564

Effective FY 2020, DoD’s policy regarding real property is that 

it must be reported in the financial statements of the military 

service that is the Installation Host having jurisdiction of the 

real property asset. 

As of September 30, 2021, DLA WCF disposed of 269 assets 

and transferred 19 assets to the military services, in the 

amount of $12.5 million and $16.7 million, respectively. These 

amounts consisted of an acquisition value and accumulated 

depreciation, for the dispositions and transfers, of $110.8 

million and $98.3 million, and $17.9 million and $1.2 million, 

respectively. As of September 30, 2021, DLA WCF had 9 Real 

Property assets remaining with a net book value of $131.5 

million. 5 of the assets were for the Navy, 3 of the assets 

were for the US Marine Corps (USMC) and the remaining 1 

belonged to the Air Force. The remaining total acquisition 

value and accumulated depreciation was $143.1 million and 

$11.6 million, respectively.

As of September 30, 2020, DLA WCF transferred 8,092 real 

property assets in the amount of $2.1 billion to the military 

services. This amount consisted of an acquisition value and 

accumulated depreciation of $6.4 billion and $4.3 billion, 

respectively. 

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

General Property, Plant and Equipment, Net, and Leases, 

and Note 17, Restatements of the FY 2020 Balance Sheet, 

Statement of Net Cost, and Statement of Changes in Net 

Position.)

The table below discloses activity for General Property, Plant and Equipment, Net as of September 30, 2021 and 2020, respectively 

(dollars in thousands):

One Aircraft,

Two Missions

A C-17 Globemaster III awaits 

take-off Jan. 28, 2021, at Travis 

Air Force Base, California. The 

C-17 was part of a mission to 

transport 35,950 pounds of 

firefighting equipment and 

personal protective equipment 

to Guatemala and Ramstein Air 

Base, Germany, respectively. 

Photo Credit: U.S. Air Force, 

Senior Airman Christian 

Conrad
Section 2 | Financial Section (Unaudited)

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

Note 7: Liabilities Not Covered by Budgetary Resources (Unaudited)

Liabilities Not Covered by Budgetary Resources as of September 30, 2021 and 2020, respectively, consist of the following (dollars 

in thousands):

Accounts Payable (Intragovernmental)

consist of judgment fund liabilities.

Other Liabilities-Benefits Program 

Contributions Payable and Other 

(Intragovernmental) consist of unfunded accrued 

FECA liability based on DOL records.

Environmental and Disposal Liabilities 

(Other than Intragovernmental) consist of probable and reasonably estimable future outflow or expenditure of 

resources that exist as of the financial reporting date for environmental cleanup costs resulting from past transactions or 

events. As of September 30, 2021 and 2020, the total liabilities 

covered by budgetary resources for the EL consist of $201.2 

million and $143.5 million, respectively.

Federal Employee Benefits Payable (Other 

than Intragovernmental) are comprised of FECA 

actuarial liability based on DOL records. 

FY 2021 FY 2020

Intragovernmental Liabilities

Accounts Payable $ 128 $ 224 

Other Liabilities - Benefits Program Contributions Payable and Other 14,230 16,105 

Total Intragovernmental Liabilities 14,358 16,329 

Other than Intragovernmental Liabilities

Environmental and Disposal Liabilities 1,071,128 1,043,609 

Federal Employee Benefits Payable 156,838 159,850 

Other Liabilities 496 466 

Total Other than Intragovernmental Liabilities 1,228,462 1,203,925 

Total Liabilities Not Covered by Budgetary Resources 1,242,820 1,220,254 

Total Liabilities Covered by Budgetary Resources 3,546,749 4,993,770 

Total Liabilities Not Requiring Budgetary Resources 2,897 8,081 

Total Liabilities $ 4,792,466 $ 6,222,105 

Other Liabilities (Other than 

Intragovernmental) are comprised of contingent legal 

liabilities to recognize the information obtained from DLA 

General Counsel for the cases determined to be probable 

(liability).

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

Accounts Payable, Expenses, and Undelivered Orders; and 

Accounts Receivable, Net, Revenue, and Unfilled Customer 

Orders; and Commitments and Contingencies; Note 8, Federal 

Employee Benefits Payable and Related Other Liabilities; 

Note 10, Environmental and Disposal Liabilities, and Note11, 

Commitment and Contingencies.)
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 124

Note 8: Federal Employee Benefits Payable and Related Other Liabilities 

(Unaudited)

Federal Employee Benefits Payable and Related Other Liabilities as of September 30, 2021 and 2020, respectively, consist of the 

following (dollars in thousands):

FY 2021

Liabilities

(Less: Assets 

Available to Pay 

Benefits)

Unfunded 

Liabilities

Intragovernmental Other Liabilities 

Employer Contribution and Payroll Taxes Payable $ 35,117 $ (35,117) $ - 

Unfunded FECA Liability 15,215 (985) 14,230 

Other Post Employment Benefits Due and Payable 4,161 (4,161) - 

Total Intragovernmental Other Liabilities $ 54,493 $ (40,263) $ 14,230 

Other than Intragovernmental Federal Employee 

Benefits Payable

Actuarial FECA Liability $ 156,838 - $ 156,838 

Total Other than Intragovernmental Federal Employee 

Benefits Payable $ 156,838 $ - $ 156,838 

FY 2020

Liabilities

(Less: Assets 

Available to Pay 

Benefits)

Unfunded 

Liabilities

Intragovernmental Other Liabilities

Employer Contribution and Payroll Taxes Payable $ 31,138 $ (31,138) $ - 

Unfunded FECA Liability 18,412 (2,307) 16,105 

Other Post Employment Benefits Due and Payable 3,166 (3,166) - 

Total Intragovernmental Other Liabilities $ 52,716 $ (36,611) $ 16,105 

Other than Intragovernmental Federal Employee 

Benefits Payable

Actuarial FECA Liability $ 159,850 $ - $ 159,850 

Total Other than Intragovernmental Federal Employee 

Benefits Payable $ 159,850 $ - $ 159,850 

(continued on next page)
Section 2 | Financial Section (Unaudited)

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

Employer Contributions and Payroll Taxes 

Payable (Intragovernmental) are the employer 

portion of payroll taxes and benefit contributions for health 

benefits, retirement, life insurance and voluntary separation 

incentive payments.

Unfunded FECA Liability (Intragovernmental)

include the accrued FECA liability paid by DOL but not yet 

reimbursed by DLA WCF.

Other Post Employment Benefits Due and 

Payable (Intragovernmental) consist of amounts 

due to former or inactive employees (not retired) and/or 

beneficiaries.

Actuarial FECA Liability (Other than 

Intragovernmental) are workers’ compensation benefits 

developed by the DOL Office of Workers’ Compensation 

Programs (OWCP) and provided to DLA WCF 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 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.

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

Accounts Payable, Expenses, and Undelivered Orders.)

Mountain Flight

Navy Petty Officers 2nd Class Aaron White and Richard Derrick participate in a mountain flying training event 

in Fallon, Nev., April 9, 2021. Photo By: Navy Chief Petty Officer Shannon Renfroe
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 126

Note 9: Other Liabilities (Unaudited)

Other Liabilities as of September 30, 2021 and 2020, respectively, consist of the following (dollars in thousands):

FY 2021

Current Non-Current Total

Intragovernmental Other Liabilities

Custodial Liabilities $ 2,897 $ - $ 2,897 

Total Intragovernmental Other Liabilities $ 2,897 $ - $ 2,897 

Other than Intragovernmental Other Liabilities

Accrued Funded Payroll and Benefits $ 298,311 $ - $ 298,311 

Liability for Undeposited Collections - - - 

Contract Holdbacks - (3) (3)

Contingent Liabilities 496 - 496 

Total Other than Intragovernmental Other Liabilities $ 298,807 $ (3) $ 298,804 

FY 2020

Current Non-Current Total

Intragovernmental Other Liabilities

Custodial Liabilities $ 1,007 $ - $ 1,007 

Total Intragovernmental Other Liabilities $ 1,007 $ - $ 1,007 

Other than Intragovernmental Other Liabilities

Accrued Funded Payroll and Benefits $ 287,474 $ - $ 287,474 

Liability for Bid Deposits 7,074 - 7,074 

Contract Holdbacks - 14 14 

Contingent Liabilities 466 - 466 

Total Other than Intragovernmental Other Liabilities $ 295,014 $ 14 $ 295,028 

Custodial Liabilities (Intragovernmental) are 

liabilities for collections reported as non-exchange revenues 

where DLA is acting on behalf of another Federal entity. (Refer 

to Note 2, Non-Entity Assets.)

Accrued Funded Payroll and Benefits 

(Other than Intragovernmental) include salaries, 

wages, leave, and other compensation earned by employees 

but not yet disbursed.

Liability for Bid Deposits (Other than Intragovernmental) are amounts received for the collection 

of funds offered on bid auction or negotiated sales basis. A 

liability is recognized until settlement occurs. (Refer to Note 2, 

Non-Entity Assets.)

Contract Holdbacks (Other than Intragovernmental) are amounts earned by contractors or suppliers during the production period but not yet paid to the contractor/supplier to ensure future performance.

Contingent Liabilities (Other than Intragovernmental) are a loss determined to be probable and the 

amount is estimable based on the outcome of an uncertain future event. The current portion is related to legal contingencies. (refer to Note 11, Commitments and Contingencies).

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

Accounts Payable, Expenses, and Undelivered Orders; and 

Commitments and Contingencies, and Note 11, Commitments 

and Contingencies.)
Section 2 | Financial Section (Unaudited)

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

Note 10: Environmental and Disposal Liabilities (Unaudited)

Environmental and Disposal Liabilities as of September 30, 2021 and 2020, respectively, consist of the following (dollars in 

thousands):

FY 2021 FY 2020

Environmental and Disposal Liabilities

Other Accrued Environmental Liabilities - Non-BRAC:

Environmental Corrective Action $ 420,990 $ 430,909 

Environmental Closure Requirements 850,255 688,412 

Asbestos 1,132 67,820 

Total Environmental and Disposal Liabilities $ 1,272,377 $ 1,187,141 

 

The DLA WCF EL are comprised of two primary elements: 

(1) existing obligations supporting the Defense WCF 

environmental restoration programs; and (2) the CTC which 

includes anticipated future costs necessary to complete 

the environmental restoration requirements at DLA 

Energy and Non-Energy environmental restoration sites.

In FY 2021 and FY 2020, DLA WCF utilized the Remedial 

Action Cost Engineering and Requirements (RACER) 

software to generate the CTC estimates of anticipated 

future costs. DLA WCF includes EL for environmental 

corrective action sites under both DLA Energy and 

Non-Energy management and asset-related EL.

FY 2021 cost estimates for sites under DLA Energy management 

were generated for a total of 3,845 sites, which includes 77 sites 

with environmental corrective action costs, 3,750 assets with 

environmental closure requirements costs, and 18 assets with 

asbestos costs. Cost estimates for sites under Non-Energy 

management were generated for a total of 104 sites, which 

includes two sites with environmental corrective action costs, 

89 assets with environmental closure requirements costs, and 

13 assets with asbestos costs. In FY 2021 and FY 2020, there 

were PP&E transfers impacting the E&DL balance for WCF.

FY 2020 cost estimates for sites under DLA Energy 

management were generated for a total of 5,128 sites, which 

includes 71 sites with environmental corrective action costs, 

3,058 assets with environmental closure requirement costs, 

and 1,999 assets with asbestos costs. Cost estimates for 

sites under Non-Energy management were generated for a 

total of 1,207 sites, which includes one site with environmental 

corrective action costs, 110 assets with environmental closure 

requirement costs, and 1,096 assets with asbestos costs.

Types of Environmental Liabilities and 

Disposal Liabilities: The DLA WCF is responsible 

for the recognition, measurement, reporting, and disclosure 

of Non-BRAC EL and Environmental Disposal for General 

Equipment. Non-BRAC EL are specifically related to past and 

current installation restoration activities and operations, and 

closure and disposal of PP&E. All clean- up and disposal actions are conducted in coordination with regulatory Agencies, 

other responsible parties, and current property owners.

The DLA WCF reportable EL is under Other Accrued EL – 

Non-BRAC and includes the following line items:

Environmental Corrective Action: EL associated with 

the cleanup sites not eligible for DERP funding, typically 

conducted under Resource Conservation and Recovery Act 

(RCRA) or other Federal or state statutes and regulations;

Environmental Closure Requirements: EL associated 

with the future closure/decommissioning of facilities on an 

installation that have environmental closure requirements to 

include fuel storage tanks and pipelines; and

Asbestos: EL associated with the removal, containment, and/

or disposal of friable (immediate health threat) and nonfriable 

(not an immediate health threat): (1) asbestos-containing 

materials from property; or (2) material and/or property that 

consists of asbestos-containing material at permanent or 

temporary closure or shutdown of associated general PP&E 

on Non-BRAC installations.

The DLA WCF assessed its General Equipment inventory and 

does not currently have reportable EL for these or any other 

EL categories as listed on the DoD FMR Volume 6B, Chapter 

10 – Note to the Financial Statements, Paragraph 1017, Figure 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 128

10-31. Environmental and Disposal Liabilities (March 2021). 

Applicable Laws and Regulations for 

Cleanup Requirements: The DLA WCF 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 WCF 

is required to comply with the following laws and regulations 

for Corrective Actions, 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 Installation boundaries onto privately owned property or onto 

sites where DLA WCF is named as a potentially responsible 

party by a regulatory Agency. DLA WCF reports corrective 

action-related EL in accordance with SFFAS 5: Accounting for 

Liabilities of the Federal Government and Federal Financial 

Accounting and Auditing Technical Release 2: Determining 

Probable and Reasonably Estimable for Environmental Liabilities in the Federal Government.

The DLA WCF 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 storage tanks 

and pipelines and General Equipment in accordance with 

applicable Federal, State, and local laws and regulations. 

DLA WCF reports EL associated with closures of PP&E in 

accordance with SFFAS 5: Accounting for 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.

The DLA WCF is required to abate or properly dispose of 

asbestos containing material in accordance with the Toxic 

Substances Control Act. DLA WCF reports EL associated 

with asbestos cleanup in accordance with Federal Financial 

Accounting and Auditing Technical Release 2: Determining 

Probable and Reasonably Estimable for Environmental 

Liabilities in the Federal Government, and Technical Release 

10: Implementation Guidance on Asbestos Cleanup Costs 

Associated with Facilities and Installed Equipment.

Additionally, DLA WCF reports EL associated with asbestos 

cleanup in accordance with DoD FMR Volume 4, Chapter 

24 – Real Property (Section 240204.A. – Recognition 

Responsibility), which requires that real property assets be 

reported on the financial statements of the installation where 

they are located. As a result, asbestos related cleanup that 

was previously reported by DLA due to operational use of 

the assets are now reported by the asset owner, e.g. the 

Host Installation. Because asbestos is inherent to building 

construction and not a result of DLA’s use, the Asbestos EL 

for transferred real property assets has also transferred to the 

Host Installation.

Methods for Assigning Estimated Total 

Cleanup Costs to Current Operating 

Periods: To estimate future environmental costs, DLA WCF 

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 WCF EL are adjusted 

for inflation and reported in current year dollars. The RACER 

Steering Committee ensures that the RACER software is Validated, Verified, and Accredited (VV&A) in accordance with 

DoD Instruction 5000.61. The DoD is working with the 

RACER Steering Committee and stakeholders to identify 

improvements to RACER functionality, auditability, and documentation. Detailed information on the estimating methodologies is 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 

EL Site Identification (ID) process tracks environmental 

events such as spills and releases in an Environmental 

Event Repository and evaluates each event annually for 

inclusion in the CTC estimates if applicable. DLA WCF EL 

estimates are created annually for all projected requirements 

to achieve site closure and are finalized and approved by 

July, in accordance with the DoD 7000.14-R FMR Volume 

4, Chapter 13 – Environmental and Disposal Liabilities (April 

2018). The estimates are then reevaluated through a Roll 

Forward review to identify any material changes to previously 

approved estimates to ensure accuracy as of the financial 

reporting date of September 30. Processes are conducted 

in accordance with the DLA EL Management SOPs, the DoD 

7000.14-R FMR Volume 4, Chapter 13 – Environmental and 

Disposal Liabilities (April 2018); and the OUSD memorandum 
Section 2 | Financial Section (Unaudited)

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

for Strategy for Environmental & Disposal Liabilities Audit 

Readiness (September 30, 2015).

Revised CTC estimates and prior year obligations are reported 

in the balance as of September 30. As of the reporting date, 

material changes to approved CTC estimates for six sites were 

identified through the Roll Forward review. In accordance 

with the Roll Forward process, costs were recalculated to 

capture the changes, and revised costs are reflected in the 

Environmental Corrective Action EL balance stated above. In 

addition, DLA WCF is not aware of any changes to estimates 

that would result from inflation, deflation, technology, plans, 

and/or pending changes to applicable laws and regulations. 

The cost estimate changes from prior periods are primarily 

driven by remediation activities and operations, as evidenced 

by UDOs; there are minor adjustments for inflation or other 

similar administrative costs throughout the fiscal year. EL 

estimates will be reevaluated each year and may change in 

the future due to changes in laws and regulations, changes 

in agreements with regulatory Agencies, and advances in 

technology.

Uncertainty Regarding the Accounting 

Estimates Used to Calculate the Reported 

Environmental and Disposal Liabilities: The 

stated total DLA WCF EL includes prior year obligations 

and the estimate of future costs necessary to complete 

requirements. DLA WCF has instituted extensive controls to 

ensure that these estimates are accurate and reproducible. 

The cost estimates produced through the Environmental 

Liabilities Management 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 costs 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. WCF EL can be further affected if investigation 

of the environmental sites reveals contamination levels that 

differ from the estimated parameters.

The calculation of DLA WCF EL relies on site/asset inventories. 

Asset inventories obtained from the DLA system of record 

provide the basis for asset-related EL estimates, which 

includes Other Accrued Environmental Liabilities – NonBRAC Environmental Closure Requirements, and Asbestos. 

The EL for these line items are estimated annually to account 

for changes to inventories.

The DLA WCF utilizes a formalized Site ID process to identify, 

track, and evaluate environmental events where the potential 

for an out-year EL exists but the EL is not probable and 

measurable. These environmental events will be re-evaluated 

in the following fiscal year to determine if any changes have 

taken place and sufficient information/data is available to 

create an estimate of future costs that would be included in 

the EL balance.

Unrecognized Costs: The DLA WCF systematically 

recognizes asset-related DLA WCF EL over the useful 

life of general PP&E assets in accordance with DoD FMR 

Volume 4, Chapter 13, Paragraph 130203 (April 2018). The 

total recognized Asbestos EL balance is stated above in the 

footnote and the associated unrecognized Asbestos EL is 

$32.2 thousand and $17.6 million as of September 30, 2021 

and 2020, respectively. The total recognized Environmental 

Closure Requirements DLA WCF EL is stated above in the 

footnote and the associated unrecognized Environmental 

Closure EL is $61.9 million and $21.1 million as of September 

30, 2021 and 2020, respectively. DLA has no reportable EL 

for General Equipment assets. 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.B, 

Table 24-1: DoD Useful Lives for Depreciable Real Property 

Assets (October 2019).

Cleanup Costs Associated with Overseas 

Environmental Liabilities: Total overseas cleanup 

EL includes 971 environmental closure requirements assets 

(888 tanks and 83 pipelines) at 87 installations across 

17 countries/territories; eight asbestos cleanup-related 

requirements assets at five installations across four countries/

territories; and five environmental corrective action sites at 

five installations across three countries/territories.

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

Environmental and Disposal Liabilities and Commitments and 

Contingencies; Note 7, Liabilities Not Covered by Budgetary 

Resources; and Note 11, Commitments and Contingencies.)
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 130

Note 11: Commitments and Contingencies (Unaudited)

Accrued and reasonably possible legal, contract financing payment, and environmental contingent liabilities as of September 30, 

2021 and 2020, respectively, consist of the following (dollars in thousands):

FY 2021

Accrued 

Liabilities

Estimated Range of Loss

 Lower End Upper End

Legal Contingencies

Probable $ 496 $ 496 $ 5,680

Reasonably Possible $ 2,189 $ 210,535

Environmental Contingencies

Probable $ 1,272,377 $ - $ -

Reasonably Possible $ - $ - 

Contract Financing Payment Contingencies

Probable $ - $ - $ -

Reasonably Possible $ - $ -

FY 2020

Accrued 

Liabilities

Estimated Range of Loss

 Lower End Upper End

Legal Contingencies

Probable $ 466 $ 466 $ 5,475

Reasonably Possible $ 7,376 $ 252,017

Environmental Contingencies

Probable $ 1,187,141 $ - $ -

Reasonably Possible $ - $ -

Contract Financing Payment Contingencies

Probable $ - $ - $ -

Reasonably Possible $ - $ -
Section 2 | Financial Section (Unaudited)

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

Legal Contingencies: The DLA WCF is a party in 

various administrative proceedings and legal actions related 

to claims for environmental damages, equal opportunity matters, employee or applicant related matters, contract related 

matters, and contractual bid protests. 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.

The DLA WCF has accrued the lower end of the range for probable contingent liabilities for legal actions where the Office of 

General Counsel considers an adverse decision probable and 

the amount of loss is estimable. In the event of an adverse 

judgment against the Government, some of the liabilities may 

be payable from the U.S. Treasury Judgment Fund. DLA WCF 

records contingent liabilities (refer to Note 9, Other Liabilities) 

within Other Liabilities in the Balance Sheets.

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.

Of the 120 legal matters classified as “Reasonably Possible”, 

there are 23 matters where DLA Counsel is unable to express 

an opinion regarding the likely outcome of the case and an 

estimate of the potential liability cannot be made. In these 23 

matters, which include matters where there is not a claimed 

amount against the government, the total amount claimed is 

$60.0 thousand and is disclosed in the table above. 

Environmental Contingencies: The DLA WCF has 

developed a process to identify, estimate, and record contingent EL. The WCF does not estimate a potential range of loss 

in this process. Where DLA WCF 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 10, Environmental and Disposal Liabilities.

Potential Loss Related to Economic Price 

Clause Contracts: The DLA WCF is a party in numerous individual contracts that contain clauses, such as price escalation, award fee payments, or dispute resolution, that may 

result in a future outflow of expenditures. DLA WCF has limited 

automated system processes by which it captures or assesses 

these potential liabilities; therefore, the amounts reported may 

not fairly present DLA WCF’s total contingent liabilities. Known 

contingencies that are considered both measurable and probable have been recognized and recorded as liabilities in the 

Balance Sheets. DLA WCF does not have contract financing 

payment contingencies as of September 30, 2021.

Commitments: The DLA WCF 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 9, Other Liabilities; and Note 10, Environmental and Disposal Liabilities.)

Note 12: Exchange Revenue (Unaudited)

The DLA WCF pricing policy for SCM and Energy Management 

is to seek full cost recovery for products and services provided. 

These DLA WCF activities maintain the goal to break-even 

over a single year or two-year period; however, the SCM 

may request a waiver from the OUSD(C) to recover costs 

beyond the budget year to maintain a stabilized CRR. DLA 

WCF establishes its selling or standard prices in the budget 

to ensure sufficient budgetary resources are available to cover 

the costs of operations. The prices are normally stabilized or 

fixed during execution to mitigate the impact of unforeseen 

fluctuations. DLA WCF will not change the prices during the 

fiscal year unless prior approval from OUSD(C) is received, 

except for those instances in which the SCM out-of-cycle price 

changes may be made without OUSD(C) approval.

The DLA Energy Management generally bills its customers 

using petroleum standard price mandated by OUSD(C). 

OUSD(C) establishes the standard price for petroleum and 

product costs on an annual basis (refer to Note 1.U, Revenue 

and Other Financing Sources, related to non-NSN and costplus pricing).

For the years ended September 30, 2021 and 2020, DLA WCF 

recognized other accounting gains of approximately $9.6 billion 

and $2.2 billion, respectively, and losses of approximately $9.3 

billion and $2.0 billion, respectively, derived from supply chain 

(continued on next page)
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 132

Note 13: Undelivered Orders (Unaudited)

Undelivered Orders (UDOs) for the years ended September 30, 2021 and 2020, respectively, consist of the following (dollars in 

thousands):

UDOs represent the amount of goods and/or services ordered 

to perform DLA WCF’s mission objectives that have not been 

received. Unpaid UDOs represent obligations for goods and 

services that have not been received or paid. Whereas paid 

UDOs represent obligations for goods and services that have 

been paid for in advance of receipt. For the years ended 

September 30, 2021 and 2020, respectively, DLA WCF does 

not have intragovernmental paid UDO balances. 

Due to system limitations, DLA WCF is unable to determine 

the Intragovernmental and Other than Intragovernmental 

allocation of UDOs. DLA WCF estimates the allocation of 

Intragovernmental and Other than Intragovernmental unpaid 

UDOs based on funded liabilities, excluding payroll and 

employee benefit liabilities, and paid UDOs based on advances 

and prepayments reported on the Balance Sheets.

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

to Intragovernmental/Intra-departmental and Other than 

Intergovernmental Transaction; and Accounts Payable, 

Expenses, and Undelivered Orders.)

FY 2021 FY 2020

Intragovernmental Undelivered Orders

Unpaid $ 1,814,726 $ 1,945,087 

Total Intragovernmental Undelivered Orders 1,814,726 1,945,087 

Other than Intragovernmental Undelivered Orders

Unpaid 21,980,443 21,355,746 

Paid 95,645 89,068 

Total Other than Intragovernmental Undelivered Orders 22,076,088 21,444,814 

Total Undelivered Orders $ 23,890,814 $ 23,389,901 

Note 14: Contributed Capital (Unaudited)

The DLA WCF received additional funding through the allotment 

of appropriations from the: (1) DoD reprogramming actions for 

the year ended September 30, 2021 of $49.8 million; and (2) 

CARES Act and DoD reprogramming actions for the year ended 

September 30, 2020 of $579.2 million.

activities involving MAC updates, receipts without purchase 

orders, errors due to inventory receipts, NRV updates, and 

disposal of demilitarized property.

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

Accounts Receivable, Net, Revenue, and Unfilled Customer 

Orders; and Inventory and Related Property, Net.)
Section 2 | Financial Section (Unaudited)

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

Note 15: Reconciliation of Net Cost to Net Outlays (Unaudited)

Reconciliation of Net Cost to Net Outlays for the years ended September 30, 2021 and 2020 consist of the following (dollars in 

thousands):

FY 2021

Intragovernmental Other than 

Intragovernmental Total

NET COST $ (32,334,435) $ 32,037,043 $ (297,392)

Components of Net Cost That are Not Part of Net 

Outlays

General Property, Plant and Equipment Depreciation - (76,117) (76,117)

General Property, Plant and Equipment Disposal - (15,962) (15,962)

Cost of Goods Sold (5,654,464) (27,017,880) (32,672,344)

Net Gains/(Losses) - 320,922 320,922

Other - (1,968) (1,968)

Increase/(Decrease) in Assets:

Accounts Receivable, Net 2,486 (160,891) (158,405)

Cash and Other Monetary Assets - (7,074) (7,074)

Advances and Prepayments - 6,577 6,577 

(Increase)/Decrease in Liabilities:

Accounts Payable 49,471 220,242 269,713

Environmental and Disposal Liabilities - (85,236) (85,236)

Federal Employment Benefits Payable - 3,012 3,012 

Advances from Others and Deferred Revenue 1,246,828 2,765 1,249,593 

Other Liabilities (3,667) (3,776) (7,443)

Financing Sources:

Imputed Financing (163,152) - (163,152)

Total Components of Net Cost That are Not Part 

of Net Outlays (4,522,498) (26,815,386) (31,337,884)

Components of Net Outlays That are Not Part of 

Net Cost

Acquisition of General Property, Plant and Equipment - 139,888 139,888

Acquisition of Inventory and Related Property 1,675 32,594,511 32,596,186

 Financing Sources:

Other 2,860 (3,395) (535)

Transfer in/out without Reimbursements - (2,690) (2,690) 

Total Components of Net Outlays That are Not Part 

of Net Cost 4,535 32,728,314 32,732,849 

NET OUTLAYS $ (36,852,398) $ 37,949,971 1,097,573

Outlays, Net, Statements of Budgetary Resources 1,259,017

Reconciling Difference $ (161,444) 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 134

FY 2020 As Restated

Intragovernmental Other than 

Intragovernmental Total

NET COST $ (31,690,179) $ 30,889,313 $ (800,866)

Components of Net Cost That are Not Part of Net 

Outlays

General Property, Plant and Equipment Depreciation - (216,192) (216,192)

General Property, Plant and Equipment Disposal - (15,225) (15,225)

Cost of Goods Sold (5,461,727) (25,943,360) (31,405,087)

Net Gains/(Losses) - 405,690 405,690 

Other - 3,837 3,837 

Increase/(Decrease) in Assets:

Accounts Receivable, Net 413,342 (426,682) (13,340)

Cash and Other Monetary Assets - 7,074 7,074 

Advances and Prepayments - 2,895 2,895 

(Increase)/Decrease in Liabilities:

Accounts Payable (36,989) 246,391 209,402 

Environmental and Disposal Liabilities - 85,098 85,098 

Federal Employment Benefits Payable - 20,685 20,685 

Advances from Others and Deferred Revenue (1,783,266) 515 (1,782,751)

Other Liabilities (2,631) (39,798) (42,429)

Financing Sources:

Imputed Financing (155,107) - (155,107)

Total Components of Net Cost That are Not Part 

of Net Outlays (7,026,378) (25,869,072) (32,895,450)

Components of Net Outlays That are Not Part of 

Net Cost

Acquisition of General Property, Plant and Equipment - 104,925 104,925 

Acquisition of Inventory and Related Property 226,632 31,579,004 31,805,636 

 Financing Sources:

Other 487 (475) 12 

Transfer in/out without Reimbursements - - -

Other Reconciling Items:

Temporary Timing Differences (397,855) - (397,855)

Total Components of Net Outlays That are Not Part 

of Net Cost (170,736) 31,683,454 31,512,718

NET OUTLAYS $ (38,887,293) $ 36,703,695 (2,183,598)

Outlays, Net, Statements of Budgetary Resources (2,343,308)

Reconciling Difference $ 159,710
Section 2 | Financial Section (Unaudited)

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

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 Combined 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 (1) the result of 

allocating assets to expenses over more than one reporting 

period (e.g., depreciation) and the write-down of assets (due 

to revaluations); (2) the temporary timing differences between 

outlays/receipts and the operating expense/revenue during the 

period; and (3) cost financed by other Federal entities (imputed 

inter-entity cost).

For FY 2021, the key reconciling differences between the net 

cost and the net outlays for DLA WCF included: (1) the cost of 

goods sold were operating expenses for inventory purchases 

and have no impact on net outlays; (2) Advances from Others 

and Deferred Revenue were primarily due to decreases in 

cash advances from the HHS and FEMA related to COVID-19 

relief efforts (refer to Note 16, COVID-19 Activity); and (3) the 

acquisition of inventory were capitalized expenditures paid for, 

and have no impact on net cost. 

FY 2020, the key reconciling differences between the net cost 

and net outlays for DLA WCF included: (1) the cost of goods 

sold, which are operating expenses for inventory purchases 

that have no impact on net outlays; (2) increases in advances 

for others, which was due to cash advances from the HHS 

and FEMA related to COVID-19 relief efforts (refer to Note 

16, COVID-19 Activity) and an additional $39.1 million from 

FEMA for Hurricane Laura relief efforts; and (3) the acquisition 

of inventory, which are capitalized expenditures paid for, that 

have no impact on net cost.

The resulting reconciling difference is primarily due to limitations 

of financial and nonfinancial management processes and 

systems that support the financial statements, as disclosed in 

Note 1.B., Basis of Presentation and Accounting. 

The prior year presentation was modified to the current year 

presentation to facilitate the: (1) comparability between years 

for related activity; and (2) understanding of amounts reported 

in the reconciliation above to the principal financial statements 

and other related notes. The modification in the presentation 

had no net effect on the reconciliation as previously reported. 

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

Reconciliation of Net Cost to Net Outlays.)

DLA Distribution 

Delivers Johnson & 

Johnson Vaccines to 

Overseas Troops

Johnson & Johnson vaccines 

are packaged for shipping to 

overseas troops from Defense 

Logistics Agency Distribution 

Susquehanna, Pennsylvania, 

March 12, 2021, as part of the 

federal response to COVID-19.

Photo Credit: Matthew Mahoney, 

DLA Distribution Public Affairs
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 136

inventory for resale to customers. The vaccines are delivered 

weekly and distributed within days of receipt. While in-transit, 

DLA SCM bears no liability for loss or replacement. As a result, 

the vaccine quantities are posted to DLA Distribution Standard 

System and EBS solely for the purpose of accountability, 

tracking and distribution. DLA is required by 10 U.S.C. 2208, 

“Working-Capital Funds” and OSD regulations to recover all 

costs for products and services as a DWWCF entity. DLA 

will recover its costs for the reimbursable services provided 

in support of this effort under agreements with HHS or DHA, 

as appropriate. Applicable funding agreement(s) are in place 

to fully reimburse DLA for all costs in support of COVID-19 

vaccine storage and distribution response operations via 

reimbursable orders.

As of September 30, 2021 and 2020, DLA WCF has received a 

Note 16: COVID-19 Activity (Unaudited)

On March 27, 2020, Congress signed the CARES Act under 

P.L. 116-136. The CARES Act appropriated $1,450.0 million to 

the Department of Defense Working Capital Fund as a transfer 

of current year authority. The allocation of the $1,450.0 million 

is as follows: (1) $475.0 million Navy Working Capital Fund, 

(2) $475.0 million to Air Force Working Capital Fund; and (3) 

$500.0 million to the Defense-Wide Working Capital Fund. 

The OUSD-C Program/Budget allocated the Defense-Wide 

Working Capital Fund appropriation of $500 million to the DLA 

SCM. In August 2020, DLA received additional $30.2 million 

CARES Act funding through OUSD(C) internal reprogramming. 

The funding did not provide new obligation authority and was 

executed through contract authority.

The CARES Act funding was used to purchase PPE to ensure 

DoD has sufficient stock available for personnel to follow 

FY 2021 FY 2020

Budgetary Resources

Appropriations $ - $ 530,200 

Total Budgetary Resources - 530,200 

Obligations Incurred - 530,200 

Budgetary Resources Remaining Available $ - $ - 

COVID-19 health protocols and continue its mission through 

the Coronavirus pandemic.

The DLA SCM expended budgetary resources related to 

CARES Act appropriations totaling $0.0 thousand and $530.2 

million for the years ended September 30, 2021 and 2020, 

respectively. DLA SCM did not receive appropriated budgetary 

resources from other COVID-19 supplemental appropriations 

or other acts in FY 2021. 

COVID-19 appropriated activities for DLA SCM are summarized 

for the years ended September 30, 2021 and 2020 (dollars in 

thousands):

In addition, HHS and FEMA entered into Intragovernmental 

Agency Agreements (IAAs) with DLA for DLA SCM to deliver 

goods and services. These goods include ventilators, Battelle 

sterilization units, personal protective equipment, medical 

supplies, and food supplies to support the National COVID-19 

response through the Public Health and Social Services 

Emergency Fund (Provider Relief Fund) appropriated as part 

of the CARES Act. 

Defense Health Agency (DHA) entered into an agreement 

with HHS for the distribution of COVID-19 vaccines to the 

DoD. DLA SCM was designated by the DoD to manage, 

track, and distribute COVID-19 vaccines to OCONUS Military 

services and other Defense customers. The DLA SCM does 

not have title to the vaccines and is not designated as an 

owner of the vaccine inventory in the agreement. DLA SCM 

does not hold any Moderna, Janssen or Pfizer vaccine in 

(continued on next page)
Section 2 | Financial Section (Unaudited)

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

HHS FY 2021

DLA Organization Item Description

Unfilled 

Customer 

Orders with 

Advance

Unfilled 

Customer 

Orders without 

Advance

Earned 

Revenue

Available 

Reimbursable

Amount

Medical Ventilators Test Components $ 1,627,500 $ 2,131,931 $ 1,332,338 $ 2,427,093 

C&E and Medical PPE - 7,730 1,349 6,381

C&E PPE and Battelle CCDS Systems 767,674 269,131 874,958 161,847

C&E and C&T PPE for Surge Sites - 377,497 377,450 47

C&T PPE - 92,834 72,282 20,552

C&T and Medical PPE - 2,030 783 1,247

Total $ 2,395,174 $ 2,881,153 $ 2,659,160 $ 2,617,167 

HHS FY 2020

DLA Organization Item Description

Unfilled 

Customer 

Orders with 

Advance

Unfilled 

Customer 

Orders without 

Advance

Earned 

Revenue

Available 

Reimbursable

Amount

Medical Ventilators Test Components $ 865,000 $ 203,725 $ 51,856 $ 1,016,869 

C&E and Medical PPE - 1,350 120 1,230 

C&E PPE and Battelle CCDS Systems 780,835 430,092 158,253 1,052,674 

C&E and C&T PPE for Surge Sites - 450,000 72,503 377,497 

C&T PPE - 2,500 470 2,030 

C&T and Medical PPE - - - -

Total $ 1,645,835 $ 1,087,667 $ 283,202 $ 2,450,300 

(continued on next page)

total of $2.5 billion and $1.9 billion in cash advances since the 

beginning of the COVID-19 pandemic. Remaining advances as 

of September 30, 2021 and 2020 totaled $552.2 million and 

$1.8 billion, respectively. In addition, DLA has reimbursable 

agreements without advances to provide goods and services 

for COVID-19 relief efforts totaling $2.9 billion with HHS and 

FEMA for the year ended September 30, 2021 and $1.1 billion 

with HHS for the year ended September 30, 2020. COVID-19 

activities for DLA SCM are summarized by supply chain and 

scope for the years ended September 30, 2021 and 2020 

(dollars in thousands):
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 138

The DLA WCF recognized revenue in relation to the COVID-19 

relief effort totaling $3.1 billion for the year ended September 

2021, which consists of revenue recognized from: (1) FEMA and 

HHS above totaling $2.8 billion for DLA WCF Troop Support; 

(2) other Federal entities (e.g., USMC, Navy, Army, Air Force, 

etc.) totaling $261.8 million for DLA WCF Troop Support; and 

(3) other DLA WCF activities totaling $18.3 million.

The DLA WCF recognized revenue in relation to the COVID-19 

relief effort totaling $676.0 million for the year ended 

September 30, 2020, which consists of revenue recognized 

from: (1) FEMA and HHS above totaling $442.3 million for DLA 

WCF Troop Support; (2) other Federal entities (e.g., USMC, 

Navy, Army, Air Force, etc.) totaling $221.7 million for DLA 

WCF Troop Support; and (3) other DLA WCF activities totaling 

$12.0 million.

FEMA FY 2020

DLA Organization Item Description

Unfilled 

Customer Orders 

with Advance

Unfilled Customer 

Orders without 

Advance

 Earned 

Revenue

Available 

Reimbursable

Amount

HQ Staff National Response 

Coordination Center staffing $ 66 $ - $ 63 $ 3 

Distribution Storage 4,500 - 1,097 3,403 

Medical

Test components, 

pharmaceuticals, medical 

supplies and human remains 

pouches.

 15,498 - 5,034 10,464 

C&E and C&T PPE 260,500 - 146,350 114,150 

C&E PPE - - - -

C&T PPE - - - -

Subsistence Food boxes and meals 8,432 - 6,583 1,849 

Total $ 288,996 $ - $ 159,127 $ 129,869 

FEMA FY 2021

DLA Organization Item Description

Unfilled Customer 

Orders with 

Advance

Unfilled Customer 

Orders without 

Advance

 Earned 

Revenue

Available 

Reimbursable

Amount

HQ Staff National Response 

Coordination Center staffing $ 25 $ - $ 25 $ - 

Distribution Storage 8,003 - 7,853 150

Medical

Test components, 

pharmaceuticals, medical 

supplies and human remains 

pouches.

48,152 30,039 18,113

C&E and C&T PPE 113,816 - 85,201 28,615

C&E PPE - 3,593 3,590 3

C&T PPE - 16,469 947 15,522

Subsistence Food boxes and meals - - - - 

Total $ 121,844 $ 68,214 $ 127,655 $ 62,403 

(Refer to Note 5, Inventory and Related Property, for inventory 

received from HHS.)

The impact of COVID-19 activity to Fund Balance with Treasury 

(refer to the Balance Sheets and Note 3, Fund Balance with 

Treasury), Accounts Receivable, and Accounts Payable (refer 

to the Balance Sheets and Note 4, Accounts Receivable, Net), 

Net Position (refer to the Balance Sheets and Statements of 

Changes in Net Position), Gross Cost (refer to the Statements 

of Net Cost), and New Obligations (refer to the Combined 

Statements of Budgetary Resources) cannot be quantified 

due to limitations of financial and nonfinancial management 

processes and systems that support the financial statements, 

as disclosed in Note 1.B., Basis of Presentation and 

Accounting, and the MD&A Analysis of Systems, Controls and 

Legal Compliance: Compliance with Laws and Regulations, 

DATA Act.
Section 2 | Financial Section (Unaudited)

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

Note 17: Restatements of the FY 2020 Balance Sheet, Statement of Net 

Cost, and Statement of Changes in Net Position (Unaudited)

In FY 2021, DLA WCF restated its FY 2020 financial statements 

to correct errors in the Balance Sheet, Statement of Net Cost, 

and Statement of Changes in Net Position. The impact of 

these errors resulted in DLA WCF’s Net Position reported on 

the financial statements to be understated by $521.2 million. 

DLA WCF made adjustments to recognize the transfer-in of 

capitalized assets and the related depreciation expense, which 

were not recorded in prior periods. In addition, DLA WCF made 

adjustments to recognize accounts receivable, which was not 

recorded in prior periods. 

The DLA WCF receives property transfers from DLA GF upon 

construction project completion. DLA GF identified assets 

transferred into DLA WCF in FY 2021 that were placed 

in service in FY 2020 and prior fiscal years. The correction 

required adjustments to the FY 2020 Balance Sheet, Statement 

of Net Cost, and Statement of Changes in Net Position by 

increasing General Property, Plant and Equipment by $123.4 

million and increasing Gross Cost by $3.7 million resulting in 

an overall decrease in Net Cost and increase in Net Position of 

$3.7 million and $123.4 million, respectively. In addition, $85.7 

million from the prior period adjustment to Net Position relate 

to corrections prior to FY 2020. 

The DLA WCF recognized deposit funds that are due from 

OUSD. The correction required prior period adjustments to 

the FY 2020 Balance Sheet and Statement of Changes in Net 

Position by increasing Accounts Receivable, Net by $397.9 

million, resulting in an overall increase in Net Position of 

$397.9 million.

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

General Property, Plant and Equiptment, Net.)

All Aboard

Marines board the USS Lewis B. Puller from an inflatable boat during visit, board, search and seizure training 

in the Persian Gulf, March 19, 2021. Photo By: Marine Corps Sgt. Sarah Stegall
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 140

Balance Sheet

(dollars in thousands)

As of September 30, 2020

Unaudited

FY 2020 As 

Previously 

Reported11

Unaudited

FY 2020

Adjustments

Unaudited

FY 2020 

As Restated

ASSETS (Note 2)

Intragovernmental

Fund Balance with Treasury (Note 3) $ 3,915,418 - $ 3,915,418 

Accounts Receivable and Other (Note 4)

 Accounts Receivable, Net 1,864,975 397,855 2,262,830 

 Strategic Petroleum Reserve 123,306 - 123,306 

 Total Intragovernmental Accounts Receivable, Net 1,988,281 397,855 2,386,136 

Total Intragovernmental Assets 5,903,699 397,855 6,301,554

Other Than Intragovernmental

Cash and Other Monetary Assets 7,074 - 7,074 

Accounts Receivable, Net (Note 4) 717,098 - 717,098 

Inventory and Related Property, Net (Note 5) 21,837,879 - 21,837,879 

General Property, Plant and Equipment, Net (Note 6) 631,176 123,388 754,564 

Advances and Prepayments 89,068 - 89,068 

Total Other Than Intragovernmental 23,282,295 123,388 23,405,683 

TOTAL ASSETS $ 29,185,994 $ 521,243 $ 29,707,237 

LIABILITIES (Note 7)

Intragovernmental

Accounts Payable $ 225,139 - $ 225,139 

Advances from Others and Deferred Revenue 1,798,994 - 1,798,994 

Other Liabilities:

 Benefits Program Contributions Payable and Other (Note 8) 52,716 - 52,716 

 Other Liabilities (Note 9) 1,007 - 1,007 

Total Intragovernmental Other Liabilities 53,723 - 53,723 

Total Intragovernmental Liabilities 2,077,856 2,077,856 

Other than Intragovernmental

Accounts Payable 2,495,823 - 2,495,823 

Environmental and Disposal Liabilities (Note 10) 1,187,141 - 1,187,141 

Federal Employee Benefits Payable (Note 8) 159,850 - 159,850 

Advances from Others and Deferred Revenue 6,407 - 6,407 

Other Liabilities (Note 9) 295,028 - 295,028 

Total Other than Intragovernmental Liabilities 4,144,249 - 4,144,249 

TOTAL LIABILITIES $ 6,222,105 $ - $ 6,222,105 

Commitments and Contingencies (Note 11)

NET POSITION

Unexpended Appropriations-Funds from Other than Dedicated Collections $ 291,494 - $ 291,494 

Cumulative Results of Operations-Funds from Other than Dedicated Collections 22,672,395 521,243 23,193,638 

TOTAL NET POSITION 22,963,889 521,243 23,485,132 

TOTAL LIABILITIES AND NET POSITION $ 29,185,994 $ 521,243 $ 29,707,237 

11 Certain balances were reclassified on the FY 2020 Balance Sheet to conform to the FY 2021 financial statement presentation requirements in accordance with OMB Circular 

A-136, as amended. 
Section 2 | Financial Section (Unaudited)

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

Statement of Net Cost

For the Year Ended September 30, 2020 

(dollars in thousands)

Unaudited

FY 2020 

As Previously 

Reported

Unaudited

FY 2020 

Adjustments

Unaudited

FY 2020 

As Restated

Energy 

Gross Cost $ 9,692,755 $ 3,607 $ 9,696,362 

Less: Earned Revenue

(10,734,135) - (10,734,135)

Net Cost (1,041,380) 3,607 (1,037,773)

Supply Chain Management

Gross Cost 31,657,088 115 31,657,203 

Less: Earned Revenue (31,435,772) - (31,435,772)

Net Cost 221,316 115 221,431 

Document Services

Gross Cost 221,567 - 221,567 

Less: Earned Revenue (206,091) - (206,091)

Net Cost 15,476 - 15,476 

Total Gross Cost 41,571,410 3,722 41,575,132 

Less: Earned Revenue (42,375,998) - (42,375,998)

NET COST OF OPERATIONS $ (804,588) $ 3,722 $ (800,866)

Preparing the 

Workspace

Air Force Staff Sgt. Vittoria 

Gonzalez and Air Force Staff 

Sgt. Ayanna Blanco, aerospace 

medical technicians assigned 

to the 161st Medical Squadron, 

prepare a workspace to be 

used for the administration of 

the COVID-19 vaccine at Cesar 

Chavez Cultural Center in San 

Luis, Arizona, March 30, 2021. 

Photo By: Army Sgt. Laura Bauer
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 142

Statement of Changes in Net Position 

For the Year Ended September 30, 2020 

(dollars in thousands)

Unaudited

FY 2020 

As Previously 

Reported

Unaudited

FY 2020 

Adjustments

Unaudited

FY 2020 

As Restated

Unexpended Appropriations

Beginning Balances $ 291,040 $ - $ 291,040 

Appropriations Received - - - 

Appropriations Transferred-in/out 579,285 - 579,285

Appropriations Used (578,831) - (578,831) 

Net Change in Unexpended Appropriations 454 - 454 

Total Budgetary Financing Sources 454 - 454 

Total Unexpended Appropriations: Ending Balance 291,494 - 291,494 

Cumulative Results of Operations

Beginning Balances 23,315,727 - 23,315,727 

Correction of Errors - 483,571 483,571 

Beginning Balances, as Adjusted 23,315,727 483,571 23,799,298 

Appropriations Used 578,831 - 578,831 

Nonexchange Revenue 475 - 475 

Transfers-in/out Without Reimbursement (2,181,846) 41,394 (2,140,452)

Imputed Financing 155,107 - 155,107 

Other (487) - (487)

Net Cost of Operations (804,588) 3,722 (800,866)

Net Change (643,332) 37,672 (605,660)

Cumulative Results of Operations 22,672,395 521,243 23,193,638 

TOTAL NET POSITION $ 22,963,889 $ 521,243 $ 23,485,132 

Ramstein Support

Air Force Capt. Ranon Barber 

stacks dinner meals at Ramstein 

Air Base, Germany, Aug. 26, 2021. 

Barber supported Operation 

Allies Refuge through building 

pods, replacing old cots with 

new ones and stocking meals for 

evacuees from Afghanistan. 

Photo By: Air Force Airman Jared 

Lovett
Section 2 | Financial Section (Unaudited)

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

Beginning 

Balance

Ending 

Balance

Active

Category 1: Building, Structures, and Linear Structure $ 1,065,542 $ 1,102,050

(Enduring Facilities)

Category 2: Building, Structures, and Linear Structure 9 15

(Heritage Assets)

Total Active $ 1,065,551 $ 1,102,065

Inactive and Excess

Category 3: Building, Structures, and Linear Structure $ - $ -

(Excess Facility or Planned for Replacement)

Total Inactive and Excess - -

Total Deferred Maintenance $ 1,065,551 $ 1,102,065

M&R Policies Installation & Equipment (DM-I) manages 

only the DLA Non-Energy portion of the Sustainment, 

Restoration, and Maintenance (SRM) program. DLA Energy 

runs a separate SRM program independent of DM-I. DM-I 

continues to conduct condition assessments of DLA non-Energy 

facilities using the US Army Corps of Engineer Sustainment 

Management System (SMS) BUILDER. The Under Secretary 

of Defense memorandum dated Sep 10, 2013, mandated use 

of the reported SMS BUILDER for all DoD facilities. BUILDER 

captures all assessed facility deficiencies or work items 

Required Supplementary Information 

(Unaudited)

Deferred Maintenance and Repairs

categorized by fiscal year along with a cost estimate. As a 

result, BUILDER generates a consistent and uniform Facility 

Condition Index (FCI) for assessed DoD facilities. 

M&R Prioritization Planning, programming, and 

execution of the DLA Non-Energy SRM program is executed 

IAW DLAI 4165.02 (dated 30 Oct 2018) using the following 

priorities: 

a. Life, health, and safety concerns (cannot mitigate)

b. Facilities with an FCI of 60 or less

The DLA WCF pays for the operating cost of five stewardship 

properties. These properties were transferred in FY 2020 to 

the Department of the Army, and the Army is responsible for 

all financial reporting for these assets (i.e., financial reporting 

and disclosures such as, but not limited to, note disclosures, 

deferred maintenance and repair, and other required 

supplemental information (RSI). DLA WCF and the Army 

continue to negotiate the final transfer of all responsibilities of 

these assets as of September 30, 2021. In addition, DLA also 

pays for operation costs related to RP transferred out to other 

Military Services since FY 2020 and continue usage of these 

properties. 

Therefore, DLA WCF included the additional disclosure related 

to the maintenance and repair needs of these assets which 

were identified primarily through the condition assessment 

process. Maintenance and repairs that were not performed 

when they should have been or were scheduled and delayed 

for a future period are considered Deferred Maintenance and 

Repairs (DM&R). DM&R for the years ended September 30, 

2021 and 2020, respectively, consist of the following (dollars 

in thousands):
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 144

c. Security deficiencies including cyber security (cannot 

mitigate)

d. Environmental deficiencies addressing non-compliance 

(cannot mitigate)

e. Warfighter support facilities (mission failure)

f. Energy conservation projects (as mandated)

g. Warfighter support facilities (mission impact)

h. Routine maintenance (no mission impact)

Field sites submit their candidate projects ranked with 

the above-prioritized criteria. Prioritized DLA non-Energy 

projects, forming a 1 – N list, are submitted to a Sustainment 

(maintenance and repair) board for review and voting similar to 

the MILCON Installation Level Review Board. The DLA Chief 

of Staff and DLA’s MSCs chiefs of staff chair the Sustainment 

board. Approved projects above the MSC funding line move 

forward for execution based on the priority list.

For DLA Energy, the SRM program is executed IAW DLA 

Energy P-12 and the DLA Energy SRM Handbook. All work 

is prioritized by the Service Control Point in accordance with 

Service and DoD mission priorities. 

Acceptable Condition Standards OSD and DLA 

considers an asset acceptable when it is in good condition 

with an assigned minimum FCI of 80%. Failing facilities have 

an FCI below 60% whereas facilities are classified in “Poor” 

condition with an FCI between 60 and 79. This acceptance 

criterion is in accordance with the Under Secretary of Defense 

memorandum dated Apr 29, 2014, titled Facility Sustainment 

and Recapitalization Policy. DLA also considers life, health, 

safety, and mission when assessing acceptable conditions. 

For Non-Energy, BUILDER has three separate criteria to assist 

in the assessment of DLA facilities: the FCI, Condition Index 

(CI), and BUILDER Condition Index (BCI). Those technical 

criteria are used differently to assess facility conditions.

Capitalization of DM&R The deferred maintenance 

and repair information presented relates to all DLA operated 

DoD facilities where DLA has the maintenance responsibility 

and is not solely restricted to capitalized assets.

Asset Exclusions The deferred maintenance and repair 

information include only facilities in Active (ACT) and To Be 

Acquired (TBA) status. It excludes facilities in a semi-active 

status, caretaker, out granted, non-functional, environmental 

hold status, closed, disposed, excess, surplus, or returned to 

the service Components.

Changes year-to-year The change of deferred 

maintenance and repair balance is due to an increase in the 

DLA footprint and further deterioration of the DLA infrastructure 

due to a reduction in the repair and maintenance budget.The 

increase in the DLA Plant Replacement Value is due to changes 

in asset valuation implemented in EBS. 

Field Figures

Marines participate in a patrolling session during the Infantry Marine Course at Marine Corps Base Camp 

Pendleton, California, March 31, 2021. The 14-week pilot course was designed to create better trained and more 

lethal entry level infantry Marines prepared for near-peer conflicts. Photo By: Marine Corps Sgt. Jeremy Laboy
Section 2 | Financial Section (Unaudited)

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

Combining Statements of Budgetary Resources

The Combining Statements of Budgetary Resources combines 

the availability, status, and outlays of DLA WCF’s budgetary 

resources. The following schedules provide the Combining 

Statements of Budgetary Resources disaggregated by DLA 

WCF activities for the years ended September 30, 2021 and 

2020, respectively. 

(Refer to Note 1.B., Basis of Presentation and Accounting, 

related to Combined Statements of Budgetary Resources.)

Defense Logistics Agency - Working Capital Fund

COMBINING STATEMENT OF BUDGETARY RESOURCES 

For the Year Ended September 30, 2021 

(dollars in thousands)

Energy Supply Chain

Management

Document 

Services

FY 2021

Total

BUDGETARY RESOURCES 

Unobligated Balance From 

Prior Year Budget Authority, Net $ 92,155 $ 286,109 $ 130,431 $ 508,695 

Appropriations - 49,821 - 49,821 

Contract Authority 13,680,969 33,523,121 - 47,204,090 

Spending Authority From 

Offsetting Collections 55 2,600 261,050 263,705 

TOTAL BUDGETARY RESOURCES $ 13,773,179 $ 33,861,651 $ 391,481 $ 48,026,311 

STATUS OF BUDGETARY 

RESOURCES 

New Obligations and Upward 

Adjustments $ 13,773,179 $ 33,662,766 $ 288,426 $ 47,724,371 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts - 198,885 103,055 301,940 

Unexpired Unobligated Balance, 

End of Year - 198,885 103,055 301,940 

Total Unobligated Balance, End of 

Year - 198,885 103,055 301,940 

TOTAL BUDGETARY RESOURCES $ 13,773,179 $ 33,861,651 $ 391,481 $ 48,026,311 

OUTLAYS, NET

Outlays, Net $ 32,217 $ 1,190,833 $ 35,967 $ 1,259,017 

AGENCY OUTLAYS, NET $ 32,217 

 

$ 1,190,833 $ 35,967 $ 1,259,017 
Financial Section (Unaudited) | Section 2

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 146

Defense Logistics Agency - Working Capital Fund

COMBINING STATEMENT OF BUDGETARY RESOURCES 

For the Year Ended September 30, 2020

(dollars in thousands)

Energy Supply Chain

Management

Document 

Services

FY 2020 

Total

BUDGETARY RESOURCES 

Unobligated Balance From 

Prior Year Budget Authority, Net $ (153,612) $ 198,885 $ 177,233 $ 222,506 

Appropriations - 579,285 - 579,285 

Contract Authority 11,979,260 33,666,668 - 45,645,928 

Spending Authority From 

Offsetting Collections 245,767 - 239,016 484,783 

TOTAL BUDGETARY RESOURCES $ 12,071,415 $ 34,444,838 $ 416,249 $ 46,932,502 

STATUS OF BUDGETARY 

RESOURCES 

New Obligations and Upward 

Adjustments $11,979,260 $34,236,349 $294,531 $46,510,140 

Unobligated Balance, End of Year:

Apportioned, Unexpired Accounts 92,155 208,489 121,718 422,362 

Unexpired Unobligated Balance, 

End of Year 92,155 208,489 121,718 422,362 

Total Unobligated Balance, End of 

Year 92,155 208,489 121,718 422,362 

TOTAL BUDGETARY RESOURCES $ 12,071,415 $ 34,444,838 $ 416,249 $ 46,932,502 

OUTLAYS, NET

Outlays, Net $ (1,508,088) $ (860,515) $ 25,295 $ (2,343,308)

AGENCY OUTLAYS, NET $ (1,508,088) $ (860,515) $ 25,295 $ (2,343,308)

DLA Flu Program – 

Ahead of the Curve for 2021

Army Sgt. Martin Manalo prepares to administer 

a flu shot at the chapel annex Jan. 15, 2021, on 

Caserma Ederle. The Defense Logistics Agency 

Troop Support Medical supply chain ensures 

warfighters like this have the vaccines available 

to administer on members, dependents and 

retirees on time each flu season. Photo By: Army
Section 3 | Other Information (Unaudited)

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

Warrior Readiness ►

Service members participate in a live-fire training event at 

Schofield Barracks, Hawaii, Dec. 30, 2020, as part of Operation 

Wardog Kila, a joint Army-Marine Corps exercise. 

 Photo Credit: Army Sgt. Sarah Sangster

SECTION 3

Other Information (Unaudited)

147

Section 3 | Other Information (Unaudited)

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

In this section

150 Foregone Revenue

151 Management Challenges 

155 Summary of Financial Statement Audit 

 and Management Assurances

159 Payment Integrity 

SECTION 3

Blue Angels

The Blue Angels, the Navy’s flight demonstration squadron, 

conduct their final flight with the legacy F/A-18 C/D Hornets 

over Pensacola, Florida., Nov. 4. The 2020 show season marked 

the end of the service life of the aircraft. The Blue Angels are 

transitioning to the F/A-18 E/F Super Hornet platform.

 Photo Credit: MC2 Cody Hendrix/Navy
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 150

Guiding Gesture

Navy Chief Petty Officer Bernam Tapang directs the loading of cargo aboard the USS Ronald Reagan during a replenishment in the Philippine Sea, May 27, 2021. Photo Credit: Navy Seaman Santiago Navarro

DLA provides a fuel service to both military and public entities. 

The price for fuel supplied is determined by OUSD(C). Often, 

DLA prices do not match market prices, and therefore DLA 

can incur a loss in terms of forgone revenue for a given fiscal 

year. Forgone revenue denotes the difference between the 

price DLA charges in exchange transactions and the full cost 

or market price. DLA Energy’s incurred forgone revenue from 

fuel sales totaled $809.9 thousand and $0.0 thousand for the 

years ended September 30, 2021 and 2020, respectively. The 

demand for the quantity of petroleum products did not change 

as a result of the difference in price. DLA WCF does not track 

forgone revenue for the SCM and Document Services activity 

groups. In addition, the forgone revenue, disclosed below, is 

presented on a net basis. However, higher prices based on 

full cost or market price might reduce the quantity of goods 

or services demanded and, therefore, the difference between 

revenue received and such higher prices does not necessarily 

provide an indication of revenue foregone. 

Foregone Revenue cannot be quantified due to limitations 

of financial and non-financial management processes and 

systems that support the financial statements, as disclosed in 

Note 1.B., Basis of Presentation and Accounting.

 

Energy Foregone Revenue

(dollars in thousands)

FY2021 FY2020 FY2019 FY2018 FY2017

Energy Foregone

Revenue $ (810) - - $ (1,305,345) $ (882,729)

Total Foregone

Revenue $ (810) - - $ (1,305,345) $ (882,729)

Foregone Revenue
Section 3 | Other Information (Unaudited)

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

Management Challenges

DEFENSE LOGISTICS AGENCY

HEADQUARTERS

8725 JOHN J. KINGMAN ROAD

FORT BELVOIR, VIRGINIA 22060-6221

July 27, 2021

MEMORANDUM FOR VICE ADMIRAL MICHELLE C. SKUBIC, DIRECTOR, DLA

SUBJECT: Major Management and Performance Challenges Facing the Defense Logistics 

 Agency

Although significant progress has been made in the management of DLA and the 

reduction of risks facing the organization, especially due to the actions of the Enterprise Risk 

Management Office, the Office of the Inspector General (OIG) sees 15 areas where major 

challenges remain. The 15 challenge areas are:

a. Sales of DoD Property. Insufficient policy and oversight of DLA sales of property 

requires action to establish clear policy guidelines and oversight authority. This 

concern was formally recognized in a finding in FY18 during an Agency 

Management Review and has not been corrected to date. Multiple components of 

DLA are involved in sales of DoD property. DLA Headquarters has limited expertise 

within the staff. Sales procedures and process are impacted by law and rules from 

several governmental agencies. An unclear policy proponent and corresponding lack 

of oversight of execution within DLA is an area of risk that requires mitigation and 

remediation.

b. Contracting Officers Representatives. Although this area was identified last year, this 

challenge remains on the list because of the significant concerns about the quality of 

Contracting Officers Representatives work. Contracting Officers Representative files 

almost always contained inadequate evidence supporting monitoring of contractors. 

These results are important to DLA because the preponderance of our supplies and 

services are acquired through contract. Given the significant number of DLA 

contracts, to improve audit readiness, it is essential to improve Contracting Officer 

Representative performance and quality of work.

c. Financial Liability Investigations. Based on numerous OIG investigations, financial 

liability investigation of property losses were inadequate and failed to hold 

responsible officials accountable for failure to maintain accountability of property 

under their control. The OIG audit division has begun research on this topic and 

anticipates issuing an audit report in FY 2022.

d. Critical Warfighter Items and Whole of Government. Despite the pandemic and the 

shortage of supplies, DLA has maintained outstanding support to the Warfighters. 

However, as continuing emphasis is placed on the Whole of Government effort, DLA 

must remain vigilant that the Whole of Government effort doesn’t overshadow 
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 152

Warfighter support since both efforts will be competing for many of the same product 

lines – e.g., pharmaceuticals, clothing and textiles, food and water, and fuel. 

e. Supply Chain Security and Risk Management. DLA needs to continually evaluate 

our supply chains for single-point failures to prevent disruptions to DLA’s Warfighter 

and Whole of Government customers. The supply risk management process is 

critical to identify risks to our supply chains while developing mitigation strategies, to 

reduce the risk to acceptable levels when feasible or develop mitigating strategies 

when mitigation isn’t feasible. This challenge highlights the lack of domestically 

based integrated supply chains, just-in-time inventory management, as well as other 

risks in DLA’s reliance on the Defense industrial base – that individually and 

collectively increase risk to the process.

f. Nonconforming Inventory. The induction of repair parts from commercial suppliers 

must be continuously monitored and reviewed to prevent nonconforming and 

counterfeit parts from entering the DLA supply chains and causing major risks to our 

Warfighters and Whole of Government customers.

g. Activity Pricing and Cost Recovery Rate. Until DLA develops an accounting system 

that is sufficiently designed to assign and record accurate costs (and achieves an

unqualified audit opinion), then assigning costs to appropriate cost centers will be 

difficult and making decisions will be based on unauditable and potentially incorrect 

information.

h. DLA Cybersecurity and Resiliency. Cybersecurity is an inherent risk and the most 

persistent threat to DLA operations. The resiliency of DLA to identify and counter 

cyber intrusions is paramount to DLA success. With the majority of the DLA 

workforce now teleworking via potentially less secure home networks, DLA’s 

cybersecurity risk profile is increased. DLA must continually stress that employees

have a personal responsibility for network security. While the DLA J6 achieved 

impressive sustainment of DLA networks during the pandemic, it is imperative that 

continued and innovative resources be employed to retain this resiliency. These 

efforts are essential to ensure that employees remain as productive as possible and 

that new software, as well as major updates, are conducted in as seamless a manner as 

possible with minimal disruption. 

i. Evidential Matter. Both financial and operating audit work continues to show that 

DLA’s ability to locate appropriate evidential matter for audit readiness is just as 

important as appropriately processing the transaction.

j. Knowledge Management. DLA needs to move from the reactionary data 

management mentality to a more proactive ability to appropriately summarize our 

vast data into useful and actionable knowledge that management can act upon.

k. Business Process Documentation. DLA needs to sustain a robust organizational 

approach to address business process documentation in a manner that covers 
Section 3 | Other Information (Unaudited)

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

inception to conclusion. Over the past several years, there has been improvement in 

creating process maps that document processes from beginning to end (to include 

inputs from other organizations as well as handoffs to others). However, much 

remains to be done in: the identification of risks associated with a process, 

management evaluation and either acceptance or addressing the risk, and 

implementation of internal controls associated with all phases of the process. 

l. Special Emphasis Programs. DLA has at least three special emphasis programs –

PTAP (Procurement Technical Assistance Program), NWRM (Nuclear Weapons

Related Material), and Strategic Materials – that, while currently in good shape,

requires continual management emphasis. While the PTAP program may transition

to DoD, we will continue to include it on this list until the transition is complete.

m. Trade Security Controls. DoD delegates Export Control requirements for Trade

Security Controls (TSC) policy, controls, and enforcement for the DoD to DLA. The

required functions include policy, issuance of End Use Certificates (EUC) to qualified

entities, and enforcement through Post Sales Investigations. As noted in paragraph a.

above, DLA has inadequate sales oversight structure and execution policy. This

shortfall in guidance results in conflict between TSC and sales contracts at

Disposition Services that requires both policy and contracting changes to realign.

Disposition Services implemented a new business model that sells export-controlled

DoD personal property to the contractor. The contractor becomes the first non-DoD

owner and is issued a single EUC that is renewed on a periodic basis. This permits

the contractor to sell controlled property to anyone, nullifying the EUC process for

export-controlled DoD personal property. DLA must resolve the guidance and

execution for export controls.

n. Post-Pandemic Reduction of Telework. DLA executed a superlative pivot to full time

telework by the eligible office workforce while maintaining operational readiness and

providing a safe secure workplace for employees in industrial operations. The

reduction of telework and return to onsite offices represents a significant challenge.

Numerous studies and reports indicate a fundamental change in attitudes by the

workforce across the nation. Employees are seeking greater control over schedules,

flexibility, and how work is conducted. Other structural supports such as childcare,

school schedules and methods, and availability of public transport affect the

willingness and mobility of the workforce. Balancing telework and return to

centralized offices could present a significant challenge through employee turnover

leading to a loss of knowledge and experience in critical skill areas, while extenuating

the efforts to acculturate new employees. DLA is addressing this challenge in the

strategic plan and by encouraging senior leaders to be as flexible as possible.

Although this challenge is being addressed through the Future of Work Line of Effort

it nonetheless presents a situation that requires much thought, understanding,

flexibility, and adaptability to retain the well-qualified and resilient workforce DLA

requires.
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 154

o. Climate Change Management. DLA J3 has begun addressing this topic. However,

because it is a reasonably new topic, additional senior leader focus is required as the

expectation is that DLA will be required to assist DoD by leading the way in

procuring carbon-pollution free electricity, developing alternative fuel costing policy,

and incorporating the social cost of greenhouse gases into product costs. DLA must

have a deliberate plan in place before the requirements outpaces the current capability

of both DLA Energy and the DLA Environmental Office.

It is important that DLA leadership recognize these challenges facing the organization for 

DLA to provide the best value to the taxpayer and the best support to the warfighter. Addressing 

each of these challenges will improve the internal control structure of DLA and thereby help the 

organization in achieving an unmodified financial statement opinion. 
Section 3 | Other Information (Unaudited)

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

Table 1: FY2021 Summary of the Financial Statement Audit

Audit Opinion Disclaimer

Restatement Yes

Material Weaknesses Beginning 

Balance New Resolved Consolidated Ending Balance

Inventory 1 - - - 1

Fund Balance with Treasury 1 - - - 1

Accounts Receivable and Revenue 1 - - - 1

Accounts Payable and Expenses 1 - - - 1

Financial Reporting 1 - - - 1

Oversight and Monitoring 1 - - - 1

Information Systems 1 - - - 1

Total Material Weaknesses 7 - - - 7

Summary of Financial Statement Audit 

and Management Assurances

The audit reports on the FY 2021 and FY 2020 DLA WCF 

financial statements identified seven material weaknesses for 

DLA WCF. Table 1 below provides a summary of the financial 

statement audit results for FY 2021 and FY 2020, as restated. 

Although the material weaknesses overall are not resolved, 

DLA is continuing to develop CAPs to resolve specific findings 

associated with the material weaknesses.

The DLA SOA package only includes self-identified material 

weaknesses and significant deficiencies for internal DoD 

reporting; however, DLA continues to monitor the financial 

statement audit material weakness areas separately. DLA’s 

FY 2021 Material Weaknesses and Significant Deficiencies 

template included a total of three self-identified material 

weaknesses in the area of ICOR-O, summarized in the 

table below. In FY 2021, the six ICOR material weaknesses 

and four ICOFS non-conformances were based on financial 

statement audit NFRs. However, DLA has determined these 

audit identified ICOR material weaknesses and ICOFS nonconformances are still present and have not been remediated 

in FY 2021.The DLA Audit Task Force continues to separately 

track financial statement audit findings and CAPs and report 

these to the ODCFO.
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 156

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

Order-to-Cash: 

Accounts Receivable 

and Revenue

1 - - - - 1

Procure-to-Pay: 

Accounts Payable 

and Expenses

1 - - - - 1

Total Material

 Weaknesses 6 - - - - 6

Table 2 summarizes DLA’s FY2021 material weaknesses associated with WCF.

Virginia National Guard

U.S. soldiers with the Virginia National Guard listen to a squad leader briefing after arriving near the Capitol 

in Washington on, Jan. 13, 2021. Photo By: Master Sgt. Matt Hecht/Air National Guard
Section 3 | Other Information (Unaudited)

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

Table 2: Summary of Management Assurances

Effectiveness of Internal Control over Operations (FMFIA § 2)

Statement of 

Assurance No Assurance

Material 

Weaknesses

Beginning 

Balance New Resolved Consolidated Reassessed Ending Balance

Supply Operations: 

Lack of policy 

and procedures 

in place over the 

management and 

oversite of First 

Article Test

 Exhibits 

1 - - - - 1

Contract 

Administration: 

Nonverification of 

supplier invoices

1 - - - - 1

Business Process 

Controls: Lack of 

procedures over the 

scrap management 

program

 1 - - - - 1

Total Material

 Weaknesses 3 - - - - 3

Table 2: Summary of Management Assurances

Conformance with Federal Financial Management System Requirements (FMFIA § 4)

Statement of 

Assurance Federal Systems do not conform to financial management system requirements

NonConformancesBeginning 

Balance New Resolved Consolidated Reassessed Ending Balance

Security 

Management 1 - - - - 1

Access Controls 1 - - - - 1

Segregation of 

Duties 1 - - - - 1

Configuration 

Management 1 - - - - 1

Total NonConformances 4 - - - - 4
Other Information (Unaudited) | Section 3

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 158

Based on DLA management’s analysis of relevant FFMIA compliance indicators available at the time of this report, DLA identified a lack of compliance associated with all three FFMIA Section 803(a) requirements across all funds summarized in the table 

below. 

Table 2: Summary of Management Assurances

Compliance with Section 803(a) of the FFMIA

Agency Auditor

1. Federal Financial Management 

System Requirements Lack of compliance noted Lack of compliance noted

2. Applicable Federal Accounting 

Standards Lack of compliance noted Lack of compliance noted

3. USSGL at the Transaction Level Lack of compliance noted Lack of compliance noted

Into the Night

As the sun sets, airmen from the Air Force’s 48th Rescue Squadron get the chance to practice their extrication 

skills in the dark during a July 31 training session at the DLA Disposition Services yard at Kandahar, 

Afghanistan. Photo By: Marcus Wierman
Section 3 | Other Information (Unaudited)

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

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(C) 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(C) 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 

Payment Integrity

(including overpayments and underpayments) under statutory, 

contractual, administrative, or other legally applicable 

requirements. It includes duplicate payments, any payment 

made to an ineligible recipient, any payment for an ineligible 

good or service, any payment for a good or service not 

received (except for such payments where authorized by law), 

and any payment that does not account for credit for applicable 

discounts.

In accordance with the PIIA, and Appendix B of the OMB 

Bulletin No. 21-04, Audit Requirements for Federal Financial 

Statements, dated June 11, 2021, DoD reports payment 

integrity information (i.e., IPs) at the Agency-wide level in 

the consolidated DoD AFR. In addition, DoD provides data 

for display on https://paymentaccuracy.gov. For detailed 

reporting on DoD payment integrity, refer to the OI section of 

the consolidated DoD AFR at: https://comptroller.defense.gov/

odcfo/afr2021.aspx

Transport Team

Army UH-60 Black Hawk helicopters transport Marines during Fuji Viper at Combined Arms Training Center, 

Camp Fuji, Japan, Jan. 21, 2021. The exercise allows units to improve proficiency in infantry and combined arms 

tactics. Photo Credit: Marine Corps Lance Cpl. Alexis Moradian
Midair Refuel ►

An Air Force KC-10 pilot controls the aircraft during a midair 

refueling mission over Southwest Asia, Jan. 4, 2020. 

 Photo Credit: Air Force Staff Sgt. Trevor McBride

A / B / C

160

APPENDIX

Appendix A | Summary of FMFIA Definitions and Reporting

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

Category Definition Reporting

Control Deficiency

A. Exists when the design, implementation, or operation of 

a control does not allow management or personnel, in 

the normal course of performing their assigned functions, 

to achieve control objectives and address related risks.

B. Deficiency in Design: A deficiency in design exists 

when:

(1) a control necessary to meet a control objective is 

missing

(2) an existing control is not properly designed so that 

even if the control operates as designed, the control 

objective would not be met.

C. Deficiency in Implementation: A deficiency in 

implemen- tation 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
 Summary of FMFIA Definitions and Reporting | Appendix A

Defense Logistics Agency | FY 2021 Working Capital Fund | Agency Financial Report 163

Category Definition Reporting

Material Weakness

A. A material weakness is a significant deficiency that the 

Agency Head or Director determines to be significant 

enough to report outside of the Agency as a material 

weakness. In the context of the Green Book (https://

www.gao.gov/greenbook), non-achievement of a relevant 

principle and related component results in a material 

weakness.

B. Internal Control Over Operations: A material weakness 

in internal control over operations might include, but is 

not limited to conditions that:

● Impact the operating effectiveness of 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.

D. Internal Control Over Compliance: A material 

weakness in internal control over compliance is a 

condition where management lacks a process that 

reasonably ensures preventing a violation of law or 

regulation that has direct and material effect on financial 

reporting or significant effect on other reporting or 

achieving Agency objectives.

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: Summary of FMFIA Definitions and Reporting (continued)
Appendix B | J/D Codes, DLA HQ Program Support Structure, Roles and Responsibilities 

164 Defense Logistics Agency | FY2021 Working Capital Fund | Agency Financial Report

Appendix B: J/D Codes, DLA HQ 

Program Support Structure, Roles and 

Responsibilities

The following are DLA Enterprise-wide J/D Codes and DLA HQ 

Program Support Structures:

DLA HUMAN RESOURCES (J1) provides the full 

range of human resource services to include Operational, 

Human Performance, Talent Management, Performance 

Management, Labor Relations and Human Resources Policy 

for the DLA workforce. DLA Human Resources recruits, hires, 

trains, and sustains a mission-ready workforce for DLA and 

Human Resources customers, using world-class policies, 

processes, programs, and tools. 

DLA LOGISTICS OPERATIONS (J3) is responsible for the end-to-end supply chain management of DLA’s supply chains, providing logistics and material process-management policy, guidance, and oversight. J3 integrates strategic, 

operational, and tactical perspectives, as well as commands 

and controls functions for contingency operations and logistics 

supply chain planning. J3 maximizes the readiness and logistics combat power by leveraging enterprise solutions to support 

DLA’s global customer base. 

DLA INFORMATION OPERATIONS (J6) as DLA’s 

knowledge broker, provides comprehensive, best practice IT 

support to the DoD/DLA Logistics Business Community, resulting 

in customer support; efficient and economical computing; 

data management; electronic business; telecommunication 

services; key management; and secure voice systems for DoD, 

DLA, and geographically separated operating locations. The 

Director of Information Operations serves as DLA’s CIO. DLA 

Information Operations also manages DLA’s R&D IT program. 

DLA ACQUISITION (J7) is responsible for planning, 

organizing, directing, and managing the procurement and 

contract administration functions for DLA acquisition in support 

of both internal operations and other supported activities. 

The Director of DLA Acquisition also serves as the Agency’s 

Component Acquisition Executive. DLA Acquisition provides 

oversight of DLA Contracting Services Office. 

DLA FINANCE (J8) is responsible for obtaining and 

allocating resources; analyzing execution; and providing fiscal 

guidance and advice to support the Agency, its business areas, 

and its MSCs in accomplishing DLA’s mission. DLA Finance 

prepares the AFRs and guides DLA in its Audit Remediation 

efforts. The Director of Finance also serves as DLA’s CFO. 

DLA JOINT RESERVE FORCE (J9) provides DLA 

with trained, ready, and available reservists from the Army, 

Air Force, Navy, and Marine Corps for worldwide contingency 

operations and support of ongoing operations, surge 

requirements, and logistics planning. 

DLA OFFICE OF SMALL BUSINESS 

PROGRAMS (DB) provides small business advocacy 

and promotes small business utilization to strengthen the competency, capability, and commitment of the industrial base that 

fulfills DLA’s mission as the Nation’s Combat Logistics Support 

Agency. DLA Office of Small Business Programs is responsible 

for implementation of the Procurement Technical Assistance 

Program to expand the number of businesses capable of participating in contracts with DoD, other Federal Agencies, state 

and local governments, and government prime contractors. 

DLA GENERAL COUNSEL (DG) delivers professional, candid, and independent legal advice and services to 

DLA. 

DLA COMMAND CHAPLAIN (DH) serves as the 

program manager for religious support logistics. This office 

provides the DLA Director and the staff a clear picture of 

workforce morale as affected by religion, ensuring the free 

exercise of religion to support the Warfighter and the employees 

in the workplace at DLA. 

DLA INSTALLATION MANAGEMENT (DM)

provides enterprise-wide Agency policy, program, and 

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

Defense Logistics Agency | FY2021 Working Capital Fund | Agency Financial Report 165

DLA EQUAL EMPLOYMENT OPPORTUNITY 

AND DIVERSITY OFFICE (DO) provides DLA senior 

leadership, staff, and subordinate commands enterprisewide respondent and subject matter expertise on all Equal 

Employment Opportunity Compliance oversight, Affirmative 

Employment and Diversity and Inclusion. 

DLA PUBLIC AFFAIRS (DP) provides public affairs 

support, communication strategy development, and 

engagement guidance to DLA senior leadership, staff, and 

subordinate commands. The DLA Public Affairs office develops 

and administers internal news and information; manages DLA 

social media and public engagement policies; and develops 

programs that communicate DLA’s role as a Combat Support 

Agency that adds value to the Defense Department, military 

services, CCMDs and the American people. 

DLA TRANSFORMATION (DT) directorate synchronizes strategy, policy, and process to support the Warfighter, strengthen alliances and drive innovation. DT manages 

DLA’s strategic plan, executive governance forums, and the 

Agency-wide deployment of Enterprise Process Management, 

Continuous Process Improvement, Enterprise Organizational 

Alignment, and Enterprise Policy Management programs. 

DLA OFFICE OF THE INSPECTOR GENERAL 

(OIG) coordinates and synchronizes GAO and Department 

of Defense Office of Inspector General (DoDIG) audits with 

all DLA components: tracking, monitoring, and assessing the 

implementation of audit corrective actions and communicating 

completion results. They sustain strategic engagement 

with the Defense Counsel on Integrity and Efficiency and 

their subcommittees, as well as relationships with DoDIG 

Criminal Investigative Services, Military Criminal Investigation 

Services, and other Law Enforcement Agencies. DLA OIG also 

conducts administrative investigations and crime vulnerability 

assessments that align with Agency risks and strategic goals. 

The DLA OIG internal audit plan is derived from DLA’s ERM 

efforts, and also encompasses external audit projects derived 

from GAO’s high-risk list.

DLA Major Subordinate Commands

The following are DLA WCF MSCs:

DLA TROOP SUPPORT, headquartered in Philadelphia, 

Pennsylvania, is DLA’s lead center responsible for managing 

food, clothing, medical supplies, C&E, and general and 

industrial supplies worldwide. Troop Support delivers optimal, 

global supply chain solutions to Warfighters and other valued 

partners through five LOEs: Warfighter First, Global Posture, 

Strong Partnerships, Whole of Government, and Always 

Accountable. DLA Troop Support accomplishes these missions 

through the following Supply Chains: Subsistence, C&T, C&E, 

Medical, and IH. 

DLA LAND AND MARITIME, headquartered in 

Columbus, Ohio, is the primary source for repair parts for 

DoD weapon systems. DLA Land and Maritime supply chains 

support U.S. Army, U.S. Navy Surface and Subsurface, and 

USMC customers through dedicated customer relations, while 

working with numerous suppliers to fulfill requirements for 

assigned stock classes across the DoD. Furthermore, DLA 

Land and Maritime supply chains provide logistical services 

directly to Army and USMC industrial sites and Navy shipyards. 

DLA AVIATION, headquartered in Richmond, Virginia, 

is the primary source for repair parts and operating supply 

items for 2,300 major weapon systems. The DLA Aviation 

supply chain provides mapping, kitting, chemical, petroleum 

packaging, gases, and cylinder items to the military services. 

In addition, DLA Aviation provides engineering, sustainability, 

ozone depleting substances reserve, and industrial plant 

equipment services. 

DLA DISTRIBUTION, headquartered in New 

Cumberland, Pennsylvania, is responsible for the receipt, 

storage, issuance, packing, preservation, and transportation of 

items worldwide. It operates a network of distribution centers 

around the world that provide timely and quality support to 

the Warfighters. Their Global Stock Position Plan ensures 

rapid distribution of critical military items. DLA Distribution’s 

overseas distribution operations are located in Europe, Middle 

East, and Pacific Asia regions. 
Appendix B | J/D Codes, DLA HQ Program Support Structure, Roles and Responsibilities

166 Defense Logistics Agency | FY2021 Working Capital Fund | Agency Financial Report

DLA ENERGY, headquartered in Fort Belvoir, Virginia, 

serves as DLA’s executive agent for the bulk petroleum supply 

chain. DLA Energy’s business includes:

● Selling petroleum and aerospace fuels

● Arranging for petroleum support services

● Providing facility/equipment maintenance 

on fuel infrastructure

● Performing energy-related environmental 

assessment and cleanup

● Storing and transporting for bulk and 

aerospace products, and Performing 

quality functions for petroleum in support 

of the military services, as well as for the 

privatization of their utility systems

● Providing Installation Energy products 

and Utility Services

DLA DISPOSITION SERVICES, headquartered 

in Battle Creek, Michigan, has 1,328 civilians and 13 active 

duty military in a global network of 103 field locations in 16 

countries, 2 territories, and 41 states. DLA Disposition Services 

receives EOU DoD property and provides ultimate disposal 

services through reutilization, transfer, donation, and sales. 

Property not reutilized within DoD is available for transfer to 

other Federal agencies or for donation to authorized nonprofit organizations or state and local governments. Property 

not reused, transferred, or donated is either competitively 

sold or disposed of in an environmentally safe manner. DLA 

Disposition Services also arranges for the worldwide disposal 

of hazardous waste in compliance with laws and regulations.

 
 Abbreviations & Acronyms | Appendix C

Defense Logistics Agency | FY2021 Working Capital Fund | Agency Financial Report 167

Appendix C: Abbreviations & Acronyms

A&FP Accounting & Finance Policy Directorate

A/BO Approving/Billing Officials

ACT Active

ADA Anti-Deficiency Act

AFR Agency Financial Report

A/OPC Agency/Organization Program Coordinators

APR Annual Performance Report 

AWARS Automated Workflow and Reporting System

BCI BUILDER Condition Index

BRAC Base Realignment and Closure

C&E Construction and Equipment

C&T Clothing and Textiles

CAC Common Access Card

CAPs Corrective Action Plans

CARES Coronavirus Aid, Relief, and Economic Security (CARES) Act 

CCMD Combatant Command

CCs Critical Capabilities

CFO Chief Financial Officers

Charge Card Act Charge Card Abuse Prevention Act

CI Condition Index 

CIO Chief Information Officer

CIP Construction-in-Progress

CMR Cash Management Report

COLA Cost-of-Living Adjustments

COTS Commercial Off-the-Shelf

COVID-19 Coronavirus-19

CPM Component Program Manager 

CRO Chief Risk Officer

CRR Cost Recovery Rate

CSRS Civil Service Retirement System

CTC Cost To Complete 

DATA Act Digital Accountability and Transparency Act of 2014

DCAS Defense Contract Administration Services

DCIA Debt Collection Improvement Act

DFAS Defense Financial and Accounting Services

DAI Defense Agencies Initiative

DISA Defense Information System Agency 

DLA Defense Logistics Agency

DM-I Installation Management – Installation & Equipment

DM&R Deferred Maintenance and Repairs

DoD Department of Defense

DoE Department of Energy

DOL Department of Labor

ODCFO Deputy Chief Financial Officer

DQP Data Quality Plan

DSA Defense Supply Agency

DSS Distribution Standard System

DWWCF Defense-Wide Working Capital Fund

EBS Enterprise Business System

ECC Resource Planning Central Component

EL Environmental and Disposal Liabilities 

EOU Excess, Obsolete, and Unserviceable

ERM Enterprise Risk Management

ERP Enterprise Resource Planning

FASAB Federal Accounting Standards Advisory

FBwT Fund Balance with Treasury

FCI Facility Condition Index

FEA Fuel Exchange Agreements

FECA Federal Employees’ Compensation Act

FEMA Federal Emergency Management Agency

FERS Federal Employees Retirement System

FFMIA Federal Financial Management Improvement Act 

FFMSR Federal Financial Management System Requirements

FMFIA Federal Managers’ Financial Integrity Act
Appendix C | Abbreviations & Acronyms

168 Defense Logistics Agency | FY2021 Working Capital Fund | Agency Financial Report

FMR Financial Management Regulations

FMS Foreign Military Sales

FPAs Federal Program Agencies

FRDAA Fraud Reduction and Data Analytics Act

FRO Financial Reporting Organization

FY Fiscal Year

GAAP Generally Accepted Accounting Principles

GAO Government Accountability Office

GF General Fund

GMRA Government Management Reform Act

GPC Government Purchase Card 

GPRA Government Performance and Results Act

GSA General Services Administration

HHS Health and Human Services

HQ Headquarter 

ICOFS Internal Controls Over Financial Systems

ICOR Internal Control over Reporting

ICOR-O Internal Control over Operations

ID Identification

IH Industrial Hardware

IOD Insight on Demand

IPA Independent Public Accounting

IPERA Improper Payments Elimination and Recovery Act of 2010

IPERIA Improper Payments Elimination and Recovery Improvement Act

IPs Improper Payments

IT Information Technology

IUS Internal Use Software

LOEs Lines of Effort

MAC Moving Average Cost 

MOA Memorandum of Agreement

MOCAS Mechanization of Contract Administration Service 

MSC Major Subordinate Command

NDAA The National Defense Authorization Act

NDS National Defense Strategy

NFR Notice of Findings and Recommendations

NRV Net Realizable Value

NSA National Security Agency

NSNs Non-National Stock Numbers

OCONUS Outside the Continental United States

ODCFO Office of the Deputy Chief Financial Officer

ODOs Other Defense Organizations

OI Other Information

OIG Office of the Inspector General

OMB Office of Management and Budget

OPM Office of Personnel Management 

OSD Office of the Secretary of Defense 

OSHA Occupational Safety and Health Administration

OUSD Office of the Under Secretary of Defense

OUSD(C) Office of the Under Secretary of Defense (Comptroller)

OWCP Office of Workers’ Compensation Programs 

P3 Public-Private Partnerships

PMO Program Management Office

PP&E General Property, Plant, and Equipment

PPA Prompt Payment Act

PPE Personal Protective Equipment 

R&D Research & Development

RACER Remedial Action Cost Engineering and Requirements

RCRA Resource Conservation and Recovery Act

RSI Required Supplementary Information

RMIC Risk Management and Internal Control

SAO Senior Accountable Official

SAP Systems Applications and Product

SCM Supply Chain Management

SFFAS Statement of Federal Financial Accounting Standards 

SFIS Standard Financial Information Structure 

SFP Standard Fuel Price 

SLOA Standard Line of Accounting 

SOA Statement of Assurance

SMC Senior Management Council

SMS Sustainment Management System

SNS Strategic National Stockpile

SRM Sustainment, Restoration and Maintenance
 Abbreviations & Acronyms | Appendix C

Defense Logistics Agency | FY2021 Working Capital Fund | Agency Financial Report 169

TAS Treasury Account Symbol 

TBA To Be Acquired

TDD Treasury Direct Disbursing

TF Transaction Fund

TI Treasury Index

U.S. United States 

UCO Unfilled Customer Orders

UDO Undelivered Orders 

USMC United States Marine Corps

USSGL U.S. Standard General Ledger

VV&A Validated, Verified, and Accredited

WCF Working Capital Fund

WMS Warehouse Management System
Appendix | Acknowledgments

170 Defense Logistics Agency | FY2021 Working Capital Fund | Agency Financial Report

This AFR was prepared with the energies and talents of many 

employees across DLA and contract partners. A special note 

of appreciation is extended to the many diligent employees in 

the Financial Reporting Division within the Office of the CFO, 

for your time and efforts in preparing the AFR.

The DLA also would like to thank the Audit Task Force for 

coordinating the external audit of the Agency’s financial 

statements. 

The DLA offers our sincerest thanks and acknowledgment 

to the DLA Director, Senior Executive Leaders and their 

respective staff for their commitment to improve financial 

accountability and transparency, while executing the primary 

mission of Sustaining the Warfighter.

Acknowledgments