jurisdiction: US

text: b" Fiscal Year\n\n\n\n\n 2005\nUnited States Army Annual Financial Statement\n\n\n Call to Duty \xe2\x80\x93 230 Years of Service to Our Nation\n\n\n\n\n http://www.army.mil\n\x0cWe are interested in your feedback regarding the content of this report. Please feel free to\n e-mail your comments to AAFS@hqda.army.mil or write to:\n\n Department of the Army\n Of\xef\xac\x81ce of the Deputy Assistant Secretary of the Army (Financial Management and\n Comptroller)\n Of\xef\xac\x81ce of the Financial Reporting Directorate\n Room 3A312, 109 Army Pentagon\n Washington, DC 20310-0109\n\n Additional copies of this report can be obtained by sending a written request to the e-\n mail or mailing address listed above.\n\nYou may also view this document at: http://www.asafm.army.mil/fo/fod/cfo/cfo.asp\n\x0c Fiscal Year\n\n\n\n\n 2005\nUnited States Army Annual Financial Statement\n\n\n Call to Duty \xe2\x80\x93 230 Years of Service to Our Nation\n\x0cTable of Contents\n\x0cMessage from the Secretary of the Army iii\n\nMessage from the Assistant Secretary of the Army\n(Financial Management and Comptroller) v\n\nMessage from the Assistant Secretary of the Army (Civil Works) vii\n\nFY 2005 in Review 1\n\nGeneral Fund \xe2\x80\x93 Management\xe2\x80\x99s Discussion & Analysis 8\n\nWorking Capital Fund \xe2\x80\x93 Management\xe2\x80\x99s Discussion & Analysis 144\n\nCivil Works Fund \xe2\x80\x93 Management\xe2\x80\x99s Discussion & Analysis 224\n\n\n\n\n i\n\x0c The Honorable Francis J. Harvey\n\n\n\n\nii Secretary of the Army Message | FY 2005 Army Annual Financial Statement\n\x0c As the President stated on July 07, 2005, the day terrorists struck\n in London, \xe2\x80\x9cthe war on terror goes on.\xe2\x80\x9d This long war is likely\n to continue for the foreseeable future. Consequently, the Army\n must be ready and relevant today and tomorrow, always able to\n accomplish our mission of protecting America and providing the\n necessary forces and capabilities to the combatant commanders in\n support of the National Security and Defense Strategies.\n\n In parallel with \xef\xac\x81ghting the global war on terror, the Army\n is undertaking its largest transformation since WWII. The\n transformed force will be more powerful, \xef\xac\x82exible, rapidly\n deployable and it positions the Army to defeat new and\n emerging threats. Over the past year we continued to build the\n modular brigade combat teams, which are the centerpiece of the\n transformed force and to increase the size of the operational Army.\n Additionally, ongoing unit rebalancing, in conjunction with\n our new modular forces, will reduce the stress on our force by\npermitting more predictable rotation cycles with longer periods at home for our Soldiers.\n\nThe Army is also transforming its \xe2\x80\x9cback of\xef\xac\x81ce\xe2\x80\x9d by streamlining its business practices\nand processes that enable us to more effectively manage people, cost and schedule\n\xe2\x80\x93 components which make up the backbone of business. The Army is beginning a\ncritical review of the institutional Army to determine what resources, material, and\nproperty are essential to organizations, missions, and structures. We are adopting\nproven management analysis tools and procedures to analyze our manufacturing, repair,\nand administrative processes which will reduce cost while freeing up resources for\nthe operational Army. We also awarded the contract for the General Fund Enterprise\nBusiness System, which will produce accurate, reliable, and timely \xef\xac\x81nancial information\nenabling better decisions and support for our Soldiers and their families.\n\nTo achieve our vision of remaining the preeminent landpower on earth, our Soldiers\nmust remain the best trained, organized, equipped, and sustained in the world. Soldiers,\nand their civilian colleagues, are performing magni\xef\xac\x81cently today in Iraq, Afghanistan,\nand in over 100 other countries around the globe; they deserve the best support we\ncan provide. Consequently, transformation is ingrained in everything the Army does,\noperationally and institutionally.\n\n\n\n\n Francis J. Harvey\n Secretary of the Army\n\n\n\n\n iii\n\x0c Valerie Lynn Baldwin\n\n\n\n\niv Assistant Secretary of the Army (Financial Management and Comptroller) | FY 2005 Army Annual Financial Statement\n\x0c During \xef\xac\x81scal year 2005, the Army managed $149 billion of\n appropriated funds. This included $58.4 billion in Global\n War On Terrorism supplemental funds. Among numerous\n accomplishments, we maintained a high operations tempo with\n 19 active component and 10 reserve component brigade combat\n teams deployed to Iraq, Afghanistan, and throughout the world.\n We created seven additional modular brigades as part of our\n Army transformation, and provided support to civil authorities\n along the Gulf coast for Hurricanes Katrina and Rita.\n\n In addition, we adjusted the \xef\xac\x81nancial management strategic\n planning framework to align with strategic objectives. Under\n this framework, four \xef\xac\x81nancial initiatives were developed to close\n the gap between Army requirements and funding, improve the\n quality of \xef\xac\x81nancial management information systems, improve\n accountability and management controls for the Army enterprise,\n and execute effective \xef\xac\x81nancial management.\n\nProviding accurate, timely, and relevant \xef\xac\x81nancial information to Army leaders requires\nsophisticated \xef\xac\x81nancial and business case analyses. By stressing innovation, creativity,\n\xef\xac\x82exibility, and following the Chief Financial Of\xef\xac\x81cer Strategic Plan, solid progress is being\nmade to reach this objective. Thank you for your efforts and for serving this great Army.\n\n\n\n\n Valerie L. Baldwin\n Assistant Secretary of the Army\n (Financial Management and Comptroller)\n\n\n\n\n v\n\x0c John Paul Woodley, Jr.\n\n\n\n\nvi Assistant Secretary of the Army (Civil Works) | FY 2005 Army Annual Financial Statement\n\x0c The Army Corps of Engineers traces its origins back to the\n construction of forti\xef\xac\x81cations at Bunker Hill in 1775. Since then, the\n Corps has responded to the challenges of the nation and the Army.\n Throughout its history, the Corps has been committed to serving the\n nation and the Army in peace and war by providing comprehensive\n engineering, management and technical services.\n\n Our responsibilities over time have continually evolved to re\xef\xac\x82ect\n America\xe2\x80\x99s priorities. What began as a military engineering mission\n for nation building in the 18th Century expanded into a major\n peacetime mission in the 19th Century. The Corps helped a young\n nation map the frontier and expand westward by surveying roads\n and canals. The Corps contributed to the nation\xe2\x80\x99s economy by\n developing an inland navigation system that moved commerce\n across states and keeping ports and harbors open, a role critical\n for national defense. In the 20th Century, the Corps\xe2\x80\x99 civil mission\n expanded again with the adoption of more water resources\n development and management duties, including \xef\xac\x82ood control,\n hydropower, recreation, water supply, shore protection, and\ndisaster relief. More recently, environmental protection and restoration responsibilities\nwere entrusted to the Corps.\n\nAs society\xe2\x80\x99s requirements and values have changed, the Civil Works mission has re\xef\xac\x82ected\nchanging national priorities for public water management. The Corps\xe2\x80\x99 abilities to evaluate,\nfacilitate, advise, develop, operate, and manage provide a robust set of capabilities for the\nnation\xe2\x80\x99s bene\xef\xac\x81t in facilitating an integrated approach to water resources management.\n\nResponsibilities for the development, management, and protection of water resources\nconstitute the current Army Civil Works mission. One of the great strengths of the Corps\nis the force multiplier effect between civil and military missions. In addition to the direct\ncontributions that the Civil Works mission makes to our economic and environmental\nsecurity and prosperity, the Corps also applies its Civil Works assets to support the Army\nin times of national need to enhance homeland security. In turn, the Civil Works mission\nderives greater capability and effectiveness by being an integral part of the larger Army\nand Defense team.\n\nLooking to the future, we must seek to do everything within our authorities to ensure that\nour country\xe2\x80\x99s economy remains strong and its natural resources protected. Our nation\xe2\x80\x99s\nwater resources are \xef\xac\x81nite, and in managing those resources we are increasingly challenged\nto reach decisions that achieve an appropriate balance between the social and economic\nbene\xef\xac\x81ts of development with the need to protect the environment. As science and\nengineering continue to advance, we will seek to leverage these advancements to strike that\nbalance.\n\nWe are dedicated to continuing a national water resources program that serves the best\ninterest of our citizens. In that regard, I will continue to rely on the Strategic Plan for the\nArmy Civil Works mission that sets forth the framework for enhancing the sustainability of\nAmerica\xe2\x80\x99s water resources.\n\n\n\n John Paul Woodley, Jr.\n Assistant Secretary of the Army\n (Civil Works)\n\n\n\n\n vii\n\x0c Year in Review\n\n When the nation calls, the Army always has and always\n will answer that call. But we cannot stand still\xe2\x80\xa6we need\n to change.\n The Honorable Francis J. Harvey, Secretary of the Army\n\n\n\n\nviii FY 2005 in Review | FY 2005 Army Annual Financial Statement\n\x0cFY 2005 In Review\nOverview\nThe operations of the Army tempo remained high in\n\xef\xac\x81scal year (FY) 2005. More than 250,000 Soldiers - a\nsigni\xef\xac\x81cant proportion of active and reserve component\ncombat forces \xe2\x80\x93 are deployed in 120 countries around\nthe world. Most of these Soldiers are in Iraq and\nAfghanistan, engaged in direct support of the Global\nWar on Terrorism (GWOT); but the Army also\ncontinues to deter aggression and assist U.S. Allies in As FY 2005 came to a close, the Army had 1,014,910\nKorea; Europe, including the Balkans; South America; men and women in uniform with 492,728 in the active\nAfrica; and in numerous other locations. In addition, force, 189,005 in the Army Reserve (USAR) and 333,177\nSoldiers perform much essential work throughout the in the Army National Guard (ARNG). In addition, the\nUnited States, to include providing homeland defense, Army employed 235,645 civilian personnel.\nsupporting \xef\xac\x81re\xef\xac\x81ghting efforts in national forests, and\nmost recently, supporting the relief effort following\nHurricanes Katrina and Rita.\n Operation Iraqi Freedom and Iraq\n Reconstruction\n Operation Iraqi Freedom continues to be the most\n signi\xef\xac\x81cant mission in terms of troop levels and other\n resources. The Army force at the end of the \xef\xac\x81scal year\n\xe2\x80\x9cWe are the best Army in the world consisted of approximately 105,000 active and reserve\nwithout a question. We just want to be component Soldiers. These Soldiers continue to assist\n the Iraqi people on their path toward a democratic\na better Army.\xe2\x80\x9d state through the elimination of insurgents, provision\n of security, training of Iraqi security forces, and\n The Honorable Francis J. Harvey, Secretary of the Army\n rebuilding of Iraqi infrastructure. On January 30, 2005,\n they worked with the Iraqi security forces to provide\n security for a high voter turnout and the successful\nThis 21st century security environment is one election of the new Iraqi assembly.\ncharacterized by uncertainty and unpredictability. The\nArmy is transforming to adapt to this environment, The United States Army Corps of Engineers (USACE)\nat a pace that is steadily increasing due to the is involved signi\xef\xac\x81cantly in the reconstruction of Iraq\xe2\x80\x99s\ndemands of being at war. The transformation effort infrastructure. Its Gulf Region Division has execution,\nis focused on the Army\xe2\x80\x99s centerpiece, the Soldier, and quality control, and quality assurance oversight of\nspeci\xef\xac\x81cally on improving the capabilities of Soldiers the Iraq Reconstruction and Relief Program. These\nto accomplish their missions. This focus ensures the military, civilian, and contractor professionals not\nArmy accomplishes its mission of providing necessary only deal with the normal issues and concerns of\nforces and capabilities to the combatant commanders, rebuilding a crumbling infrastructure, but must do\nand realizes its vision of remaining relevant and ready, so under threat of attack from insurgents. Progress\ntoday and tomorrow. nonetheless is being made. The USACE, working\n with the Iraq Project and Contracting Of\xef\xac\x81ce, which\n manages the approximately $18.4 billion Iraq Relief\n and Reconstruction Fund, certi\xef\xac\x81ed over 1,600 of the\n 3,200 planned infrastructure projects as successfully\n completed by the end of the \xef\xac\x81scal year. In fact, in June\n 2004, when Iraq transitioned to sovereignty, just over\n\n\n\n\n 1\n\x0cMaj. Roger Alsup, a Missouri National Guardsman from the U.S. Army Corps of Engineers and Army engineers from Alaska-based Company C, 864th Engineer Combat Battalion, level a\nprincipal of T.S. Hill Middle School in Dexter, Mo., distributes school supplies to Iraqi children in portion of the nearly completed 117-kilometer TK Road, stretching from Kandahar to Tarin\nFallujah. (by Norris Jones) Kowt, Afghanistan. (by 1st Lt. Laura Walker)\n\n\n200 projects were started. Today, more than 2,700\nprojects have been started. Improvements have been Homeland Security\nmade to schools, hospitals, rail stations, bridges, water Homeland security is a team effort lead by the\ntreatment stations, electric power plants, oil processing Department of Homeland Security. Within the\nfacilities, and many other infrastructure areas. Department of Defense (DoD), the mission of\n supporting homeland security rests with the U.S.\nOperation Enduring Freedom \xe2\x80\x93 Northern Command (USNORTHCOM) whose\nAfghanistan roles include homeland defense and civil support.\nOperation Enduring Freedom continues as well. At Speci\xef\xac\x81cally, the command\xe2\x80\x99s mission is to conduct\nthe end of the \xef\xac\x81scal year, the Army had approximately operations to deter, prevent, and defeat threats\n15,000 Soldiers in Afghanistan supporting the Afghan and aggression aimed at the United States and its\npeople\xe2\x80\x99s quest for freedom and democracy. Signi\xef\xac\x81cant territories, and to assist civil authorities as directed by\nprogress continues with the presidential election the President or the Secretary of Defense. The Army\xe2\x80\x99s\nbeing held in October 2004 followed by parliamentary role in ful\xef\xac\x81lling this mission is executed primarily by\nelections in September 2005. In addition to the the ARNG.\nelections, success was achieved through continued\nimprovements in security and infrastructure. The\nAfghan National Army continues to grow in number\nand skill as well as the Afghan National Police, which\nwelcomed its \xef\xac\x81rst class of graduates from the Kabul\nPolice Academy. On the infrastructure side, one of the\nUSACE\xe2\x80\x99s major efforts is the construction of roads in\norder to extend transportation routes into more rural\nareas of the country. One speci\xef\xac\x81c project, the road\nlinking the cities of Kandahar and Tarin Kowt, was\n\xef\xac\x81nished in September 2005. Enhancing transportation\nwithin Afghanistan will strengthen the newly elected\ngovernment\xe2\x80\x99s credibility throughout the nation. In\naddition, the Afghanistan \xe2\x80\x93 Tajikistan Bridge Project\nwas started in March 2005. Upon its completion in\n2007, the bridge will signi\xef\xac\x81cantly enhance the market Army Reserve Soldiers from the 357th, 366th and 401st Chemical Companies, practice\n nuclear, chemical and biological decontamination and treatment procedures for simulated\neconomy of both nations. Work also continues to casualties at a joint civilian-military exercise at Fort McCoy, Wisc. (by Staff Sgt. Brian D.\nimprove schools, hospitals, and other infrastructure Lehnhardt)\n\nprojects.\n\n\n2 FY 2005 in Review | FY 2005 Army Annual Financial Statement\n\x0cThe USNORTHCOM and National Guard Bureau,\nwhich includes both the Army and Air National\nGuards, held a homeland defense conference in\nFebruary 2005 in order to ensure both parties know\nhow to work together in accomplishing the mission\nof defending the homeland. Army involvement in\nhomeland security included participation in numerous\ntraining exercises including Alaska Shield/Northern\nEdge 2005. Alaska Shield/Northern Edge provided a\nwide range of simulated natural disasters and terrorist\nactions in 21 Alaskan communities. The purpose was\nto challenge civilian and military \xef\xac\x81rst responders and\ntest organizational and integration skills at all levels of\ngovernment. In addition, Soldiers from Fort Hood\xe2\x80\x99s\n Paratroopers from the 82nd Airborne Division, perform a search and rescue mission in \xef\xac\x82ood-\n4th Infantry Division participated in a USNORTHCOM ravaged New Orleans. (by by Staff Sgt. Christopher J. Crawford Sr)\n\nquick reaction force (QRF) exercise at Lackland Air\nForce Base. The QRF exercises are designed to ensure the restoration of communications infrastructure, and\nground forces can be deployed rapidly throughout the the provision of security. The USACE also played a\nUnited States to accomplish the command\xe2\x80\x99s homeland critical role, repairing damaged levees, pumping \xef\xac\x82ood\ndefense mission. ARNG Soldiers participated in water out of New Orleans, and repairing damaged\nOperation Winter Freeze, a three-month operation homes, among other support missions.\nwith the U.S. Customs and Border Patrol along the\nU.S. \xe2\x80\x93 Canadian border, to keep terrorists out of the Transformation\ncountry and to break up smuggling rings supporting The Army continued to move forward in all of its\nthe terrorist threat. transformation initiatives, to include several of the\n most important: modularity, rebalancing, stabilization,\nIn addition to assisting with homeland defense growing the operational Army, and business process\noperations and training, the Army played a major role transformation. Success in these initiatives is crucial to\nin the civil support mission, particularly in providing becoming a 21st century Army able to meet current and\nsupport after Hurricane Katrina that struck the Gulf future threats.\nCoast in early September followed closely by Hurricane\n The reorganization of war\xef\xac\x81ghting units into new,\nRita. Katrina brought devastation unprecedented by\n modular brigade combat teams (BCTs) continued with\nany other natural disaster in the United States and, as\n 12 more BCTs, to include one Stryker BCT becoming\na result, required unparalleled support from the DoD operational, and seven new BCTs created in FY 2005.\nand Army. The ARNG committed over 50,000 troops The modularity initiative ultimately will result in more\nto the recovery operation, supported by more than combat power for the Army along with more ef\xef\xac\x81cient\n7,000 Soldiers from the active Army. These Soldiers and effective planning and logistics support due to the\nparticipated in rescue and recovery operations, the standardized makeup of the modular brigades.\nprovision of medical care, the distribution of supplies,\n\n\n\n\n\xe2\x80\x9cWe\xe2\x80\x99re on a continual path to transformation. We\xe2\x80\x99re never going to arrive\nsomeplace that we\xe2\x80\x99re going to stop. It\xe2\x80\x99s open-ended. It\xe2\x80\x99s forever.\xe2\x80\x9d\n General Peter J. Schoomaker, Chief of Staff of the Army\n\n\n\n\n 3\n\x0cThe current and future security environments have ef\xef\xac\x81ciently as possible to free up resources for the\nrequired the Army to begin a rebalancing of its active operational Army and its war\xef\xac\x81ghting mission.\nand reserve component forces to ensure the right\ncapabilities exist, in the right numbers and within the\nright component, to enhance mission accomplishment.\nProgress continued in FY 2005 with the rebalancing \xe2\x80\x9cAny activity that you undertake,\nof over 26,000 positions. This rebalancing also will\nresult in reduced stress on high demand/low density you have to approach it almost\nunits and will improve readiness for rapid response\noperations.\n everyday asking yourself a very simple\n question\xe2\x80\xa6what will I do today or\nThe stabilization of Soldiers within units and at\ninstallations is critical to both unit combat effectiveness what have I done today to change and\nand Soldier and family quality of life. The Army\nis implementing life cycle management in its new\n improve this organization? That\xe2\x80\x99s\nbrigades with the goal of Soldiers being assigned transformation.\xe2\x80\x9d\nto a BCT for 36 months. This enhances the combat\ncapabilities of the unit along with predictability and The Honorable Francis J. Harvey, Secretary of the Army\nquality of life for Soldiers and their families. The\nArmy brought \xef\xac\x81ve BCTs under the new life cycle\nmanagement plan in FY 2005 with one more following Numerous initiatives have either been energized\nshortly thereafter. The combination of the modularity, or have come into existence in the business\nrebalancing, and stabilization initiatives result in an transformation arena. One of the most signi\xef\xac\x81cant\nArmy Force Generation model that is much improved is the application of the Lean/Six Sigma business\nand that will reduce the stress on the force signi\xef\xac\x81cantly. process improvement tool. These techniques are being\n applied to manufacturing, repairing, resetting, service,\nAnother critical initiative in which the Army is and administrative processes. In the manufacturing,\nmaking progress is growing its operational force repairing, and resetting arenas, the Army Materiel\nstrength from 315,000 to 355,000 by the end of Command is using Lean/Six Sigma extensively,\nFY 2007. This is necessary to ensure proper manning particularly at its numerous depots. The results are\nof the new modular BCTs, the redesigned division impressive. At Letterkenny Army Depot, for example,\nand corps headquarters, and the maneuver support savings from the application of Lean/Six Sigma are\nand sustainment units of the operational Army. In projected to be $21.5 million for the period FY 2003-\nFY 2005, approximately 8,000 positions in the 2006. In addition, it enabled the depot to handle an\ninstitutional Army were converted from military increase in workload of 52 percent from FY 2004 to\nto civilian staf\xef\xac\x81ng, thus releasing Soldiers for the FY 2005 with a manning increase of just 27 percent.\noperational Army. The goal for military to civilian\nconversions by the end of the program is 29,000. The Army is also using the Base Realignment and\nThe balance of 11,000 Soldiers to be added to the Closure (BRAC) program to further its transformation\noperational force will come from a reduction in the efforts. At the end of the \xef\xac\x81scal year the President\nnumber of Soldiers not assigned directly to units. submitted to Congress recommendations that\n included closing 12 and realigning six major Army\nBusiness Transformation installations. The process allowed the Army to make\n more sound restationing decisions for the modularized\nBusiness transformation has grown signi\xef\xac\x81cantly in\n BCTs to ensure power projection capabilities are\nimportance within the Army in FY 2005. Limited\n optimally positioned to meet the challenges of the 21st\nresources in conjunction with a very high optempo\n century, and to take maximum advantage of existing\nsecurity environment have required the institutional\n infrastructure assets.\nArmy to ensure it is operating as effectively and\n\n\n\n\n4 FY 2005 in Review | FY 2005 Army Annual Financial Statement\n\x0cFinancial Management Transformation Army Systems, Controls, and Legal\nand Improvements Compliance\nThe Army is also transforming its \xef\xac\x81nancial The Army continues to move forward with the\nmanagement. One of its most signi\xef\xac\x81cant advances implementation of its Chief Financial Of\xef\xac\x81cers (CFO)\nin FY 2005 came with the awarding of the General Strategic Plan, which is designed to synchronize\nFund Enterprise Business System (GFEBS) contract. Army efforts via a single comprehensive management\nGFEBS will modernize the Army\xe2\x80\x99s business operations plan with the overall objective of providing quality\nthrough a world-class integrated business system information to decision-makers. High-quality\nthat provides transparent, auditable \xef\xac\x81nancial information is one of the foundations required for\ninformation in real time to enhance the management achieving a favorable audit opinion.\nof the Army\xe2\x80\x99s resources. It will replace old, outdated\ntechnology, improve the commander\xe2\x80\x99s ability to The plan is moving forward in numerous areas. In\n\xef\xac\x81nance requirements, and provide cost information one example, the Of\xef\xac\x81ce of the Assistant Secretary of\nthat managers can use to manage their operations. the Army (Financial Management and Comptroller)\nIt is a commercial software product widely used in (OASA (FM&C)) worked with the Defense Finance and\ngovernment and industry and will become the common Accounting Service (DFAS) to create interfaces between\nsystem that provides a single authoritative source for Army property systems and the DFAS Corporate\nthe Army\xe2\x80\x99s \xef\xac\x81nancial management information. The Database (DCD), a component of the Business\ntimeline for full implementation is aggressive, with the Enterprise Information Services infrastructure required\n\xef\xac\x81rst technical demonstration scheduled for 2006 and by the DoD Business Management Modernization\nfull operational capability to come in 2009. Program. Successful completion of this initiative\n will produce automated quarterly reporting of Army\nThe Joint Reconciliation Program also is helping to General Property, Plant, and Equipment (GPP&E),\nimprove the Army\xe2\x80\x99s \xef\xac\x81nancial results. Army efforts streamlining current \xef\xac\x81nancial reporting processes and\nto reduce unliquidated obligations for canceling moving the Army toward eliminating manual data.\nappropriations were again successful as it reduced\nthe balance from $409 million at the beginning of Another example involves the Integrated Facilities\nFY 2005 to an ending balance of $21 million. This is a System (IFS), an installation business system that\nkey performance measure for public sector \xef\xac\x81nancial addresses public works functions to include real\nmanagement effectiveness and reduces the potential property inventory, job cost accounting, work\nrequirement of the Army having to use current estimating and management, supply, and contract\nresources for past years\xe2\x80\x99 requirements. administration. The Army has modi\xef\xac\x81ed IFS to make\n it compliant with the Federal Financial Management\nIn FY 2005 the Army also continued implementation of Integrity Act (FFMIA) of 1996 in terms of its ability\nthe Defense Travel System (DTS), deploying DTS to all to provide accurate, reliable, and timely \xef\xac\x81nancial\n29 sites scheduled for the year. DTS is an e-commerce information to Army managers regarding real\ninitiative that reduces the number of steps a traveler property. In FY 2005, the U.S. Army Audit Agency\nmust execute by more than half. In addition, each (USAAA) performed an audit and assured that the\ntravel voucher processed using DTS saves the Army system modi\xef\xac\x81cations provide the necessary capabilities\napproximately $25 compared to those processed by to ensure compliance. Efforts now turn toward\nlegacy \xef\xac\x81nancial systems, a savings of over 500 percent assessing the accuracy of real property data.\non voucher processing alone. When fully deployed,\nDTS will support over 3.2 million military and DoD Full implementation of the Army CFO Strategic Plan\ncivilian personnel who make approximately 5.6 million will result in the elimination of noncompliant \xef\xac\x81nancial\ntrips annually. management and feeder systems, the introduction and\n\n\n\n\n 5\n\x0cSoldiers from 1st Battalion, 508th Infantry Regiment, 173rd Airborne Brigade, board a CH-47 Chinook helicopter for a counterinsurgency operation near Mangritae, Afghanistan. (by Spc. Harold\nFields)\n\n\nuse of state-of-the-art \xef\xac\x81nancial management systems, high-quality information thus produced will enable\nand the introduction of more effective and ef\xef\xac\x81cient Army leaders to make better decisions and to provide\nbusiness processes and management controls. The better support to the Soldier.\n\n\n\n\n6 FY 2005 in Review | FY 2005 Army Annual Financial Statement\n\x0cPhoto Credits\nTable of Contents Photo\nSoldiers from 1st Battalion, 155th Brigade Combat Team and Marines from the 2nd Air Naval\nGun\xef\xac\x81re Liaison Company, search for insurgents who launched mortars at them near Al\nIskandariyah, Iraq. (by Kurt Gibbons II)\n\nYear in Review Opening Photo\nSoldiers from 2nd Platoon, Troop C, 4th Squadron, 14th Cavalry Regiment, keep a sharp\nlookout for insurgents while fellow Soldiers and Marines (not shown) search an area of Iraq\nnear the Syrian border for weapons caches. (by Tech. Sgt. Andy Dunaway)\n\n\n\n\n 7\n\x0c General Fund\n\n The war that we\xe2\x80\x99re currently engaged in, this level of\n operational demand, in fact is both a stressor on the force, as\n well as a vehicle to help us change because it gives us velocity.\n It gives us additional resources we otherwise wouldn\xe2\x80\x99t have.\n General Peter J. Schoomaker, Chief of Staff of the Army\n\n\n\n\n8 General Fund | FY 2005 Army Annual Financial Statement\n\x0cGeneral Fund \xe2\x80\x93 Management\xe2\x80\x99s Discussion & Analysis\nOverview\nThe Army General Fund is the largest Army\nfund. It \xef\xac\x81nances military operations; supporting\nservices; personnel; facilities; procurement; research,\ndevelopment, test, and evaluation (RDT&E); and\nnearly every other function required to keep the Army\noperating. A majority of the General Fund\xe2\x80\x99s revenue\ncomes from congressional appropriations. In FY 2005,\nthe Army received over $149 billion in appropriations Vision\nfrom Congress. The Army vision is to remain the world\xe2\x80\x99s preeminent\n landpower, relevant and ready at all times to serve the\nMission nation. The Army must fully train and appropriately\nThe Army mission is to support the National Security organize its forces, develop innovative and adaptive\nand Defense Strategies by providing well-trained, leaders, and design support structures in accordance\nwell-led, and well-equipped forces to the combatant with the new global security environment. The Army\ncommanders. This mission encompasses the intent of must supply its combatant commanders with the forces\nCongress, as de\xef\xac\x81ned in Title 10 of the United States necessary to meet and defeat any adversary, in any\n(U.S.) Code, to: situation, at any time.\n\n1) Preserve the peace and security, and provide Organization\n for the defense, of the U.S., the territories,\n The Army is a very large and complex organization.\n commonwealths, and possessions of the U.S., and\n Soldiers are its centerpiece, focus, and key component.\n any areas occupied by the U.S.;\n The Soldier either makes up the various organizational\n2) Support the national policies; elements of the Army, or is the reason for the element\xe2\x80\x99s\n3) Implement national objectives; and existence. The Soldier is a professional, the ultimate\n expression of what the Army provides to the nation.\n4) Overcome any nations responsible for aggressive\n acts that imperil the peace and security of the U.S. The Army, however, consists of more than just\n Soldiers. It also includes civilians in leadership\nThis mission has been unchanged for the 230 year and support roles at all levels. Civilian employees\nexistence of the Army, but the environment and nature are essential to the successful accomplishments of\nof con\xef\xac\x82ict have undergone many changes over time, the Army mission and the Soldiers. Soldiers and\nespecially recently with the Global War on Terrorism civilians alike are united by the common purpose of\n(GWOT). This has required the Army to undergo a service to the nation. A third tier of personnel are the\nsimultaneous transformation process in the way that civilian contractors who provide specialized support\nit \xef\xac\x81ghts and in the way that it trains and equips its and services to sustain and enhance readiness and\nSoldiers. This transformation is progressing rapidly, operations. All three groups - Soldiers, Army civilians\nbut must be taken to its full conclusion if the Army is to and contractors - serve the Army in both the garrison\nbe relevant and ready, today and into the future. and deployed environments.\n\n The Army is organized with the primary objective of\n supporting the mobilization, training, deployment,\n and sustainment of its Soldiers, anywhere in the\n world. The Headquarters, Department of the Army\n (HQDA) leads and manages the entire Army according\n\n\n\n 9\n\x0c Relevant and Ready Landpower in Service to the Nation\n\n The Nation has entrusted the Army with preserving its\n peace and freedom, defending its democracy, and providing\n opportunities for its Soldiers to serve the country and\n personally develop their skills and citizenship. Consequently,\n we are and will continuously strive to remain among the most\n respected institutions in the United States. To ful\xef\xac\x81ll our solemn\n obligation to the Nation, we must remain the preeminent land\n power on earth-the ultimate instrument of national resolve;\n strategically dominant on the ground where our Soldiers\xe2\x80\x99\n engagements are decisive.\n\n The Honorable Francis J. Harvey, Secretary of the Army\n April 2005\n\n\n\n\n10 General Fund | FY 2005 Army Annual Financial Statement\n\x0c Staff Sgt. Chris Golde, a squad leader with Company A, Task Force 1-21, 25th Infantry\n Division, patrols Kirkuk, Iraq. (by Spc. Sean Kimmon)\n\n\n\n\n \xe2\x80\x9cArmy Values, Soldier\xe2\x80\x99s Creed, Warrior Ethos\xe2\x80\xa6 These three statements\n establish the guiding value and standards of the Army profession. To understand\n Soldiers, you must know about them. To be a Soldier, you must live them.\xe2\x80\x9d\n CSA, MAY 2005\n\n\n\n\nto the instructions of the Executive Of\xef\xac\x81ce of the requirements of the 21st century security environment.\nHeadquarters, which includes the Secretary of the\nArmy and the Chief of Staff. It is within the Executive Below headquarters level the Army is organized into\nOf\xef\xac\x81ce that decision making authority is uni\xef\xac\x81ed, the major commands (MACOMs) within which most\nenabling responsive actions to the dynamic mission Soldiers, civilians, and contractors reside (see Figure 2).\n\n The Inspector Chief of Legislative DUSA(OR)\n General Liaison\n Chief of Public\n DUSA Affairs\n Admin. Army Auditor\n Assistant General\n Small &\n General Disadvantaged\n Counsel Business Utilization\n\n SECARMY\n ASA Acquis ASA USA Executive\n ASA\n Manpower &\n ASA\n Installs and ASA Log. & Tech Financial Mgmt. & Chief Info Director Office the\n Reserve Affairs Environ Civil Works [Mil Dep\n Acquis]\n Comptroller [Mil\n Dep Budget]\n Officer G-6 Army Staff CSA HQDA (EOH)\n VCSA\n SMA\n ACS Installation Chief of Engrs\n G-1 * G-4 * G-8 * G-3/5/7 G-2 Chief of\n Mgmt. * * ** The Judge Chaplains\n Advocate\n General\n OGC Oversight The Surgeon\n MACOMs General **\n Clearly defined responsibilities to ASA\n Chief\n Oversight NGB\n Chief Army\n * Responsible to ASA for advice and assistance in functional area Reserve\n ** MACOM Commander *As of September 30, 2005\n\n Figure 1. Headquarters, Department of the Army (HQDA)\n\n\n\n 11\n\x0cOf these, Forces Command (FORSCOM) is the largest, facilities, and equipment necessary to best prepare\nencompassing the majority of the Army combat Soldiers for their mission. Examples of the institutional\norganizations (e.g. armies, corps, divisions, brigades, Army functions and facilities are:\nbattalions, companies, platoons, and squads) and\nmore than 730,000 Soldiers of the active and reserve Accessions\ncomponents. Training\n Figure 2. Major Commands (MACOMS) Doctrine development\n Eighth U.S. Army, Korea Human resource management\n Military Surface Deployment and Distribution Command (SDDC),\n VA, United States\n Medical support and health sustainment\n U.S. Army Corps of Engineers (USACE), DC, United States Civil engineer and infrastructure support\n U.S. Army Criminal Investigation Command, VA, United States Acquisition and procurement activities\n U.S. Army Europe (USAREUR), Germany\n Organic industrial facilities\n U.S. Army Forces Command (FORSCOM), GA, United States\n Laboratories and research centers\n U.S. Army Intelligence and Security Command, VA, United States\n U.S. Army Materiel Command (AMC), VA, United States Hospitals and clinics\n U.S. Army Medical Command (MEDCOM), TX, United States Corps of Engineers districts\n U.S. Army Military District of Washington, DC, United States\n The operational Army, led by FORSCOM, provides the\n U.S. Army Paci\xef\xac\x81c Command (USARPAC), HI, United States\n landpower capabilities for the combatant commander.\n U.S. Army South (USARSO), TX, United States Within the operational Army, the transition from a\n U.S. Army Space and Missile Defense Command (SMDC), VA, division-centric war\xef\xac\x81ghting force to a brigade-centric\n United States force continues. At the heart of this change is the\n U.S. Army Special Operations Command (USASOC), NC, United modularization and standardization of Army brigade\n States combat teams, a process that will see the evolution of\n U.S. Army Training and Doctrine Command (TRADOC), VA, a more rapidly deployable, \xef\xac\x82exible, and powerful force.\n United States\n Viewed by component, the Army can be separated\n into the active and reserve components. The active\nThe Army organization can be broken down by component consists of full-time Soldiers and Army\ncomponent or according to functionality. In terms civilians assigned to the operational and institutional\nof functionality, it divides into institutional and organizations that perform the day-to-day Army\noperational arms. The institutional Army mission is missions. Congress annually reviews and mandates\nto support the war\xef\xac\x81ghter by providing the training, the number of Soldiers that the Army may maintain.\n\n\n\n\n\xe2\x80\x9cThe metaphor of the racecar to describe the difference between the operational\narmy and the institutional army, I think, is a good one. The pit crew would be the\ninstitutional army. It\xe2\x80\x99s those things that stand behind the operational force and\nenable it to be properly trained, properly equipped, properly recruited, properly\nmanned and properly structured.\xe2\x80\x9d\n MG N. Ross Thompson, III, Army Director of Program, Analysis and Evaluation\n\n\n\n\n12 General Fund | FY 2005 Army Annual Financial Statement\n\x0c component. Throughout FY 2005 and immediate prior\n \xef\xac\x81scal years, the Army has experienced unprecedented\n high levels of reserve component activation and\n deployment. This fact, combined with brigade\n modularization, makes this the period of most\n profound change in the Army since World War II.\n\n 21st Century Strategic Framework and\n Army Transformation\n\n \xe2\x80\x9cThe security environment of the 21st\n century is characterized in particular\nSoldiers from the 3rd Infantry Division move swiftly into their M1A1 Abrams Main Battle Tanks\nfor a mission to Baqubah, Iraq. (by Staff Sgt. Suzanne Day)\n by what we call irregular warfare\nThe reserve component comprises of the ARNG and\n which we see going on real time in\nthe USAR. The ARNG has two missions: federal and Iraq with counterinsurgencies coupled\nstate. Its federal mission is to provide trained and\nready forces for wartime, national emergencies, and with stability and reconstruction\nother missions. Its state mission is to train for and operations.\xe2\x80\x9d\nrespond to domestic emergencies and other missions\nas required by state law. Unless federally mobilized, The Honorable Francis J. Harvey, Secretary of the Army\nARNG units are commanded by their state executive,\nusually the governor. On November 19, 2004 the Army appointed its\n 19th Secretary, Dr. Francis J. Harvey. It is the\n responsibility of the Secretary to direct the Army in\n pursuit of its vision, and Dr. Harvey accordingly has\n introduced a strategic framework within which the\n Army will operate as it maneuvers through today\xe2\x80\x99s\n unpredictable security environment. This environment\n is characterized by what is predicted to be a persistent\n state of con\xef\xac\x82ict presenting the Army with four types\n of challenges: traditional, irregular, catastrophic, and\n disruptive (see Figure 3). It is an environment far\n different from anything that the Army has faced in the\n past, and requires signi\xef\xac\x81cant and rapid transformation\n to remain relevant and ready.\n\n Within this framework (see Figure 4), the Army\nSoldiers from the Tactical Psychological Operations Team 1092, 155th Brigade Combat Team,\npatrol Tak, Iraq, in their Bradley Fighting Vehicle. (by Lance Cpl. Michael J. O\xe2\x80\x99Brien)\n has four overarching and interrelated strategies for\n accomplishing its mission of providing necessary\nThe USAR is the primary federal reserve force forces and capabilities to the combatant commanders\nof the Army. The primary role of the USAR is to in support of the National Security and Defense\nprovide specialized units and resources to support Strategies. The effective and ef\xef\xac\x81cient achievement of\nthe deployment and sustainment of Army forces these strategies is imperative to success; imperative\naround the globe. In addition, the USAR is the main to reaching the Army\xe2\x80\x99s strategic vision. The\nsource of individual Soldiers for headquarters staff common thread uniting each of these strategies is\naugmentations and to \xef\xac\x81ll vacancies in the active transformation.\n\n\n\n 13\n\x0cFigure 3. The Security Environment\n\n The Security Environment\n Likelihood\n IRREGULAR CATASTROPHIC\n\n\n\n\n Higher\n Irregular challenges from the adoption or employment of unconventional Catastrophic challenges involving the surreptitious acquisition, possession, and\n methods by non-state and state actors to counter stronger state opponents \xe2\x80\x93 possible terrorist or rogue employment of WMD or methods producing\n terrorism, insurgency, civil war, etc. WMD-like effects.\n\n Seeking to erode U.S. power Seeking to paralyze U.S. power\nVulnerability\n\n\n\n\n Ethnic War; Guerrilla; Insurgency; Terror WMD; Rogue, Terrorist; Homeland Missile Attacks\n\n Lower Higher\n TRADITIONAL DISRUPTIVE\n Traditional challenges posed by states employing legacy and advanced Disruptive future challenges emanating from competitors developing,\n military capabilities and recognizable military forces, in long established, possessing, and employing breakthrough technological capabilities intended to\n well-known forms of military competition and conflict. supplant our advantages in particular operational domains.\n\n\n\n\n Lower\n Seeking to challenge U.S. power Seeking to marginalize U.S. power\n Legacy Nuclear Forces; Uniformed Militaries Cyber-War; Directed Energy; Genetic Weapons; Nano Weapons\n\n\n\n\nThe four strategies are to: (1) develop ready and\n Soldier\xe2\x80\x99s family. Soldiers ultimately accomplish the\nrelevant land forces for the 21st century security\n mission and therefore the focus must be on them to\nenvironment; (2) train and equip Soldiers to serve\n ensure they are prepared in every way to perform their\nas warriors and grow adaptive leaders; (3) attain\n duties at the highest possible level.\na quality of life for Soldiers and their families that\nmatches the quality of their service; and (4) provide The performance results section that follows details the\ninfrastructure to enable the force to ful\xef\xac\x81ll its strategic progress throughout FY 2005 that the Army has made\nroles and missions. Each strategy has a number of toward each of its four strategic goals.\nsupporting initiatives, 21 in all. These strategies and\ninitiatives are necessary to meet today\xe2\x80\x99s commitments\nwhile preparing for the future. Their common focus Business Transformation\nis the Soldier, directly in the provision of training and Business transformation has been given a new and\nresources and indirectly in the provision of care for the stronger emphasis with Secretary Harvey\xe2\x80\x99s arrival.\n There have been detached business transformation\nFigure 4. The Strategic Framework initiatives within the Army for many years, but they\n have lacked the focus required for business enterprise\n 21st Century Security Environment transformation. The Army Posture Statement for 2005\n \xe2\x80\x9cAn Era of Uncertainty: Unpredictability, Misinformation and clearly states that business transformation is a strategic\n Misconceptions\xe2\x80\x9d Four Challenges: Traditional, Irregular, imperative. Focusing on the war\xef\xac\x81ghter, the statement\n Catastrophic and Disruptive\n mandates that all resources be expended ef\xef\xac\x81ciently in\n support of the effectiveness of the operational Army.\n This imperative requires a fundamental change in the\n Mission way the business of the Army is viewed as well as the\n Vision Provide necessary forces and manner in which it allocates resources and measures\n Relevant and Ready capabilities to the Combatant\n Landpower in Service Commanders in support of the the effectiveness of the employment of those resources.\n to the Nation National Security and\n Defense Strategies\n The primary goal of business transformation is to\n streamline or eliminate redundant operations and\n to redirect resources to the war\xef\xac\x81ghting mission. To\n Four Overarching and Interrelated Strategies accomplish this goal, the Army has set for itself the\n 21 Supporting Initiatives objectives for establishing a performance culture;\n\n\n\n14 General Fund | FY 2005 Army Annual Financial Statement\n\x0c\xe2\x80\x9cWe are looking at transforming the entire system that supports the Soldier both at\nhome and on the battle\xef\xac\x81eld and provides us an Army where we have a great deal of\ncon\xef\xac\x81dence that what we are \xef\xac\x81elding are whole teams that have been together, that\nare well-equipped, well-trained, and capable of accomplishing a wide range of tasks\nfor the challenges of the 21st century.\xe2\x80\x9d\n General Peter J. Schoomaker, Chief of Staff of the Army\n\n\n\n\nimprove its reset, repair, manufacturing, and business combines Six Sigma and Lean manufacturing\nprocesses; outsource where it makes sense; apply techniques to achieve both greater ef\xef\xac\x81ciency and\ninformation technology; and empower its leaders to increased quality or effectiveness. This approach\nmake the necessary changes and hold them accountable has been adapted for use in management and\nfor their decisions. administration as well as in traditional industrial\n operations. The Army has conducted executive-level\nInitiatives are underway to accomplish the goal training and identi\xef\xac\x81ed high payoff processes in which\nof transforming business processes and achieving to employ Lean/Six Sigma. The Army has completed\nsigni\xef\xac\x81cant ef\xef\xac\x81ciencies. The Army will use the a \xef\xac\x81rst round of process reviews that included the\nresources harvested from these efforts to provide planning, programming, budgeting, and execution\nadditional war\xef\xac\x81ghting capabilities as well as to process and the processes and functions associated\ncontinue the transformation of business processes. with the Of\xef\xac\x81ce of the Administrative Assistant to the\nBelow are short descriptions of the major initiatives Secretary of the Army. The Army anticipates at least\nor associated efforts that the Army will leverage to a 30 percent reduction in personnel resources in these\nachieve additional ef\xef\xac\x81ciencies. two process areas with the use of the Lean/Six Sigma\n process. Lean/Six Sigma is also being applied to some\n\xe2\x80\x9cWe have to look at how we do business. of the Army\xe2\x80\x99s manufacturing and repair processes at\n depots of the Army Materiel Command.\nLean Six Sigma is reducing the cycle\n Information Management Systems Portfolio\ntime of processes used to conduct Management: This process takes a disciplined and\nbusiness. They could be manufacturing logical approach to reviewing information technology\n (IT) enabling processes against required capabilities\nprocesses; they can be repair processes. to determine redundancies and gaps. In addition to\n providing the management tool to eliminate redundant\nIt applies to everybody. It applies systems and applications, this process also allows\nto the factory \xef\xac\x82oor; it applies to the enforcement of \xef\xac\x81nancial statutory requirements\n associated with information management systems.\nthe engineering; it applies to the The cost savings from the elimination of redundant\nadministration.\xe2\x80\x9d systems will contribute signi\xef\xac\x81cantly to the funding of\n IT modernization and enabling business process re-\n The Honorable Francis J. Harvey, Secretary of the Army engineering initiatives.\n\nLean/Six Sigma: This is a manufacturing best Institutional Army Adaptation: This initiative entails\nbusiness practice process improvement tool that a critical review of the institutional, or business, side\n\n\n\n\n 15\n\x0cof the Army with the objective of focusing the business As previously stated, the Army is using every\nprocesses and organization structure to provide opportunity and is making a signi\xef\xac\x81cant culture change\nmaximum effectiveness and ef\xef\xac\x81ciency to optimize to transform the business of the Army. Changing\nits support of the operational side. Organizations business practices has many potential bene\xef\xac\x81ts\nsuch as the Training and Doctrine Command and such as focusing on increasing effectiveness while\nthe Army Materiel Command are being assessed to reducing costs. The goal of the Army\xe2\x80\x99s fundamental\ndetermine the business processes that are core and business enterprise transformation effort is to create\nessential to the missions of these commands and, from revolutionary results through continuous assessments\nthat, the organizational structure that best supports of business processes and incremental transformation.\nthe execution of these processes. The Army expects The bene\xef\xac\x81ts that the Army will garner from this\nto realize signi\xef\xac\x81cant human resource savings as the initiative are increased capabilities and resource\nrecommendations of this initiative are put into place. ef\xef\xac\x81ciencies that will result in better support to the\n Soldier.\nBusiness Initiatives Council: The Business Initiatives\nCouncil (BIC) has been in place since 2001 and has\ngenerated signi\xef\xac\x81cant improvements. It initially\n Financial Management Strategic\nconsisted of both a DoD component and an Army Framework and Transformation\ncomponent, but currently is focused within the In accordance with the Army strategic context update,\nservice. Initiatives undertaken to date by the BIC have the OASA (FM&C) updated its own strategic priorities\nfocused on areas such as privatization of installation for \xef\xac\x81nancial management (see Figure 5).\nhousing and guest lodging, cost effective approaches\nto environmental characterization and clean up, The Army \xef\xac\x81nancial management team must execute\n these priorities in a \xef\xac\x81nancial management environment\nef\xef\xac\x81cient methods of providing for household moves\n characterized by tight budgets, an emphasis on\nfor Soldiers, and a number of other projects in that\n controls, increasing accountability and transparency,\nvein. In addition, initiatives have been identi\xef\xac\x81ed that\n the need for timely resource decision-making,\nare function or task focused, but have had similar enterprise systems, and an emphasis on results-\ncost effectiveness impacts. This program operates oriented governance. It is in this environment that\nacross the Army and actively encourages participation the Army \xef\xac\x81nancial management community must\nfrom everyone at all levels to substantially improve accomplish its mission of providing the resources\noperating methods. In the case of the BIC, these are to support Army missions while controlling the\nnot con\xef\xac\x81ned to the realm of the institutional Army, but distribution of funds, accounting for assets, and\nalso include numerous initiatives focused on delivering ensuring the ef\xef\xac\x81cient and effective stewardship of the\noperational capability. nation\xe2\x80\x99s resources entrusted to the Army.\n\nBase Realignment and Closure (BRAC): The \xef\xac\x81nancial management strategic priorities are:\nWhile BRAC is concerned with the alignment of (1) close the gap between Army requirements and\ninfrastructure with Army and joint current and future funding, (2) improve the quality of the \xef\xac\x81nancial\nrequirements, there are opportunities to identify other management information systems, (3) improve\nef\xef\xac\x81ciencies and process improvements leveraging the accountability and management controls for the\nBRAC analyses and recommendations. For example, Army enterprise, and (4) execute effective \xef\xac\x81nancial\norganizations that are relocating may be analyzed to management. Just as with the Army overarching\ndetermine if processes performed can be made more priorities, the common thread woven through\nef\xef\xac\x81cient and effective, thereby reducing the personnel each of these priorities is transformation. The \xef\xac\x81rst\nand associated infrastructure requirements. To priority supports the provision of well-trained,\nperform these analyses before relocating can conserve equipped Soldiers, and adaptive leaders while each\ntransportation funding as well as limit the potential of the last three priorities directly supports business\nconstruction or modi\xef\xac\x81cation requirements at the transformation initiatives. The OASA (FM&C) moved\nreceiving location.\n\n\n\n\n16 General Fund | FY 2005 Army Annual Financial Statement\n\x0cFigure 5. Strategic Priorities for Army Financial Management\n\n 21st Century Financial Management Environment\n Constrained budget Emphasis on controls\n Increasing accountability, transparency Need for timely resource decision-making\n Enterprise systems Emphasis on results-oriented government\n\n Intent: Army financial management will be an effective, efficient provider of support to the Joint and expeditionary Army.\n Mission: Provide the resources to support Army missions. Control the distribution of funds, account for Army assets\n and ensure the efficient and effective stewardship of the Nation\xe2\x80\x99s resources entrusted to Department of the Army.\n\n\n Loyalty \xe2\x80\x93 Duty \xe2\x80\x93 Respect \xe2\x80\x93 Selfless-Service \xe2\x80\x93 Honor \xe2\x80\x93 Integrity \xe2\x80\x93 Personal Courage\n\n Overarching Strategy: Overarching Strategy: Overarching Strategy: Overarching Strategy:\n 1. Close the gap between Army 2. Improve the quality of financial 3. Improve accountability and 4. Execute effective\n requirements and funding management information systems management controls for financial management\n the Army enterprise\n\n Human and Financial Resources\n Risk: Increasing or constant requirements in the face of limited resources.\n\n\nforward with each of its priorities in FY 2005, as provide Army decision makers with more relevant\ndetailed below. and reliable \xef\xac\x81nancial information, but it will also\n eliminate a substantial number of legacy systems by\nNarrowing the Requirements Gap: First, the integrating their functionality. At this point, the OASA\nArmy planning, programming and budgeting (FM&C) has identi\xef\xac\x81ed 252 candidate legacy \xef\xac\x81nancial\ncommunities are working to narrow the gap between management systems and have developed a timeline\nrequirements and resources by exercising greater for eliminating 29. Decisions for the remaining\ndiscipline throughout the requirements generation systems will be made as GFEBS development and\nand prioritization process. The OASA (FM&C) implementation continues.\ninitiated a plan to review requirements and associated\nhistorical data to determine potential opportunities for Improving Accountability and Management\nreductions or divestitures. It also devised a strategy to Controls: The OASA (FM&C) made progress in\nbetter estimate and monitor acquisition costs in order improving accountability and management controls\nto enhance decision making and determine if there are by hiring a new principal deputy for controls who\nany opportunities for reductions. Finally, the OASA will focus on this particular strategy. Strong controls\n(FM&C) continued to improve the communication are a requirement for ensuring proper management\nof the Army story to the American public, including of Army resources and that information is accurate\nCongress, to ensure that the members of Congress and and timely. The OASA (FM&C) also has progressed\ntheir staff are fully educated on Army programs. in budget performance integration (BPI) metrics\n having associated 83 percent of the Army\xe2\x80\x99s total\nImproving Financial Management Information obligation authority with BPI metrics, meeting the DoD\nSystems: The OASA (FM&C) moved forward in requirement of 80 percent for FY 2006. In addition, the\naccomplishing its strategy of improving the quality OASA (FM&C) continued to improve management\nof \xef\xac\x81nancial management information systems by controls by monitoring their implementation progress\nawarding the General Fund Enterprise Business System for Anti-de\xef\xac\x81ciency Act cases, government travel and\n(GFEBS) contract. Not only will this new commercial- purchase card delinquencies, and Defense Travel\noff-the-shelf enterprise resource planning system System usage.\n\n\n\n\n 17\n\x0cExecuting Effective Financial Management: Finally, programming, budgeting, and execution process with\nthe OASA (FM&C) enhanced \xef\xac\x81nancial management the goal of allowing for continuous resource decision\nthroughout FY 2005 by applying Lean/Six Sigma to making informed by strategy, priorities, execution\nseveral of the Army\xe2\x80\x99s internal processes that resulted analysis, and changing global conditions.\nin signi\xef\xac\x81cant time and money savings. The Army\nstreamlined its BIC procedure by cutting the process The Army CFO Strategic Plan has been updated to\ntime in half and simpli\xef\xac\x81ed both the Anti-De\xef\xac\x81ciency include these and other initiatives to ensure the Army\nAct and Contract Disputes Act processes to reduce makes consistent progress toward reaching each of\ninvestigative cycle time and interest payments, these priorities along with achieving a favorable audit\nrespectively. In addition, the Army Comptroller opinion on its \xef\xac\x81nancial statements. The CFO Strategic\nProponency of\xef\xac\x81ce provided training, education, Plan is the Army\xe2\x80\x99s road map to full compliance with\nand leadership development opportunities to the the Chief Financial Of\xef\xac\x81cers (CFO) Act of 1990. The\nfuture \xef\xac\x81nancial management workforce by exceeding plan continues to result in better quality information\nprofessional training and education enrollment level being provided to Army leaders, decision makers, and\ngoals in each quarter. The resource management stakeholders enabling them to make more informed\ncommunity also has begun the revision of the planning, decisions.\n\n\n\n\nA Soldier from the 35th Infantry Regiment, 25th Infantry Division (Light), in Zabol Province, Afghanistan, carefully scales the side of a homemade ladder to search for Taliban insurgents and\nweapons caches. (by Spc. Jerry T. Combes)\n\n\n\n\n18 General Fund | FY 2005 Army Annual Financial Statement\n\x0cGeneral Fund Performance Goals, supporting this strategy are:\nObjectives, and Results Build a campaign-quality force with joint and\nThe current national security environment requires expeditionary capabilities;\nthe Army to be engaged fully to provide capabilities\nrequired to \xef\xac\x81ght and win the GWOT and to sustain Enhance joint interdependence;\nthe full range of the nation\xe2\x80\x99s global commitments. Reset the force;\nAdditionally, the security environment demands the\nArmy transform its forces today to meet tomorrow\xe2\x80\x99s Convert to a brigade-based modular force;\nneeds by providing a campaign-quality Army with Rebalance active and reserve component units and\njoint and expeditionary capabilities. As previously skills;\nstated, the Army is pursuing four overarching and\n Stabilize Soldiers and units to enhance cohesion\ninterrelated strategies to meet both today\xe2\x80\x99s and\n and predictability;\ntomorrow\xe2\x80\x99s needs.\n Leverage Army science and technology programs;\nThis section describes the Army FY 2005 performance\n Spin out Future Combat Systems (FCS) capabilities\ngoals, objectives, and results in terms of its four\n in the current force; and\nstrategies and supporting initiatives. Since the\nArmy must address both operational demands and Restructure Army aviation.\ntransformation initiatives, the results indicate how the\nperformance is balanced within the defense strategy\xe2\x80\x99s Initiative: Build a campaign-quality force with joint\nfour spheres of risk -- force management, operational, and expeditionary capabilities.\ninstitutional, and future challenges. The results of An environment of persistent con\xef\xac\x82ict requires\nthe report also describe how the Army will ful\xef\xac\x81ll the a campaign-quality force capable of sustaining\nobligation to defend the nation and its interests by signi\xef\xac\x81cant levels of commitment. The Army will\nremaining the preeminent landpower on earth, ready provide that force through modular conversion,\nto meet the challenges of the complex 21st century development and implementation of the Army force\nsecurity environment. generation (ARFORGEN) model, development and\n \xef\xac\x81elding of the FCS, and several of the other initiatives.\n\nArmy Performance Results Modular conversion is at the heart of the strategy\nThe four major strategies laid out by Army leadership to build a campaign-quality force with joint and\nare supported by 21 initiatives. These 21 initiatives expeditionary capabilities. Modular conversion\nare constructed to guide the Army through the migrates capabilities previously found in divisions and\ntransformation of the operational force and corps to the brigade, enabling the Army to be more\nstreamlining of business processes. The Army is in the responsive to combatant commander requirements\nprocess of aligning all programs to the 21 initiatives. and providing increased capabilities to the joint force\nSome of the initiatives have mature performance commander. Additionally, modular army, division,\nmeasures that are currently reporting actionable and corps headquarters provide the combatant\nresults. These initiatives will be discussed in detail commander with readily deployable, scalable,\nbelow. headquarters that are joint task force or coalition joint\n force capable.\n\nStrategy: Develop Ready and Relevant Land Forces for ARFORGEN, when fully implemented, will enable\nthe 21st Century Security Environment the Army to routinely sustain a commitment of up to\nThe Army\xe2\x80\x99s \xef\xac\x81rst overarching strategy is to develop 20 brigade combat teams (BCTs) and surge to provide\nready and relevant land forces in support of the 40 BCTs on short notice, if required, providing a\ncombatant commanders and the joint force to sustain truly campaign-quality force. The Army has made\nthe full range of global commitments. The initiatives signi\xef\xac\x81cant progress on the ARFORGEN model in FY\n\n\n\n\n 19\n\x0c2005 and will publish a complete implementation plan Initiative: Convert to a brigade based modular force.\nin January 2006. Conversion to the Army modular force (see Figure\n 6) started in FY 2004 and continues today. This\nThe Army is also providing combatant commanders conversion touches all aspects of the Army\xe2\x80\x94from\nwith improved joint and expeditionary capabilities structure to training methodologies to the global\nthrough the development and \xef\xac\x81elding of the FCS. FCS- footprint of the force\xe2\x80\x94enabling the Army to be more\nequipped BCTs will provide the joint force commander responsive to combatant commanders\xe2\x80\x99 requirements.\nwith a truly expeditionary force capable of \xef\xac\x81ghting\non arrival, even on a distant battle\xef\xac\x81eld. Mature FCS\ntechnologies will be spun out to the \xef\xac\x81eld well before\nfull \xef\xac\x81elding, providing the current force with increased\ncapabilities.\n\nInitiative: Enhance joint interdependence.\nJoint interdependence is essentially the purposeful\nreliance on other services to provide required\ncapabilities to Army units. As part of ongoing\ntransformation efforts, the Army has substantially\nreduced the number of artillery and air defense units\nwithin its force structure. The Army has done this in\nrecognition of the fact that sister services, as part of\na joint team, can deliver these capabilities to ground\n Soldiers from 2nd Squadron, 14th Cavalry Regiment, roll through the desert in their Stryker\nforces. The Army re-invested resources from this vehicle during a patrol near the Iraq/Syria border. (by Staff Sgt. Kyle Davis)\ndivestiture into additional brigade combat teams and\nother forms of landpower that provide the joint force Figure 6. Conversion to a Brigade Based Modular Force\nwith capabilities complimentary to those of the other This graphic depicts\nservices. units that have\n converted to the\nInitiative: Reset the force. modular (BCT)\nMajor combat operations in Iraq and Afghanistan structure; units Deployed\nare placing tremendous demands on the Soldiers trained, equipped,\nand equipment. The reset program is designed to and ready to deploy;\naddress the effects of combat stress on equipment and units that will Modular Prior To FY 2005\nand to prepare that equipment and Soldiers for future restructure in the\nmissions. In FY 2005, the 4th Infantry Division and upcoming year.\nthe 101st Airborne Division (Air Assault) completed\nthe reset program. The 2nd Light Cavalry Regiment,\nthe 10th Mountain Division, the 1st Armored Division,\nthe 76th Infantry Brigade (Indiana), the 30th Infantry\nBrigade (North Carolina), and the 82nd Airborne Next to Deploy\nDivision are in various stages of the reset program. Trained, Equipped, and Ready To Deploy\n in FY 2005\n\nAmidst the constant demands of war, equipment is\naging far more rapidly than projected. In FY 2005, the\nArmy goal was to recapitalize over 6,500 tracked and\nwheeled vehicles. The Army exceeded this goal in\nFY 2005 funding the recapitalization of a total of 7,050\ntracked and wheeled vehicles. Units Scheduled To Convert After FY 2005\n\n Denotes new Active Brigade\n\n\n\n\n20 General Fund | FY 2005 Army Annual Financial Statement\n\x0cThe modularity initiative represents the transition eliminate over-structure in the reserve components to\nof the Army from a division-centric structure to one \xef\xac\x81ll remaining units to 100 percent. Under this initiative\nthat is centered on the BCT. The conversion increases the Army will restructure over 125,000 positions by FY\nthe number of active brigades from 33 to 43 and the 2011.\ntotal number of brigades (active and reserve) in the\nrotational pool to 77. Modular conversion standardizes The Army had planned to rebalance over 26,000\nbrigade formations across the active and reserve force positions this year and it met that goal. Currently,\nand increases capabilities of the BCTs by organizing the Army remains on track to complete the rebalance\nthem the way they will operate. In combination with initiatives by FY 2011. Additionally, the Army\nARFORGEN, lifecycle manning, and other initiatives, continues to identify and convert positions in its\nmodular conversion will reduce stress on the force by institutional force from military to civilian to free up\nincreasing the number of BCTs in the rotational pool additional Soldiers to \xef\xac\x81ll requirements in the operating\nand enabling predictable rotation cycles. Additionally, force. The Army met the FY 2005 goal by converting\nmodular brigades will provide the organizational 7,604 positions from military to civilian.\nframework for implementing the Future Combat Force\nStrategy (FCFS). Initiative: Stabilize Soldiers and units to enhance\n cohesion and predictability\nIn FY 2005, the goal was for 11 BCTs and one Stryker To improve unit cohesion and readiness, while\nbrigade to be operational. The Army achieved this goal reducing both turbulence in units and uncertainty for\nby converting four brigades from the 101st Airborne families, the Army has changed how it mans units.\nDivision (Air Assault), three brigades from the 10th Under lifecycle management, the Army stabilizes\nMountain Division, four brigades from 4th Infantry Soldiers inside a BCT for approximately 36 months.\nDivision, and the 172nd Stryker (SBCT), completing the Lifecycle management will build more deployable,\nmodular conversion of four of the Army\xe2\x80\x99s ten divisions. combat capable units while also improving long term\nThese BCTs are trained, equipped, and ready, and will stability, predictability, and quality of life for Soldiers\ndeploy in support of Operation Iraqi Freedom (OIF) or and their families. In FY 2005 the Army planned to\nOperation Enduring Freedom (OEF) in FY 2006. resource six BCTs under lifecycle management. To\n date the Army has implemented lifecycle management\nThe Army\xe2\x80\x99s newly created modular formations are in \xef\xac\x81ve BCTs with the sixth unit coming on-line in\nmaking a difference now. The FCFS will allow the October 2006.\nArmy to take advantage of technologies as they are\ndeveloped and place them into the hands of Soldiers. Initiative: Spin out future combat systems capabilities\n into the current force.\nTable 1. Convert to a Brigade-Based Modular Force The FCS program is a holistic approach to designing\n and producing a family of manned and unmanned\n FY 2005 Goal FY 2005 Actual\n systems that are fully networked, information based,\n Number of BCTs ready to deploy 11 11 and integrated across the Army as part of the joint\n Number of SBCTs \xef\xac\x81elded 1 1 team. FCS will use evolutionary acquisition to develop,\n \xef\xac\x81eld, and upgrade FCS components throughout their\nInitiative: Rebalance active and reserve component lifecycle. The Army will accelerate \xef\xac\x81elding of select\nunits and skills. FCS capabilities (called spin outs) to reduce operational\nTo meet the demands of the new security environment, risk to the current force. The modular formations,\nthe Army is rebalancing the active and reserve enabled by FCS, will ensure Soldiers and leaders have\ncomponents in order to: increase the Army\xe2\x80\x99s the capabilities needed to win decisively whenever and\ncapabilities in military police, military intelligence, wherever the nation calls them to do so.\nspecial forces, chemical, civil affairs, and psychological\noperations; decrease the necessity for involuntary The Army restructured the FCS program to accelerate\nmobilization of reserve component units during the introduction of battle command, the Army\nthe \xef\xac\x81rst 15 days of a rapid response operation; and network, and other crucial capabilities to the current\n\n\n\n 21\n\x0cforce, while continuing to build the initial FCS- allowed the Army to modularize, modernize, and\nequipped BCT. Accelerating the \xef\xac\x81elding of battle improve force protection for aviation units, to include\ncommand capabilities to establish a more capable and accelerated \xef\xac\x81elding of aircraft survivability equipment.\nreliable network will support the DoD goal to bring Modernizing the \xef\xac\x82eet will reduce maintenance costs,\nthe joint community closer to a common operational increase survivability, and improve readiness rates.\npicture. The linkage brings improved situational Key components of the aviation modernization plan\nawareness, which will allow war\xef\xac\x81ghters to see, include: resetting aircraft as they return from Iraq and\nunderstand, and strike \xef\xac\x81rst. Afghanistan; producing more MH-47G\xe2\x80\x99s; converting\n aviation brigades to support the Army Modular Force;\nIn FY 2005 the Army continued to deploy critical and recapitalizing UH-60A\xe2\x80\x99s and CH-47D\xe2\x80\x99s.\ncommunications systems to provide timely and\naccurate command and control information to the Table 2. Restructure Army Aviation\nSoldier in the \xef\xac\x81eld. These systems included:\n FY 2005 Goal FY 2005 Actual\n Single Channel Ground and Airborne Radio Number of Aircraft Reset (Mix of 480 506\n OEF/OIF Returning Aircraft)\n System (SINCGARS), a versatile data and voice\n communications system that operates on the MH-47G Produced 13 13\n digitized battle\xef\xac\x81eld; Combat Aviation Brigades (CAB) 5 5\n UH-60 A-A Recapitalization 26 26\n Multi-Band Interoperable Tactical Radio (MBITR),\n a light weight hand held tactical radio; CH-47 D-D Recapitalization 3 3\n\n Force Battle Command, Brigade and Below\n (FBCB2)/ Blue Force Tracking (BFT), a digital This program is on track and already is paying\n battle command information and integrating dividends. Due to decreased reset costs, the Army was\n system that provides near real-time common able to complete more aircraft than originally planned.\n picture, navigation tools, messaging capability, Also, initial data show that Army recapitalized aircraft\n and force tracking capability for immediate have a 20 percent higher mission capable rate and are\n battle\xef\xac\x81eld identi\xef\xac\x81cation. experiencing less than 1 percent non-mission critical\n failures.\n Enhanced Position Location Reporting System\n (EPLRS), the mobile wireless data communications\n backbone for the Army\xe2\x80\x99s Tactical Internet, which Strategy: Train and Equip Soldiers to Serve as\n Warriors and Growing Adaptive Leaders\n also works with FBCB2.\n Training and equipping Soldiers to serve as\nThese systems supplied tactical internet capabilities warriors and growing adaptive leaders is the second\nfor four divisions and three BCTs in OIF and OEF overarching strategy. The initiatives in this area are:\nduring FY 2005. In FY 2006, the Army plans to\ncontinue to equip the forces with these systems, Reinforce the centerpiece: Soldiers as warriors;\nwhich will enhance mission effectiveness and Soldier Recruit and retain Soldiers;\nsurvivability signi\xef\xac\x81cantly. Each acquisition or\ndevelopmental system has a detailed development plan Equip Soldiers;\nand milestones. The milestone decision authority must Train Soldiers and grow adaptive leaders; and\nreview progress and approve further development at\n Enhance the combat training centers.\neach key decision gate. In addition, program managers\nreport monthly the cost, schedule, and performance Initiative: Reinforce the centerpiece: Soldiers as\nvariance from the plan for each system. warriors.\n Human skills may change as technology and warfare\nInitiative: Restructure Army aviation.\n demand greater versatility. No matter how much the\nIn February 2004, the Army canceled the Comanche\n tools of warfare improve, it is the Soldier who must\nhelicopter program. Reallocation of Comanche funding\n\n\n\n22 General Fund | FY 2005 Army Annual Financial Statement\n\x0cexploit these tools to accomplish the mission. The the GWOT. Several factors have contributed to the\nSoldier will remain the ultimate combination of sensor dif\xef\xac\x81cult recruiting environment. These include low\nand shooter. unemployment, the GWOT, a lower youth propensity\n to serve, and a greater reluctance of parents and other\nMental and physical toughness underpin the beliefs in\xef\xac\x82uencers to recommend military service.\nembraced in the Soldier\xe2\x80\x99s Creed and must be\ndeveloped within all Soldiers \xe2\x80\x94 without regard to their Table 4. Active Component End-Strength Within 2%\nspecialty, their unit, or their location on the battle\xef\xac\x81eld.\n FY 2003 2004 FY 2005\nIn FY 2005 the Army implemented the additional rigor\nand relevance directed by the Chief of Staff, Army\xe2\x80\x99s Goal 480,000 482,400 502,400\nWarrior Ethos concept. The program of instruction Temporary Authority NA NA 512,400\nin basic combat training increased the Soldier\xe2\x80\x99s Actual 499,301 499,543 492,728\nwar\xef\xac\x81ghting capability through enhanced training on Percent Delta 4.0% 3.6% (2.0%)\n39 individual tasks and nine battle drills. The Army Performance Measure: The number of Soldiers on active duty at the end of the year.\nalso began implementation of the new of\xef\xac\x81cer education\nsystem in FY 2005 and created the Basic Of\xef\xac\x81cer Leader The selected reserve accession goal in FY 2005 was\nCourse II to focus on critical warrior tasks for all newly 91,487 (63,002 ARNG and 28,485 USAR). The ARNG\ncommissioned of\xef\xac\x81cers. Finally, the Intermediate Level missed its accession goal in FY 2005 by 12,783. The\nEducation (ILE) program replaced the Command and USAR also missed its accession goal by 4,626. Lower\nGeneral Staff Of\xef\xac\x81cer Course expanding the ability to than expected accessions, coupled with normal\neducate 100 percent of the Army\xe2\x80\x99s mid-grade of\xef\xac\x81cers attrition, meant that the selected reserve \xef\xac\x81nished the\nwhile creating focus on of\xef\xac\x81cers\xe2\x80\x99 speci\xef\xac\x81c career paths. year over 32,000 below desired end-strength. Despite\n the end-strength shortfalls, both the ARNG and USAR\nInitiative: Recruit and retain Soldiers. have continued to sustain operations for both federal\nRecruiting: In FY 2005, 73,373 Soldiers answered the and civil authorities. The hurricane support for Katrina\nnation\xe2\x80\x99s call to service by enlisting in the Army. The and Rita deployed over 51,000 ARNG Soldiers in both\nArmy achieved 92 percent of its FY 2005 goal of 80,000. state active duty and federal status.\nThis is the \xef\xac\x81rst shortfall since 1999. The Army is\nbeginning FY 2006 with its smallest pool of recruits in Table 5. Selected Reserve (USAR and ARNG) End-Strength\nthe delayed entry program pipeline in more than two Within 2%\n\ndecades -- just 12 percent of its yearly target of 80,000\n FY 2003 FY 2004 FY 2005\nrecruits.\n Goal 555,000 555,000 555,000\nTable 3. Recruiting Actual 562,981 547,049 522,182\n Percent Delta 1.4% (1.4%) (5.9%)\n FY 2003 FY 2004 FY 2005 FY 2005 Performance Measure: The number of Soldiers in the USAR and ARNG at the end of the year.\n Actual Actual Goal Actual\n Active Army 74,132 77,587 80,000 73,373 To address this recruiting shortfall, the Army increased\n Army Reserve 27,365 21,292 22,175 19,400 its recruiting force by over 4,000 recruiters (increasing\n Army National Guard 54,202 49,210 63,002 50,219 the numbers to 6,279 active, 1,774 USAR, and 5,100\n Performance Measure: Measures the number of Soldiers recruited during a given \xef\xac\x81scal year against ARNG recruiters). The Army has also increased\n the published goals.\n college fund grants to $70,000 for quali\xef\xac\x81ed active\n component applicants and increased the maximum\nThe Army did not achieve the end-strength of 502,400 enlistment bonus from $8,000 to $10,000 for reserve\nset by Congress, missing this requirement by 9,672. component, non prior service accessions.\nThe target end-strength supports the Army\xe2\x80\x99s plan\nto add 10 combat brigades (from 33 to 43 by the end Continuing to adapt its recruiting action plan to the\nof FY 2007) to the operational force and provides challenging environment, the Army set forth other\n\xef\xac\x82exibility while being simultaneously engaged in proposals that are currently pending congressional\n\n\n\n 23\n\x0capproval. The proposals include a $2,500 referral The USAR exceeded their goal by 237 Soldiers and\nbonus for Soldiers who in\xef\xac\x82uence friends and closed the \xef\xac\x81scal year at 102 percent of the FY 2005\nacquaintances to enlist in the Army. Other incentives retention mission by reenlisting 16,485. The ARNG\ninclude doubling the maximum enlistment bonus, closed out \xef\xac\x81scal year 2005 at 104 percent of the FY 2005\nfrom $20,000 to $40,000, for top-scoring recruits, and retention mission by exceeding their goal by over 1,200\na $45,000 tax free home mortgage down payment for Soldiers.\nSoldiers who stay in the service for six years. Finally,\n Table 6. Active and Reserve Component Retention\nthe ARNG and USAR increased the age limit for new\nrecruits from age 35 to 39. The age limit change alone\n FY 2003 FY 2004 FY 2005 FY 2005\nprovided 900 new Soldier contracts. The active Army Actual Actual Goal Actual\nis proposing the same age limit change. Active Army 54,151 60,010 64,162 69,512\n Army Reserve 13,749 16,330 16,248 16,485\nRetention: Another mitigating factor in easing the\n Army National Guard 52,832 47,012 32,570 33,804\nrecruiting shortfall is the Army\xe2\x80\x99s success in retaining\n Performance Measure: Measures the number of Soldiers reenlisted during a given FY against the\nSoldiers. In FY 2005, the Army exceeded its retention published goals.\ngoal for all three components -- active Army, ARNG,\nand USAR. The Army\xe2\x80\x99s success in retention indicates\n Recruiting Soldiers who are con\xef\xac\x81dent, adaptive,\nthat Soldiers believe in what they are doing and, once\n competent, and able to handle the full complexity\nrecruited, are inclined to stay. Additional bonus\n of 21st century warfare in this combined, joint,\nmoney was instrumental in capitalizing on this\n expeditionary environment is highly competitive and\nwillingness to serve. For instance, a bonus of $15,000\n very challenging.\nwas offered to any Soldier who reenlisted while\ndeployed to Iraq, Kuwait, or Afghanistan. Initiative: Equip Soldiers\n Operations in Iraq and Afghanistan have highlighted\n new needs for equipment, and particularly for\n protective equipment, for Soldiers. The Army is\n pursuing two programs in particular to protect\n deployed combat troops: the Rapid Fielding\n Initiative (RFI) and a program to armor high-mobility,\n multipurpose wheeled vehicles (HMMWVs).\n\n\n Figure 7. Rapid Fielding Initiative Status Report\n\n FY04 119,000\n 187,086\n FY05 449,426\n 448,647\n FY06 530,247\nCapt. Jeffrey T. Burgoyne, commander, Company B, 1st Battalion, 325th Airborne Infantry (1Q)\nRegiment, 82nd Airborne Division, shakes hands with his brother, Sgt. 1st Class Cliff Burgoyne,\n FY06 580,347\na platoon sergeant in the same battalion, after reenlisting him during a ceremony at Bagram (2Q)\nAir\xef\xac\x81eld, Afghanistan. (by Pfc. Mike Pryor)\n FY06 623,447\n (3Q) Planned\nThe active Army FY 2005 retention goal was 64,162. Issued\n FY06 670,047\nThe Army not only met this goal, but reenlisted 9,500 (4Q)\n\nmore Soldiers than last year achieving 108 percent of FY07 888,500\nthe retention mission. All 10 active divisions achieved\nbetter than 100 percent of their retention goals with 0 200000 400000 600000 800000 1000000\n Number of Soldiers Equipped\nthe 3rd Infantry Division, which is currently in Iraq,\n\xef\xac\x81nishing at 138 percent of their FY 2005 goal.\n\n\n\n\n24 General Fund | FY 2005 Army Annual Financial Statement\n\x0cRFI is one of the most innovative, cost-effective, and FY 2004 the initial requirement to equip 119,000\npopular programs that have been launched to ensure Soldiers quickly grew to 151,000 Soldiers, and by\ntroops are properly equipped for the GWOT. The RFI the end of September 2004 over 187,000 Soldiers had\nequipment issued re\xef\xac\x82ects the lessons learned during been equipped. To meet such dynamic demands, the\nthree years of \xef\xac\x81ghting in complex environments and program uses innovative business techniques such as\nincludes such items as optical sights for weapons, incentive contracts, just in time inventory, advanced\ngrappling hooks, door rams, and \xef\xac\x81ber optic viewers to packaging, and radio frequency identi\xef\xac\x81cation device\nenhance Soldiers\xe2\x80\x99 abilities to observe from protected tracking. An additional 263,000 Soldiers were\npositions. Other items enhancing the Soldier\xe2\x80\x99s equipped in FY 2005, bringing the current program\nsurvivability are advanced ballistic helmets, hydration total to 450,000 Soldiers.\nsystems, ballistic goggles, knee and elbow pads, and an\nimproved \xef\xac\x81rst aid kit. Initially providing 49 separate The Army goal is to provide armor for every vehicle\nitems of equipment to Soldiers and small units, focus required to operate off base. Up-armoring includes the\ngroups from various combat and combat support units addition of a protective turret shield around gunners,\nidenti\xef\xac\x81ed additional requirements resulting in the heavy doors with gun ports, armoring in the front and\ncurrent RFI list containing 58 items of equipment. rear quarter panels and the rocker panel beneath the\n door, ballistic window glass, bulletproo\xef\xac\x81ng behind\nThe RFI program is charged with equipping 888,000 the rear seats, and other protections not visible. The\nSoldiers of the operational Army by the end of FY armored doors feature new heavy-duty latches and\n2007 (see Figure 7) and has demonstrated tremendous have weather-stripping to keep out dust and sand.\nagility in responding to changing requirements. In Eighty-eight percent of all HMMWVs are now up-\n\n\n Figure 8. Equipping Our Soldiers: Soldier Protection Programs in Iraq and Afghanistan\n AREA WHERE WE WERE IN JANUARY 2005 WHERE WE ARE SEPTEMBER 2005\n SOLDIER BODY ARMOR All Soldiers and DoD civilians in theater All soldiers and DoD civilians in theatre\n equipped; plus 60,000 Deltoid Auxiliary equipped; 495,000 IBA/SAPI sets plus 173,000\n Protectors issued DAP issued\n UP-ARMORED HMMWVs More than 6,400 HMMWVs \xef\xac\x81elded 10,194 HMMWVs \xef\xac\x81elded\n\n\n TACTICAL WHEELED VEHICLE ADD- More than 19,000 vehicles in theatre have 23,292 vehicles in theatre have add-on-armor\n ON ARMOR KITS add-on armor kits kits (LVL I/II)\n ARMORED SECURITY VEHICLES 82 ASVs in theatre; total requirement of 872 158 FMC in theatre\n (ASV) approved\n\n BRADLEY REACTIVE ARMOR TILES 592 sets delivered; acceleration plan in 689 sets delivered; acceleration plan in\n (BRAT) execution execution\n\n COUTER-IED DEVICE 1,496 systems in theatre 20,757 systems in theatre\n\n\n TACTICAL AND SMALL UNMANNED 128 systems deployed; requirement remains 155 systems in theatre (9 Shadow / 146\n AERIAL VEHICLE (UAV) 194 Raven)\n\n\n AIRCRAFT SURVIVABILITY All theatre aircraft upgraded with basic ASE. All theatre rotary wing aircraft to be upgraded\n EQUIPMENT (ASE) In process of upgrading to an advanced with Common Missile Warning System/\n Common Missiles Warning System/Improved Improved Countermeasure Munitions\n Countermeasures Munitions Dispenser Dispenser (CMWS/ICMD) by 1st Quarter FY07\n (CMWS/ISMD)\n\n\n\n\n 25\n\x0carmored, and the remaining vehicles are restricted to operational tempo (OPTEMPO) miles per year for\noperating only on military bases. the M1 Abrams tank (live and virtual miles) and\n corresponding training support to execute fully\nOur up-armoring efforts help (see Figure 8) protect the combined arms training strategy. The active\nSoldiers from one of the main dangers to troops in component \xef\xac\x82ying hour program requires an average\nIraq, remotely triggered improvised explosive devices of 14.5 live \xef\xac\x82ying hours per aircrew each month to\n(IEDs). To combat this threat the Army now has over provide fully quali\xef\xac\x81ed and trained air crews.\n20,000 counter-IED devices in theatre. Additionally,\nall Soldiers and DoD civilians are now equipped In FY 2005 the Army over executed the number of\nwith interceptor body armor (IBA) and small arms OPTEMPO miles and hours because operational tempo\nprotective inserts (SAPI). is planned according to peacetime needs. The miles\n and hours shown in the table below include training\nInitiative: Train Soldiers and grow adaptive leaders. for deployments as well as mileage/\xef\xac\x82ight hours\nA balance of training and education is required to actually accomplished in support of OIF and OEF.\nprepare Soldiers to perform their duties. Training\nprepares Soldiers and leaders to execute complex Table 7. Ground and Air OPTEMPO (Active)\nmissions in accordance with FY 2002 FY 2003 FY 2004 FY 2005 Goal FY 2005 Actual\nthe precepts and guidelines Ground OPTEMPO (Mileage) 944 1,071 1,512 899 991\nof established doctrine,\n Air OPTEMPO (Flight Hours) 13.1 15.1 17.4 14.5 18.4\nwhile education gives them\n Performance Measure Ground: Compare average miles per tank executed versus goal.\nthe ability and con\xef\xac\x81dence Performance Measure Air: Total monthly hours/crew OPTEMPO versus goal.\n\nto adapt when uncertain * September 2005 Monthly Army Performance Review\n\nconditions demand an\napproach for which they cannot be prepared by formal Fully executing the OPTEMPO, which supports the\ntraining. combat readiness of Army Soldiers, is a top priority.\n The Army strategy incorporates an appropriate mix\n of live, virtual, and constructive training. The Army\n maximizes the use of training simulators because they\n provide cost-effective, on-demand combat training\n and reduce wear on ranges. The Engagement Skills\n Trainer 2000, a simulated \xef\xac\x81ring range, represents the\n new millennium in basic combat training techniques.\n Integrating computers and lasers to train basic ri\xef\xac\x82e\n marksmanship \xef\xac\x81ts well with American Soldiers who\n are accustomed to playing advanced-technology video\n games on computers.\n\n Initiative: Enhance the combat training centers.\n The Army undertook major efforts in FY 2005 to\n integrate lessons learned from all ongoing operations\n2nd Lt. Veltum, a Transportation Of\xef\xac\x81cer Basic Course student, leads fellow students through\ntactical maneuvers during Manassas Run, a week-long training exercise at Fort A.P. Hill, Va. into its individual Soldier and collective training. This\n(by Sgt. Jacob Boyer)\n required the adoption of the contemporary operating\nThe Army trains the way it intends to \xef\xac\x81ght, according environment at combat training centers (CTCs), which\nto a combined arms strategy that has armored vehicles resulted in a training regimen based on the realistic\nand aircraft at its center. The combined arms training missions and supporting activities. Training at the\nstrategy determines the resourcing requirements to CTCs prepares Soldiers and units for situations they\nmaintain the combat readiness of its forces. For the may encounter while deployed.\nactive component, the Army requires 899 ground\n\n\n\n\n26 General Fund | FY 2005 Army Annual Financial Statement\n\x0cThe overarching goal at the CTCs is to replicate\nthe increased complexity of the current and future\noperational environment in controlled circumstances.\nInvestment in the CTCs saves lives. Training sites\nwith mosques and Arabic city layouts populated with\nan indigenous Arabic-speaking population are now\nthe norm. This forces Soldiers and units to learn and\nemploy the language pro\xef\xac\x81ciency and interpreters\nnecessary to act in a culturally correct manner and deal\nwith civilians on the battle\xef\xac\x81eld. It also establishes the\nconditions for \xef\xac\x81ghting the insurgent forces of a speci\xef\xac\x81c\nculture.\n\nThe CTCs now incorporate more role players,\nnon-governmental actors, media representatives, Aerial view of Ft. Belvoir family housing.\n\nand sites with Arabic names. Para military forces,\npolice organizations, terrorists/criminals, and An area of the utmost concern for Soldiers and families\ndetainee operations are also an integral part of this is a fully functional and safe place to live. The Army is\ntraining. Information operations are addressed at on track to meet the FY 2007 adequacy goals (FY 2008\nthe fundamental level to ensure an understanding of overseas) at enduring installations by having programs\nthe importance of individual and unit actions as they and resources in place to eliminate inadequate\nrelate to the media and the impact of information on housing through privatization, construction, and\noperations. Finally, the Iraqi military and security divestiture. The Army\xe2\x80\x99s privatization of housing\nforces are replicated to ensure the unit in training efforts ensure sustainment of adequate housing to\nunderstands the interactions required with these types meets contemporary standards for the long term. In\nof units and how to best leverage that resource. FY 2005 the Army\xe2\x80\x99s privatization projects met its goals\n by improving 4,272 housing units from inadequate to\n adequate (2,409 renovations, 1,863 new constructions).\nStrategy: Attain a Quality of Life for Soldiers and Their To date, the Army has privatized over 59,000 units and\nFamilies that Matches the Quality of Their Service in the coming years will privatize 24,000 more - over\nThe third overarching strategy is to attain a quality 90 percent of the U.S. inventory. Privatization also\nof life and well-being for Soldiers and their families ensures long term sustainment of adequate housing\nthat match the quality of their service. The Army\xe2\x80\x99s that meets contemporary standards. Additionally, the\ninitiatives in this area are: Army completed the renovation and modernization of\n 8,204 barracks spaces in FY 2005.\n Maintain the viability of the all-volunteer force;\n and\n Strategy: Provide Infrastructure to Enable the Force to\n Care for Army families and Soldiers. Ful\xef\xac\x81ll Its Strategic Roles and Missions\nThe all-volunteer force is the backbone of the United The Army\xe2\x80\x99s fourth strategy is to provide infrastructure\nStates Army. Maintaining its viability is and always to enable the force to ful\xef\xac\x81ll its strategic roles and\nwill be an absolute priority. missions. Transformation of business, resourcing, and\n acquisition processes promotes the long-term health\nInitiative: Care for Army families and Soldiers. of the Army. The Army is working aggressively to\nThe Army well-being programs are vital in maintaining streamline business processes and practices by taking\nand improving retention rates. To remain successful in advantage of industry innovation, outsourcing, and\nthis area it must continue to provide exceptional well- partnering. The initiatives associated with this strategy\nbeing programs and to care for its Soldiers, veterans, are:\nand family members.\n\n\n\n\n 27\n\x0c Implement business transformation; system that will provide web-based, online, real-time\n transaction and information capability, and will be\n Maintain installations as \xe2\x80\x9c\xef\xac\x82agships of readiness\xe2\x80\x9d;\n accessible to all Army and DoD components. The\n Improve global force posture; GFEBS application will ful\xef\xac\x81ll the requirements of the\n Develop LandWarNet; and Federal Financial Management Improvement Act of\n 1996 and will be certi\xef\xac\x81ed by the U.S. Army Audit\n Implement BRAC (approved) recommendations. Agency (USAAA). GFEBS will allow the Army to\n comply with the Chief Financial Of\xef\xac\x81cer Act of 1990\nInitiative: Implement business transformation.\n by improving performance, standardizing processes,\nThe Army is achieving management improvement\n reducing legacy stove-piped systems, and providing all\nresults through the implementation of the \xef\xac\x81ve\n levels of leadership with reliable, relevant, and timely\ngovernment-wide initiatives of the President\xe2\x80\x99s\n \xef\xac\x81nancial information. The FY 2005 goal for GFEBS was\nmanagement agenda (PMA). There are tasks under\n to award a contract so the Army could begin work.\neach of the \xef\xac\x81ve major PMA initiatives (a total of 22\n That contract was awarded in June 2005.\ntasks). The Of\xef\xac\x81ce of the Secretary of Defense rates the\nservices and defense agencies quarterly on progress Initiative: Maintain installations as \xe2\x80\x9c\xef\xac\x82agships of\nusing a red, yellow, or green stop-light method. readiness\xe2\x80\x9d.\n(Army results are depicted in a follow-on section titled Installations are an essential component in maintaining\n\xe2\x80\x9cAdvancing the PMA.\xe2\x80\x9d) the premier army in the world. They are the platforms\n from which the Army rapidly mobilizes and deploys\nThe Army is improving the process of resourcing the\n military power and sustains its military families.\ncombatant commanders by changing the Planning,\n Installations play a vital role in training the force\nProgramming, Budgeting, and Execution (PPBE)\n and reconstituting it upon return from deployment.\nprocess. The goal is to commit the \xe2\x80\x9cright\xe2\x80\x9d resources\n Installations also provide deployed commanders\ninto the stewardship of commanders when needed,\n with the ability to reach back for information and\nseek ways to increase corporate resourcing \xef\xac\x82exibility,\n other support through advanced communications\nand increase near-term resourcing responsiveness for\n technology.\ncurrent operational requirements to support combatant\ncommanders and an Army at war \xe2\x80\x93 today and in the Installations continue to face many challenges as the\nfuture. Army focuses on the demands of current operations.\n For example, to enable the creation of new modular\nThe intent of a new PPBE process is to provide a\n brigades, the Army needs new facilities. The Army\nmore robust and responsive \xef\xac\x81nancial management\n must allocate construction funding for permanent\nsystem for the force. The FY 2005 goal was to develop\n facilities once the FY 2005 base closure and permanent-\na transparent system that provided a method for\n stationing decisions are completed. Additionally, the\nconducting cross-functional coordination. The\n Army is unable to meet the DoD goal of a facilities\nrevised process allows all stakeholders the ability\n recapitalization rate of 67 years. In FY 2006, the Army\xe2\x80\x99s\nto evaluate tradeoffs and prioritize needs within\n facilities recapitalization rate is 112 years, and funding\navailable resources and constraints. The Army\n plans indicate the Army will not achieve the 67-year\nestablished a program budget assessment team to serve\n recap rate until FY 2011.\nas a reviewing committee for all new and updated\nrequirements. When complete, the Army\xe2\x80\x99s PPBE Table 8. Facilities Recapitalization Rate1\nprocess will provide users the ability to update needs\nand monitor the resourcing process continuously. FY 2002 FY 2003 FY 2004\n Actual 80 104 1242\nAnother major area of business transformation is Goal 67 67 67\ninitial implementation of the General Fund Enterprise Performance Measure: This is de\xef\xac\x81ned as the number of years that it will take to replace all\nBusiness System (GFEBS). The GFEBS provides existing buildings at the current annual funding level [Recap Rate (years)=Value of Assets (Plant\n Replacement Value) divided by the Recap Investment].\nthe Army with an integrated \xef\xac\x81nancial management\n\n1\n The OSD goal stated in the Quadrennial Defense Report (QDR) is to drive down the recapitalization rate of facilities to 67 years.\n2\n The actual total Army FY 2005 Recapitalization Rate will not be computed until the release of the FY 2007 President\xe2\x80\x99s Budget.\n\n\n28 General Fund | FY 2005 Army Annual Financial Statement\n\x0cPerformance Measure: This is de\xef\xac\x81ned as the number States. The 2001 Quadrennial Defense Report (QDR)\nof years that it will take to replace all existing buildings highlighted the need for more agile, dispersed forces\nat the current annual funding level [Recap Rate to promote U.S. interests and to better respond to\n(years)=Value of Assets (Plant Replacement Value) challenges. In FY 2005 the Army developed a strategic\ndivided by the Recap Investment]. rebasing plan that is synchronized with the demands\n and realities of the GWOT (see Figure 9).\nInstallations also serve as \xe2\x80\x9cFlagships of Readiness\xe2\x80\x9d\nby improving force reception through their use as For example, the Army allocated $71 million for\npower projection platforms. These installations project renovation of facilities at Fort Carson for the 2nd\nthe equipment and capabilities by surface or air to Brigade of the 2nd Infantry Division\xe2\x80\x99s move from\nmeet requirements in the combatant commander\xe2\x80\x99s Korea. Prior to this undertaking, Fort Carson only had\noperational plans, the strategic planning guidance, suf\xef\xac\x81cient barracks to accommodate two maneuver\nand the joint swiftness objectives. The Army analyzes brigades adequately - the 3rd Armored Cavalry\nthroughput capability of railcars and aerial ports of Regiment and the 3rd Brigade, 4th Infantry Division.\nembarkation (APOEs) to measure the performance When completed, this FY 2005 project will satisfy\nof installations acting as power\nprojection platforms. In FY 2005,\nthe goal was for installations to Figure 9. Active Component Brigade Combat Realignment\n Korea\n Germany Italy\nachieve 100 percent throughput\ncapability for both railcars and\nAPOEs. Railcars achieved the\ngoal of 100 percent throughput\n Ft Lewis\ncapability, but APOEs only\nachieved a throughput capability\nof 72 percent. There are 15 APOE\n Ft Drum\nplatforms, eight of which are\nnot meeting their throughput Ft Knox\n Ft Riley\nrequirements. Deployment Ft Carson\n Ft Campbell\nrequirements and capabilities are\n Ft Bragg\n Ft Irwin\nbeing reexamined in light of the\n Ft Benning\nintegrated global presence basing\n Ft Bliss\nstrategy, base realignment and Ft Wainwright\n Ft Richardson Ft Hood\n Ft Polk Ft Stewart/HAAF\n\nclosure, and the Army modular\nforce initiative. These acute changes\nin the landscape might impact\nthe programming of deployment Schofield Bks / Shafter\n\n\ninfrastructure. the unaccompanied housing requirement for the 2nd\n Brigade by providing a third maneuver brigade set of\nTable 9. Throughput Capability\n barracks that complies with the DoD standard.\n FY 2005\n FY 2005 Goal Actual Initiative: Develop LandWarNet.\n Percent Railcar throughput capability 100% 100%\n LandWarNet (see Figure 10) is the Army portion of\n the Global Information Grid that will provide a jointly\n Percent APOE throughput capability 100% 72%\n interoperable and integrated network supporting\n commander-centric battle space communications. A\nInitiative: Improve global force posture combination of infrastructure and services, it will move\nThe Army has embraced DoD\xe2\x80\x99s strategy for changing both war\xef\xac\x81ghting and business information over a\nits global force posture as the Army realigns its seamless network.\ncapabilities to locations within the continental United\n\n\n\n 29\n\x0cFigure 10. LandWar Net\n\n\n WNW Sub-Network\n WIN-T WIN-T\n External Strategic\n Interop Network\n UE1\n\n\n WNW\n Sub-Network\n\n\n UA3\n\n AV C2V\n CIC\n\n BIC NAI 15\n CAB CIC\n FEC NAI 16\n\n\n\n NAI 17\n NLOS\n NLOS CIC CIC Battery\n\n\n\n\nLandWarNet will unify Army networks and units from is reviewing JTRS with the goal of bringing it back on\nthe tactical level to the combatant commander level, track.\nproviding all users with the ability to view the same\npicture of the battle space. Under the LandWarNet While WIN-T and JTRS are under development, the\numbrella, the War\xef\xac\x81ghter Information Network-Tactical Army is \xef\xac\x81elding the Joint Network Node (JNN) as an\n(WIN-T) will wirelessly connect vehicles with each interim communications network solution. The Army\nother along with distant units, command centers, met the FY 2005 plan (\xef\xac\x81eld to critical deploying units),\nand satellite networks. The Joint Tactical Radio by equipping all deploying units with JNN to enable\nSystem (JTRS) will extend the network to individual battle command on the \xe2\x80\x9cquick halt\xe2\x80\x9d \xe2\x80\x93 that is to enable\nSoldiers. WIN-T and JTRS will give Soldiers increased instant communications without the need to set up\nsituational awareness and information depth that antennae and other communications equipment.\ncurrently resides only at the brigade level and above.\nIn the future, these will enable commanders and Initiative: Implement BRAC (approved)\nleaders to use automated, collaborative decision- recommendations.\nsupport tools to plan, synchronize and virtually Base Realignment and Closure (BRAC) is a means to\nrehearse missions no matter where they are in the recon\xef\xac\x81gure the Army infrastructure into one where\nbattle space, while on the move. Commanders operational capacity is optimized for both war\xef\xac\x81ghting\nwill have the same mobility as their Soldiers while capability and ef\xef\xac\x81ciency, and to enhance joint activity\nmaintaining uninterrupted contact with the joint opportunities. BRAC will provide the Army a\nforce. Although the WIN-T program is proceeding comprehensive review of its installation inventory,\non schedule, the JTRS program is lagging. The Army eliminate physical capacity, align base structure\n with post-cold war force structure, and provide\n\n\n\n30 General Fund | FY 2005 Army Annual Financial Statement\n\x0copportunities for jointness. resource decisions. Performance management is the\n way the Army conducts its day-to-day business. The\nAt the end of FY 2005, the Army was awaiting the \xef\xac\x81nal Army\xe2\x80\x99s process of aligning programs with strategies\ndecision on the BRAC Commission report, which the allows it to measure successes and points to the areas\nPresident forwarded to Congress on September 15, that need extra effort.\n2005. The report recommended 12 major Army base\nclosures and 6 major Army base realignments that will The GWOT, coupled with supplemental funding over\nsatisfy the following Army goals. the past several years, has challenged the \xef\xac\x81nancial\n community to focus support for the current force and\n Reduce cost and generate savings of $2.5 billion strategies that will guide the Army into the future. The\n annually and a 20-year net savings of $28 billion; General Fund Annual Financial Statement provides\n Optimize military value; the \xef\xac\x81nal feedback for both Army leadership and the\n American taxpayer. It shows how the Army spent its\n Advance the Army modular force initiative; money and, through the performance budget, shows\n Accommodate the rebasing of overseas units; what the Army accomplished with those funds.\n Enable the transformation of both the active and\n reserve components as well as rebalancing the Future Effects of Existing Conditions\n forces; and\n The Risk Management Framework\n Contribute to joint operations.\n The Army has embraced the Quadrennial Defense\nWith the BRAC recommendations forwarded to Review risk management framework and has aligned\nCongress, the Army can begin to measure and report all performance management efforts with the four\nthe percentage of total acreage removed from the risk areas: force management risk, operational risk,\nArmy\xe2\x80\x99s books compared to its goals. institutional risk, and future challenges risk. The\n Army went one step further by adding a \xef\xac\x81fth risk area,\nWith regard to overall Army transformation, it is \xef\xac\x81nancial management risk, which cuts across all four\nimportant to note that the BRAC recommendations are QDR risk areas. Financial management risk is a key\nlinked inextricably to the Army modular force initiative consideration behind all of the Army\xe2\x80\x99s decisions in\nbecause they provide the optimum infrastructure to how to develop its performance budget and how to\nstand up, train, support, and rapidly deploy brigade resource its programs. All 21 strategic initiatives are\ncombat teams. Using installations as \xe2\x80\x9c\xef\xac\x82agships of aligned to the risk management framework.\nreadiness,\xe2\x80\x9d the Army will no longer focus on where\nthe wars of the 20th century ended, but rather look to\nthe future to project force against potential adversaries\nwho threaten national security. Force Management\n Risk Operational Risk\n\nConclusion\nThe 21st century \xef\xac\x81nancial management environment\ncontinues to be challenging as it is characterized\nby constrained budgets, increasing accountability,\ntransparency, an emphasis on controls, and the need Future Institutional Risk\nfor timely resource decision-making to fund an Army Challenges Risk\nthat gets results. To this end, the Army has developed\na budget performance integration system to assist\nsenior leadership to make timely, wise, and provident\n\n\n\n\n 31\n\x0cOperational Risk in active component personnel strength is helping\n the Army man its transforming modular BCTs now\nThe Army has done much to mitigate risk, in all\n undergoing activation or conversion.\ndimensions, but particularly in the operational risk\nquadrant. Operational risk relates to the ability to\ncreate plans that can be adapted quickly as events Future Challenges Risk\nunfold, train for the next real-time mission, and The management of future challenges risk requires the\nsupply Soldiers with what they need now. It relates Army to strike a balance between its current and future\nto achieving near-term objectives, not long-term investments, keeping risk at acceptable levels while\noutcomes\xe2\x80\x94thus, it is an important dimension of the meeting its current commitments and preparing for\nArmy\xe2\x80\x99s strategy, but not the entire strategy. future challenges. In the near-term, the Army plans to\n minimize future risks through the spin out of higher\nCreating modular units; \xef\xac\x81elding Stryker BCTs;\n payoff technologies into the current force (as they\nrestructuring Army Aviation following the cancellation become available).\nof the Comanche program; establishing the reset\nprogram; and initiating rapid \xef\xac\x81elding and rapid To meet future challenges, the Army is taking steps\nequipping programs are all helping to meet the to become a more effective member of the joint team,\ndemands for Army forces, while reducing the levels improve operational headquarters, and develop\nof operational risk. Due to dramatically increased transformational capabilities.\noperational tempo, the operational \xef\xac\x82eet\xe2\x80\x99s condition\nand age are affecting current equipment readiness.\nHigh mileage and \xef\xac\x82ight hours coupled with the severe Institutional Risk\nenvironmental conditions encountered in Iraq and Institutional risk relates to transforming institutional\nAfghanistan have placed greater stress on equipment processes to generate resources for the operational\nthan expected. Army. This includes improving management\n and business processes, implementing \xef\xac\x81nancial\n improvement initiatives, improving installations,\nForce Management Risk and providing support to the war\xef\xac\x81ghter. To reduce\nTo meet these challenges both today and in the future, institutional risk, the Army will continue to re\xef\xac\x81ne\nthe Army is pursuing numerous initiatives to reduce resourcing processes to make it more agile and\nforce management risk. The Army is working to responsive to the immediate requirements of the\nmaintain the viability of the all-volunteer force, and combatant commanders and to help prepare the Army\nis enhancing recruiting and retention programs. By for future challenges.\ndeveloping the Army modular forces, the pool of\nrotating units will increase signi\xef\xac\x81cantly and, thereby, The Army\xe2\x80\x99s investments in LandWarNet are improving\nreduce the stress on the force. The Army is working the installations\xe2\x80\x99 ability to project and sustain forces.\nto stabilize the force, to improve unit cohesion and The result is a more rapidly deployable force that\nreadiness, and to reduce uncertainty for families. It is requires less logistics overhead structure and has a\nalso pursuing personnel management improvements to greater capacity to reach back to home stations for\nposition the force for the future. intelligence, medical, and other essential support.\n\nNumerous initiatives are focused on reducing force The Army\xe2\x80\x99s investment accounts will be critical to\nmanagement risk. These include: establishing a its ability to maintain technological superiority and\nlarger pool of rotational forces through modularity; ensure the development and \xef\xac\x81elding of the future\nrebalancing the active and reserve components; force. The Army will need assistance to maintain\neliminating redundant capabilities; stabilizing these investment accounts to strike the proper balance\nthe force; enhancing recruiting and retention; and between supporting current operations and readiness,\nincreasing the personnel strength of the operational and investing in capabilities required to ensure future\nArmy. In addition, congressional approval of increases success. As the risk management framework continues\n\n\n\n\n32 General Fund | FY 2005 Army Annual Financial Statement\n\x0cto mature and grow, the Army will continue to utilize often were not trained adequately on their roles and\nits tenants of planning, examining results, and making responsibilities, or on the limitations of their authority.\ntradeoffs based on risk. Furthermore, they often lacked an understanding\n of speci\xef\xac\x81c contract requirements. In addition, there\n was an overall lack of surveillance plans, resulting\nManagement Integrity in a lack of systematic inspections and ineffective\nInherent throughout the Army is the belief that documentation of contract performance. Proper\ncommanders are responsible for all their units do or quality assurance procedures require surveillance\nfail to do. Two key components of this philosophy plans that serve as roadmaps for monitoring contractor\nare the requirement that management establish sound performance. This is a key element of establishing\nmanagement controls and that it act with integrity in strong internal controls that ensure the Army receives\nimplementing these controls at all levels of command. value for its serve-contracting dollar. Due in part to\nThe Army functional proponents are charged with the lack of documentation, procedures for validating\nidentifying and establishing sound management and approving contractor invoices sometimes were not\ncontrols and providing oversight to ensure compliance adequate.\nwith their management control directives.\n Since the weakness was \xef\xac\x81rst identi\xef\xac\x81ed, several major\nSince the inception of the Army management control commands have instituted ongoing actions to improve\nprocesses 22 years ago, Army commanders have contract administration. The \xef\xac\x81rst step for the Army\nreported 1,371 material weaknesses to the Secretary was to develop and improve administration and\nof the Army. Through the process of aggregating oversight of service contract guidance, with special\nsimilar problems and discarding lesser issues, the emphasis on the quality assurance process. During\nArmy leadership reported 231 material weaknesses to the fourth quarter of FY 2005, the USAAA reviewed\nthe DoD. Only six of these remain open. The current the corrective actions and validated that the weakness\nstatus of Army material weaknesses is: could be closed. In FY 2006, the Army will open a new\n material weakness relating to contract oversight and\n Open material weaknesses as of September 30, 2004 12 administration.\n Plus: New material weaknesses identi\xef\xac\x81ed in FY 2005 0\n Standard Procurement System (SPS) Interface to\n Less: Material weaknesses corrected in FY 2005 6 Computerized Accounts Payment System (CAPS)\n Open material weaknesses as of September 30, 2005 6 The SPS was intended to be \xef\xac\x81elded as a paperless\n contract writing system. It was to use electronic data\n feeds to create electronic images of contracts. These\nWeaknesses Corrected During FY 2005 images were to be viewable by personnel at Army\nThe Army corrected six management control paying of\xef\xac\x81ces, and the electronic data feeds were\nweaknesses during FY 2005. A brief description of each designed to populate CAPS data \xef\xac\x81elds so as to effect\ncorrected weakness follows. payments.\n\nContract Administration of Service Contracts Army contracting of\xef\xac\x81ces used the SPS to write\nService contracts represent an ever-increasing contracts for vendors at Army posts, camps and\npercentage of the overall contract dollars the Army stations, and the Defense Finance and Accounting\nexpends and now have surpassed the dollars awarded Service (DFAS) used the CAPS to process payment\nfor major weapon systems programs. In FY 2003, information for most of these contracts. The Army\nthe U.S. Army Audit Agency (USAAA) identi\xef\xac\x81ed a experienced numerous problems getting these systems\nsigni\xef\xac\x81cant weakness in the administration of service to work together effectively. Reliable electronic data\ncontracts relating to the lack of an effective quality feeds from contracting of\xef\xac\x81ces to CAPS paying of\xef\xac\x81ces\nassurance oversight process. were not established in a manner to support timely\n and accurate payments of contractors in accordance\nAlthough contracting of\xef\xac\x81cers generally appointed with prompt payment regulations (Prompt Payment, 5\nquality assurance personnel for contracts, they C.F.R. \xc2\xa71315).\n\n\n\n 33\n\x0cThe use of contract images posted in electronic Command (USCENTCOM) staff identi\xef\xac\x81ed a war\xef\xac\x81ghter\ndocument access format for use by DFAS paying of\xef\xac\x81ces requirement for information available only through use\nwas not proven to be reliable, requiring the contracting of AIT and speci\xef\xac\x81cally requested implementation of\nof\xef\xac\x81ces to forward printed copies of the contracts to radio frequency identi\xef\xac\x81cation (RFID) technology by all\nthe paying of\xef\xac\x81ce. Furthermore, the electronic data \xef\xac\x81le services operating within its area of responsibility.\nof contract information created by the SPS interface\nprogram was only sporadically successful, requiring To support the Army and joint service concept of\nmanual entry of vendor payment data upon receipt operations, combatant commanders need visibility of\nof the paper contract when the electronic data feed the entire supply chain from the supplier to the foxhole.\nfailed. This problem directly contributed to the Army This requires not only tracking the container or pallet\nincurring late payment interest penalties of about but also visibility of what is \xe2\x80\x9cin-the-box.\xe2\x80\x9d In-the-box\n$470,000 in FY 2001. In many of the cases where the visibility is key to the Army logistics transformation\nSPS interface failed, the paper contract was received requirement to reduce the logistics footprint. It places\nwell after goods and services were provided to and a premium on the distribution of limited assets to the\naccepted by the government. Failure to correct this unit with the most mission-critical need. In-the-box\nweakness would require Army contracting of\xef\xac\x81ces to visibility also facilitates the redistribution of parts to\ncontinue forwarding paper contracts to paying of\xef\xac\x81ces, higher priority units from assets located both within\nincreasing the likelihood of erroneous contractor the continental United States and OCONUS.\npayments and unnecessary interest payments.\n Historically, the Air Force and Navy, as the primary\nTo correct this problem, the Of\xef\xac\x81ce of the Assistant transporters of materiel and equipment in theater,\nSecretary of the Army (Acquisition, Logistics have only been concerned with tracking materiel at\nand Technology) and the DFAS entered into a the container or pallet level. This type of tracking\nmemorandum of agreement to address data migration can be done at a low technology level and without\nand interface requirements for information from the the infrastructure investment required of the newer\nSPS to the CAPS. During FY 2003, the deployment technology; however, RFID technology enhances\nof a new version of the SPS was completed. This in-the-box visibility of container and pallet shipments\nversion included enhancements to correct the moving throughout the DoD transportation system.\nde\xef\xac\x81ciencies noted above. Testing of the new version After the successful use of RFID in support of\nwas completed in FY 2004, and the USAAA began its operations in Somalia, Haiti, and most currently,\nreview and validation of the enhanced SPS. During Operation Joint Endeavor, the Commander,\nthe \xef\xac\x81rst quarter of FY 2005, the USAAA validated the USCENTCOM, stated that the combatant commander,\nfunctionality of the SPS, allowing the weakness to be USCENTCOM, required that all air pallets, containers\nclosed. and commercial sustainment moving to and from the\n theater and intra-theater movements be tagged with\nIn-Transit Visibility (ITV) Policies and Standards RFID at their origin for asset and ITV tracking in the\nIn FY 2002, leaders within the Army and on the joint combined joint operations area.\nstaff recognized that the ITV Program needed DoD\npolicy guidance to identify standards, uniformity The Army G-4 said that in order to correct this\nand consensus in objectives, equipment standards de\xef\xac\x81ciency, the DoD should establish policy that\nand functional requirements. The Army took identi\xef\xac\x81es uniform standards, objectives, and functional\nthe lead outside the continental United States requirements. During FY 2004, the OSD approved\n(OCONUS) in deploying and successfully using an ITV policy, which provided guidance to establish\nautomatic identi\xef\xac\x81cation technology (AIT) to obtain technology and standards, initiate demonstrations,\nin-transit visibility of materiel and personnel in solicit comments, review lessons learned, and\nboth peacetime and contingency operations. There implement strategy. The OSD published a RFID\nwas, however, no joint doctrine that mandated AIT policy that identi\xef\xac\x81ed uniform standards, objectives,\nfor ITV or hardware/software standards to ensure and functional requirements. In FY 2005, the Army\ninteroperability. Meanwhile, the U.S. Central\n\n\n\n34 General Fund | FY 2005 Army Annual Financial Statement\n\x0cimplemented the OSD policy and integrated RFID of Staff (ODCS), G-3, the Chief Information Of\xef\xac\x81cer/G-\nand ITV into its Standard Army Retail Supply System 6, and the ODCS, G-2.\nbeing \xef\xac\x81elded during FY 2005 through FY 2007. During\nthe \xef\xac\x81rst quarter of FY 2005, the USAAA completed The implementation of the C2 protect program\nits validation of the policy implementation, and the management plan should improve the ability of the\nweakness was closed. Army to detect attempted intrusions and penetrations\n through the use of automated detection software and\nInformation Systems Security improved training of Army systems and network\nThere is widespread recognition that there will administrators and security personnel. In addition,\nalways be a cyber-threat directed at the Army improvements in the Army incident reporting\nunclassi\xef\xac\x81ed automated information systems and system should result in a signi\xef\xac\x81cant increase in the\ntelecommunications networks. To ensure adequate number of detected and reported incidents and a\ndefense against cyber-threats, the Army will always corresponding decrease in the number of systems that\nhave to be on guard to identify any systemic are penetrated. Assessments of these incidents will\nde\xef\xac\x81ciencies in systems and network security design show the effectiveness of trained administrators and\nand implementation; ensure adequate incident improvements in the Army detection and reporting\nresponse to a constantly evolving threat; exercise systems. During FY 2005, the USAAA completed its\ncontainment of identi\xef\xac\x81ed threat activity and implement validation of the corrective actions, and the weakness\neffective countermeasures; and establish a robust was closed.\nInformation Systems Security (INFOSEC) education,\ntraining, awareness, and professional development Management of Unexploded Ordinance (UXO)\nprogram. This weakness resulted from systemic de\xef\xac\x81ciencies in\n the management of UXO and munitions constituents\nThe decisiveness, effectiveness, and potential safety of (MC) throughout the DoD. The USAAA addressed this\nthe war\xef\xac\x81ghter in attaining national security objectives weakness in two separate reports. At the time of these\nwill be at risk if the Army does not continually reports, neither the DoD nor the Army had an effective,\nreevaluate potential risks. If an adequate defense in integrated and proactive UXO and MC management\ndepth is not implemented, information processed and program that addressed the full life cycle perspective of\ntransmitted throughout the Army systems would be ranges, land withdrawals, and munitions manufacture,\nvulnerable to compromise and exploitation by hostile or their use, demilitarization and disposal. In addition,\nforces and could be at risk during a national crisis. As there was no consensus among the DoD, the Army,\na result, Army INFOSEC policy and procedures for and environmental regulators as to clean up standards\nmanaging risk to Army information systems, networks or preferred clean up techniques. Without a program\nand intelligent weapon systems must be managed and to focus and address these issues, the Army access\nprotected in accordance with continually evolving DoD to military ranges was considered to be at serious\nand national practices. risk of being restricted by outside entities such as\n environmental regulatory agencies, as in the case of the\nTo ensure an adequate cyber-defense, the Army Massachusetts Military Reservation.\nleadership has outlined in the command and control\n(C2) protect program management plan the measures The focus of Army leadership is on preserving the\nthat the Army leadership will undertake to ensure the ability to train Soldiers, to accomplish necessary\nArmy portion of the defense information infrastructure weapons systems and materiel testing, to reduce risks\nis adequately protected. The C2 protect program from UXO and MC, and to manage UXO and MC clean\nmanagement plan is designed to manage and control up expenditures. This is accomplished by developing\nthe growth of C2 protection initiatives, is in consonance innovative technologies and an effective, integrated,\nwith the Army enterprise strategy, and supports and proactive UXO and MC management program\ndefense information warfare efforts. It has been to address life cycle concerns. All investments\ndeveloped to address potential weaknesses and has necessary to develop, mature, and exploit UXO and\nbeen formally signed by the Of\xef\xac\x81ce of the Deputy Chief MC technologies were to be approved and prioritized\n\n\n\n 35\n\x0cby the Army Environmental Technology Technical Army to compile \xef\xac\x81nancial reports at each site. The\nCouncil and executed in accordance with the Army OSD approved the Army\xe2\x80\x99s request in May 2003.\npolicy on investment strategy. Program management System quali\xef\xac\x81cation and software development testing\ninitiatives followed policy guidance and funding were completed in FY 2005, allowing the weakness to\nguidelines as they were developed by the OSD. During be closed.\nFY 2005, the USAAA validated the corrective actions,\nand the weakness was closed.\n Open Material Weaknesses\nFinancial Reporting of Real Property In FY 2005, the Army reported six open material\nThe Army real property database, Installation Facilities weaknesses. Two of these weaknesses, line-of-duty\nSystem (IFS), could not properly calculate depreciation and incapacitation pay, and manpower requirements\nnor provide a complete audit trail of transactions. determination system, are under \xef\xac\x81nal review by\nThe initial solution to interface IFS with the Defense the USAAA and are scheduled to close during the\nProperty Accountability System (DPAS) did not meet \xef\xac\x81rst quarter of FY 2006. Two additional material\n\xef\xac\x81nancial statement reporting requirements. Data weaknesses, reserve component mobilization\nmismatches between IFS and DPAS, and DPAS not accountability, and \xef\xac\x81nancial reporting of general\naccepting IFS negative numbers, resulted in dollar equipment, are scheduled to close in the fourth\nvalues being overridden and lost \xef\xac\x81nancial transactions quarter of FY 2006. The remaining two uncorrected\naudit trails. weaknesses, \xef\xac\x81nancial reporting of equipment in-transit,\n and logistics asset visibility and accountability, are\nDue to the problems encountered with the IFS and scheduled to close in FY 2007 and FY 2008, respectively.\nDPAS interface, the decision was made to discontinue\nthe interface effort and to modify IFS, allowing the\n\n\n\n\nSoldiers from Company A, 3rd Battalion, 141st Infantry Regiment, Texas Army National Guard, practice counterinsurgency tactics near Bagram, Afghanistan. (by Spc. Harold Fields)\n\n\n\n\n36 General Fund | FY 2005 Army Annual Financial Statement\n\x0cAdvancing the President\xe2\x80\x99s conversion in order to free-up military personnel to\nManagement Agenda \xef\xac\x81ll positions in the operational Army. The Army has\n effectively reduced the cost of converting to a modular\nThe PMA consists of \xef\xac\x81ve government-wide programs\n brigade-based force and increased its tooth to tail ratio\nwith goals designed to deliver results that matter to\n through this program.\nthe American people. The Army\xe2\x80\x99s progress in each of\nthese initiatives is discussed below.\n Competitive Sourcing\nStrategic Management of Human Capital Many of the tasks performed by government\n employees can be contracted out to the commercial\nThe Army has improved its PMA rating steadily\n marketplace. Although the Army remains \xe2\x80\x9cred\xe2\x80\x9d under\nand recently attained a green rating for all factors in\n all areas of competitive sourcing, progress is being\nthe area of strategic management of human capital.\n made. The Army continues to lead DoD in seeking\nStrategic management of human capital is about\n savings by outsourcing non-core functions; successful\ngrowing people to ensure that the Army will have\n outsourcing will also contribute to the efforts to man\nnot only the right person for the right job, but a cost\n combat units fully while maintaining an effective\neffective, age-appropriate workforce with the skills\n institutional Army.\nnecessary for the Army of 2020.\n\nThe Army developed a national security personnel Improved Financial Management Performance\nsystem change management strategy that includes\n During FY 2005, the Army continued to build upon a\nmethods for assuring managers have the skills\n number of initiatives that will enable it to provide more\nnecessary for the desired performance. The senior\n useful and reliable \xef\xac\x81nancial information.\nexecutive service performance standards are linked\nto the Army goals and objectives. The Army is also The CFO Strategic Plan is an Army-wide management\nseeking to identify critical skills and close skill gaps plan designed to synchronize efforts across all Army\nthrough directed hiring and training. One process functional areas to integrate processes and systems,\nextremely important to the Army is military to civilian\n\nStrategic Management of Human Capital\n1Q05 2Q05 3Q05 4Q05\n Human Capital Strategies linked to agency mission and goals.\n Organization structured to provide optimal service at lowest cost.\n Continuity of leadership and knowledge is assured through succession planning and professional development.\n Performance appraisals for SES and managers linked to agency mission.\n Workforce is diverse, including mission critical occupations and leadership.\n Current and future skill gaps in mission critical occupations are identified and reduced.\n Aggressive hiring timeline goals are met.\n Human capital program is guided by measurable outcomes.\n\n\n\nCompetitive Sourcing\n1Q05 2Q05 3Q05 4Q05\n Completed public, private, or direct conversion competitions.\n Competitions and direct conversions conducted pursuant to approved competition plan.\n Commercial reimbursable support service arrangements between agencies are completed with private sector\n\n\n\nImproved Financial Management\n1Q05 2Q05 3Q05 4Q05\n\n Accurate financial information on demand/used for day-to-day management by 2007.\n\n\n\n\n 37\n\x0cwhile improving upon the quality of management of better service.\ninformation. The plan involves 22 cross-functional\nArmy organizational elements, as well as the DFAS, The Army has made signi\xef\xac\x81cant investment in IT\nthe OUSD (Comptroller), and the DoD Inspector systems, migrating a vast array of information to the\nGeneral. Using a \xef\xac\x81ve-year planning horizon, the CFO internet. By doing so it has both provided universal\nStrategic Plan identi\xef\xac\x81es the steps each organizational access to that information and has reduced printing\nelement must take to integrate fully all \xef\xac\x81nancial and and publication costs. The Army has been able to\nnon-\xef\xac\x81nancial processes and systems that impact keep its IT investments within ten percent variance of\nArmy resources. Achieving greater accountability planned cost, schedule, and performance goals. In the\nrequires that all assets and liabilities, revenues and FY 2005 President\xe2\x80\x99s Budget, the Of\xef\xac\x81ce of Management\nexpenses, and the full costs of programs and activities, and Budget (OMB) rated satisfactory most of the\nbe consistently, completely, and accurately recorded, Army\xe2\x80\x99s business case analyses (OMB Exhibit 300\nmonitored, and reported. reports).\n\nThe Army will use the latest technology to develop\n\xef\xac\x82exible, streamlined procedures and processes that will Budget and Performance Integration\nprovide the type of information that will enable sound Budget performance integration and full costing\ndecision-making. The \xef\xac\x81nancial management and requires:\nfunctional communities are identifying unnecessary\nsystems that may be eliminated and those essential Performance goals for all programs in the budget;\nsystems that must be retained and brought into A governance process to measure and review if\ncompliance with all statutory, regulatory, and audit those goals were achieved;\nrequirements. The CFO Strategic Plan will assist in\n Valid and reliable alignment of programs to\nthe coordination and execution of Army efforts in\n strategic objectives;\nsupport of DoD\xe2\x80\x99s business management modernization\nprogram initiatives. A cost accounting structure to organize data; and\n A \xef\xac\x81nancial management IT system to support cost\nExpanded Electronic Government accounting.\nThe President\xe2\x80\x99s Management Agenda requires that Using the \xef\xac\x81ve-part plan as its guide, the Army has\ninformation technology (IT) be applied across all areas accomplished the following.\nof government to reduce costs and enable the provision\n\nE-Government\n1Q05 2Q05 3Q05 4Q05\n All major IT investments submit 300s; 100% of 300s receive a score of 4 or higher from OMB.\n All major IT investments meet acquisition program baselines with less than 10% deviation.\n 90% of operational systems are properly secured.\n No IT projects redundant with E-Gov initiatives.\n\n\n\nBudget and Performance Integration\n1Q05 2Q05 3Q05 4Q05\n Report on performance management results (Dods BSC) in the Annual Defense Report (ADR).\n Senior managers regularly use performance measure information to inform management decisions.\n The full cost of achieving performance goals is accurately (+/- 10%) reported.\n Performance appraisals for SES and managers linked to agency mission.\n Use performance measures and Program Assessment Rating Tool (PART) information to justify funding request, management\n actions, and legislative proposals.\n Has at least one efficiency measure for all PARTed programs.\n\n\n\n\n38 General Fund | FY 2005 Army Annual Financial Statement\n\x0cThe Army has performance goals and measures The Army is adjusting the alignment of its\nfor all programs in the Performance Budget. The programs to its strategic objectives now. The\nperformance budget justi\xef\xac\x81cation book provided Army will call upon subject matter experts to validate\nstop light ratings for all programs based on the the alignment. The Army will conduct performance\nperformance measures and parameters previously reviews in FY 2006. The Army currently is developing\napproved for each. Using the performance assessment and identifying the few \xe2\x80\x9cvital\xe2\x80\x9d performance measures\nform, the Army established performance measures and will conduct quarterly performance reviews for the\nfor 100 percent of its programs with 81 percent of the Secretary of the Army upon completion.\nprograms rated effective and ef\xef\xac\x81cient. OMB scored the\nArmy land forces operations program at 92 percent, or The Army is constructing and standardizing the\n\xe2\x80\x9ceffective,\xe2\x80\x9d and the Army FCS/modularity programs cost structure throughout the Army to provide near\n70 percent, or \xe2\x80\x9cadequate.\xe2\x80\x9d real-time reliable and valid cost information. The\n Army has made progress in implementing activity\nThe Army use of the primary PPBC governance based costing and in identifying and standardizing the\nbody has been an effective means of implementing data elements to be used in the enterprise system.\nthe budget performance integration initiative. The\nArmy requires program managers to set program Finally, the Army is implementing cost structures\nperformance goals for each \xef\xac\x81scal year based on the for its General Fund Enterprise Business System.\nappropriations provided. The Army measures its GFEBS is a key system in making budget performance\nprograms against the goals set for the \xef\xac\x81scal year and integration useful to Army leadership. GFEBS will\nreviews those out of variance at cost performance provide the Army with reliable \xef\xac\x81nancial data and\nprogram reviews. The Secretary of the Army and the provide the information needed to make better\nArmy executive council review only the few programs business decisions. The GFEBS application will ful\xef\xac\x81ll\nthat have been de\xef\xac\x81ned \xe2\x80\x9ccritical.\xe2\x80\x9d the requirements of the Federal Financial Management\n Improvement Act of 1996 and will be certi\xef\xac\x81ed by the\n USAAA. GFEBS will allow the Army to comply with\n the Chief Financial Of\xef\xac\x81cers Act of 1990 by improving\n performance, standardizing processes, reducing\n legacy stove-piped systems and providing all levels\n of leadership reliable, relevant, and timely \xef\xac\x81nancial\n information. The quality of this \xef\xac\x81nancial information\n will accelerate the Army\xe2\x80\x99s ability to evaluate\n performance results and integrate them into budget\n decisions.\n\n\n\n\n Learn More About America\xe2\x80\x99s Army\n http://www.army.mil\n\n\n\n\n Photo Credits\n General Fund Opening Photo\n A Soldier from Company A, 1st Battalion, 24th Infantry Regiment, 25th Infantry Division,\n maintains a sharp lookout for enemy forces in Mosul, Iraq. (by PFC Jory C. Randall)\n\n\n\n\n 39\n\x0c Principal Financial Statements, Notes, and Supplementary Information\n\n\n\n\n40 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cLIMITATIONS\nLIMITATIONS OF THE FINANCIAL STATEMENTS\n\nThe \xef\xac\x81nancial statements have been prepared to report the \xef\xac\x81nancial position and results\nof operations for the entity, pursuant to the requirements of Title 31, United States Code,\nsection 3515(b).\n\nWhile the statements have been prepared from the books and records of the entity, in\naccordance with the formats prescribed by the Of\xef\xac\x81ce of Management and Budget, the\nstatements are in addition to the \xef\xac\x81nancial reports used to monitor and control budgetary\nresources which are prepared from the same books and records.\n\nTo the extent possible, the \xef\xac\x81nancial statements have been prepared in accordance with\nfederal accounting standards. At times, the department is unable to implement all elements\nof the standards due to \xef\xac\x81nancial management systems limitations. The department\ncontinues to implement system improvements to address these limitations. There are other\ninstances when the department\xe2\x80\x99s application of the accounting standards is different from\nthe auditor\xe2\x80\x99s application of the standards. In those situations, the department has reviewed\nthe intent of the standard and applied it in a manner that management believes ful\xef\xac\x81lls that\nintent.\n\nThe statements should be read with the realization that they are for a component of the\nUnited States Government, a sovereign entity. One implication of this is that the liabilities\ncannot be liquidated without legislation that provides resources to do so.\n\nLIMITATIONS CONCERNING NATIONAL DEFENSE PROPERTY, PLANT AND\nEQUIPMENT\n\nThe Federal Accounting Standards Advisory Board revised Statement of Federal Financial\nAccounting Standards No. 6 to require the capitalization and depreciation of military\nequipment (formerly national defense property, plant and equipment/ND PP&E) for \xef\xac\x81scal\nyears 2003 and beyond, and encouraged early implementation.\n\n\n\n\n FY 2005 Army Annual Financial Statement 41\n\x0c42 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATED BALANCE SHEET\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\n\xc2\xac\xc2\xac\xc2\xacASSETS\xc2\xac(Note\xc2\xac2)\n Intragovernmental:\n Fund Balance with Treasury (Note 3)\n Entity $ 86,799,034 $ 89,297,373\n Non-Entity Seized Iraqi Cash 61,370 113,430\n Non-Entity-Other 232,913 137,806\n Investments (Note 4) 3,495 1,496\n Accounts Receivable (Note 5) 276,634 461,867\n Other Assets (Note 6) 824,303 556,380\n Total Intragovernmental Assets $ 88,197,749 $ 90,568,352\n\n Cash and Other Monetary Assets (Note 7) $ 1,482,046 $ 1,525,090\n Accounts Receivable (Note 5) 584,005 492,394\n Loans Receivable (Note 8) 0 0\n Inventory and Related Property (Note 9) 37,703,353 37,647,721\n General Property, Plant and Equipment (Note 10) 120,401,746 113,111,572\n Investments (Note 4) 0 0\n Other Assets (Note 6) 3,844,524 3,351,504\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacASSETS $ 252,213,423 $ 246,696,633\n\n\xc2\xac\xc2\xac\xc2\xacLIABILITIES\xc2\xac(Note\xc2\xac11)\n Intragovernmental:\n Accounts Payable (Note 12) $ 1,918,309 $ 1,706,731\n Debt (Note 13) 0 0\n Other Liabilities (Note 15 & Note 16) 2,372,261 2,402,903\n Total Intragovernmental Liabilities $ 4,290,570 $ 4,109,634\n\n Accounts Payable (Note 12) $ 10,137,011 $ 9,460,194\n Military Retirement Benefits and Other Employment-Related 1,663,650 1,632,843\n Actuarial Liabilities (Note 17)\n Environmental Liabilities (Note 14) 39,760,514 40,366,172\n Loan Guarantee Liability (Note 8) 12,394 12,293\n Other Liabilities (Note 15 and Note 16) 6,401,916 8,669,192\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES $ 62,266,055 $ 64,250,328\n\n\xc2\xac\xc2\xac\xc2\xacNET\xc2\xacPOSITION\n Unexpended Appropriations $ 74,704,745 $ 73,238,304\n Cumulative Results of Operations 115,242,623 109,208,001\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacNET\xc2\xacPOSITION $ 189,947,368 $ 182,446,305\n\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES\xc2\xacAND\xc2\xacNET\xc2\xacPOSITION $ 252,213,423 $ 246,696,633\n\n\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 43\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATED STATEMENT OF NET COST\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\n\xc2\xac\xc2\xac\xc2\xacProgram\xc2\xacCosts\n Intragovernmental Gross Costs $ 39,987,320 $ 35,460,140\n (Less: Intragovernmental Earned Revenue) (8,491,160) (7,388,378)\n Intragovernmental Net Costs $ 31,496,160 $ 28,071,762\n Gross Costs With the Public $ 116,179,312 $ 108,861,815\n (Less: Earned Revenue From the Public) (1,249,287) (1,152,055)\n Net Costs With the Public $ 114,930,025 $ 107,709,760\n Total Net Cost $ 146,426,185 $ 135,781,522\n\xc2\xac\xc2\xac\xc2\xacCost\xc2\xacNot\xc2\xacAssigned\xc2\xacto\xc2\xacPrograms 0 0\n\xc2\xac\xc2\xac\xc2\xac(Less:Earned\xc2\xacRevenue\xc2\xacNot\xc2\xacAttributable\xc2\xacto\xc2\xacPrograms) 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ 146,426,185 $ 135,781,522\n\n\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n44 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATED STATEMENT OF CHANGES IN NET POSITION\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\nCUMULATIVE\xc2\xacRESULTS\xc2\xacOF\xc2\xacOPERATIONS\n Beginning\xc2\xacBalances $ 109,208,001 $ 100,631,646\n Prior Period Adjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n Beginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 109,208,001 $ 100,631,646\n Budgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0\n Appropriations transferred-in/out (+/-) 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0\n Appropriations used 150,048,733 127,335,115\n Nonexchange revenue 9,331 5,143\n Donations and forfeitures of cash and cash equivalents 5,609 4,663\n Transfers-in/out without reimbursement (+/-) 3,721,535 13,189,641\n Other budgetary financing sources (+/-) 2,141 2,540,445\n Other\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0\n Transfers-in/out without reimbursement (+/-) 528,071 400,794\n Imputed financing from costs absorbed by others 1,092,805 882,077\n Other (+/-) (2,947,418) 0\n Total\xc2\xacFinancing\xc2\xacSources $ 152,460,807 $ 144,357,878\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 146,426,185 135,781,522\n Net\xc2\xacChange $ 6,034,622 $ 8,576,356\n Ending\xc2\xacBalance $ 115,242,623 $ 109,208,002\n\nUNEXPENDED\xc2\xacAPPROPRIATIONS\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances $ 73,238,304 $ 47,674,714\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacPrior\xc2\xacperiod\xc2\xacadjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 73,238,304 $ 47,674,714\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBudgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 149,831,938 149,547,719\n Appropriations transferred-in/out (+/-) 2,560,759 4,745,349\n Other adjustments (rescissions, etc) (+/-) (877,523) (1,394,364)\n Appropriations used (150,048,733) (127,335,114)\n Nonexchange revenue 0 0\n Donations and forfeitures of cash and cash equivalents 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Other budgetary financing sources (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacOther\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Imputed financing from costs absorbed by others 0 0\n Other (+/-) 0 0\n Total\xc2\xacFinancing\xc2\xacSources $ 1,466,441 $ 25,563,590\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 0 0\n Net\xc2\xacChange 1,466,441 25,563,590\n Ending\xc2\xacBalance $ 74,704,745 $ 73,238,304\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 45\n\x0cDepartment of Defense - Department of the Army\nCOMBINED STATEMENT OF BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n\n Budgetary Financing Accounts Non-Budgetary Financing Accounts\n 2005 Combined 2004 Combined 2005 Combined 2004 Combined\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 149,846,916 $ 149,559,892 $ 0$ 0\n Borrowing authority 0 0 0 0\n Contract authority 0 0 0 0\n Net transfers (+/-) 1,046,572 2,517,085 0 0\n Other 0 0 0 0\n Unobligated balance:\n Beginning of period 22,880,757 8,212,989 1,424 1,272\n Net transfers, actual (+/-) 2,369,187 4,698,264 0 0\n Anticipated Transfers Balances 0 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0 0\n Collected 20,948,238 18,739,994 101 152\n Receivable from Federal sources (415,099) 412,742 0 0\n Change in unfilled customer orders 0 0 0 0\n Advance received 77,733 306,576 0 0\n Without advance from Federal sources 2,159,939 1,896,851 0 0\n Anticipated for the rest of year, without advances 0 0 0 0\n Previously unavailable 0 0 0 0\n Transfers for trust funds 0 0 0 0\n Subtotal $ 22,770,811 $ 21,356,163 $ 101 $ 152\n Recoveries of prior year obligations 17,033,447 13,996,679 0 0\n Temporarily not available pursuant to Public Law 0 0 0 0\n Permanently not available (877,523) (1,394,364) 0 0\n Total\xc2\xacBudgetary\xc2\xacResources $ 215,070,167 $ 198,946,708 $ 1,525 $ 1,424\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 175,086,215 $ 152,590,936 $ 0$ 0\n Reimbursable 24,506,660 23,475,016 0 0\n Subtotal $ 199,592,875 $ 176,065,952 $ 0$ 0\n Unobligated balance:\n Apportioned 13,665,452 21,458,641 1,525 1,424\n Exempt from apportionment 11,980 13,411 0 0\n Other available 2 0 0 0\n Unobligated Balances Not Available 1,799,858 1,408,704 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 215,070,167 $ 198,946,708 $ 1,525 $ 1,424\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net - beginning of period $ 57,022,399 $ 46,482,855 $ 0$ 0\n Obligated Balance transferred, net (+/-) 0 0 0 0\n Obligated Balance, Net - end of period:\n Accounts receivable (1,478,349) (1,893,446) 0 0\n Unfilled customer order from Federal sources (14,873,109) (12,713,171) 0 0\n Undelivered orders 66,772,263 56,509,574 0 0\n Accounts payable 13,948,617 15,119,442 0 0\n Outlays:\n Disbursements 173,467,566 149,220,137 0 0\n Collections (21,025,971) (19,046,568) (101) (152)\n Subtotal $ 152,441,595 $ 130,173,569 $ (101) $ (152)\n Less: Offsetting receipts (195,234) (63,289) 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ 152,246,361 $ 130,110,280 $ (101) $ (152)\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n46 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATED STATEMENT OF FINANCING\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacActivities:\nBudgetary Resources Obligated\n Obligations incurred $ 199,592,875 $ 176,065,951\n Less: Spending authority from offsetting collections (39,804,359) (35,352,991)\n and recoveries (-)\n Obligations net of offsetting collections and recoveries $ 159,788,516 $ 140,712,960\n Less: Offsetting receipts (-) (195,234) (63,289)\n Net obligations $ 159,593,282 $ 140,649,671\nOther Resources\n Donations and forfeitures of property 0 0\n Transfers in/out without reimbursement (+/-) 528,071 400,794\n Imputed financing from costs absorbed by others 1,092,805 882,077\n Other (+/-) (2,947,418) 0\n Net other resources used to finance activities $ (1,326,542) $ 1,282,871\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacactivities $ 158,266,740 $ 141,932,542\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacItems\xc2\xacnot\xc2\xacPart of\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\n Change in budgetary resources obligated for goods,\n services and benefits ordered but not yet provided\n Undelivered Orders (-) $ (10,942,905) $ (12,185,137)\n Unfilled Customer Orders 2,237,672 2,203,425\n Resources that fund expenses recognized in prior periods (1,282,337) (870,785)\n Budgetary offsetting collections and receipts that do not affect net cost of operations 195,334 63,441\n Resources that finance the acquisition of assets (26,752,491) (9,901,005)\n Other resources or adjustments to net obligated resources\n that do not affect net cost of operations\n Less: Trust or Special Fund Receipts Related to Exchange in the Entity's Budget (-) 0 0\n Other (+/-) 2,419,346 (400,794)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacitems\xc2\xacnot part\xc2\xacof\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations $ (34,125,381) $ (21,090,855)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof operations $ 124,141,359 $ 120,841,687\n\nComponents\xc2\xacof\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xacthat\xc2\xacwill\nnot\xc2\xacRequire\xc2\xacor\xc2\xacGenerate\xc2\xacResources\xc2\xacin\xc2\xacthe\xc2\xacCurrent\xc2\xacPeriod:\nComponents Requiring or Generating Resources in Future Period:\n Increase in annual leave liability $ 91,655 $ 95,284\n Increase in environmental and disposal liability 0 3,103,711\n Upward/Downward reestimates of credit subsidy expense (+/-) 0 10,869\n Increase in exchange revenue receivable from the the public (-) 0 0\n Other (+/-) 54,908 63,634\n Total components of Net Cost of Operations that $ 146,563 $ 3,273,498\n will require or generate resources in future periods\nComponents not Requiring or Generating Resources:\n Depreciation and amortization 16,965,074 9,815,563\n Revaluation of assets or liabilities (+/-) 1,074 515,037\n Other (+/-)\n Trust Fund Exchange Revenue (82) (36)\n Cost of Goods Sold 0 0\n Operating Material & Supplies Used 0 0\n Other 5,172,197 1,335,773\n Total components of Net Cost of Operations that will not require or generate resources $ 22,138,263 $ 11,666,337\nTotal\xc2\xaccomponents\xc2\xacof\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations\xc2\xacthat\nwill\xc2\xacnot\xc2\xacrequire\xc2\xacor\xc2\xacgenerate\xc2\xacresources\xc2\xacin\xc2\xacthe\xc2\xaccurrent period $ 22,284,826 $ 14,939,835\nNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ 146,426,185 $ 135,781,522\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 47\n\x0cDepartment of Defense - Department of the Army\nCOMBINED STATEMENT OF CUSTODIAL ACTIVITY\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Combined 2004 Combined\nSOURCE\xc2\xacOF\xc2\xacCOLLECTIONS\n Deposits by Foreign Governments $ 136,000 $ 0\n Seized Iraqi Cash 1 118,349\n Other Collections 0 0\n Total Cash Collections $ 136,001 $ 118,349\n Accrual Adjustments (+/-) 0 0\n Total Custodial Collections $ 136,001 $ 118,349\nDISPOSITION\xc2\xacOF\xc2\xacCOLLECTIONS\n Disbursed on Behalf of Foreign Governments and $ 82,613 $ 0\n International Organizations\n Seized Assets Disbursed on behalf of Iraqi People 52,061 283,058\n Increase (Decrease) in Amounts to be Transferred 53,387 0\n Collections Used for Refunds and Other Payments 0 0\n Retained by The Reporting Entity 0 0\n Seized Assets Retained for Support of the Iraqi People (52,060) (164,709)\n Total Disposition of Collections $ 136,001 $ 118,349\nNET\xc2\xacCUSTODIAL\xc2\xacCOLLECTION\xc2\xacACTIVITY $ 0 $ 0\n\n\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n48 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cFY 2005 Army Annual Financial Statement 49\n\x0cNote 1. Signi\xef\xac\x81cant Accounting Policies\n1.A. Basis of Presentation\nThese \xef\xac\x81nancial statements have been prepared to report the \xef\xac\x81nancial position and results of operations of the\nDepartment of the Army, as required by the Chief Financial Of\xef\xac\x81cers Act of 1990 (CFO Act), expanded by the\nGovernment Management Reform Act of 1994 (GMRA), and other appropriate legislation. The \xef\xac\x81nancial statements\nhave been prepared from the books and records of the Army in accordance with the Department of Defense (DoD)\nFinancial Management Regulation; Of\xef\xac\x81ce of Management and Budget (OMB) Bulletin No. 01-09, Form and Content of\nAgency Financial Statements; and to the extent possible, Federal Generally Accepted Accounting Principles (GAAP).\nThe accompanying \xef\xac\x81nancial statements account for all resources for which the Army is responsible. Under the\nabove guidance, classi\xef\xac\x81ed assets, programs, and operations have been excluded from the statements or aggregated\nand reported in such a manner that they are no longer classi\xef\xac\x81ed. The Army \xef\xac\x81nancial statements are in addition to\nthe \xef\xac\x81nancial reports prepared by the Army pursuant to OMB directives that are used to monitor and control the\nArmy use of budgetary resources.\n\nThe Army is unable to fully implement all elements of Federal GAAP and OMB Bulletin No. 01-09 due to limitations\nof its \xef\xac\x81nancial and non-\xef\xac\x81nancial management processes and systems. The Army derives its reported values and\ninformation for major asset and liability categories largely from non\xef\xac\x81nancial feeder systems, such as inventory and\nlogistics systems. These were designed to support reporting requirements focusing on maintaining accountability\nover assets and reporting the status of federal appropriations, rather than preparing \xef\xac\x81nancial statements in\naccordance with Federal GAAP. As a result, the Army cannot currently implement every aspect of Federal GAAP\nand OMB Bulletin No. 01-09. The Army continues to implement process and system improvements addressing\nthe limitations of its \xef\xac\x81nancial and non-\xef\xac\x81nancial feeder systems. Further explanation of these \xef\xac\x81nancial statement\nelements is provided in the applicable note.\n\nFiscal Year (FY) 2005 is the \xef\xac\x81fteenth year that the Army has prepared \xef\xac\x81nancial statements required by the CFO Act,\nGMRA, and Federal Financial Management Improvement Act of 1996 (FFMIA), (P.L. 104-208). The purpose of the\nCFO Act was to bring more effective \xef\xac\x81nancial and operational management practices to the Federal government\nthrough statutory provisions; provide for improvement of accounting, systems, \xef\xac\x81nancial management, and internal\ncontrols; and provide for the production of complete, reliable, timely, and consistent \xef\xac\x81nancial information. GMRA\nextended the CFO Act to all activities of Executive Branch agencies. FFMIA expanded reporting requirements under\nthe CFO Act. The reporting entities within the Army changed to facilitate these reporting requirements.\n\n\n1.B. Mission of the Reporting Entity\nThe overall mission of the Army is to organize, train, equip, and support armed forces to deter aggression and,\nif necessary, defeat aggressors of the United States and its allies. It is no longer a world in which two hostile\nsuperpowers face each other. It is our nation\xe2\x80\x99s force of decision \xe2\x80\x93 a full spectrum force \xe2\x80\x93 trained and ready to\nrespond to a wide range of crises, from \xef\xac\x81ghting and winning major theater wars, to peacekeeping, humanitarian\nrelief missions, and disaster relief in communities at home.\n\nThe primary mission of the Army remains constant: to \xef\xac\x81ght and win the nation\xe2\x80\x99s wars. In an uncertain world,\nthe Army performs a wide variety of other missions around the world and at home including deterring potential\nadversaries, reassuring and lending stability to allies, supporting our communities in times of emergency,\npreserving peace and security, supporting national policies, and implementing national objectives. During times of\nwar, implementation of planned initiatives may be delayed as funding is redirected toward supporting the primary\nmission.\n\nIn addition to its military operations, the Army is frequently deployed both at home and abroad in response to\nnatural disasters. Nationally, the Army provides substantial support to relief operations associated with storms,\ntornadoes, and hurricanes. The Army also provides support and relief assistance abroad. Whatever the mission,\ncommitting the Army, commits the nation.\n\n\n50 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c1.C. Appropriations and Funds\nThe Army appropriations and funds are divided into the general, working capital (revolving funds), trust, special,\nand deposit funds. These appropriations and funds are used to fund and report how the resources have been used\nin the course of executing the Army missions.\n\nGeneral funds are used for \xef\xac\x81nancial transactions arising under congressional appropriations, including personnel,\noperation and maintenance, research and development, procurement, and construction accounts.\n\nRevolving funds receive their initial working capital through an appropriation or a transfer of resources from\nexisting appropriations or funds and use those capital resources to \xef\xac\x81nance the initial cost of products and services.\nFinancial resources to replenish the initial working capital and to permit continuing operations are generated by\nthe acceptance of customer orders. Revolving funds operate with \xef\xac\x81nancial principles that provide improved cost\nvisibility and accountability to enhance business management and improve the decision making process. The\nactivities provide goods and services on a reimbursable basis. Receipts derived from operations are normally\navailable in their entirety for use without further congressional action.\n\nTrust funds represent the receipt and expenditure of funds held in trust by the government for use in carrying out\nspeci\xef\xac\x81c purposes or programs in accordance with the terms of the donor, trust agreement, or statute.\n\nSpecial funds account for government receipts earmarked for a speci\xef\xac\x81c purpose.\n\nDeposit funds are generally used to: (1) hold assets for which the Army is acting as an agent or custodian or whose\ndistribution awaits legal determination, or (2) account for unidenti\xef\xac\x81ed remittances.\n\n\n1.D. Basis of Accounting\nThe Army generally records transactions on a budgetary basis and not an accrual accounting basis as is required by\nFederal GAAP. For FY 2005, the Army \xef\xac\x81nancial management systems were unable to meet all of the requirements\nfor full accrual accounting. Many of the Army \xef\xac\x81nancial and non\xef\xac\x81nancial feeder systems and processes were\ndesigned and implemented prior to the issuance of Federal GAAP and therefore, were not designed to collect and\nrecord \xef\xac\x81nancial information on the full accrual accounting basis as required by Federal GAAP. In addition, most\nof the Army \xef\xac\x81nancial management systems do not comply with the U.S. Government Standard General Ledger\n(USSGL) at the transaction level. The Army has undertaken efforts to determine the actions required to bring its\n\xef\xac\x81nancial and non\xef\xac\x81nancial feeder systems and processes into compliance with all elements of Federal GAAP. One\nsuch action is the current revision of Army accounting systems to record transactions based on the USSGL. Until\nsuch time as the Army systems and processes are updated to collect and report \xef\xac\x81nancial information as required\nby Federal GAAP, the Army \xef\xac\x81nancial data will be based on budgetary transactions, non-\xef\xac\x81nancial feeder system\ntransactions, and adjustments for known accruals of major items such as payroll expenses, accounts payable, and\nenvironmental liabilities. When possible, the \xef\xac\x81nancial statements are presented on the accrual accounting basis.\nOne example of information presented on the budgetary basis is data on the Statement of Net Cost. Much of this\ninformation is based on obligations and disbursements and may not always represent accrued costs.\n\nIn addition, the Army identi\xef\xac\x81es programs based upon the major appropriation groups provided by Congress.\nThe Army does not, however, accumulate costs for major programs based on performance measures because its\n\xef\xac\x81nancial processes and systems do not account for costs in line with established measures. The Army is reviewing\navailable data and attempting to develop a cost reporting methodology that provides the cost information required\nby the Statement of Federal Financial Accounting Standard (SFFAS) No. 4, Managerial Cost Accounting Concepts and\nStandards for the Federal Government.\n\n\n1.E. Revenues and Other Financing Sources\nFinancing sources for general funds are provided primarily through congressional appropriations that are received\n\n\n\n FY 2005 Army Annual Financial Statement 51\n\x0con both an annual and a multiyear basis. When authorized, these appropriations are supplemented by revenues\ngenerated by sales of goods or services through a reimbursable order process. The Army recognizes revenue as\na result of costs incurred or services performed on behalf of other federal agencies and the public. Revenue is\nrecognized when earned under the reimbursable order process.\n\nThe Army does not include non-monetary support provided by U.S. Allies for common defense and mutual security\nin its list of other \xef\xac\x81nancing sources that appears in the Statement of Financing. The U.S. has agreements with foreign\ncountries that include both direct or indirect sharing of costs that each country incurs in support of the same general\npurpose. Examples include countries where there is a mutual or reciprocal defense agreement or where U.S. troops\nare stationed. DoD is reviewing these types of \xef\xac\x81nancing and cost reductions in order to establish accounting policies\nand procedures to identify what, if any, of these costs are appropriate for disclosure in the \xef\xac\x81nancial statements in\naccordance with GAAP. Recognition of support provided by host nations would affect both \xef\xac\x81nancing sources and\nrecognition of expenses.\n\n\n1.F. Recognition of Expenses\nFor \xef\xac\x81nancial reporting purposes, the DoD policy requires recognition of operating expenses in the period incurred;\nhowever, the Army \xef\xac\x81nancial and non\xef\xac\x81nancial feeder systems were not always designed to collect and record\n\xef\xac\x81nancial information on the full accrual accounting basis. Accrual adjustments are made for major items such as\npayroll expenses, accounts payable, and environmental liabilities. Expenditures for capital and other long-term\nassets are not recognized as expenses in the Army operations until depreciated, in the case of Property, Plant\nand Equipment (PP&E), or consumed, in the case of Operating Materials and Supplies (OM&S). Net increases or\ndecreases in unexpended appropriations are recognized as a change in net position. Certain expenses, such as\ncivilian annual leave and military leave earned but not taken, are \xef\xac\x81nanced in the period in which payment is made.\n\nThe Army adjusted operating expenses as a result of the elimination of balances between DoD components. See\nNote 18, Disclosures Related to the Statement of Net Cost for further information.\n\n\n1.G. Accounting for Intragovernmental Activities\nThe Army, as an agency of the Federal government, interacts with and is dependent upon the \xef\xac\x81nancial activities of\nthe Federal government as a whole. Therefore, these \xef\xac\x81nancial statements do not re\xef\xac\x82ect the results of all \xef\xac\x81nancial\ndecisions applicable to the Army as though the agency was a stand-alone entity.\n\nThe Army proportionate share of public debt and related expenses of the Federal government are not included.\nThe Federal government does not apportion debt and its related costs to Federal agencies. The Army \xef\xac\x81nancial\nstatements, therefore, do not report any portion of the public debt or interest, nor do the statements report the source\nof public \xef\xac\x81nancing whether from issuance of debt or tax revenues.\n\nFinancing for the construction of Army facilities is obtained through budget appropriations. To the extent this\n\xef\xac\x81nancing was obtained through issuance of public debt, interest costs were not capitalized since the Department of\nthe Treasury does not allocate these interest costs to the bene\xef\xac\x81ting agencies.\n\nThe Army civilian employees participate in the Civil Service Retirement System (CSRS) and the Federal Employees\nRetirement System (FERS), while military personnel are covered by the Military Retirement System (MRS).\nAdditionally, employees and personnel covered by FERS and MRS also have varying coverage under social security.\nThe Army funds a portion of the civilian and military pensions. Reporting civilian pensions under CSRS and FERS\nis the responsibility of the Of\xef\xac\x81ce of Personnel Management (OPM). The Army recognizes an imputed expense for\nthe portion of civilian employee pensions and other retirement bene\xef\xac\x81ts funded by OPM in the Statement of Net\nCost; and recognizes corresponding imputed revenue from the civilian employee pensions and other retirement\nbene\xef\xac\x81ts in the Statement of Changes in Net Position.\n\nAssets, funded actuarial liability, and unfunded actuarial liability for military personnel are reported in the Military\n\n\n52 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cRetirement Fund (MRF) \xef\xac\x81nancial statements. The actuarial liability for military retirement health bene\xef\xac\x81ts is\nrecognized in the Other Defense Organization General Fund column of DoD Agency-wide consolidating/combining\nstatements.\n\nTo prepare reliable \xef\xac\x81nancial statements, transactions occurring between components or activities within the Army\nmust be eliminated; however, the Army, as well as the rest of the federal government, cannot accurately identify all\nintragovernmental transactions by customer. The Defense Finance and Accounting Service (DFAS) is responsible\nfor eliminating transactions between components or activities of the Army. For FYs 1999 and beyond, seller entities\nwithin the DoD provided summary seller-side balances for revenue, accounts receivable, and unearned revenue\nto the buyer-side internal DoD accounting of\xef\xac\x81ces. In most cases, the buyer-side records have been adjusted to\nrecognize unrecorded costs and accounts payable. Intra-DOD intragovernmental balances were then eliminated.\n\nThe Army accounting systems do not capture trading partner information at the transaction level. Therefore,\ncurrent systems cannot produce data necessary for reconciliations between buyers and sellers, nor eliminate\nall intragovernmental transactions between trading partners. As a result, the Army balances are compared to\nseller-side data summarized at the component trial balance level. Based on these comparisons, the amount of\nintragovernmental transactions on the buyer-side is forced to agree with seller-side information.\n\nThe Department of the Treasury, Financial Management Service (FMS) is responsible for eliminating transactions\nbetween the Army and other federal agencies. In September 2000, FMS issued the \xe2\x80\x9cFederal Intragovernmental\nTransactions Accounting Policies and Procedures Guide.\xe2\x80\x9d The Army was not able to fully implement the policies\nand procedures in this guide related to reconciling intragovernmental assets, liabilities, revenues, and expenses for\nnon-\xef\xac\x81duciary transactions. The Army, however, was able to implement the policies and procedures contained in\nthe \xe2\x80\x9cIntragovernmental Fiduciary Transactions Accounting Guide,\xe2\x80\x9d as updated by the \xe2\x80\x9cFederal Intragovernmental\nTransactions Accounting Policies and Procedures Guide,\xe2\x80\x9d issued October 2002, for reconciling intragovernmental\ntransactions. These transactions pertain to investments in Federal securities, borrowings from the United States\nTreasury and the Federal Financing Bank, Federal Employees\xe2\x80\x99 Compensation Act transactions with the Department\nof Labor (DoL), and bene\xef\xac\x81t program transactions with OPM.\n\n\n1.H. Transactions with Foreign Governments and International Organizations\nEach year, the Army components sell defense articles and services to foreign governments and international\norganizations, primarily under the provisions of the Arms Export Control Act of 1976. Under the provisions of the\nAct, the Army has authority to sell defense articles and services to foreign countries and international organizations,\ngenerally at no pro\xef\xac\x81t or loss to the U.S. Government. Customers may be required to make payments in advance.\n\n\n1.I. Funds with the U.S. Treasury\nThe Army \xef\xac\x81nancial resources are maintained in U.S. Treasury accounts. The majority of cash collections,\ndisbursements, and adjustments are processed worldwide at the DFAS, Military Services, and the US Army Corps of\nEngineers (USACE) disbursing stations, as well as the Department of State \xef\xac\x81nancial service centers. Each disbursing\nstation prepares monthly reports, which provide information to the U.S. Treasury on check issues, electronic fund\ntransfers, interagency transfers and deposits.\n\nIn addition, the DFAS sites and the USACE Finance Center submit reports to the Department of the Treasury, by\nappropriation, on interagency transfers, collections received, and disbursements issued. The Department of the\nTreasury then records this information to the applicable Fund Balance with Treasury (FBWT) account maintained in\nthe Treasury\xe2\x80\x99s system. Differences between the Army recorded balance in the FBWT accounts and Treasury\xe2\x80\x99s FBWT\naccounts sometimes result and are subsequently reconciled. Material disclosures are provided in Note 3, Fund\nBalance With Treasury. Differences between accounting of\xef\xac\x81ces\xe2\x80\x99 detail-level records and Treasury\xe2\x80\x99s FBWT accounts\nare disclosed in Note 3, Fund Balance With Treasury, Disclosures Related to Problem Disbursements and In-Transit\nDisbursements, speci\xef\xac\x81cally, differences caused by in-transit disbursements and unmatched disbursements (which\nare not recorded in the accounting of\xef\xac\x81ces\xe2\x80\x99 detail-level records).\n\n\n FY 2005 Army Annual Financial Statement 53\n\x0c1.J. Foreign Currency\nThe Army conducts a signi\xef\xac\x81cant portion of its operations overseas. The Congress established a special account to\nhandle the gains and losses from foreign currency transactions for \xef\xac\x81ve general fund appropriations (operation and\nmaintenance, military personnel, military construction, family housing operation and maintenance, and family\nhousing construction). The gains and losses are computed as the variance between the exchange rate current at the\ndate of payment and a budget rate established at the beginning of each \xef\xac\x81scal year. Foreign currency \xef\xac\x82uctuations\nrelated to other appropriations require adjustments to the original obligation amount at the time of payment. These\ncurrency \xef\xac\x82uctuations are not separately identi\xef\xac\x81ed.\n\n\n1.K. Accounts Receivable\nAs presented in the Balance Sheet, accounts receivable includes accounts, claims, and refunds receivable from other\nfederal entities or from the public. The Army bases the allowances for uncollectible accounts that are due from the\npublic upon analysis of collection experience by fund type. The Army does not recognize an allowance for estimated\nuncollectible amounts from other federal agencies. Claims against other Federal agencies are to be resolved between\nthe agencies. See Note 5, Accounts Receivable, for material disclosures.\n\n\n1.L. Loans Receivable\nNot applicable.\n\n\n1.M. Inventories and Related Property\nInventories are reported at approximate historical cost using Latest Acquisition Cost (LAC) adjusted for holding\ngains and losses.\n\nThe Army uses the LAC method because its inventory systems were designed for material management rather than\naccounting. The systems provide accountability and visibility over inventory items. They do not maintain historical\ncost data necessary to comply with SFFAS No. 3, Accounting for Inventory and Related Property. They are also unable\nto directly produce \xef\xac\x81nancial transactions using the USSGL, as required by FFMIA of 1996 (P.L. 104-208). DoD is\ntransitioning to a Moving Average Cost methodology for valuing inventory that, when fully implemented, will\nallow the Army to comply with SFFAS No. 3.\n\nSFFAS No. 3 distinguishes between inventory held for sale and inventory held in reserve for future sale. There\nis no difference in how these accounts are managed or valued. Normally, the Army manages only military or\ngovernment-speci\xef\xac\x81c material. The Army does not manage items commonly used in and available from the\ncommercial sector. In addition, operational cycles are irregular, and the military risks associated with stock-\nout positions have no commercial equivalent. The Army holds material based on military need and support for\ncontingencies. Therefore, the Army does not attempt to account separately for items held for current or future sale.\n\nRelated property includes OM&S and stockpile materials. OM&S, including munitions not held for sale, are valued\nat standard purchase price. For the most part, the Army uses the consumption method of accounting for OM&S\nby expensing material when issued to the end user. Where current systems cannot fully support the consumption\nmethod, the Army uses the purchase method - that is, items are expensed when purchased. The Army reported\nsigni\xef\xac\x81cant amounts using the purchase method either because the systems could not support the consumption\nmethod or because management deems that the item is in the hands of the end user.\n\nThe Army accounts for condemned material as excess, obsolete, and unserviceable. The net value of condemned\nmaterial is zero because disposal costs are greater than potential scrap value.\n\nIn addition, past audit results identi\xef\xac\x81ed uncertainties about the completeness and existence of quantities used to\nproduce the reported values. Material disclosures related to inventory and related property are provided in Note 9,\nInventory and Related Property.\n\n54 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c1.N. Investments in U.S. Treasury Securities\nThe Army reports investments in Treasury securities at cost, net of unamortized premiums or discounts. Premiums\nor discounts amortize into interest income over the term of the investment using the effective interest rate method\nor another method obtaining similar results. The Army intends to hold investments until maturity, unless needed\nto \xef\xac\x81nance claims or otherwise sustain operations. Consequently, the Army does not make provisions for unrealized\ngains or losses on these securities. Material disclosures related to investments in treasury securities are provided in\nNote 4, Investments.\n\n\n1.O. General Property, Plant and Equipment\nGeneral PP&E assets are capitalized at historical acquisition cost plus capitalized improvements when an asset has a\nuseful life of two or more years, and when the acquisition cost equals or exceeds the DoD capitalization threshold of\n$100,000. All General PP&E, other than land, is depreciated on a straight-line basis. Land is not depreciated.\n\n\nMilitary Equipment\nThe SFFAS No. 23 establishes generally accepted accounting principles for valuing and reporting military equipment\n(e.g., ships, aircraft, combat vehicles, and weapons) in Federal \xef\xac\x81nancial statements. The standard requires the\ncapitalization and depreciation of the cost of military equipment, including the cost of modi\xef\xac\x81cations and upgrades.\nThe Army uses data from the Bureau of Economic Analysis to calculate a value for military equipment.\n\n\nContractor Provided\nWhen it is in the best interest of the government, the Army provides government property to contractors that is\nnecessary to complete their contract work. Such property is either owned or leased by the Army, or purchased\ndirectly by the contractor for the government based on contract terms. When the value of contractor procured\nGeneral PP&E exceeds the DoD capitalization threshold, such PP&E is required to be included in the value of\nGeneral PP&E reported on the Army Balance Sheet.\n\nDoD is developing new policies and a contractor reporting process that will provide appropriate General PP&E\ninformation for future \xef\xac\x81nancial statement reporting purposes. Accordingly, the Army reports only the portion of\ngovernment property in the possession of contractors that is maintained in the Army property systems.\n\nTo bring the Army into fuller compliance with federal accounting standards, the DoD has issued new property\naccountability and reporting regulations that require the DoD Components to maintain, in their property systems,\ninformation on all property furnished to contractors. This action and other DoD proposed actions are structured to\ncapture and report the information necessary for compliance with federal accounting standards.\n\nMaterial disclosures related to General PP&E are provided in Note 10, General PP&E, Net.\n\n\n1.P. Advances and Prepayments\nPayments in advance of the receipt of goods and services are recorded as advances or prepayments and reported as\nan asset on the Balance Sheet. Advances and prepayments are recognized as expenditures and expenses when the\nrelated goods and services are received.\n\n\n1.Q. Leases\nGenerally, lease payments are for the rental of operating facilities and are classi\xef\xac\x81ed as either capital or operating\nleases. When a lease is essentially equivalent to an installment purchase of property (a capital lease), the Army\nrecords the applicable asset and liability if the value equals or exceeds the current DoD capitalization threshold. The\nArmy records the amounts as the lesser of the present value of the rental and other lease payments during the lease\nterm (excluding portions representing executory costs paid to the lessor), or the asset\xe2\x80\x99s fair value. The Army deems\n\n\n FY 2005 Army Annual Financial Statement 55\n\x0cthe use of estimates for these costs as adequate and appropriate due to the relatively low dollar value of capital\nleases. Imputed interest was necessary to reduce net minimum lease payments to present value calculated at the\nincremental borrowing rate at the inception of the leases. In addition, the Army classi\xef\xac\x81es leases that do not transfer\nsubstantially all of the bene\xef\xac\x81ts or risks of ownership as operating leases and records payment expenses over the\nlease term.\n\n\n1.R. Other Assets\nThe Army conducts business with commercial contractors under two primary types of contracts--\xef\xac\x81xed price and cost\nreimbursable. To alleviate the potential \xef\xac\x81nancial burden on the contractor that long-term contracts can cause, the\nArmy provides \xef\xac\x81nancing payments. One type of \xef\xac\x81nancing payment that the Army makes, for real property, is based\nupon a percentage of completion. In accordance with SFFAS No. 1, Accounting for Selected Assets and Liabilities, such\npayments are treated as construction in process and are reported on the General PP&E line and in Note 10, General\nPP&E, Net.\n\nIn addition, based on the Federal Acquisition Regulation, the Army makes \xef\xac\x81nancing payments under \xef\xac\x81xed price\ncontracts. The Army reports these \xef\xac\x81nancing payments in the \xe2\x80\x9cOther Assets\xe2\x80\x9d line item, because the Army becomes\nliable only after the contractor delivers the goods in conformance with the contract terms. If the contractor does not\ndeliver a satisfactory product, the Army is not obligated to reimburse the contractor for its costs and the contractor is\nliable to repay the Army for the full amount of the advance.\n\n\n1.S. Contingencies and Other Liabilities\nSFFAS No. 5, Accounting for Liabilities of the Federal Government, de\xef\xac\x81nes a contingency as an existing condition,\nsituation, or set of circumstances that involves an uncertainty as to possible gain or loss to the Army. The\nuncertainty will be resolved when one or more future events occur or fail to occur. A contingency is recognized as\na liability when a past event or exchange transaction has occurred, a future loss is probable, and the amount of loss\ncan be reasonably estimated.\n\nFinancial statement reporting is limited to disclosure when conditions for liability recognition do not exist but\nat least a reasonable possibility that a loss or additional loss will be incurred. Loss contingencies include the\ncollectibility of receivables, pending or threatened litigation, and possible claims and assessments. The Army loss\ncontingencies arising as a result of pending or threatened litigation or claims and assessments occur due to events\nsuch as aircraft, ship and vehicle accidents; medical malpractice; property or environmental damages; and contract\ndisputes.\n\nOther liabilities arise as a result of anticipated disposal costs for the Army assets. This type of liability has two\ncomponents -- nonenvironmental and environmental. Recognition of an anticipated environmental disposal liability\ncommences when the asset is placed into service, consistent with SFFAS No. 6, Accounting for Property, Plant, and\nEquipment. Based upon the Army policies, which are consistent with SFFAS No. 5, Accounting for Liabilities of Federal\nGovernment, a nonenvironmental disposal liability is recognized for an asset when management decides to dispose of\nthe asset.\n\nThe Army, by means of the Armament Retooling and Manufacturing Support (ARMS) Initiative legislation, has\nbeen authorized to establish a loan guarantee program to facilitate commercial \xef\xac\x81rms\xe2\x80\x99 use of speci\xef\xac\x81ed ammunition\nmanufacturing facilities and the Army recognizes the loan guarantee liability. The Army is authorized by Public\nLaw 103-337, the National Defense Authorization Act for Fiscal Year 1995, to enter into this agreement with the U.S.\nDepartment of Agriculture Rural Business-Cooperative Service (RBS).\n\nFor material disclosures, see:\nNotes 8, Direct Loan and/or Loan Guarantee Program.\nNote 14, Environmental Liabilities and Disposal Liabilities.\nNote 15, Other Liabilities.\n\n\n56 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c1.T. Accrued Leave\nCivilian annual leave and military leave that have been accrued and not used as of the balance sheet date are\nreported as a liability. The liability reported at the end of the \xef\xac\x81scal year re\xef\xac\x82ects the current pay rates.\n\n\n1.U. Net Position\nNet Position consists of unexpended appropriations and cumulative results of operations. Unexpended\nappropriations represent budget authority, which is unobligated and has not been rescinded or withdrawn, and\nfunds obligated but for which legal liabilities have not been incurred.\n\nCumulative results of operations represents the difference, since inception of an activity, between expenses and\nlosses and \xef\xac\x81nancing sources (including appropriations, revenue, and gains). Beginning with FY 1998, this included\nthe cumulative amount of donations and transfers of assets in and out without reimbursement.\n\n\n1.V. Treaties for Use of Foreign Bases\nThe DoD Components have the use of land, buildings, and other facilities, which are located overseas and have been\nobtained through various international treaties and agreements negotiated by the Department of State. DoD capital\nassets overseas are purchased with appropriated funds; however, title to land and improvements are retained by\nthe host country. Generally, treaty terms allow the DoD Components continued use of these properties until the\ntreaties expire. These \xef\xac\x81xed assets are subject to loss in the event treaties are not renewed or other agreements are\nnot reached which allow for the continued use by DoD. Therefore, in the event treaties or other agreements are\nterminated whereby use of the foreign bases is no longer allowed, losses will be recorded for the value of any non-\nretrievable capital assets after negotiations between the U.S. and the host country have been concluded to determine\nthe amount to be paid the U.S. for such capital investments.\n\n\n1.W. Comparative Data\nThe Financial Statements and accompanying Notes to the Financial Statements report the \xef\xac\x81nancial position and\nresults of operations for FY 2005. Financial statement \xef\xac\x82uctuations greater than 2 percent of total assets on the\nBalance Sheet and/or greater than 10 percent between FY 2004 and FY 2005, are explained within the Notes to the\nFinancial Statements.\n\n\n1.X. Unexpended Obligations\nThe Army obligates funds to provide goods and services for outstanding orders not yet delivered. The \xef\xac\x81nancial\nstatements do not re\xef\xac\x82ect this liability for payment for goods/services not yet delivered.\n\n\n1.Y. Undistributed Disbursements and Collections\nUndistributed disbursements and collections represent the difference between disbursements and collections\nmatched at the transaction level to a speci\xef\xac\x81c obligation, payable, or receivable in the activity \xef\xac\x81eld records as opposed\nto those reported by the U.S. Treasury. These amounts should agree with the undistributed amounts reported on\nthe departmental accounting reports. In-transit payments are those payments that have been made to other agencies\nor entities that have not been recorded in their accounting records. These payments are applied to the entities\xe2\x80\x99\noutstanding accounts payable balance. In-transit collections are those collections from other agencies or entities\nthat have not been recorded in the accounting records. These collections are also applied to the entities\xe2\x80\x99 accounts\nreceivable balance.\n\nThe Department of Defense policy is to allocate supported undistributed disbursements and collections between\nfederal and nonfederal categories based on the percentage of federal and nonfederal accounts payable and\naccounts receivable. The Army uses speci\xef\xac\x81c identi\xef\xac\x81cation to categorize supported undistributed collections\n\n\n FY 2005 Army Annual Financial Statement 57\n\x0cas federal or nonfederal accounts receivable. The Army allocates all undistributed disbursements based on a\ncomparison of accounts payable to the accounts receivable of federal entities providing goods and services to the\nArmy. Unsupported undistributed disbursements are recorded in accounts payable. Unsupported undistributed\ncollections should be recorded in other liabilities; however, all Army undistributed collections are supported.\n\n\n1.Z. Development Fund for Iraq\nOn June 28, 2004, transfer of power from the Coalition Provisional Authority (CPA) to the Interim Iraqi Government\n(IIG) occurred. Prior to the transfer, the CPA was responsible for the management and accounting of the\nDevelopment Fund for Iraq (DFI). Ongoing resolution of issues surrounding transfers of approximately $1.7\nbillion of DFI assets, including $86.0 million transferred from IIG to the Multi-National Force-Iraq in August 2004,\nwill require additional disclosure in future \xef\xac\x81nancial statements. The Army has established a plan to reconcile and\naccount for these amounts and record DFI funds received. As of the 4th Quarter, FY 2005, the Army has reconciled\nthe $86.0 million transferred from IIG. The Army has recorded a total of $136.0 million in DFI assets, which\nincludes the $86.0 million reconciled and a $50.0 million transfer in 1st Quarter, FY 2005. See Note 22 for additional\ndiscussion on DFI.\n\nNote 2. Nonentity Assets\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Intragovernmental Assets\n A. Fund Balance with Treasury $ 294,283 $ 251,236\n B. Investments 0 0\n C. Accounts Receivable 0 0\n D. Other Assets 0 0\n E. Total Intragovernmental Assets $ 294,283 $ 251,236\n 2. Nonfederal Assets\n A. Cash and Other Monetary Assets $ 1,482,046 $ 1,525,090\n B. Accounts Receivable 53,773 187,140\n C. Loans Receivable 0 0\n D. Inventory & Related Property 0 0\n E. General PP&E 0 0\n F. Investments 0 0\n G. Other Assets 0 0\n H. Total Nonfederal Assets $ 1,535,819 $ 1,712,230\n 3. Total Nonentity Assets $ 1,830,102 $ 1,963,466\n 4. Total Entity Assets $ 250,383,321 $ 244,733,167\n 5. Total Assets $ 252,213,423 $ 246,696,633\n\n\nRelevant Information for Comprehension\nNonentity Assets of $1.8 billion are assets held by the Army, but are not available to fund mission operations.\n\nNonentity Intragovernmental Fund Balance with Treasury of $7.3 billion is made up of $6.9 billion in material child\ntransfers from the Executive Of\xef\xac\x81ce of the President for the Iraqi Relief and Reconstruction Fund, $179.5 million in\ndeposit funds, $61.4 million in Iraqi custodial funds that coalition forces seized during Operation Iraqi Freedom to\nbe used in support of the Iraqi people, and $53.4 million in custodial funds for the Developmental Fund for Iraq.\nFurther explanation on the Iraqi custodial funds is disclosed in Note 22.\n\nNonentity Non-Federal Cash and Other Monetary Assets of $1.5 billion represent both cash and foreign currency.\nFurther disclosures in Note 7.\n\n\n\n58 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNonentity Non-Federal Accounts Receivable of $53.8 million represents net receivables that originated in\nappropriations that are closed and are no longer available to execute Army missions. Army continues to pursue\ncollection actions and any amounts collected are deposited into the Treasury\xe2\x80\x99s miscellaneous receipt account.\n\nThe Army has $250.4 billion in Entity Assets. Entity Assets consist of resources that the Army has the authority to\nuse, or where management is legally obligated to use funds to meet current year obligations.\n\n\nFluctuations and/or Abnormalities\nNonentity Fund Balance with Treasury increased $43.0 million or 17 percent primarily due to increases in Withheld\nIncome Taxes of $26.0 million caused by timing differences between collection of taxes from personnel and\ndisbursement to the respective government entitie and in Army Member Savings Program of $19.6 million caused\nby an increase in deployed soldiers drawing imminent danger pay who are authorized to deposit funds and later\nwithdraw the funds with interest. In addition, the Iraqi Seized Assets decreased $52.1 million due to the continued\ndepletion of the funds as the assets are disbursed on behalf of the Iraqi people and increased $53.4 million due the\nDevelopment Fund for Iraq \xef\xac\x81rst being reported in FY 2005. The remaining increase is due to various other deposit\nfunds.\n\nNonfederal Accounts Receivable decreased $133.4 million or 71 percent due to the Department of Defense\xe2\x80\x99s policy to\nwrite-off uncollectable cancelled accounts receivable in FY 2005.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 3, Fund Balance with Treasury\nNote 4, Investments\nNote 5, Accounts Receivable\nNote 6, Other Assets\nNote 7, Cash and Other Monetary Assets\nNote 8, Direct Loan and/or Loan Guarantee Programs\nNote 9, Inventory and Related Property\nNote 10, General PPE, Net\nNote 22, Disclosures Related to the Statement of Custodial Activity\n\nNote 3. Fund Balance with Treasury\n\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Fund Balances\n A. Appropriated Funds $ 86,709,695 $ 79,827,618\n B. Revolving Funds 47,069 36,457\n C. Trust Funds 798 2,862\n D. Special Funds 41,472 0\n E. Other Fund Types 294,283 9,681,672\n F. Total Fund Balances $ 87,093,317 $ 89,548,609\n 2. Fund Balances Per Treasury Versus Agency\n A. Fund Balance per Treasury $ 87,794,995 $ 89,548,609\n B. Fund Balance per Army 87,093,317 89,548,609\n 3. Reconciling Amount $ 701,678 $ 0\n\n\nThe Fund Balance represents the amount of available funding to be utilized for executing the Army mission. The\nFund Balance is reconciled to the Treasury Trial Balance. During September 2005, Army made a net adjustment of\n\n\n\n FY 2005 Army Annual Financial Statement 59\n\x0c$40.3 million for unsupported undistributed disbursements and collections to bring the Fund Balance reported by\nArmy into agreement with Treasury. Due to system de\xef\xac\x81ciencies a larger adjustment of $544.1 million was recorded\nbut the actual effect on Army Fund Balance was $40.3 million.\n\nTreasury Trial Balance reports an additional $701.7 million in Fund Balance with Treasury than reported by\nthe Army. This includes $555.1 million in canceling year authority, $32.1 million in child transfers with the\nExecutive Of\xef\xac\x81ce of The President, and $166.8 million in receipt accounts reported on the Treasury Trial Balance\nbut not included in the Army Fund Balance. In addition, $52.3 million in parent transfers with the Department of\nTransportation and Department of Agriculture were reported in the Army Fund Balance but not in the Treasury\nTrial Balance.\n\nWhen Treasury appropriates funds to an entity and the entity allows another federal entity to execute an\napportioned amount of those funds, the entity that receives the original appropriation is deemed the parent and the\nentity that is allowed to execute those funds is the child. In these type of transactions, the parent entity and not the\nchild reports the activity in its Fund Balance unless the balance is material to the child.\n\n\nFluctuations and/or Abnormalities\nAppropriated Funds increased $6.9 billion or 9 percent and Other Fund Types decreased $9.4 billion or 97 percent\ndue to an Of\xef\xac\x81ce of the Secretary of Defense requirement to report the Iraqi Relief and Reconstruction Fund material\nchild transfer from the Executive Of\xef\xac\x81ce of the President as Appropriated Funds. In FY 2004, the fund reported $9.4\nbillion and in FY 2005 reported $7.0 billion.\n\nRevolving Funds increased $10.6 million or 29 percent primarily due to increase in Army Conventional Ammunition\nto \xef\xac\x81nance the procurement of ammunition components and assembly into conventional ammunition.\n\nTrust funds decreased $2.0 million or 72 percent. The major cause was a bond redemption of $1.9 million on\nSeptember 30, 2004 that was reinvested at the beginning of FY 2005. This arti\xef\xac\x81cially increased the fund balance in FY\n2004.\n\nSpecial funds increased $41.5 million or 100 percent due to a DoD policy to report special funds seperately. In FY\n2004 the balance was re\xef\xac\x82ected in Other Fund Types.\n\n\nIntragovernmental Payment and Collection (IPAC)\nThe Intragovernmental Payment and Collection (IPAC) differences are reconcilable differences that represent\namounts recorded by Treasury but not reported by the organization. The Army had no IPAC differences greater\nthan 180-days old as of September 2005.\n\nAutomated reconciliation tools have virtually eliminated all existing differences for the Army. Field sites requiring\nadditional backup to record the transaction in their accounting system, accounting errors, or timing differences\nbetween disbursing and Treasury cut-off dates are the primary reasons for an IPAC difference to exist today.\n\n\nCheck Issue Discrepancy\nFor August 2005, the Army 2100 Comparison of Checks Issued Report received from Treasury includes the following\n(in thousands):\n\n\n\n\n60 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDFAS 0-60 DAYS 61-180 DAYS > 180 DAYS TOTAL\nIndianapolis $167,693 ($55,879) ($44) $111,771\nColumbus (Army DSSNs)* $3,268 $0 $0 $3,268\nColumbus (Transp Pay) $991 $0 $0 $991\nColumbus (Def Agencies) $0 $0 $0 $0\nTOTAL (2100 ARMY) $171,952 ($55,879) ($44) $116,030\n*DSSN is Disbursing Station Symbol Number\n\n\nCheck issue differences in the 0-60 days category are considered timing differences due to in-transit time between\nreporting check issues by the \xef\xac\x81eld and processing into the Treasury Check Payments and Reconciliation System.\n\nThe differences in the 0-60 days and the 61-180 days are expected to clear by October 2005.\n\n\nDeposit Differences\nThe deposit differences are reconcilable differences reported by the Treasury or the Army. The Army has $7.1\nmillion in deposit differences greater than 180 days old as of September 2005. The primary cause for this increase is\nnon-timely processing of documents by U.S. Army Forces Central Command disbursing station in Kuwait.\n\n\nVested Iraqi Cash\nThe Army has collected $1.7 billion of Vested Iraqi Cash. This cash is vested in accordance with the International\nEmergency Economic Powers Act, Section 1701 and will be used in support of the Iraqi people. The Army has\ndisbursed $1.7 billion in support of the Iraqi people as follows:\n\n(Amounts in thousands) Amount\nCollected $1,724,131\nDisbursed\nIraqi Salaries $1,184,791\nRepair/Reconstruction/Humanitarian Assistance 147,826\nIraqi Ministry Operations (Ministry of Finance, Defense, etc.) 356,813\nTotal Disbursed $1,689,430\nRemaining Funds $34,701\n\n\nOther Fund Types\nThe $294.3 million in Other Fund Types consists of $179.5 million in deposit funds, $61.4 million in Seized\nIraqi Cash, and $53.4 million in Development Fund for Iraq. Further explanation on the Seized Iraqi Cash and\nDevelopment Fund for Iraq is disclosed in Note 22.\n\n\nCanceling Appropriated Funds\nAs of September 2005, Army withdrew $555.1 million in canceling appropriated funds in accordance with Treasury\xe2\x80\x99s\npolicy.\n\n\nNote Reference\nSee Note 1.I., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and DoD\npolicies governing Funds with the U.S. Treasury.\n\nFor additional line item discussion, see:\nNote 2, Nonentity Assets\n\n\n FY 2005 Army Annual Financial Statement 61\n\x0cNote 20, Disclosures Related to the Statement of Budgetary Resources\nNote 22, Disclosures Related to the Statement of Custodial Activity\n\n\nStatus of Fund Balance with Treasury\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Unobligated Balance\n A. Available $ 13,678,958 $ 21,473,477\n B. Unavailable 1,799,859 1,408,704\n 2. Obligated Balance not yet Disbursed $ 80,720,880 $ 71,629,016\n 3. Non-Budgetary FBWT $ 7,250,455 $ 251,236\n 4. Non-FBWT Budgetary Accounts $ (16,354,933) $ (14,608,107)\n 5. Total $ 87,095,219 $ 80,154,326\n\nDe\xef\xac\x81nitions\nNon-Budgetary FBWT includes entity and nonentity FBWT accounts which do not have budgetary authority, such\nas unavailable receipt accounts or clearing accounts.\n\nNon-FBWT Budgetary Accounts include budgetary accounts that do not affect FBWT, such as contract authority,\nborrowing authority, spending authority, and investment accounts.\n\n\nFluctuations and/or Abnormalities\nUnobligated Balance \xe2\x80\x93 Available decreased $7.8 billion and Obligated Balance not yet Disbursed increased $9.1\nbillion primarily due to obligating FY 2005 funds for the Global War on Terror and Tsunami Relief and a FY 2004\nmulti-year Operations and Maintenance appropriation to train and equip the Afghan National Army.\n\nUnobligated Balance - Unavailable increased $391.1 million primarily due to an increase in unapportioned authority\nand allotments of expired authority. Unapportioned authority increased $150.0 million for the procurement of\nammunition. Allotments of expired authority increased $241.3 million primarily in the Operations and Maintenance\nappropriations.\n\nNon-Budgetary FBWT represents $7.0 billion in Iraqi Relief and Reconstruction Fund which is a material child\ntransfer from the Executive Of\xef\xac\x81ce of the President, $179 million in deposit funds, $61.4 million in Seized Iraqi Cash,\n$53.4 million in Development Fund for Iraq, and ($29.6) million in suspense accounts. The $7.0 billion increase is\ndue to a DoD policy to include material child transfers as Non-Budgetary FBWT. In FY 2004, material child transfers\nwere not reported in the Status of Fund Balance with Treasury.\n\nNon-FBWT Budgetary Accounts increase of $1.7 billion re\xef\xac\x82ects increases in reimbursable authority in support of\nlogistical activities and land force readiness support for Army Procurement and Operations and Maintenance.\n\n\n\n\n62 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDisclosures Related to Suspense/Budget Clearing Accounts\n (Decrease)/\n As of September 30 2003 2004 2005 Increase from FY2004 - 2005\n (Amounts in thousands)\nAccount\n F3875 $ 0 $ 0 $ (27,176) $ (27,176)\n F3880 0 0 7,973 7,973\n F3882 (908) (820) 25,084 25,904\n F3885 0 0 (36,501) (36,501)\n F3886 200 187 117 ( 70)\nTotal $ ( 708) $ ( 633) $ (30,503) $ (29,870)\n\n\nThe Army established policies and procedures to ensure accurate and consistent use of Suspense and Budget\nClearing accounts. Suspense reconciliations have been reported as a material weakness since 1997.\n\nA substantial amount of increases/decreases in the suspense accounts from prior \xef\xac\x81scal years, re\xef\xac\x82ects a change in\nyear end recording. In the past, at the end of each \xef\xac\x81scal year most suspense/budget clearing accounts were reduced\nto zero (as required by the Department of Treasury) by transferring the balances to proper appropriation accounts.\nFor FY 2005 the Of\xef\xac\x81ce of Management and Budget requested the departments to not reduce the budget clearing\naccounts to zero at year end.\n\nThe Army transferred the following accounts to their Operation and Maintenance Account (21 2020) for FY 2004 and\nFY 2003 (in thousands):\n\n Accounts FY 2004 FY 2003\n21 F3875 Budget Clearing Accounts $37,389 $82,292\n21 F3880 Check Cancellations 33,815 2,913\n21 F3885 Intergovernmental Payment and Collection (18,896) 370,885\n\nIn FY 2004, Army implemented Public Law 107-314, to write-off $181 million net and $34 billion absolute from the\nunsupported suspense balances.\n\nNegative amounts shown above do not indicate abnormal balances, but a preponderance of disbursements over\ncollections.\n\n\nDisclosures Related to Problem Disbursements and In-Transit Disbursements\n (Decrease)/\n Increase from FY\n As of September 30 2003 2004 2005 2004 - 2005\n (Amounts in thousands)\n1. Total Problem Disbursements, Absolute Value\n A. Unmatched Disbursements (UMDS) $ 259,857 $ 69,858 $ 120,703 $ 50,845\n B. Negative Unliquidated Obligations (NULO) 26,251 24,424 20,927 (3,497)\n2. Total In-transit Disbursements, Net $ 1,086,574 $ 1,652,211 $ 1,143,441 $ (508,770)\n\n\nDe\xef\xac\x81nitions\nAbsolute value is the sum of the positive values of debit and credit transactions without regard to the sign.\n\nUnmatched Disbursements (UMDs) occur when payments do not match to a corresponding obligation in the\naccounting system.\n\n\n FY 2005 Army Annual Financial Statement 63\n\x0cNegative Unliquidated Obligations (NULOs) occur when payments have a valid obligation but the payment is\ngreater than the amount of the obligation recorded in the of\xef\xac\x81cial accounting system. These payments use available\nfunds for valid receiving reports on delivered goods and services under valid contracts.\n\nIn-Transits represents the net value of disbursements and collections made by a DoD disbursing activity on behalf\nof an accountable activity but not yet attempted to be posted in an accounting system.\n\nAged UMDs and NULOs\nThe Army absolute value UMDs, NULOs, and $21.1 million in aged in-transit disbursements represent problem\ndisbursements. UMDs and NULOs are considered to be problem disbursements immediately, while in-transits are\nconsidered normal business activity up to the 30-day aging category. After 30 days, they are considered as problem\ndisbursements. Fluctuations in the schedule represent normal activity for UMDs and NULOs based on the in\xef\xac\x82ow of\nundistributed disbursements received for processing.\n\nIn FY 2004, the $69.9 million in UMDs re\xef\xac\x82ected the net value rather than the absolute value. The absolute value was\n$128.9 million.\n\nNote 4. Investments and Related Interest\n 2005 2004\n Unamortized Market\n Par Amortization (Premium/ Investments, Value Investments,\n As of September 30 Value/Cost Method Discount) Net Disclosure Net\n (Amounts in thousands)\n 1. Intragovernmental Securities\n Effective\n A. Non-Marketable, Market-Based $ 3,487\n interest\n $ (10) $ 3,477 $ 3,471 $ 1,491\n B. Accrued Interest 18 18 18 5\n C. Total Intragovernmental Securities $ 3,505 $ ( 10) $ 3,495 $ 3,489 $ 1,496\n 2. Other Investments $ 0 0 $ 0 NA $ 0\n\n\nFluctuations and/or Abnormalities\nThe Department of the Army Investments increased $2.0 million or 134 percent. The major cause was a bond\nredemption of $1.9 million on September 30, 2004 and was reinvested at the beginning of FY 2005.\n\n\nRelevant Information for Comprehension\nThe Army Gift Fund was established to control and account for the disbursement and use of monies donated to the\nArmy along with the interest received from the investment of such donations. The related earnings are allocated to\nappropriate Army activities to be used in accordance with the directions of the donor. These funds are recorded as\nNon-Marketable Market-Based U.S. Treasury Securities, which are not traded on any securities exchange, but mirror\nthe prices of marketable securities with similar terms.\n\n\nNote Reference\nSee Note 1.N., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and\nDoD policies governing investments in U.S. Treasury securities.\n\n\n\n\n64 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 5. Accounts Receivable\n 2005 2004\n Allowance For\n Gross Amount Estimated Accounts Accounts\n As of September 30 Due Uncollectibles Receivable, Net Receivable, Net\n (Amounts in thousands)\n 1. Intragovernmental Receivables $ 276,634 N/A $ 276,634 $ 461,867\n 2. Nonfederal Receivables (From the Public) $ 709,733 $ (125,728) $ 584,005 $ 492,394\n 3. Total Accounts Receivable $ 986,367 $ (125,728) $ 860,639 $ 954,261\n\n\nAllowance Method\nThe method to estimate Allowance for Loss on Accounts Receivable was changed from percentage of actual\nwrite-offs to percentage of aged receivables by category. The allowance is calculated by using 50 percent of aged\nreceivables in the 180-day to 2-year category and 100 percent of aged receivables in the greater than 2 year category.\nThe aged categories are taken from the 3rd Quarter, FY 2005 Quarterly Accounts Receivable Report. The Allowance\nfor Loss on Accounts Receivable will be re-estimated annually in compliance with standards.\n\n\nFluctuations and/or Abnormalities\nIntra-governmental Receivables decreased $185.2 million or 40 percent from FY 2004 to FY 2005. The decrease is\nprimarily related to increased efforts to monitor receivables and ensure proper recording of collections. Efforts\nhave been made to move all reimbursable activity within the government to the Intragovernmental Payment and\nCollection process thus decreasing the overall receivable balance. The decrease was seen in receivable balances\nfrom the Department of Air Force for $97.2 million, Other Defense Agencies for $37 million, and Health and Human\nServices for $15.3 million. The remaining $35.7 million was seen in various other agencies.\n\nNet Non-Federal Receivables (from the Public) increased $91.6 million or 19 percent from FY 2004 to FY 2005.\nIncreases were seen in areas impacted by the war as In-Service debts increased $9.5 million and debts from Foreign\nGovernments increased $124.2 million. The majority of the Foreign Governments increase primarily pertains to one\ncountry under Multi-National Division Agreements that are not being paid by the foreign government, but by the\nOf\xef\xac\x81ce of the Secretary of Defense (Comptroller). Payment is dependant on the receipt of the Of\xef\xac\x81ce of Secretary of\nDefense budget supplement and is expected during FY 2006. There is continuous effort to monitor receivables and\nensure proper recording of collections resulting in the reduction of Non-Federal Receivables.\n\nNon-Federal Receivables (from the Public) consists of accounts receivable, refund receivable, claims receivable and\ninterest receivable. The following schedule illustrates the major contributors to Gross Amount Due from Non-\nFederal Accounts Receivable (from the Public), by type of debt:\n\n\n\n\n FY 2005 Army Annual Financial Statement 65\n\x0c(Amounts in thousands)\n\nType of Debt Amount\nContractor Debt $94,825\nIndividual (Out-of-Service) 183,657\nMilitary Pay (In-Service) 100,106\nCivilian Pay (In-Service) 34,048\nSales of Goods & Services 51,463\nInterest 34,675\nForeign Military Sales 30,347\nForeign Governments 200,610\nNon-Appropriated Funds Instrumentalities 13,652\nVendor Debt 2,342\nOther 27,047\n Subtotal $772,772\nUndistributed Collections Public (63,039)\n Gross Non-Federal Accounts Receivable (from the Public) $709,733\n\n\nRelevant Information for Comprehension\nAllocation of Undistributed Collections\nThe Army reported $10.5 million of supported undistributed collections. The Army supported undistributed\ncollections are reported as either federal or public.\n\nElimination Adjustments\nThe Army\xe2\x80\x99s General Fund accounting systems do not capture trading partner data at transaction level in a manner\nthat facilitates trading partner aggregations. Therefore, the Army is unable to reconcile Intragovernmental Accounts\nReceivable balances with its trading partners. The Army intends to develop long-term systems improvements that\nwill include suf\xef\xac\x81cient up-front edits and controls to eliminate the need for after-the-fact reconciliations. These\nimprovements will be implemented incrementally through planned \xef\xac\x81elding of a compliant \xef\xac\x81nancial management\nsystem for all Army activities.\n\nAccounts Receivable Over 180 Days\nThe Army reported $272.9 million of Non-Federal Accounts Receivable (from the Public) and $3.0 million of\nIntragovernmental Accounts Receivable over 180 days. Over 50 percent of Non-Federal Accounts Receivable (from\nthe Public) consisted of personnel and contractor debt. The Intragovernmental Accounts Receivable consisted of\ndebt from reimbursable transactions within DoD.\n\nNondelinquent accounts receivable are receivables not yet due under the contract or billing documents pertaining to\nthe receivable. Current nondelinquent accounts receivable are those that are due in the next 12 months. Noncurrent\nnondelinquent accounts receivable are those amounts that are due beyond the next 12 months. Delinquent accounts\nreceivable shall be aged from the date the accounts is considered delinquent as outlined in the DoD Financial\nManagement Regulations.\n\n\n\n\n66 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cAccounts Receivable Groups\n(thousands)\n\nCategory Intragovernmental Nonfederal\nNondelinquent\n Current $1,168,045 $386,915\n Noncurrent\nDelinquent\n 1 to 30 days 29,384 4,772\n 31 to 60 days 570 10,910\n 61 to 90 days 5,137 28,836\n 91 to 180 days 9,303 68,398\n 181 days to 1 year 2,758 103,908\n Greater than 1 year and less 207 54,541\n then or equal to 2 years\n Greater than 2 years and less 39,808\n than or equal to 6 years\n Greater than 6 years and less 67,021\n than 10 years\n Greater than 10 years 7,664\n\nThe aged accounts receivable schedule above does not include undistributed collections or eliminate any receivables\nwith the Army. The primary difference is due to eliminations of $991 million.\n\nNon-Federal Refunds Receivable\nRefunds Receivable are presented in the table below. Amounts reported for Public Refunds Receivable primarily\noriginated from debts owed by military service members collectible to the Army active military personnel\nappropriation.\n\n (Amounts in thousands)\n\n FY 2005 Non-Federal FY 2005 Non-Federal\n Refunds Receivable Accounts Receivable (Net) Percent of Net Amount\n $165,725 $584,005 28%\n\n\nNote Reference\nSee Note 1.K., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and\nDoD policies governing accounts receivable.\n\nNote 6. Other Assets\n\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Intragovernmental Other Assets\n A. Advances and Prepayments $ 824,303 $ 556,380\n B. Total Intragovernmental Other Assets $ 824,303 $ 556,380\n 2. Nonfederal Other Assets\n A. Outstanding Contract Financing Payments $ 3,470,563 $ 2,789,090\n B. Other Assets (With the Public) 373,961 562,414\n C. Total Nonfederal Other Assets $ 3,844,524 $ 3,351,504\n 3. Total Other Assets $ 4,668,827 $ 3,907,884\n\n\n\n\n FY 2005 Army Annual Financial Statement 67\n\x0cRelevant Information for Comprehension\nThe Army has reported outstanding \xef\xac\x81nancing payments for \xef\xac\x81xed price contracts as Other Assets. The Army\nbecomes liable after the contractor delivers the goods in conformance with the contract terms of \xef\xac\x81xed price contracts.\nThe Army is not obligated to reimburse the contractor for its costs and the contractor is liable to repay the Army the\nfull amount of the outstanding contract \xef\xac\x81nancing payments if a satisfactory product is not delivered.\n\n\nFluctuation and/or Abnormalities\nIntragovernmental Advances and Prepayments increased $267.9 million or 48 percent from FY 2004. Improved\nbusiness processes of using Treasury\xe2\x80\x99s Intragovernmental Reconciliation Analysis System have allowed Army\nto capture advances to others with agencies outside of DoD. Increased in advances to the Department of Interior\nfor $199.2 million, Department Homeland Security for $53.8 million, and National Aeronautics and Space\nAdministration for $14.8 million make up the majority of the overall increase. The increase is due to Army using\nestimates in FY 2004 and actuals in FY 2005.\n\nOutstanding Contract Financing Payments increased $681.5 million or 24 percent from FY 2004. The majority of the\nincrease occurred in the appropriations for Missile Procurement, Army of $217.4 million, Procurement of Weapons\nand Tracked Combat Vehicles, Army of $150.8 million, Other Procurement, Army of $229.2 million and Operation\nand Maintenance, Army $51.1 million.\n\nThe Other Assets (With the Public) which consist of Military Pay and Travel Advances decreased $188.5 million or\n34 percent because of increased collection efforts.\n\n\nIntragovernmental Eliminations\nThe buyer-side Advances and Prepayments balances were adjusted upward $909.6 million to agree with seller-side\nunearned revenue on the books for other DoD reporting entities. In addition, $85.4 million of intra-Army General\nFund transactions were eliminated leaving a balance of $824.3 million.\n\n\nNote Reference\nSee Note 1. R., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and\nDoD policies governing other assets.\n\nFor regulatory discussion on other assets, see the Department of Defense Financial Management Regulation, Volume 6B,\nChapter 10, paragraph 1008.\n\nNote 7. Cash and Other Monetary Assets\n\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Cash $ 1,010,331 $ 1,168,692\n 2. Foreign Currency (non-purchased) 471,715 356,398\n 3. Total Cash, Foreign Currency, & Other Monetary Assets $ 1,482,046 $ 1,525,090\n\n\nDe\xef\xac\x81nitions\nCash \xe2\x80\x93 The total of cash resources under the control of the Army, which includes coin, paper currency, negotiable\ninstruments, and amounts on deposit in banks and other \xef\xac\x81nancial institutions. Cash available for agency use\nincludes petty cash funds and cash held in revolving funds which will not be transferred into the U.S. Government\nGeneral Fund.\n\nForeign Currency \xe2\x80\x93 Consists of the total U.S. dollar equivalent of purchased foreign currencies held in foreign\n\n\n68 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0ccurrency fund accounts. Non-purchased foreign currency is limited to the Treasury Index 97X7000 fund account.\n\nOther Monetary Assets - Includes gold, special drawing rights, and U.S. Reserves in the International Monetary\nFund. This category is principally for use by the Department of the Treasury and is not used by Army.\n\n\nFluctuations and/or Abnormalities\nCash and foreign currency decreased $43.0 million or 3 percent, primarily due to continued support of the\ncontingency missions Operation Iraqi Freedom and Operation Enduring Freedom. Overall foreign currency\nincreased approximately $115.3 million or 32 percent, which includes currency to pay foreign vendors and cash in\nthe custody of foreign agents primarily in support of the Army\xe2\x80\x99s forward deployed tactical units.\n\n\nOther Information Related to Cash and Other Monetary Assets\nCash and foreign currency reported consists primarily of cash held by disbursing of\xef\xac\x81cers to carry out their paying,\ncollecting and foreign currency accommodation exchange mission. Foreign currency is valued using the Department\nof Treasury Prevailing Rate of Exchange. This rate is the most favorable rate that would legally be available to the\nU.S. Government\xe2\x80\x99s acquisition of foreign currency for its of\xef\xac\x81cial disbursements and accommodation of exchange\ntransactions. All Army cash and foreign currency is non-entity and is therefore restricted.\n\nAll foreign currency shown above is purchased foreign currency residing in Local Depository Accounts overseas.\nDue to limitations of the current format of line 2, Foreign Currency (non-purchased) is erroneously shown as non-\npurchased.\n\n\nNote Reference\nSee Note 1.J., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and DoD\npolicies governing foreign currency.\n\nNote 8. Direct Loan and/or Loan Guarantee Programs\nAs of September 30\nDirect Loan and/or Loan Guarantee Programs The entity operates the following direct loan and/or\nLoan guarantee program(s)\n Military Housing Privatization Initiative\n Armament Retooling & Manufacturing Support Initiative\n\n\nArmament Retooling and Manufacturing Support Initiative\nThe Armament Retooling and Manufacturing Support Initiative (ARMS), Title 10 United States Code (USC)\n4551-4555, is designed to encourage commercial use of the Army\xe2\x80\x99s inactive ammunition plants through many\nincentives for businesses willing to locate to a government ammunition production facility. These facilities have\nproduction capacity greater than the current military requirements; however, this capacity could be needed in the\nevent of a major war. The revenues from the property rental are used to pay for the operation, maintenance and\nenvironmental clean up at the facilities. This savings in overhead cost lowers the production cost of the goods\nmanufactured and funds the environmental clean up at no cost to the government.\n\nThe Army, by means of ARMS Initiative legislation, established a loan guarantee program to facilitate commercial\n\xef\xac\x81rms\xe2\x80\x99 use of speci\xef\xac\x81ed ammunition manufacturing facilities. The Army and Department of Agriculture Rural\nBusiness-Cooperative Service (RBS) established a Memorandum of Understanding for the RBS to administer the\nARMS Initiative Loan Guarantee Program (AILP).\n\n\n\n\n FY 2005 Army Annual Financial Statement 69\n\x0cDirect Loans Obligated After FY 1991\nNot applicable.\n\n\nTotal Amount of Direct Loans Disbursed\nNot applicable.\n\n\nSubsidy Expense for Post-1991 Direct Loans\nNot applicable.\n\n\nSubsidy Rate for Direct Loans\nNot Applicable.\n\n\nSchedule for Reconciling Subsidy Cost Allowance Balances for Post-1991 Direct Loans\nNot applicable.\n\n\nDefaulted Guaranteed Loans from Post-1991 Guarantees\nNot applicable.\n\n\nGuaranteed Loans Outstanding\n Outstanding Principal, Amount of Outstanding\n As of September 30 Guaranteed Loans, Face Value Principal Guaranteed\n (Amounts in thousands)\n Guaranteed Loans Outstanding\n 1. Military Housing Privatization Initiative $ 0 $ 0\n 2. Armament Retooling & Manufacturing Support Initiative $ 26,996 $ 24,196\n 3. Total $ 26,996 $ 24,196\n\n 2005\n New Guaranteed Loans Disbursed\n 1. Military Housing Privatization Initiative $ 0 $ 0\n 2. Armament Retooling & Manufacturing Support Initiative $ 740 $ 629\n 3. Total $ 740 $ 629\n\n 2004\n New Guaranteed Loans Disbursed\n 1. Military Housing Privatization Initiative $ 0 $ 0\n 2. Armament Retooling & Manufacturing Support Initiative $ 0 $ 0\n 3. Total $ 0 $ 0\n\nThe increase in the face value of the guaranteed loans of $740 thousand and the amount of principal guaranteed of\n$629 thousand are due to an FY 2005 loan closing and disbursement of an FY 2004 loan obligation.\n\n\n\n\n70 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cLiability for Post-1991 Loan Guarantees, Present Value\n As of September 30 2005 2004\n (Amounts in thousands)\n Loan Guarantee Program\n 1. Military Housing Privatization Initiative $ 0 $ 0\n 2. Armament Retooling & Manufacturing Support Initiative 12,394 12,293\n 3. Total $ 12,394 $ 12,293\n\n\nSubsidy Expense for Post-1991 Loan Guarantees\n As of September 30\n (Amounts in thousands)\n Interest\n 2005 Differential Defaults Fees Other Total\n 1. New Loan Guarantees Disbursed:\n Military Housing Privatization Initiative $ 0 $ 0 $ 0 $ 0 $ 0\n Armament Retooling & Manufacturing Support Initiative 0 0 0 0 0\n Total $ 0 $ 0 $ 0 $ 0 $ 0\n Interest\n 2004 Differential Defaults Fees Other Total\n 2. New Loan Guarantees Disbursed:\n Military Housing Privatization Initiative $ 0 $ 0 $ 0 $ 0 $ 0\n Armament Retooling & Manufacturing Support Initiative 0 174 (56) 0 118\n Total $ 0 $ 174 $ ( 56) $ 0 $ 118\n Interest Rate Technical Total\n 2005 Modifications Reestimates Reestimates Reestimates Total\n 3. Modifications and Reestimates:\n Military Housing Privatization Initiative $ 0 $ 0 $ 0 $ 0.00 $ 0\n Armament Retooling & Manufacturing Support Initiative 0 0 0 0.00 0\n Total $ 0 $ 0 $ 0 $ 0 $ 0\n Interest Rate Technical Total\n 2004 Modifications Reestimates Reestimates Reestimates Total\n 4. Modifications and Reestimates:\n Military Housing Privatization Initiative $ 0 $ 0 $ 0 $ 0.00 $ 0\n Armament Retooling & Manufacturing Support Initiative 0 0 7,451 0.00 7,451\n Total $ 0 $ 0 $ 7,451 $ 0 $ 7,451\n\n\n 2000 2005 2004\n 5. Total Loan Guarantee:\n Military Housing Privatization Initiative $ 0 $ 0\n Armament Retooling & Manufacturing Support Initiative 0 7,569\n Total $ 0 $ 7,569\n\n\nThere is no subsidy expense in FY 2005.\n\n\n\n\n FY 2005 Army Annual Financial Statement 71\n\x0cSubsidy Rate for Loan Guarantees\n Interest Fees and other\n Supplements Defaults Collections Other Total\n Loan Guarantees:\n 1. Military Housing Privatization Initiative 0.00% 0.00% 0.00% 0.00% 0.00%\n 2. Armament Retooling & Manufacturing Support Initiative 0.00% 3.75% -1.79% 0.00% 1.96%\n\nThis budgeted subsidy rate in effect for the FY 2005 remained the same for the entire \xef\xac\x81scal year.\n\n\nSchedule for Reconciling Loan Guarantee Liability Balances for Post-1991 Loan Guarantees\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Beginning Balance of the Loan Guarantee Liability $ 12,293 $ 1,273\n 2. Add: Subsidy Expense for Guaranteed Loans Disbursed during the\n Reporting Years by Component\n A. Interest Supplement Costs $ 0 $ 0\n B. Default Costs (Net of Recoveries) 0 174\n C. Fees and Other Collections 0 (56)\n D. Other Subsidy Costs 0 0\n E. Total of the above Subsidy Expense Components $ 0 $ 118\n 3. Adjustments\n A. Loan Guarantee Modifications $ 0 $ 0\n B. Fees Received 60 0\n C. Interest Supplements Paid 0 0\n D. Foreclosed Property and Loans Acquired 0 0\n E. Claim Payments to Lenders 0 0\n F. Interest Accumulation on the Liability Balance 41 3,451\n G. Other 0 0\n H. Total of the above Adjustments $ 101 $ 3,451\n 4. Ending Balance of the Loan Guarantee Liability before Re-estimates $ 12,394 $ 4,842\n 5. Add or Subtract Subsidy Re-estimates by Component\n A. Interest Rate Re-estimate $ 0 $ 0\n B. Technical/default Re-estimate 0 7,451\n C. Total of the above Re-estimate Components $ 0 $ 7,451\n 6. Ending Balance of the Loan Guarantee Liability $ 12,394 $ 12,293\n\n\nOne loan obligated with total subsidy expense of $118 thousand was processed in FY 2004. This subsidy expense\nprimarily consists of default costs and fees and other collection.\n\nThe $60 thousand guaranteed fee for the loan received in FY 2004 was not received until FY 2005.\n\nInterest accumulation on the liability balance decreased $3.4 million primarily due to reestimated loan amortization\namount from Treasury reported in FY 2004. The reestimated loan amortization amount reported to recognize an\nincrease in the guarantee loan liability due to an estimated loss claim. In FY 2005, only $41 thousand interest income\nwas reported.\n\nThe reestimate decreased $7.5 million between FY 2004 and FY 2005, primarily due to a reestimate for a liability for\nan impending loss claim in FY 2004. A reestimate was not required in FY 2005.\n\n\n\n\n72 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cAdministrative Expense\nNot applicable.\n\nNote 9. Inventory and Related Property\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Inventory, Net $ 109,586 $ 204,707\n 2. Operating Materials & Supplies, Net 37,593,767 37,443,014\n 3. Stockpile Materials, Net 0 0\n 4. Total $ 37,703,353 $ 37,647,721\n\n\nInventory, Net\n 2005 2004\n Inventory, Revaluation Valuation\n As of September 30 Gross Value Allowance Inventory, Net Inventory, Net Method\n (Amounts in thousands)\n 1. Inventory Categories\n A. Available and Purchased for Resale $ 23,163 $ (3,106) 20,057 $ 12,768 LAC\n B. Held for Repair 0 0 0 0\n C. Excess, Obsolete, and Unserviceable 2,416 (2,416) 0 0 NRV\n D. Raw Materials 0 0 0 0\n E. Work in Process 89,529 0 89,529 191,939 SP\n F. Total $ 115,108 $ (5,522) 109,586 $ 204,707\n\n\nLegend for Valuation Methods:\nAdjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses\nNRV = Net Realizable Value\nO = Other\nSP = Standard Price\nAC = Actual Cost\n\n\nRestrictions of Inventory Use, Sale, or Disposition\nThere are no restrictions on the use, sale, or disposition of inventory except in the following situations:\n\na) Distributions without reimbursements made when authorized by DoD directives;\nb) War Reserve Materiel includes fuels and subsistence items that are considered restricted; and\nc) Inventory, with the exception of safety stocks, may be sold to foreign, state and local governments, private\n parties, and contractors in accordance with current policies and guidance or at the direction of The President.\n\nOther Information\nGeneral Composition of Inventory\nInventory is comprised of ammunition in the Conventional Ammunition Working Capital Fund (CAWCF).\nInventory is tangible personal property that is:\n\na) Held for Sale, or Held for Repair for eventual sale;\nb) In the process of production for sale; or\n\n\n\n FY 2005 Army Annual Financial Statement 73\n\x0cc) To be consumed in the production of goods for sale or in the provision of services for a fee.\n\nExcess, obsolete, and unserviceable inventory is condemned material that must be retained for management\npurposes. Work-in-Process includes munitions in production and depot maintenance work with its associated\nlabor, applied overhead, and supplies used in the delivery of maintenance services. The U.S. Government Standard\nGeneral Ledger does not include a separate Work in-Process account unrelated to sales.\n\nDecision Criteria for Identifying the Category to Which Inventory is Assigned\nManagers determine which items are more costly to repair than replace. Items retained for management purposes\nare coded condemned. The net value of these items is zero, and is shown as excess, obsolete, and unserviceable.\nThe category held for sale includes all issuable material. Economically repairable material is categorized as held for\nrepair.\n\n\nFluctuations and/or Abnormalities\nThe CAWCF reports balances for Inventory Available and Purchased for Resale; Inventory Excess, Obsolete, and\nUnserviceable; and Inventory Work-in-Process. Inventory sales are primarily made to the Military Departments.\nCAWCF Total Inventory, Net, showed an overall decrease of $95.1 million or 46 percent, in FY 2005. CAWCF\nAvailable and Purchased for Resale Inventory, Net showed a increase of $7.3 million or 57 percent and Work in\nProcess showed a decrease of $102.4 million or 53 percent. The increase in Available and Purchased for Resale is\nattributable to \xef\xac\x81lling the orders received while the decrease in Work in Process indicates no new orders and eventual\nclose out of CAWCF.\n\nA year-to-year decrease in CAWCF Inventory is expected as the program progresses toward its \xef\xac\x81nal closeout on\nSeptember 30, 2007. Effective September 30, 1998, CAWCF of\xef\xac\x81cially stopped the acceptance of new orders for the\nprocurement of Conventional Ammunitions. At this time, only a few undelivered customer orders remain to be\nshipped.\n\n\nNote Reference\nSee Note 1.M., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and\nDoD policies governing inventory and related property.\n\n\nOperating Materials and Supplies, Net\n\n 2005 2004\n OM&S Revaluation Valuation\n As of September 30 Gross Value Allowance OM&S, Net OM&S, Net Method\n (Amounts in thousands)\n 1. OM&S Categories\n A. Held for Use $ 37,593,767 $ 0 $ 37,593,767 $ 37,443,014 LAC\n B. Held for Repair 0 0 0 0\n C. Excess, Obsolete, and Unserviceable 1,336,536 (1,336,536) 0 0 SP\n D. Total $ 38,930,303 $ (1,336,536) $ 37,593,767 $ 37,443,014\n\n\nLegend for Valuation Methods:\nAdjusted LAC = Latest Acquisition Cost adjusted for holding gains and losses\nNRV = Net Realizable Value\nO = Other\nSP = Standard Price\nAC = Actual Cost\n\n\n\n\n74 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cRelevant Information for Comprehension\nRestrictions on Operating Materials and Supplies (OM&S)\nThe total tonnage of munitions stock, to include chemical stocks awaiting destruction for FY 2005 and out years, is\n446,631 tons.\n\nThe Army reported $4.9 billion of OM&S Held for Future Use. This amount represents ammunition held under\na host nation treaty agreement and is not intended for use by U.S. Forces. The ammunition is intended for use in\ndefense of the host nation by the host nation.\n\nGeneral Composition of OM&S\nOM&S includes spare and repair parts, ammunition, and tactical missiles.\n\nChanges in the Criteria for Identifying the Category to which OM&S are Assigned\nThe category Held for Use includes all issuable material. Economically repairable material is categorized as held for\nrepair.\n\nDecision Criteria for Identifying the Category to which OM&S are Assigned\nManagers determine which items are more costly to repair than to replace. Items retained for management purposes\nare coded condemned. The net value of these items is zero, and is shown as Excess, Obsolete, and Unserviceable.\n\nTotal Excess, Obsolete and Unserviceable\nThe Army establishes an allowance for excess, obsolete, and unserviceable OM&S and inventory at 100 percent of\nthe carrying amount in accordance with DoD policy.\n\nGovernment Furnished Material (GFM) and Contractor Acquired Material (CAM)\nThe value of the Army\xe2\x80\x99s GFM and CAM in the hands of contractors is normally not included in the OM&S values\nreported above. The DoD is presently reviewing its process for reporting these amounts in an effort to determine the\nappropriate accounting treatment and the best method to annually collect and report required information without\nduplicating information in other existing logistics systems.\n\n\nNote Reference\nSee Note 1.M., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and\nDoD policies governing inventory and related property.\n\n\nStockpile Materials, Net\nNot applicable.\n\n\n\n\n FY 2005 Army Annual Financial Statement 75\n\x0cNote 10. General PP&E, Net\n 2005 2004\n Depreciation/ (Accumulated\n Amortization Service Acquisition Depreciation/ Net Book Prior FY Net\n As of September 30 Method Life Value Amortization) Value Book Value\n (Amounts in thousands)\n 1. Major Asset Classes\n A. Land N/A N/A $ 473,405 N/A $ 473,405 $ 464,254\n B. Buildings, Structures, and Facilities S/L 20 Or 40 42,991,192 $ (27,570,505) 15,420,687 15,596,637\n C. Leasehold Improvements S/L lease term 13,860 (11,242) 2,618 2,144\n D. Software S/L 2-5 Or 10 528,762 (180,346) 348,416 292,064\n E. General Equipment S/L 5 or 10 3,119,395 (2,042,868) 1,076,527 926,606\n F. Military Equipment S/L Various 403,430,000 (306,710,000) 96,720,000 90,280,000\n G. Assets Under Capital Lease S/L lease term 166,617 (138,615) 28,002 35,997\n H. Construction-in-Progress N/A N/A 6,246,266 N/A 6,246,266 5,495,062\n I. Other 117,729 (31,904) 85,825 18,808\n 2. Total General PP&E $ 457,087,226 $ (336,685,480) $ 120,401,746 $ 113,111,572\n\n1\n Note 15 for additional information on Capital Leases\n\n\nLegend for Valuation Methods:\nS/L = Straight Line\nN/A = Not Applicable\n\n\nFluctuations and/or Abnormalities\nThe Net Book Value (NBV) of Leasehold Improvements increased $474.0 thousand or 22 percent. The increase\nis attributed to more accurate reporting as a result of quality assurance/quality control reviews by the Army\xe2\x80\x99s\nAssistant Chief of Staff for Installation Management.\n\nThe Army reported an increase in Software NBV of $56.4 million or 19 percent. This increase is attributed to a\ncontinuing initiative to establish the baseline to report internal use software. Internal Use Software identi\xef\xac\x81ed and\nreported in FY 2005 includes Reserve Component Automation System, Joint Computer Aided Acquisition and\nLogistic Support, Transportation Information System Block I, Property Book Unit Supply Enhancement, and various\nother projects in development.\n\nThe Army reported an increase in Equipment NBV of $149.9 million or 16 percent. This increase is attributed to an\nArmy initiative to establish capital asset visibility of Government Furnished Equipment at Government Owned\nContractor Operated Army installations.\n\nAssets Under Capital Lease decreased by $8.0 million or 22 percent due to straight-line amortization of leased assets.\n\nConstruction in Progress (CIP) increased $751.0 million or 14 percent. Major components of the increase include:\n$304.0 million net in U.S. Army Corps of Engineers projects which include the construction and repair of barracks,\ntraining facilities, utilities, and vehicle maintenance facilities; $447.0 million net of current transfers, completions,\nand transfers out for the Defense Emergency Response Fund and Of\xef\xac\x81ce of the Secretary of Defense projects.\n\nOther of $85.8 million represents projected value of forest product sales (timber reserve) and property recorded\nusing the Defense Finance and Accounting Service Corporate Database (DCD) Interface Initiative. Fourth Quarter,\nFY 2005 marks the \xef\xac\x81rst time Army property system data is reported using the DCD Interface. The $67.0 million\nor 356 percent increase is attributable to personal property being misclassi\xef\xac\x81ed as other timber. This data will be\nresearched and revised during 1st Quarter, FY 2006.\n\n\n\n\n76 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cRelevant Information for Comprehension\nMilitary Equipment\nIn FY 2005, the Army reported military equipment with an acquisition value of $403.4 billion and accumulated\ndepreciation of $306.7 billion for a NBV of $96.7 billion.\n\nThe Federal Accounting Standards Advisory Board issued Statement of Federal Financial Accounting Standards\nNo. 23, Eliminating the Category National Defense Property, Plant, and Equipment, in May 2003. This standard, which\nis effective for accounting periods beginning after September 30, 2002, established generally accepted accounting\nprinciples (GAAP) for valuing and reporting military equipment (e.g., ships, aircraft, combat vehicles, weapons)\nin federal \xef\xac\x81nancial statements. The standard requires the capitalization and depreciation of the cost of military\nequipment, including the cost of modi\xef\xac\x81cations and upgrades.\n\nThe DoD has determined that it is not practical at this time to accumulate from internal records the information\nnecessary to value military equipment in accordance with GAAP, because the Army and DoD are currently working\nto revise their accounting processes and systems to support informational needs of management and compliance\nwith GAAP. In the interim, DoD will base the value of military equipment for \xef\xac\x81nancial statement presentation\npurposes on data provided by the Bureau of Economic Analysis (BEA), Department of Commerce.\n\nThe data, provided by BEA, consists of investment and net book value data for 84 groups of military equipment\nsuch as tracked vehicles, aircraft, ships and combat vehicles. BEA uses DoD budget, expenditure, and delivery data\nto calculate the Army\xe2\x80\x99s annual investment in military equipment, after recognizing any equipment transfers or war\nlosses. DoD adjusts BEA data to eliminate equipment items that are not accounted for as military equipment, such\nas spares, munitions, and inventory items, which are accounted for and reported as Inventory and Related Property.\n\n\nNote Reference\nSee Note 1.O., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and\nDoD policies governing general property, plant and equipment.\n\n\nAssets Under Capital Lease\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Entity as Lessee, Assets Under Capital Lease\n A. Land and Buildings $ 166,071 $ 166,071\n B. Equipment 546 0\n C. Other 0 0\n D. Accumulated Amortization (138,615) (130,074)\n E. Total Capital Leases $ 28,002 $ 35,997\n\n\nFluctuations and/or Abnormalities\nAssets Under Capital Lease decreased by $8 million or 22 percent due to straight-line amortization of leased assets.\n\n\nRelevant Information for Comprehension\nThe Army is the lessee in eight Section 801 Family Housing Leases for two on-post and six off-post housing facilities.\nThese leases have between two and eight years remaining on their terms. The Eighth U.S. Army G3 Aviation is\nalso the lessee in an equipment lease for a training simulator. This is a lease \xef\xac\x81rst reported in 3rd Quarter, FY 2005.\nAs shown in Note 15, the liability is valued at $14 million for current and $33 million for non-current. The future\nexecutory and imputed interest costs, as shown in a combined form in Note 15 Capital Lease Liability section, are\n$11 million and $9 million, respectively. Future executory costs are estimates based on historical data. The imputed\ninterest that was necessary to reduce the net minimum lease payments to the present value was calculated at the\nincremental borrowing rate at the inception of the leases.\n\n\n FY 2005 Army Annual Financial Statement 77\n\x0cNote Reference\nSee Note 1.Q., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and\nDoD policies governing leases.\n\nNote 11. Liabilities Not Covered by Budgetary Resources\n\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Intragovernmental Liabilities\n A. Accounts Payable $ 0 $ 0\n B. Debt 0 0\n C. Other 473,993 593,847\n D. Total Intragovernmental Liabilities $ 473,993 $ 593,847\n 2. Nonfederal Liabilities\n A. Accounts Payable $ 90,204 $ 73,766\n B. Military Retirement Benefits and\n Other Employment-Related Actuarial Liabilities 1,663,650 1,632,843\n C. Environmental Liabilities 38,399,062 37,494,670\n D. Loan Guarantee Liability 0 0\n E. Other Liabilities 4,357,513 4,871,124\n F. Total Nonfederal Liabilities $ 44,510,429 $ 44,072,403\n 3. Total Liabilities Not Covered by Budgetary Resources $ 44,984,422 $ 44,666,250\n 4. Total Liabilities Covered by Budgetary Resources $ 17,281,633 $ 19,584,078\n 5. Total Liabilities $ 62,266,055 $ 64,250,328\n\n\nRelevant Information for Comprehension\nLiabilities Not Covered by Budgetary Resources are those liabilities which are not considered funded by realized\nbudgetary resources as of the balance sheet date.\n\nThe schedule below identi\xef\xac\x81es the Army Other Intragovernmental liabilities.\n\n(Amounts in thousands)\n FY 2005 FY 2004\nFederal Employees\xe2\x80\x99 Compensation Act (FECA) $274,311 $281,613\nUnemployment Bene\xef\xac\x81ts 145,898 133,628\nCancelled Accounts Receivable 53,784 95,693\nJudgment Fund 0 81,923\nJudgment Fund \xe2\x80\x93 Noti\xef\xac\x81cation and Federal 0 990\n Employee Antidiscrimination and Retaliation Act\nTotal Intragovernmental- Other $473,993 $593,847\n\nFECA decreased $7.3 million or 3 percent from FY 2004 and Unemployment Bene\xef\xac\x81ts increased $12.2 million or 9\npercent from FY 2004.\n\nCancelled Accounts Receivable decreased $41.9 million or 44 percent. The Of\xef\xac\x81ce of the Secretary of Defense (OSD)\nrequested that the departments begin to write off uncollectible cancelled accounts receivable starting in FY 2005.\n\nPer FY 2005 OSD \xef\xac\x81nancial statement guidance, all Judgment Fund liability is now reported as part of funded\nAccounts Payable and re\xef\xac\x82ected on Note 12, Accounts Payable.\n\n\n\n\n78 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNonfederal Liabilities\nThe majority of Accounts Payable\xe2\x80\x99s 22 percent increase of $16.4 million is attributable to Military Personnel, Army\nfor overestimated personnel and Permanent Change of Station travel costs that will be reversed in FY 2006.\n\nOther Employment-Related Actuarial Liabilities (FECA) increased $30.8 million or 2 percent and Environmental\nLiabilities increased $904.3 million or 2 percent from FY 2004.\n\nThe schedule below identi\xef\xac\x81es the Army Other Nonfederal liabilities.\n\n(Amounts in thousands) FY 2005 FY 2004\nAnnual Leave $2,728,208 $2,656,508\n Nonenvironmental \xe2\x80\x93 Disposal 1,318,443 1,325,886\n Contingent Liabilities 175,541 742,237\n Iraqi Seized Cash 61,370 113,430\n Development Fund for Iraq 53,387 0\n Capital Leases 20,565 33,063\nTotal Non-Federal - Other $4,357,514 $4,871,124\n\nAnnual Leave increased $71.7 million or 3 percent and Nonenvironmental \xe2\x80\x93 Disposal had a decrease of $7.4 million\nor 1 percent from FY 2004.\n\nContingent Liabilities\xe2\x80\x99 decrease of $566.7 million or 76 percent is attributable primarily to a change in the reporting\nof Chemical Demilitarization. Based on analysis performed by Army, it was determined that these liabilities were\nmore properly reported as environmental liabilities on Note 14.\n\nIraqi Seized Cash continues to be disbursed to the Iraqi people accounting for a decrease of $52.1 million or 46\npercent.\n\nThe Development Fund for Iraq was not reported until 1st Quarter, FY 2005. For additional information, refer to\nNote 1Z.\n\nCapital Leases decreased by $12.5 million or 38 percent as a result of annual amortization.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 1Z, Signi\xef\xac\x81cant Accounting Policies, Development Fund for Iraq\nNote 8, Direct Loan and/or Loan Guarantee Programs\nNote 12, Accounts Payable\nNote 13, Debt\nNote 14, Environmental Liabilities and Disposal Liabilities\nNote 15, Other Liabilities\nNote 16, Commitments and Contingencies\nNote 17, Military Retirement Bene\xef\xac\x81ts and Other Employment Related, Actuarial Liabilities\nNote 22, Disclosures Related to the Statement of Custodial Activity\n\n\n\n\n FY 2005 Army Annual Financial Statement 79\n\x0cNote 12. Accounts Payable\n 2005 2004\n Interest, Penalties, and\n As of September 30 Accounts Payable Administrative Fees Total Total\n (Amounts in thousands)\n 1. Intragovernmental Payables $ 1,918,309 $ N/A $ 1,918,309 $ 1,706,731\n 2. Non-Federal Payables (to the Public) 10,136,895 116 10,137,011 9,460,194\n 3. Total $ 12,055,204 $ 116 $ 12,055,320 $ 11,166,925\n\nIntragovernmental Accounts Payable consists of amounts owed to other federal agencies for goods or\nservices ordered and received but not paid. Interest, penalties, and administrative fees are not applicable to\nintragovernmental payables. Non-Federal Accounts Payable (to the Public) are payables to entities other than the\nfederal government.\n\n\nFluctuations and/or Abnormalities\nIntragovernmental Accounts Payable with entities other than the Army General Fund increased $211.6 million or 12\npercent primarily due to a $98.0 million increase for the Defense Finance and Accounting Services Working Capital\nFund caused from unbilled receivables where a funding document was received after the billing cycle and a $96.7\nmillion increase due to a report mapping change. In 1st Quarter, FY 2005, the Treasury directed that Judgment Fund\nliabilities be reported as Accounts Payable rather than Other Liabilities which moved the reporting from Note 15,\nOther Liabilities to Note 12, Accounts Payable.\n\n\nRelevant Information for Comprehension\nUndistributed Disbursements\nUndistributed disbursements are the difference between disbursements recorded at the detail level in the activity\xe2\x80\x99s\naccounting records versus those reported by the U.S. Treasury.\n\nSupported undistributed disbursements are allocated to Non-Federal Accounts Payable. As a result, Accounts\nPayable was adjusted downward in the amount of $1.3 billion. Unsupported undistributed disbursements are\nrecorded as Disbursements in Transit and are re\xef\xac\x82ected on the note.\n\nIntragovernmental Eliminations\nThe Army accounting systems do not capture trading partner data at the transaction level in a manner that facilitates\ntrading partner aggregations for intra-agency sales; therefore, the Army was unable to reconcile intragovernmental\naccounts payable to the related intragovernmental account receivable that generated the payable.\n\nThe DoD summary level seller Accounts Receivables were compared to the Army Accounts Payable. An adjustment\nwas posted to Accounts Payable based on the comparison with the Accounts Receivable of the DoD Components\nproviding goods and services to the Army. Intragovernmental Accounts Payable were adjusted upward for $380.4\nmillion while Non-Federal Accounts Payable were adjusted downward for the same amount. The Army intends\nto develop long-term systems improvements that will include suf\xef\xac\x81cient upfront edits and controls to eliminate the\nneed for after-the-fact reconciliations. In addition, $980.4 million of intra-Army General Fund transactions were\neliminated leaving a balance of $1.9 billion.\n\n\nNote Reference\nSee Note 1.G., Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting requirements and the\nDoD policies governing accounts payable.\n\n\n\n\n80 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 13. Debt\nNot applicable.\n\nNote 14. Environmental Liabilities and Disposal Liabilities\n 2005 2004\n As of September 30 Current Liability Noncurrent Liability Total Total\n (Amounts in thousands)\n 1. Environmental Liabilities \xe2\x80\x93 Non Federal\n A. Accrued Environmental Restoration (DERP funded) Costs:\n 1. Active Installations--Environmental Restoration (ER) $ 385,343 $ 2,826,639 $ 3,211,982 $ 3,520,341\n 2. Active Installations--ER for Closed Ranges 13,248 5,169,486 5,182,734 5,781,055\n 3. Formerly Used Defense Sites (FUDS) -- ER 110,711 4,116,739 4,227,450 4,321,276\n 4. FUDS--ER for Transferred Ranges 69,208 14,514,844 14,584,052 14,084,281\n B. Other Accrued Environmental Costs (Non-DERP funds)\n 1. Active Installations--Environmental Corrective Action 17,299 362,305 379,604 259,034\n 2. Active Installations--Environmental Closure Requirements 2,759 94,088 96,847 51,215\n 3. Active Installations--Environ.Response at Active Ranges 6,491 297,596 304,087 267,632\n 4. Other 0 0 0 0\n C. Base Realignment and Closure (BRAC)\n 1. BRAC Installations--Environmental Restoration (ER) 59,962 463,481 523,443 597,347\n 2. BRAC Installations--ER for Transferring Ranges 20,549 613,544 634,093 480,122\n 3. BRAC Installations--Environmental Corrective Action 5,909 48,237 54,146 24,965\n 4. Other 112,026 0 112,026 209,437\n D. Environmental Disposal for Weapons Systems Programs\n 1. Nuclear Powered Aircraft Carriers 0 0 0 0\n 2. Nuclear Powered Submarines 0 0 0 0\n 3. Other Nuclear Powered Ships 0 0 0 0\n 4. Other National Defense Weapons Systems 0 0 0 0\n 5. Chemical Weapons Disposal Program 557,949 9,892,101 10,450,050 10,769,467\n 6. Other 0 0 0 0\n 2. Total Environmental Liabilities: $ 1,361,454 $ 38,399,060 $ 39,760,514 $ 40,366,172\n\n\nRelevant Information for Comprehension\nEnvironmental Liabilities\nArmy Accrued Environmental Restoration Costs (DERP funded): The Army is required to cleanup contamination\nresulting from past waste disposal practices, leaks, spills and other past activity prior to 1986 from hazardous\nsubstances and wastes that created a public health or environmental risk and prior to FY 2003 from unexploded\nordnance (UXO), discarded military munitions, and munitions constituents at other than operational ranges under\nthe Defense Environmental Restoration Program (DERP), established by Section 211 of the Superfund Amendments\nand Reauthorization Act of 1986 codi\xef\xac\x81ed in Title 10 of the United States Code (USC) 2701. Related sections in\nTitle 10 of the USC, 2701-2706 and 2810-2811 further de\xef\xac\x81ne the program. The DERP is implemented in accordance\nwith the DoD Directive 4715.1E, Environmental Security, March 2005; and DoD Instruction 4715.7, Environmental\nRestoration Program, April 22, 1996, and the Management Guidance for the Defense Environmental Restoration\nProgram, September 28, 2001. Environmental liabilities for the Department of the Army DERP (Active Installations\nand Formerly Used Defense Sites (FUDS) are prepared in accordance with the Management Guidance for the\nDefense Environmental Restoration Program and the DoD Financial Management Regulation (FMR) 7000.14.\n\nThe estimated Army total environmental restoration cost for the current operating period is based on the amounts\nthat will be expended within 12 months and amounts that will be expended more than 12 months from the Balance\nSheet date. The amount that will be expended within 12 months from the Balance Sheet date is calculated based\non the disbursement goals for the current appropriation and unliquidated obligations. The amount that will be\nexpended more than 12 months from the Balance Sheet date is calculated based on the remaining disbursement goal\namounts of the current appropriation and unliquidated obligations and the site-level estimate of the cost to complete\nall activities at a site within the Army DERP inventory. In accordance with DERP Management Guidance, the site-\nlevel estimates are point estimates (by site and by remediation phase) calculated using a validated cost-estimating\n\n\n FY 2005 Army Annual Financial Statement 81\n\x0cmodel or an engineered cost and entered into a database. The estimates are reviewed annually and updated to\nincorporate changed assumptions and additional site-level information. At a minimum, estimates are updated\nannually to report the costs in constant dollars. The Army is presently researching methods to capture capital costs\nin remediating legacy waste. The Army expects to establish a methodology for accumulating capital expenditures\nrelated to environmental remediation in FY 2006.\n\nThe Army does not have unrecognized costs associated with general property, plant, and equipment under the\nDERP. The Army is constantly researching sites for possible issues that would result in liability recognition.\nThrough the continued research, the Army recognizes a liability as discovered. Once identi\xef\xac\x81ed, the costs are\nrecognized and recorded, resulting in no unrecognized costs for the period.\n\nThere are no changes in the total estimated environmental restoration liability due to changes in laws and\ntechnology.\n\nEnvironmental restoration liabilities are reported in constant dollars. There are no changes to the total\nenvironmental restoration liability cost due to in\xef\xac\x82ation or de\xef\xac\x82ation.\n\nArmy Other Accrued Environmental Costs (Non-DERP funds): The Army is required to cleanup contamination\nresulting from waste disposal practices, leaks, spills and other activity after 1986 from hazardous substances and\nwastes and after FY 2003 from UXO, discarded military munitions, and munitions constituents migrating from an\noperational range under the Army Compliance Cleanup Program. The Resource Conservation and Recovery Act\n(RCRA), as well as host nation requirements for overseas installations, require the Army to take corrective actions\nto clean up areas where there has been a release related to hazardous material/waste handling and/or storage\nactivities. The Army is also required to close facilities with permits in accordance with environmental laws when\noperation of that facility ceases. The Army Compliance Cleanup Program addresses environmental requirements\nreported under RCRA Subtitle C, RCRA Subtitle D, and RCRA Subtitle I to characterize, investigate and cleanup\nactive Army installations within the United States; and, for overseas installations, requirements in accordance with\nDoD policy as prescribed in DoDI 4715.8 (Environmental Remediation for DoD Activities Overseas). Environmental\nliabilities for the Department of the Army \xe2\x80\x9cOther Accrued Environmental Costs\xe2\x80\x9d are prepared in accordance with\nthe draft Guidance for Recognizing, Measuring and Reporting Environmental Liabilities Not Eligible for Defense\nEnvironmental Restoration Program Funding (July 2005) and the DoD FMR 7000.14.\n\nThe liability estimates used for environmental corrective action and environmental response at active ranges\nfor the current operating period is based on the amounts that will be expended within 12 months and will be\nexpended more than 12 months from the Balance Sheet date. The amount that will be expended within 12 months\nfrom the Balance Sheet date is calculated based on the disbursement goals for the current appropriation. The\nArmy is currently developing a reporting system to track total prior year unliquidated obligations for \xe2\x80\x9cOther\nAccrued Environmental Costs\xe2\x80\x9d and anticipates having this system in place during FY 2006. The amount that will\nbe expended more than 12 months from the Balance Sheet date is calculated based on the remaining amounts of\nthe current appropriation and site-level estimates of the cost to complete all activities at a site within the Army\nCompliance Cleanup Program inventory. The site-level estimates are point estimates (by site and by remediation\nphase) calculated using a validated cost-estimating model or an engineered cost and entered into a database.\nThe estimates are reviewed annually and updated to incorporate changed assumptions and additional site-level\ninformation. At a minimum, estimates are updated annually to report the costs in constant dollars.\n\nThe liability estimates used for environmental closure requirements are under development. Closure requirements\nare prepared and submitted by Army installations on an as-needed basis and reported on the Army Financial\nStatements under Active Installations \xe2\x80\x93 Environmental Closure Requirements. These estimates are point estimates\nto close the facility in accordance with a closure plan and are entered into a database. The assigned current liability\ncost includes an estimation of expenditure based on the disbursement goals for the current year appropriation only.\nThe Army is currently developing a reporting system to track total prior year unliquidated obligations for \xe2\x80\x9cOther\nAccrued Environmental Costs\xe2\x80\x9d and anticipates having this system in place during FY 2006.\n\n\n\n82 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cThe Army does not have unrecognized costs associated with general property, plant, and equipment under its\nCompliance Cleanup Program. The Army is constantly researching sites for possible issues that would result in\nliability recognition. Through the continued research, the Army recognizes a liability as they are identi\xef\xac\x81ed. Once\nidenti\xef\xac\x81ed, the costs are recognized and recorded, resulting in no unrecognized costs for the period.\n\nAccording to the Resource Conservation and Recovery Act (RCRA), the Army records an expense and liability\nfor each asset placed in service during the year that would affect the environment. For each subsequent year,\nenvironmental costs are expensed to remain RCRA compliant. As a result, no amortization costs are recognized for\nassets placed in service in FY 2006.\n\nThere have been no changes in the law or technology that caused a material change in the \xe2\x80\x9cOther Accrued\nEnvironmental Costs\xe2\x80\x9d total estimated liability. There are varying material changes to all \xe2\x80\x9cOther Accrued\nEnvironmental Costs\xe2\x80\x9d due to implementation of corrective measures to attain an unquali\xef\xac\x81ed audit opinion on the\nenvironmental liability portion of the Army\xe2\x80\x99s Financial Statement. These corrective measures include identifying\nthe universe of sites under each non-DERP category, estimating the liability for each site, and showing a reduction\nin liability as funds are spent to address the liability. The Army plans to implement all corrective measures for\nreporting \xe2\x80\x9cOther Accrued Environmental Costs\xe2\x80\x9d during FY 2006.\n\nLiabilities for reporting \xe2\x80\x9cOther Accrued Environmental Costs\xe2\x80\x9d are reported in constant dollars. There were no\nchanges to the total \xe2\x80\x9cOther Accrued Environmental Costs\xe2\x80\x9d liability cost due to in\xef\xac\x82ation or de\xef\xac\x82ation.\n\nArmy Base Realignment and Closure (BRAC): The BRAC program identi\xef\xac\x81es environmental restoration costs in\naccordance with the DERP established by Section 211 of the Superfund Amendments and Reauthorization Act of\n1986 codi\xef\xac\x81ed in Title 10 of the United States Code (USC) 2701 and environmental costs in accordance with RCRA\nthat require the Army to take corrective actions to clean up areas where there has been a release related to hazardous\nmaterial/waste handling and/or storage activities. Environmental liabilities for the Department of the Army BRAC\nare prepared in accordance with the Management Guidance for the Defense Environmental Restoration Program,\nthe draft Guidance for Recognizing, Measuring and Reporting Environmental Liabilities Not Eligible for Defense\nEnvironmental Restoration Program Funding (July 2005) and the DoD FMR 7000.14.\n\nThe estimated BRAC total environmental costs for the current operating period is based on the amount recorded\nas the current liability and the amount recorded as the non-current liability for the Balance Sheet date. The current\nliability is the amount that will be expended or obligated within 12 months from the Balance Sheet date. The non-\ncurrent liability is the estimated amount to complete all activities at a site within the Army BRAC environmental\ninventory. The estimates are site-level point estimates (by site and by remediation phase) calculated using a\nvalidated cost-estimating model or an engineered cost and entered into a database. The estimates are reviewed\nannually and updated to incorporate changed assumptions and additional site-level information. At a minimum,\nestimates are updated annually to report the costs in constant dollars. The Army is presently researching methods\nto capture capital costs in remediating legacy waste. The Army expects to establish a methodology for accumulating\ncapital expenditures related to environmental remediation in FY 2006.\n\nThe Army does not have unrecognized costs associated with general property, plant, and equipment under\nthe BRAC program. The Army is constantly researching sites for possible issues that would result in liability\nrecognition. Through the continued research, the Army recognizes a liability as discovered. Once identi\xef\xac\x81ed, the\ncosts are recognized and recorded, resulting in no unrecognized costs for the period.\n\nThere are no changes in the total estimated BRAC environmental liability due to changes in laws and technology.\nBRAC environmental liabilities are reported in constant dollars. There are no changes to the total BRAC\nenvironmental liability cost due to in\xef\xac\x82ation or de\xef\xac\x82ation.\n\nEnvironmental Disposal Liabilities\nMethodology Used to Estimate Environmental Liabilities\nThe Army uses estimates of expenditure of current appropriations, unliquidated obligations and annual estimates\n\n\n FY 2005 Army Annual Financial Statement 83\n\x0cof cost-to-complete as the basis for the total environmental liability calculation for Army DERP, Other Accrued\nEnvironmental Costs and BRAC environmental.\n\n\n Accrued Environmental Restoration (DERP Funded) Costs:\n The Army identi\xef\xac\x81ed $3.2 billion to characterize, investigate and cleanup 737 DERP eligible sites at active Army\n installations. The 737 sites include 302 sites undergoing investigation, 97 sites undergoing remediation and\n remedial action operations and long-term monitoring at 338 sites. The total liability at these sites may change\n materially in either direction as restoration activities are completed. The current liability number is based on\n disbursement goals for the FY 2006 allocation and unliquidated obligations (ULOs). The ULO data are pulled\n from reports provided by Defense Finance and Accounting Service (DFAS). Quarterly updates to the current\n liability numbers are based on changes to the ULOs reported in DFAS monthly reports. Non-current liabilities\n are based on the disbursement goals for FY 2006 allocation and ULOs and site-level cost-to-complete estimates\n from FY 2007 through program completion in accordance with the Management Guidance for the DERP and the\n DoD FMR 7000.14. Cost-to-complete estimates are updated annually for various reasons such as overlooked or\n previously unknown contaminants, better site characterization from additional sampling, re-estimation based\n on different assumptions or lessons learned. For Active Installations, the cost-to-complete estimate for the\n DERP is collected in the Army Environmental Database \xe2\x80\x93 Restoration (AEDB-R) for all eligible sites.\n\n The Army identi\xef\xac\x81ed $4.2 billion to characterize, investigate and cleanup 1,660 DERP eligible sites at FUDS\n properties. The 1,660 sites include 219 sites undergoing investigation, 426 sites undergoing remediation and\n remedial action operations and long-term monitoring at 75 sites. The total liability at these sites may change\n materially in either direction as restoration activities are completed. The current liability number is based\n on disbursement goals for the FY 2006 allocation and ULOs. The ULO data are obtained from the Corps of\n Engineers Financial Management System (CEFMS), which feeds the DFAS monthly reports. Quarterly updates\n to the current liability numbers are based on changes to the unliquidated obligations recorded in CEFMS. Non-\n current liabilities are based on the disbursement goals for the FY 2007 allocation and ULOs and site-level cost-to-\n complete estimates from FY 2007 through program completion in accordance with the Management Guidance\n for the DERP and the DoD FMR 7000.14. Cost-to-complete estimates are updated annually for various reasons\n such as overlooked or previously unknown contaminants, better site characterization from additional sampling,\n re-estimation based on different assumptions or lessons learned. For FUDS properties, the cost-to-complete\n estimate for the DERP is collected in the FUDS Management Information System (FUDMIS).\n\n\n Active Installations \xe2\x80\x93 Environmental Restoration (ER) for Closed Ranges\n An inventory of closed ranges on active Army installations has been completed and the Army identi\xef\xac\x81ed $5.2\n billion to characterize, investigate and cleanup 194 sites at closed ranges. Closed ranges have been taken\n out of service as a range and put to new use (incompatible with range activities), or are not considered by\n the Military Departments to be a potential range area. A closed range is still under the control of a DoD\n Component. The 194 sites include 192 sites undergoing investigation, one site undergoing remediation and\n remedial action operations and long-term maintenance at 1site. The current and non-current liability numbers\n for environmental restoration at closed ranges is based on the same methodology used for environmental\n restoration at active Army installations. The total liability at these sites may change materially in either\n direction as restoration activities are completed.\n\n\n FUDS \xe2\x80\x93 Environmental Restoration for Transferred Ranges\n An inventory of transferred ranges on FUDS properties has been completed and the Army identi\xef\xac\x81ed $14.6\n billion to characterize, investigate and cleanup 1,186 sites at transferred ranges. Transferred ranges are\n properties formerly used as a military range that are no longer under military control and have been leased\n by DoD, transferred, or returned from the DoD to another entity, including federal entities. Status of the 1,186\n sites on transferred ranges is 37 are currently in the investigation phase, 62 are in remedial action phase and\n 20 are in remedial action operations/long term maintenance. The current and non-current liability numbers\n\n\n84 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c for environmental restoration at transferred ranges is based on the same methodology used for environmental\n restoration at FUDS properties. The total liability at these sites may change materially in either direction as\n restoration activities are completed.\n\nOther Accrued Environmental Costs (Non-DERP Funds)\n Active Installations \xe2\x80\x93 Environmental Corrective Action\n The Army identi\xef\xac\x81ed $379.6 million to conduct environmental corrective action at 781 sites at active Army\n installations under the Army Compliance Cleanup Program. The 781 sites include 344 sites undergoing\n investigation, 246 sites undergoing remediation and remedial action operations and long-term management at\n 191 sites. . The total liability at these sites may change materially in either direction as corrective action activities\n are completed. The current liability number is based on the disbursement goal for costs required for FY 2006 (22\n percent). Currently ULO data is not available for environmental corrective action under the Army Compliance\n Cleanup Program. The Army anticipates that ULO data will be available from the DFAS beginning in FY 2006.\n Quarterly updates to the current liability numbers will be based on changes to the ULOs reported in DFAS\n monthly reports. The non-current liability re\xef\xac\x82ects 78 percent of the total estimated environmental corrective\n action costs for FY 2006 and site-level cost-to-complete estimates from FY 2007 through program completion.\n Site-level cost-to-complete estimates are developed by the installation using the standard cost estimating\n program, the Remedial Action Cost Engineering and Requirements (RACER). Cost-to-complete estimates\n are updated annually for various reasons such as overlooked or previously unknown contaminants, better\n site characterization from additional sampling, or re-estimation based on different assumptions and lessons\n learned. For Active Installations, the cost-to-complete estimate for the corrective actions under the Compliance\n Cleanup Program is collected in the Army Environmental Database \xe2\x80\x93 Compliance Cleanup (AEDB-CC) for all\n eligible sites. Installations previously reported corrective action requirements in the Environmental Program\n Requirements (EPR) database.\n\n\n Active Installations \xe2\x80\x93 Environmental Closure Requirements\n The Army identi\xef\xac\x81ed $96.8 million to conduct environmental closure requirements at 47 sites at active Army\n installations re\xef\xac\x82ecting total validated December 2004 active closure plans requirements for RCRA-C and\n RCRA-D. Army environmental closure requirements and the liability estimates used for environmental\n closure requirements are under development. Closure requirements are prepared and submitted by Army\n installations on an as-needed basis and reported on the Army\xe2\x80\x99s Financial Statement under Active Installations\n \xe2\x80\x93 Environmental Closure Requirements. These estimates are point estimates to close the facility in accordance\n with a closure plan and are entered into the EPR database. The current liability estimate is 22 percent of the total\n costs recorded in the EPR for FY 2006. The non-current liability total is 78 percent of FY 2006 total estimated\n costs plus the total costs in the EPR database for\n\n FY 2007 through FY 2013. The Army is currently developing a reporting system to track total prior year\n unliquidated obligations for \xe2\x80\x9cOther Accrued Environmental Costs\xe2\x80\x9d and anticipates having this system in place\n during FY 2006.\n\n\n Active installations \xe2\x80\x93 Environmental Response at Active Ranges\n The Army identi\xef\xac\x81ed $304.1 million to conduct environmental response at one active range under the Army\n Compliance Cleanup Program. The total liability at this site may change materially in either direction as\n response activities are completed. Active ranges include military ranges that are currently in service and are\n being regularly used, that are still considered by the Army to be a potential range area, and that have not\n been put to a new use that is incompatible with range activities. Environmental response at an active range\n in conducted only when there is an environmental law requiring such action. An environmental response\n at an active range includes investigation, characterization and cleanup of soil, sediment, surface water and\n groundwater and unexploded ordnance. The current liability number is based on the disbursement goal for\n costs required for FY 2006 (22 percent). Currently ULO data is not available for environmental response at\n\n\n FY 2005 Army Annual Financial Statement 85\n\x0c active ranges under the Army Compliance Cleanup Program. The Army anticipates that ULO data will be\n available from the DFAS beginning in FY 2006. Quarterly updates to the current liability numbers will be\n based on changes to the ULOs reported in DFAS monthly reports. The non-current liability re\xef\xac\x82ects 78 percent\n of the total estimated environmental response at active ranges for FY 2006 and site-level cost-to-complete\n estimates from FY 2007 through program completion. Site-level cost-to-complete estimates are developed\n by the installation using the standard cost estimating program, the Remedial Action Cost Engineering and\n Requirements (RACER). Cost-to-complete estimates are updated annually for various reasons such as\n overlooked or previously unknown contaminants, better site characterization with sampling, or re-estimation\n based on different assumptions and lessons learned. For Active Installations, the cost-to-complete estimate\n for environmental response at active ranges under the Compliance Cleanup Program is collected in the Army\n Environmental Database \xe2\x80\x93 Compliance Cleanup (AEDB-CC) for all eligible sites.\n\n\n Base Realignment and Closure (BRAC):\n The Army identi\xef\xac\x81ed $523.4 million for environmental restoration at 128 sites, $634.1 million for environmental\n restoration at transferring ranges for 35 sites and $54.1 million for corrective action at 23 sites. The total\n liability at these sites may change materially in either direction as restoration and corrective action activities\n are completed. Transferring ranges are proposed for transfer or will be returned from DoD to another entity,\n including other federal entities. The inventory of transferring ranges at BRAC installations is complete.\n Environmental costs at BRAC installations are funded using the base closure account. The current liability\n amount for BRAC environmental costs is the FY 2006 allocation. The ULO data for environmental restoration,\n environmental restoration at transferring ranges and environmental corrective action are pulled from reports\n provided by DFAS but are not identi\xef\xac\x81ed individually. BRAC ULOs are provided as BRAC-Other. Quarterly\n updates to the current liability numbers are based on changes to the ULOs reported in DFAS monthly reports.\n Non-current liabilities are based on site-level cost-to-complete estimates from FY 2007 through program\n completion. Cost-to-complete estimates are updated annually for various reasons such as overlooked or\n previously unknown contaminants, better site characterization from additional sampling, re-estimation\n based on different assumptions or lessons learned. For BRAC installations, the environmental cost-to-\n complete estimates are collected in the Army Environmental Database \xe2\x80\x93 Restoration (AEDB-R) for all BRAC\n environmental sites.\n\n\n Environmental Disposal for Weapons Systems Programs:\n The Chemical Demilitarization Program is based on the \xef\xac\x81scal year 1986 National Defense Authorization Act (PL\n 99-145, as amended by subsequent acts) that directed the DoD to destroy the unitary chemical stockpile by April\n 29, 2004. The Army, as Executive Agent within the DoD, provides policy, direction, and oversight for both the\n Chemical Stockpile Program and the Non-Stockpile Chemical Materiel Project. As such, the Army is responsible\n for the safe and economical disposal of the U.S. stockpile of lethal and incapacitating chemical warfare\n agents and munitions. The program objective is to destroy the U.S. Stockpile of unitary chemical agents and\n munitions in accordance with the public law and the schedules approved by the Defense Acquisition Decision\n Memorandum dated September 26, 2001, and updated in the April 2003 Acquisition Program Baseline. In prior\n quarters Army reported Chemical Stockpile Program separately on Note 14 and the Non-Stockpile Chemical\n Materiel Project on Note 15. In FY 2005, stockpile and non-stockpile liabilities will be reported together on Note\n 14. It is expected that the baseline will be updated in future quarters which may cause a signi\xef\xac\x81cant change in\n the liability.\n\n\n Non-Stockpile Chemical Materiel Demilitarization:\n All requirements relating to the destruction of non-stockpile materiel covered under the Chemical Weapons\n Convention (CWC) have been identi\xef\xac\x81ed through the Chemical Agents and Munitions Destruction, Army\n Appropriation and Military Construction. However, a 1993 review identi\xef\xac\x81ed an unfunded, possible contingent\n liability of approximately $9.2 billion for the potential remediation of small and large burial sites (CWC only\n\n\n\n86 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c requires destruction of munitions after they are uncovered). This possible contingent liability was previously\n disclosed on Note 16, Commitments and Contingencies.\n\n\nChanges in the Liability Estimate (greater than 10 percent change)\nThe 4th Quarter, FY 2005 total Active Installations \xe2\x80\x93 ER liability for Closed Ranges of $5.2 billion decreased 10\npercent from $5.8 billion reported in 4th Quarter, FY 2004. The major factors contributing to the decrease are the\nreduction of 44 sites from the inventory, reduced site acreage, and changes to remediation technologies applied to\nsites.\n\nThe 4th Quarter, FY 2005 total Active Installations \xe2\x80\x93 Environmental Corrective Action liability of $379.6 million\nincreased 47 percent from $259.0 million reported in the 4th Quarter FY 2004 and the FY 2005 total Active\nInstallations \xe2\x80\x93 Environmental Response at Active Ranges liability of $304.1 million increased 14 percent from $267.6\nmillion reported in the 4th Quarter FY 2004. The major contributing factor to both increases is a change in reporting\nrequirements. The Army implemented a new Compliance Cleanup (CC) reporting database that speci\xef\xac\x81cally targets\ncorrective actions at an installation. Installations previously reported these requirements in the Environmental\nProgram Requirements (EPR) database along with all other installation environmental program requirements.\nThe installation must use site-level detail and a standard estimating tool, the Remedial Action Cost Engineering\nand Requirements (RACER). The 4th Quarter, FY 2005 total Active Installations \xe2\x80\x93 Environmental Closure liability\nof $96.8 million increased 89 percent from $51.2 million reported in the 4th Quarter FY 2004. The major factor\ncontributing to the increase is the addition of an Army Major Command\xe2\x80\x99s environmental closure requirements not\npreviously reported in the EPR.\n\nThe 4th Quarter, FY 2005 total BRAC Installations \xe2\x80\x93 Environmental Restoration (ER) liability of $523.4 million\ndecreased 12 percent from $597.3 million in 4th Quarter, FY 2004 due to improved cost estimating methodology at\nthe installation-level and decrease level of effort requirements. The 4th Quarter, FY 2005 total BRAC Installations\n\xe2\x80\x93 ER for transferring range liability of $634.1 million increased 32 percent from $480.1 million in 4th Quarter, FY 2004\ndue to new regulatory requirements. The 4th Quarter, FY 2005 total BRAC Installations \xe2\x80\x93 Environmental Corrective\nAction liability of $54.1 million is a 117 percent increase from the $25.0 million liability reported in 4th Quarter, FY\n2004. The major factor contributing to the increase is also new regulatory requirements. One installation\xe2\x80\x99s corrective\naction requirements increased 266 percent. The 4th Quarter, FY 2005 Other category which represents total BRAC\nunliquidated obligations of $112.0 million is a 47 percent decrease from the $209.4 million reported in 4th Quarter,\nFY 2004 due to the liquidation of current liability obligations and a changed methodology for calculated current\nliability based on disbursement goals.\n\n\nOther Information\nOthers Category Disclosure Comparative Table\n(amounts in thousands):\n\nTypes FY 2005 FY 2004\nBRAC \xe2\x80\x93 Other\n Prior Year BRAC ULOs That Cannot Be $ 112,026 $ 209,437\n Identi\xef\xac\x81ed To A Speci\xef\xac\x81c Program\nTotal $112,026 $ 209,437\n\n\n\n\n FY 2005 Army Annual Financial Statement 87\n\x0cNote 15. Other Liabilities\n 2005 2004\n Current Noncurrent\n As of September 30 Liability Liability Total Total\n (Amounts in thousands)\n 1. Intragovernmental\n A. Advances from Others $ 138,074 $ 0 $ 138,074 $ 95,733\n B. Deposit Funds and Suspense Account Liabilities 213,950 0 213,950 137,806\n C. Disbursing Officer Cash 1,482,046 0 1,482,046 1,525,090\n D. Judgment Fund Liabilities 0 0 0 82,913\n E. FECA Reimbursement to the Department of Labor 120,385 153,926 274,311 281,613\n F. Other Liabilities 260,472 3,408 263,880 279,748\n G. Total Intragovernmental Other Liabilities $ 2,214,927 $ 157,334 $ 2,372,261 $ 2,402,903\n (Amounts in thousands)\n 2. Nonfederal\n A. Accrued Funded Payroll and Benefits $ 578,786 $ 0 $ 578,786 $ 2,083,447\n B. Advances from Others 866,239 0 866,239 750,119\n C. Deferred Credits 0 0 0 0\n D. Deposit Funds and Suspense Accounts 0 0 0 0\n E. Temporary Early Retirement Authority 0 0 0 0\n F. Nonenvironmental Disposal Liabilities\n (1) Military Equipment (Nonnuclear) 0 0 0 0\n (2) Excess/Obsolete Structures 0 0 0 0\n (3) Conventional Munitions Disposal 0 1,318,443 1,318,443 1,325,886\n (4) Other 0 0 0 0\n G. Accrued Unfunded Annual Leave 2,728,211 0 2,728,211 2,656,508\n H. Capital Lease Liability 13,978 33,053 47,031 59,397\n I. Other Liabilities 687,666 175,540 863,206 1,793,835\n J. Total Nonfederal Other Liabilities $ 4,874,880 $ 1,527,036 $ 6,401,916 $ 8,669,192\n 3. Total Other Liabilities $ 7,089,807 $ 1,684,370 $ 8,774,177 $ 11,072,095\n\n\nFluctuations and/or Abnormalities\nIntragovernmental Liabilities\nAdvances from Others increased $42.3 million or 44 percent. The majority of the increase is attributable to\nadvances from the Of\xef\xac\x81ce of National Drug Control Policy, the Executive Of\xef\xac\x81ce of The President, and Department of\nHomeland Security for new initiatives related to classi\xef\xac\x81ed missions associated with national and military security.\n\nThe balance reported for the Deposit Funds and Suspense Account liabilities increased by $76.1 million or 55\npercent. The majority of the increase is attributable to the Army uniform services thrift saving program of $63.5\nmillion and Member Saving Deposit Program of $19.6 million caused by an increase in deployed soldiers drawing\nimminent danger pay who are authorized to deposit funds and later withdraw the funds with interest.\n\nTreasury issued guidance in FY 2005 to report Judgment Fund Liabilities for Contract Disputes Act and the\nNoti\xef\xac\x81cation and Federal Employee Antidiscrimination and Retaliation Act as Accounts Payable. Judgment Fund\nLiabilities were reported as part of Other Liabilities in FY 2004.\n\n\n\n\n88 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cThe schedule below identi\xef\xac\x81es the Intragovernmental Other Liabilities.\n\n(Amounts in thousands) FY 2005 FY 2004 Change\nUnemployment $149,307 $133,627 $15,680\nAccounts Receivable Cancelled 53,784 95,693 (41,909)\nEmployee Bene\xef\xac\x81ts\n Retirement (CSRS/FERS) 33,456 26,693 6,763\n Health 24,677 20,397 4,280\n Life Insurance 574 475 99\nEducation Bene\xef\xac\x81ts Trust Fund 2,082 2,863 (781)\nTotal Intragovernmental - Other Liabilities $263,880 $279,748 $15,872\n\n\nCancelled Accounts Receivable decreased $42 million or 44 percent. This decrease is due to the Of\xef\xac\x81ce of the\nSecretary of Defense request that the departments begin to write-off uncollectable cancelled accounts receivables in\nFY 2005.\n\nEmployee Bene\xef\xac\x81ts increased $11.1 million primarily due to Civilian Service Retirement System/Federal Employees\nRetirement System of $6.8 million, and Health Bene\xef\xac\x81ts of $4.3 million. The increase of the Employee Bene\xef\xac\x81ts is\nattributable to payroll information not received timely in FY 2005 to process payment.\n\nEducation Bene\xef\xac\x81ts Trust Fund decreased $781 thousand or 27 percent due to increased estimated present value\nbene\xef\xac\x81t (PVB) for FY 2005. The PVB increased due to a new educational bene\xef\xac\x81t for mobilized reservists. As a result,\nthe liability decreased in FY 2005.\n\nNon-Federal Liabilities\nAccrued Funded Payroll and Bene\xef\xac\x81t decreased $1.5 billion or 72 percent primarily due to a timing difference of\nthe military payroll disbursement. In FY 2004, the liability re\xef\xac\x82ected one half month of military payroll accrual. In\nFY 2005, the military payroll was disbursed on the last day of the \xef\xac\x81scal year, therefore, only minor amounts were\naccrued.\n\nAdvances from Others increased $116.1 million or 15 percent, primarily due to the USACE Gulf Region Division\nreceiving advances for various construction projects in support of the Multi-National Division in Iraq and pre-\npayments from the Kuwait government in support of the Global War on Terrorism.\n\nCapital Lease Liability decreased $12.4 million or 21 percent as a result of annual amortization.\n\nThe schedule below identi\xef\xac\x81es the Non-Federal Other Liabilities.\n\n(Amounts in thousands) FY 2005 FY 2004 Change\n Employer Contributions and Payroll Taxes $334,954 $315,926 $19,028\n Contingent Funded/Non-Funded 187,017 1,011,845 (824,827)\n Contract Holdbacks 226,478 343,010 (116,531)\n Iraqi Seized Cash 61,370 113,430 (52,060)\n Development Fund for Iraq 53,387 0 53,387\n Other 0 9,624 9,624\nTotal Non-Federal - Other Liabilities $863,206 $1,793,835 ($930,629)\n\nContingent Liabilities decreased $824.8 million or 82 percent primarily due to a change in reporting of Chemical\nDemilitarization. Army performed analysis and determined that these liabilities were more properly reported as\nenvironmental liabilities in Note 14.\n\n\n\n FY 2005 Army Annual Financial Statement 89\n\x0cContract Holdbacks decreased $116.5 million or 34 percent due to a change in computation of Contract Holdbacks\nfor Mechanization of Contract Administration Systems.\n\nIraqi Seized Cash continues to be disbursed to the Iraqi people accounting for the $52.1 million or 46 percent\ndecrease.\n\nThe Development Fund for Iraq was not reported until 1st Quarter, FY 2005.\n\n\nNote Reference\nFor additional line item discussion, see Note 12 Accounts Payable.\n\n\nCapital Lease Liability\n 2005 2004\n Asset Category\n As of September 30 Land and Buildings Equipment Other Total Total\n (Amounts in thousands)\n 1. Future Payments Due\n A. 2006 $ 20,785 $ 144 $ 0 $ 20,929 $ 20,785\n B. 2007 18,009 150 0 18,159 20,785\n C. 2008 8,529 156 0 8,685 18,009\n D. 2009 5,376 93 0 5,469 8,529\n E. 2010 5,376 0 0 5,376 5,376\n F. After 5 Years 8,682 0 0 8,682 14,058\n G. Total Future Lease Payments Due $ 66,757 $ 543 $ 0 $ 67,300 $ 87,542\n H. Less: Imputed Interest Executory Costs 20,124 143 0 20,267 28,144\n I. Net Capital Lease Liability $ 46,633 $ 400 $ 0 $ 47,033 $ 59,398\n\n\n 2. Capital Lease Liabilities Covered by Budgetary Resources $ 26,467 $ 26,334\n 3. Capital Lease Liabilities Not Covered by Budgetary Resources $ 20,565 $ 33,063\n\nThe Army is the lessee in eight capital leases for military family housing and one equipment lease. The Of\xef\xac\x81ce of\nManagement and Budget Bulletin 01-09 and Circular A-11 direct that any capital leases entered into during FY 1992\nor later are required to be fully funded in the \xef\xac\x81rst year of the lease.\n\nCapital Lease Liabilities Covered by Budgetary Resources\nThe present value of the lease payments, $26.5 million, for leases originating after FY 1991 plus the current portion of\nthe Pre-1992 leases is shown as Covered by Budgetary Resources.\n\nCapital Lease Liabilities Not Covered by Budgetary Resources\nThe remaining six leases, that originated before FY 1992, are funded on a \xef\xac\x81scal year basis causing the noncurrent\namounts of $20.6 million to be shown as Not Covered by Budgetary Resources.\n\nNote 16. Commitments and Contingencies\nDisclosures Related to Commitments and Contingencies\n\n\nRelevant Information for Comprehension\nNature of Contingency\nThe Army General Fund has other contingent liabilities in which the possibility of loss is considered reasonable.\nThese liabilities are not accrued in the Army\xe2\x80\x99s \xef\xac\x81nancial statements.\n\n\n90 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cAs of September 30, 2005, the Army General Fund has approximately $255.0 million in claims considered reasonably\npossible. These contingent liabilities and estimates are presented in the following table:\n\nEstimate of the Possible Liability\n(Amounts in thousands)\n\nTitle of Contingent Liabilities Estimate\nLitigation Division 95,821\nAdministrative Tort Claims (Army Fund) 45,000\nEuropean Environmental Claims (Army Fund) 40,000\nLow-Level Radioactive Waste Disposal 26,955\nArmy Contract Appeals Division 25,000\nArmy Environmental Law Division 21,151\nNetwork Enterprise Technology Command 908\nArmy Personnel Claims 124\nTotal $254,959\n\n\nNote Reference\nSee Note Disclosure 1. S. - Signi\xef\xac\x81cant Accounting Policies for additional discussion on \xef\xac\x81nancial reporting\nrequirements and DoD policies governing Contingencies and Other Liabilities.\n\nNote 17. Military Retirement Bene\xef\xac\x81ts and Other Employment Related Actuarial\n Liabilities\n 2005 2004\n Actuarial Present Assume (Less: Assets\n Value of Projected Interest Available to Pay Unfunded Unfunded Actuarial\n As of September 30 Plan Benefits Rate (%) Benefits) Actuarial Liability Liability\n (Amounts in thousands)\n 1. Pension and Health Benefits\n A. Military Retirement Pensions $ 0 $ 0 $ 0 $ 0\n B. Military Retirement Health Benefits 0 0 0 0\n C. Medicare-Eligible Retiree Benefits 0 0 0 0\n D. Total Pension and Health Benefits $ 0 $ 0 $ 0 $ 0\n 2. Other\n A. FECA $ 1,663,650 4.53% $ 0 $ 1,663,650 $ 1,632,843\n B. Voluntary Separation Incentive Programs 0 0 0 0\n C. DoD Education Benefits Fund 0 0 0 0\n D. [Enter Program Name} 0 0 0 0\n E. Total Other $ 1,663,650 $ 0 $ 1,663,650 $ 1,632,843\n 3. Total Military Retirement Benefits and Other\n Employment Related Actuarial Liabilities: $ 1,663,650 $ 0 $ 1,663,650 $ 1,632,843\n\nMarket Value of Investments in Market-based and Marketable Securities: Not applicable\n\nMilitary Retirement Pensions: The portion of the military retirement bene\xef\xac\x81ts actuarial liability applicable to the\nArmy is reported on the \xef\xac\x81nancial statements of the Military Retirement Fund.\n\nMilitary Retirement Health Bene\xef\xac\x81ts: Health bene\xef\xac\x81ts are funded centrally at the DoD level. As such the portion\nof the health bene\xef\xac\x81ts actuarial liability that is applicable to the Army is reported only on the DoD Agency-wide\n\xef\xac\x81nancial statements.\n\nMedicare-Eligible Retiree Bene\xef\xac\x81ts: Not reported by Military Retirement Systems.\n\n\n\n FY 2005 Army Annual Financial Statement 91\n\x0cFederal Employees Compensation Act (FECA)\nActuarial Cost Method Used: The Army\xe2\x80\x99s actuarial liability for Workers\xe2\x80\x99 Compensation bene\xef\xac\x81ts is developed by\nthe Department of Labor and provided to the Army each \xef\xac\x81scal year end. The liability includes the expected liability\nfor death, disability, medical, and miscellaneous costs for approved compensation cases. The liability is determined\nusing a method that utilizes historical bene\xef\xac\x81t payment patterns to predict the ultimate payments.\n\nAssumptions: The projected annual bene\xef\xac\x81t payments are discounted to the present value using the Of\xef\xac\x81ce of\nManagement and Budget\xe2\x80\x99s economic assumptions for 10-year U.S. Treasury notes and bonds. Cost of living\nadjustments and medical in\xef\xac\x82ation factors are also applied to the calculation of projected future bene\xef\xac\x81ts.\n\nNote 18. Disclosures Related to the Statement of Net Cost\nThe Consolidated Statement of Net Cost in the federal government is unique because its principles are driven\non understanding the net cost of programs and/or organizations that the federal government supports through\nappropriations or other means. This statement provides gross and net cost information that can be related to the\namount of output or outcome for a given program and/or organization administered by a responsible reporting\nentity. The amounts presented in the Consolidated Statement of Net Cost are based on funding, obligation, accrual\nand disbursing transactions, which are not always recorded using accrual accounting. Army systems do not always\nrecord the transactions on an accrual basis as is required by the generally accepted accounting principles. The\ninformation presented also includes data from non-\xef\xac\x81nancial feeder systems to capture all cost and \xef\xac\x81nancing sources\nfor the Army.\n\n\nProgram Costs\nIntragovernmental Gross Costs increased $4.5 billion or 13 percent primarily due to a $1.3 billion increase in health\ncare normal cost contribution rates provided by the Board of Actuaries for DoD eligible retirees and a $936.8 million\nincrease in the Defense Logistics Agency due to the use of the new Business Systems Modernization system, which\nprovides better trading partner data than previously reported information by the legacy systems. The remaining\nincreases are due to various other agencies such as the Department of Air Force, Department of Transportation, and\nDepartment of Interior.\n\nGross Costs with the Public increased $7.3 billion primarily in support of land force readiness including resources\nfor all law enforcement supporting Army mission requirements providing protection for all personnel, facilities, and\ncritical assets. The increase also includes a $3.8 billion increase in Iraqi Relief and Reconstruction Fund related to\nSecurity and Law Enforcements for additional police training and border enforcement for Iraqi citizen\xe2\x80\x99s protection.\n\n\nProgram Revenues\nIntragovernmental Earned Revenue increased $1.1 billion or 15 percent. The increase re\xef\xac\x82ects the increases in\nreimbursable authority in support of logistical activities and land force readiness support for Army Procurement\nand Operations and Maintenance.\n\nRevenue with the Public increased $97.2 million primarily due to reimbursable activity in support of logistics for\nall law enforcement supporting Army mission requirements and for activity related to Army ability to meet global\ncommitments in support of our National Military Strategy and to pursue cooperative activities with other nations.\n\n\n\n\n92 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 19. Disclosures Related to the Statement of Changes in Net Position\n 2005 2005 2004 2004\n Cumulative Cumulative\n Results of Unexpended Results of Unexpended\n As of September 30 Operations Appropriations Operations Appropriations\n (Amounts in thousands)\n 1. Prior Period Adjustments Increases (Decreases)\n to Net Position\n A. Changes in Accounting Standards $ 0 $ 0 $ 0 $ 0\n B. Errors and Omissions in Prior Year Accounting 0 0 0 0\n Reports\n C. Other Prior Period Adjustments 0 0 0 0\n D. Total Prior Period Adjustments $ 0 $ 0 $ 0 $ 0\n 2. Imputed Financing\n A. Civilian CSRS/FERS Retirement $ 316,873 $ 0 $ 330,114 $ 0\n B. Civilian Health 525,159 0 472,428 0\n C. Civilian Life Insurance 1,655 0 1,557 0\n D. Judgment Fund 249,118 0 77,978 0\n E. Intra-Entity 0 0 0 0\n F. Total Imputed Financing $ 1,092,805 $ 0 $ 882,077 $ 0\n\n\nFluctuations and/or Abnormalities\nImputed Financing\nThe $52.7 million or 11 percent increase in Civilian Health is attributable to an increase in the average enrollment\nand a higher cost factor by the Of\xef\xac\x81ce of Personnel and Management (OPM). For FY 2005, the cost factor is $4,903 per\nenrolled employee. (See the OPM Bene\xef\xac\x81t Administration Letter, Number 05-303 and dated September 8, 2005).\n\nThe increase in Judgment Fund of $171.1 million or 219 percent is attributable to payments as follows:\n\n(Amounts in Thousands) Number of Claims FY 2005 FY 2004 Difference\nCourt of Claims 4 $51.5 $4.3 $47.2\nTorts 878 196.6 68.7 127.9\nSmall Claims 2 1 5 -4.0\nTotals 884 $249.1 $78.0 171.1\n\nCumulative Results of Operations\nAppropriations used increased $22.7 billion or 18 percent due to obligating FY 2005 funds for the Global War on\nTerror and Tsunami Relief and a FY 2004 multi-year Operations and Maintenance appropriation to train and equip\nthe Afghan National Army.\n\nNon-Exchange revenue increased $4.2 million or 81 percent primarily due to $3.4 million increase in collections for\nthe Forest and Wildlife Conservation. The remaining $800 thousand is due to other miscellaneous collections.\n\nDonations and forfeitures of cash and cash equivalents increased $946 thousand or 20 percent due to increased\ndonations to the West Point Military Academy in FY 2005.\n\nBudgetary \xef\xac\x81nancing sources transfers-in/out without reimbursement decreased $9.5 billion or 72 percent. Transfers-\nin/out are one time events that are not repeatable from year to year. In FY 2005, the Iraqi Relief and Reconstruction\nFund reported $2.9 billion and the Defense Working Capital Fund reported $855 million. In FY 2004, $10.3 billion\nwas reported in the Iraqi Relief and Reconstruction Fund and $2.9 billion in the Defense Working Capital Fund.\n\nOther budgetary \xef\xac\x81nancing sources represent adjustments to bring the proprietary accounts into agreement with\n\n\n FY 2005 Army Annual Financial Statement 93\n\x0cthe budgetary accounts. Due to system de\xef\xac\x81ciencies, there are unreconciled differences between the budgetary and\nproprietary trial balances. The net effect of these adjustments is re\xef\xac\x82ected on Other budgetary \xef\xac\x81nancing sources\nand Other on the Statement of Net Position. The $3.4 billion or 134 percent decrease in Other budgetary \xef\xac\x81nancing\nsources and $2.1 billion or 100 percent increase in Other is entirely due DoD policy to change the reporting of other\ngains and losses from Other budgetary \xef\xac\x81nancing sources to Other.\n\nOther Financing Sources Transfers-in/out without reimbursement is comprised of transfers of Property, Plant and\nEquipment (PP&E) and Construction in Progress (CIP). Transfers in without reimbursement of $528.1 million for\nFY 2005 and $400.8 million for FY 2004 for an increase of $127.3 million or 32 percent: Transfers-in/out without\nreimbursement are one time events that are not repeatable from year to year. The following table provides a\nbreakout of the data for each year:\n\n(Amounts in Thousands) Transfers In Transfers Out Transfer In Transfers Out\n FY 2005 FY 2005 FY 2004 FY 2004\nProperty Plant & Equipment\nDefense Logistics Agency $- $ - $ 4.3 $ -\nOf\xef\xac\x81ce of the Secretary of Defense - - 44.2 -\nSpecial Command Operations - - 16.1 -\nTricare Management Activity - - 8.7 -\nMissile Defense Agency - - 27.9 -\nOther Defense Agencies - - 129.3 -\nAir Force - - 150.9 -\nU.S. Army Corps of Engineers - - - $(68.9)\nNet Transfers of PP&E to the Army 71.9 - - -\n Total Property Plant & Equipment $71.9 $381.4 $(68.9)\nConstruction in Progress\nDefense Emergency Response Fund $4.5 $ - $ - $ -\nOf\xef\xac\x81ce of the Secretary of Defense 581.4 - - -\nAir Force - - - (9.3)\nDefense Logistics Agency - (84.6) 84.6 -\nMissile Defense Agency - (45.1) 6.2 -\nDefense Health Organization - - 6.8 -\n Total Construction in Progress $585.9 $(129.7) $97.6 $(9.3)\nTotals $657.8 $(129.7) $479.0 $(78.2)\n\nUnexpended Appropriations\nDecreases in the Appropriations transferred-in/out and Other adjustments and an increase in the Appropriations\nused relate directly to the change in the overall Army appropriations.\n\nAppropriations transferred-in/out decreased $2.2 billion or 46 percent due to the reporting of Net Transfers of\n\n$2.6 billion in FY 2005 and $4.8 billion in FY 2004. Appropriations transferred-in/out are one time events that are\nnot repeatable from year to year. The following table provides a breakout of the net changes for FY 2005:\n\n\n\n\n94 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c(Amounts in Thousands) Transfer in Transfer out\n FY 2005 FY 2005\nDrug Interdiction $457.5 $ -\nRestoration of Formerly Used Defense Sites 265.6 -\nNational Nuclear Security Administration - (72.3)\nDefense Agencies 357.0 -\nMiscellaneous Transfers 62.8 -\nDefense Working Capital Fund 855.0 -\nForeign Currency Fluctuations 259.0 -\nTotal $2,256.9 $(72.3)\n\nOther adjustments decreased $516.8 million or 37 percent due primarily to decreases in the amount of rescissions of\ncurrent year authority of $97.8 million or 29 percent, prior year balances of $314.5 million or 78 percent and cancelled\nauthority of $104.5 million or 16 percent.\n\n\nNote Reference\nFor regulatory disclosure related to \xe2\x80\x9cThe Statement of Changes in Net Position\xe2\x80\x9d, see the Department of Defense\nFinancial Management Regulation, Volume 6B, Chapter 10, paragraph 1022.\n\nFor additional line item discussion, see:\nNote 18, Disclosures Related to the Statement of Net Cost\nNote 20, Disclosures Related to the Statement of Budgetary Resources\nNote 21, Disclosures Related to the Statement of Financing\n\nNote 20. Disclosures Related to the Statement of Budgetary Resources\n As of September 30 2005 2004\n (Amounts in thousands)\n\n 1. Net Amount of Budgetary Resources Obligated for Undelivered\n Orders at the End of the Period $ 71,524,849 $ 60,568,539\n 2. Available Borrowing and Contract Authority at the End of the Period 0 0\n\n\nThe Net Amount of Budgetary Resources Obligated for Undelivered Orders increased $11.0 billion or 18 percent\nprimarily due to the increase in appropriations received for the Emergency Supplemental Appropriations Act for\nDefense, the Global War on Terror, and Tsunami Relief.\n\n\nFluctuations and/or Abnormalities\nBudget Authority \xe2\x80\x93 Net Transfers for FY 2005 of $1.0 billion consists of appropriation transfers of $457.5 million in\nDrug Interdiction, $265.6 million in Restoration of Formerly Used Defense Sites, ($72.3) million in National Nuclear\nSecurity Administration, $357.0 million with Defense Agencies, and $7.8 million in miscellaneous transfers. The\ndecrease of $1.5 billion or 58 percent is largely due to decreases in transfers from the Of\xef\xac\x81ce of the President and the\nIraqi Freedom Fund in support of Iraqi Security and Stability and contingency missions.\n\nUnobligated balance - Beginning of period increased $14.7 billion or 179 percent largely due to the $13.5 billion\nsupplemental received in September 2004 for Operations and Maintenance related to Operation Iraqi Freedom. As\nof September 2004, only $2.5 million had been obligated causing the material increase.\n\nUnobligated balance-Net transfers, actual of $2.4 billion consists of prior year appropriation transfers of $1.2 billion\n\n\n FY 2005 Army Annual Financial Statement 95\n\x0cfrom the Iraqi Freedom Fund in support of contingency missions, $855.0 million from the Defense Working Capital\nFund, $259.0 million from Foreign Currency Fluctuations, Defense, and $55.0 million in miscellaneous transfers.\nTransfers are a one-time event and \xef\xac\x82uctuations between \xef\xac\x81scal years do not correlate with each other.\n\nSpending Authority from Offsetting Collections \xe2\x80\x93 Receivable from Federal sources of ($415.0) million re\xef\xac\x82ects the\nchange in receivables from FY 2004 to FY 2005.\n\nRecoveries of Prior Year Obligations or deobligations increased $3.0 billion or 22 percent from FY 2004 consisting\nprimarily of $1.7 billion in Operations and Maintenance, $702.6 million in Military Personnel, and $430.7 million\nin Procurement deobligations. This is largely due to systematic correction processes that require the movement of\nobligations between management structure to \xef\xac\x81rst deobligate and then reobligate the funds. The actual FY 2005\nArmy Military Personnel deobligation is $697.1 million of which $394.0 million was a transfer to Foreign Currency\nFluctuations, Defense and $1.1 billion in Operations and Maintenance.\n\nPermanently not available decreased $516.8 million or 37 percent due to decreases in the amount of Recissions\nof current year authority of $97.8 million or 29 percent, prior year balances of $314.5 million or 78 percent, and\ncancelled authority of $104.5 million or 16 percent. Recissions of current year authority consist of $70.1 million in\nOperations and Maintenance, and $35.8 million in Procurement. Recissions of prior year balances consist primarily\nof $237.5 million in Military Construction and $105.1 million of Procurement. Cancelled year authority increased\n$129.1 million in Military Personnel and decreased $24.5 million in Operations and Maintenance.\n\nObligations incurred, Undelivered orders, and Disbursements increased $23.5 billion or 13 percent, $10.3 billion\nor 18 percent, and $24.2 billion or 16 percent, respectively and the Unobligated balance \xe2\x80\x93 Apportioned decreased\n$7.7 billion or 36 percent. The \xef\xac\x82uctuations are due to obligating FY 2005 funds for the Global War on Terror and\nTsunami Relief and a FY 2004 multi-year Operations and Maintenance appropriation to train and equip the Afghan\nNational Army.\n\nUnobligated Balance \xe2\x80\x93 Exempt from Apportionment decreased $1.4 million or 11 percent primarily due to a decrease\nin the Forest & Wildlife Conservation, Military Reservations appropriation.\n\nUnobligated Balances Not Available increased $391.1 million or 28 percent due to an increase in unapportioned\nauthority and allotments of expired authority. Unapportioned authority increased $150.0 million for the\nprocurement of ammunition. Allotments of expired authority increased $241.3 million primarily in the Operations\nand Maintenance appropriations.\n\nAccounts Receivable and Un\xef\xac\x81lled Customer Orders from Federal Sources increased $415.1 million or 22 percent\nand decreased $2.2 billion or 17 percent, respectively, due to \xef\xac\x82uctuations in the status of Spending Authority from\nOffsetting Collections. Spending Authority from Offsetting Collections had an overall increase of $1.4 billion or 7\npercent.\n\nCollections increased $2.0 billion or 10 percent largely due to increases in reimbursable authority in support of\nlogistical activities for Army Procurement and Operations and Maintenance.\n\nOffsetting receipts are primarily comprised of $118.9 million in Army General Fund Proprietary Receipts, $42.5\nmillion in Recoveries under the Foreign Military Sales, $13.5 million in Collections of Receivables from Cancelled\nAccounts, and $11.0 million in Recoveries of Government Property Lost or Damaged. The $131.9 million or 208\npercent increase is largely attributed to $83.1 million increase in General Fund Proprietary Receipts and $44.7 million\nincrease in Recoveries under the Foreign Military Sales.\n\n\nAccounting Standard U.S. Standard General Ledger\nThe Army has not fully implemented the U.S. Government Standard General Ledger in all operational accounting\nsystems. Guidance from the Treasury Financial Manual, Part 2, Chapter 4000, Federal Agencies\xe2\x80\x99 Centralized Trial\nBalance System II is used to populate the Army Statement of Budgetary Resources.\n\n\n96 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cThe Army accounting systems do not provide or capture data needed for obligations incurred and recoveries of\nprior year obligations in accordance with Of\xef\xac\x81ce of Management and Budget (OMB) Circular A-11, Preparation,\nSubmission, and Execution of the Budget requirements. Although the Army developed an alternative methodology to\ncalculate these items, the amount of distortion cannot be reliably determined, and may or may not be material.\n\n\nIntra-entity Transactions\nThe Statement of Budgetary Resources does not include eliminating entries and therefore a Disaggregated Statement\nof Budgetary Resources is included in the Required Supplementary Information section of the \xef\xac\x81nancial statements.\n\n\nApportionment Categories\nOMB Bulletin No. 01-09 section 9.27 speci\xef\xac\x81cally requires disclosure of the amount of direct and reimbursable\nobligations incurred against amounts apportioned under Category A, Category B, and Exempt from Apportionment.\nObligations incurred consists of $174.1 billion in Category A, Direct; $945.3 million in Category B, Direct; $20.2\nbillion in Category A, Reimbursable; and $4.3 billion in Category B, Reimbursable. This disclosure agrees with\nthe aggregate of the related information as reported on the agency\xe2\x80\x99s Budgetary Execution Report (SF 133) and\nObligations Incurred on the Statement of Budgetary Resources.\n\n\nSeparate Column for Non-budgetary Credit Program Financing Accounts\nA Non-budgetary Credit Program Finance Account column allows for a clear distinction between budgetary and\nnon-budgetary credit program \xef\xac\x81nancing. Non-budgetary credit \xef\xac\x81nancing accounts are reported separately from the\nbudgetary totals in the Budget of the United States Government. Separate reporting on the Statement of Budgetary\nResources enhances reconciliation of the two sets of information. Further information on the credit \xef\xac\x81nancing\naccounts is provided in Note 8.\n\nThe Unobligated Balance \xe2\x80\x93 Apportioned increased $101 thousand, or 7 percent due to new loan obligations and\nliabilities for an impending loss claim. Spending authority from offsetting collections \xe2\x80\x93 Collected and Outlays\n\xe2\x80\x93 Collections increased $51 thousand due to the collection of guaranteed fees into the Rural Development\nappropriation for a FY 2004 loan.\n\n\nOffsetting Receipts Line\nReceipts are collections that are credited to the general, special, or trust fund receipt accounts. In addition, they\nrepresent offsetting receipts distributed to the Army. Offsetting receipts offset budget authority and outlays at the\nagency level in the Budget of the United States Government. Offsetting receipts must be included in the Statement\nof Budgetary Resources to reconcile it to information in the Budget of the United States Government.\n\n\nSpending Authority from Offsetting Collections\nAdjustments in funds that are temporarily not available pursuant to Public Law, and those that are permanently\nnot available are not included in the Spending Authority From Offsetting Collections on the Statement of Budgetary\nResources or the Spending Authority for Offsetting Collections and Recoveries on the Statement of Financing.\n\n\nUndelivered Orders\nUndelivered Orders presented in the Statement of Budgetary Resources includes Undelivered Orders-Unpaid for\nboth direct and reimbursable funds.\n\n\n\n\n FY 2005 Army Annual Financial Statement 97\n\x0cNote 21. Disclosures Related to the Statement of Financing\nThe Statement of Financing is intended to articulate and detail the relationship between net obligations from\nbudgetary accounting and net cost of operations from proprietary accounting. Intra-entity transactions have not\nbeen eliminated; therefore, the statements are presented as combined and combining.\n\n\nFluctuations and/or Abnormalities\nObligations incurred and Undelivered orders increased $23.5 billion or 13 percent and\n\n$1.2 billion or 16 percent, respectively primarily due to the obligating FY 2005 funds for the Global War on Terror\nand Tsunami Relief and a FY 2004 multi-year Operations and Maintenance appropriation to train and equip the\nAfghan National Army.\n\nSpending authority from offsetting collections and recoveries decreased $4.5 billion or 13 percent largely due to\nincreases in reimbursable authority in support of logistical activities for Army Procurement and Operations and\nMaintenance.\n\nOffsetting receipts and Budgetary offsetting collections and receipts that do not affect net cost of operations\nincreased $131.9 million primarily due to $44.7 million increase in Recoveries under the Foreign Military Sales and\n$83.1 million increase in Army General Fund Proprietary Receipts.\n\nTransfers-in/out without reimbursement of $528.0 million is comprised of $71.9 million for Property, Plant and\nEquipment and $456.2 million for Construction in Progress (CIP). CIP was transferred in from the Of\xef\xac\x81ce of the\nSecretary of Defense for $581.4 million and the Defense Emergency Response Fund for $4.5 million and transferred\nout to the Missile Defense Agency for $45.1 million and Defense Logistics Agency for $84.6 million. Transfers-in/out\nare one time events that are not repeatable from year to year.\n\nImputed \xef\xac\x81nancing from costs absorbed by others has increased by $210.7 million or 24 percent primarily due to a\n$171.0 million increase in Judgment Fund Imputed Financing. This increase represents an increase in payments by\nthe Court of Claims for $47.2 million, Torts for $127.9 million, and a decrease in Small Claims since October 1, 2004.\n\nOther Resources \xe2\x80\x93 Other decreased $2.9 billion or 100 percent and Other resouces or adjustments to net obligated\nresources that do not affect net cost operations \xe2\x80\x93 Other increased $2.8 billion or 704 percent due to a mapping\nchange that includes Other Gains and Losses. The majority of Other Gains and Losses represent adjustments to\nbring the proprietary accounts into agreement with the budgetary accounts. Due to system de\xef\xac\x81ciencies, there are\nunreconciled differences between the budgetary and proprietary trial balances.\n\nResources that fund expenses recognized in prior periods decreased $411.6 million or 47 percent primarily due to\ndecreases of in Defense Environmental Restoration Program liabilities.\n\nResources that \xef\xac\x81nance the acquisition of assets increased by $16.9 billion and or 170 percent and Depreciation and\namortization increased by $7.1 billion or 73 percent. The Army bases the value of military equipment for \xef\xac\x81nancial\nstatement presentation purposes on projections provided by the Bureau of Economic Analysis (BEA), Department\nof Commerce. BEA revised the military equipment projections resulting in increases in the projected purchase and\ndepreciation of military equipment. Further explanation is provided in Note 10.\n\nIncrease in environmental and disposal liability decreased $3.1 billion or 100 percent. The FY 2005 decrease in\nenvironmental and disposal liabilities is re\xef\xac\x82ected in Resources that fund expenses recognized in prior periods.\n\nUpward/Downward reestimates of credit subsidy expense decreased $10.9 million or 100 percent. The FY 2004\nexpense was due to a September 2004 reestimation of an impending loss claim for the Armament Retooling and\nManufacturing Support Initiative.\n\n\n\n98 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cOther Components Requiring or Generating Resources in Future Period represents increases in future funded\nexpense for various liabilities such as Federal Employment Compensation Act, Unemployment Compensation,\nand Closed Accounts Payable. The decrease of $8.7 million or 14 percent represents decreases in the expected\nunemployment compensation.\n\nRevaluation of assets or liabilities in FY 2005 represents the $1.1 million in Construction in Progress that was\nterminated. In FY 2004, the Revaluation of assets or liabilities was comprised of excess, obsolete, and unserviceable\nOperating Material and Supplies.\n\nOther Trust Fund Exchange Revenue increased by $45.6 thousand or 125 percent due to investments earning higher\nrevenue in FY 2005.\n\nCost of Goods Sold and Operating Material and Supplies Used can not be properly captured or estimated. The\nArmy is continually reviewing and developing procedures to accurately report these values in the future.\n\nOther Components not Requiring or Generating Resources of $5.2 billion is primarily comprised of Other\nExpenses not Requiring Budgetary Resources for the Iraqi Relief and Reconstruction Fund. The Iraqi Relief and\nReconstruction Fund is a material child transfer where Army is the child and the Department of the Executive Of\xef\xac\x81ce\nof The President is the parent. Treasury requires that the \xef\xac\x81nancial statements of a material child transfer account be\npresented in the child\xe2\x80\x99s \xef\xac\x81nancial statements except for the Statement of Budgetary Resources. A reconciling item\nis included in Other because Obligations incurred on the Statement of Financing does not include expenses related\nto the Iraqi Relief and Reconstruction Fund. The $3.8 billion increase is largely attributed to $2.2 billion increase\nin expenses related to Security and Law Enforcements due to the need for additional police training and border\nenforcement for Iraqi citizen\xe2\x80\x99s protection. The remainder of the increase is attributable to other miscellaneous\nexpenses.\n\n\nNote Reference\nFor additional information related to the Statement of Financing, see:\nNote 8, Direct Loan and/or Loan Guarantee Programs\nNote 10, General Property Plant & Equipment, Net\nNote 11, Liabilities Not Covered By Budgetary Resources\nNote 14, Environmental Liabilities and Disposal Liabilities\nNote 16, Commitments and Contingencies\nNote 20, Disclosures Related to the Statement\n\nNote 22. Disclosures Related to the Statement of Custodial Activity\nThe Statement of Custodial Activity displays current year collections and disbursements for two custodial accounts:\nDevelopment Fund for Iraq and Iraqi Seized Assets. Funds held in a Custodial Activity are only used for their stated\npurposes and are not available for the Department\xe2\x80\x99s use.\n\n\nDevelopment Fund for Iraq (DFI)\nThe DFI is for urgent humanitarian assistance, reconstruction, and other projects carried out for the bene\xef\xac\x81t of the\nIraqi people. Current year deposits from the Interim Iraqi Government transferred to the Multi-National Force-Iraq\nare $136.0 million with $82.6 million in disbursements.\n\n\n\n\n FY 2005 Army Annual Financial Statement 99\n\x0c (Amounts in thousands)\n\n During Cumulative\n FY 2005 from Inception\nSource of Collections\n Deposits by Foreign Governments $136,000 $ 136,000\nDisposition of Collections\n Security and Law Enforcement $763 $763\n Electric Sector 24,367 24,367\n Oil Infrastructure 430 430\n Water Resources and Sanitation 6,662 6,662\n Transportation and Telecommunications 5,208 5,208\n Roads, Bridges and Construction 4,230 4,230\n Health Care 2,720 2,720\n Private Sector Development 3,817 3,817\n Education, Refugees, Human Rights, and Governance 34,416 34,416\n Total Disbursed on behalf of Foreign Governments 82,613 82,613\n Retained for Future Support of Foreign Governments 53,387 53,387\n Total Disposition of Collections $136,000 $136,000\nNet Custodial Collection Activity $0 $0\nNote \xe2\x80\x93 The Retained for Future Support of Foreign Governments is re\xef\xac\x82ected as Increase (Decrease) in Amounts to be Transferred on the\nStatement of Custodial Activity\n\n\n\nSeized Assets\nDuring Operation Iraqi Freedom, the U.S. Government seized assets from the Iraqi Government that are used in\nsupport of the Iraqi people. As of September 30, 2005, $61.4 million of seized monetary assets remain to be disbursed\nin support of the Iraqi people as shown in the table below.\n\n (Amount in thousands)\n\n During Cumulative\n FY 2005 from Inception\nSource of Collections\n Seized Iraqi Cash $1 $927,216\nDisposition of Collections\n Iraqi Salaries $0 $30,838\n Repair/Reconstruction/Humanitarian Assistance 51,231 494,959\n Iraqi Ministry Operations (Ministry of Finance, Defense, etc.) 830 264,737\n Fuel/Supplies 0 75,312\n Total Disbursed on behalf of Iraqi People $52,061 $865,846\n Retained for Future Support of the Iraqi People (52,060) 61,370\n Total Disposition of Collections $1 $927,216\nNet Custodial Collection Activity $0 $0\n\n\n\n\n100 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 23. Other Disclosures\n As of September 30 2005\n (Amounts in thousands)\n\n 1. ENTITY AS LESSEE-Operating Leases\n Future Payments Due Land and Buildings Equipment Other Total\n Fiscal Year\n 2006 $ 6,303 $ 0 $ 0 $ 6,303\n 2007 6,298 0 0 6,298\n 2008 4,950 0 0 4,950\n 2009 3,794 0 0 3,794\n 2010 2,118 0 0 2,118\n After 5 Years 15,550 0 0 15,550\n Total Future Lease Payments Due $ 39,013 $ 0 $ 0 $ 39,013\n\n\nDe\xef\xac\x81nitions\nLessee \xe2\x80\x93 A person or entity who receives the use and possession of leased property (e.g. real estate or equipment)\nfrom a lessor in exchange for payment of funds.\n\nOperating Lease - A lease which does not substantially transfer all the bene\xef\xac\x81ts and risks of ownership. Payments are\ncharged to an expense account over the lease term as it becomes payable.\n\n\nRelevant Information for Comprehension\nLand and Building lease periods vary and are not expected to be renewed at the end of the lease term. There are no\nmaterial escalation clauses or contingent rental restrictions. Costs are gathered from existing leases, General Service\nAdministration bills, and Inter-service Support Agreements of which the largest component is of\xef\xac\x81ce space. Future\nyear projections use the Consumer Price Index (CPI), rather than the DoD in\xef\xac\x82ation factor. The CPI impacts increases\nto the leases, especially those at commercial lease sites.\n\n\n\n\n FY 2005 Army Annual Financial Statement 101\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATING BALANCE SHEET\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Active Army Army Reserve Army National Guard\n\xc2\xac\xc2\xac\xc2\xacASSETS\xc2\xac(Note\xc2\xac2)\n Intragovernmental:\n Fund Balance with Treasury (Note 3)\n Entity $ 81,913,671 $ 1,281,261 $ 3,604,102\n Non-Entity Seized Iraqi Cash 61,370 0 0\n Non-Entity-Other 232,913 0 0\n Investments (Note 4) 3,495 0 0\n Accounts Receivable (Note 5) 1,229,724 19,389 18,801\n Other Assets (Note 6) 126 0 (4)\n Total Intragovernmental Assets $ 83,441,299 $ 1,300,650 $ 3,622,899\n Cash and Other Monetary Assets (Note 7) $ 1,482,046 $ 0 $ 0\n Accounts Receivable (Note 5) 524,138 22,294 37,573\n Loans Receivable (Note 8) 0 0 0\n Inventory and Related Property (Note 9) 37,703,353 0 0\n General Property, Plant and Equipment (Note 10) 117,980,798 1,505,613 915,335\n Investments (Note 4) 0 0 0\n Other Assets (Note 6) 3,765,423 2,883 76,218\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacASSETS $ 244,897,057 $ 2,831,440 $ 4,652,025\n\n\xc2\xac\xc2\xac\xc2\xacLIABILITIES\xc2\xac(Note\xc2\xac11)\n Intragovernmental:\n Accounts Payable (Note 12) $ 3,117,641 $ 103,362 $ 68,933\n Debt (Note 13) 0 0 0\n Other Liabilities (Note 15 & Note 16) 2,400,920 9,003 47,787\n Total Intragovernmental Liabilities $ 5,518,561 $ 112,365 $ 116,720\n Accounts Payable (Note 12) $ 7,830,236 $ 273,181 $ 1,620,125\n Military Retirement Benefits and Other Employment-Related 1,332,740 55,397 275,513\n Actuarial Liabilities (Note 17)\n Environmental Liabilities (Note 14) 39,760,514 0 0\n Loan Guarantee Liability (Note 8) 12,394 0 0\n Other Liabilities (Note 15 and Note 16) 5,763,213 191,718 446,985\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES $ 60,217,658 $ 632,661 $ 2,459,343\n\n\xc2\xac\xc2\xac\xc2\xacNET\xc2\xacPOSITION\n Unexpended Appropriations $ 71,104,696 $ 881,002 $ 1,842,539\n Cumulative Results of Operations 113,574,703 1,317,777 350,143\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacNET\xc2\xacPOSITION $ 184,679,399 $ 2,198,779 $ 2,192,682\n\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES\xc2\xacAND\xc2\xacNET\xc2\xacPOSITION $ 244,897,057 $ 2,831,440 $ 4,652,025\n\n\n\n\n102 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Component Level Combined Total Eliminations 2005 Consolidated 2004 Consolidated\n\n\n\n\n$ 0 $ 86,799,034 $ 0 $ 86,799,034 $ 89,297,373\n 0 61,370 0 61,370 113,430\n 0 232,913 0 232,913 137,806\n 0 3,495 0 3,495 1,496\n (991,280) 276,634 0 276,634 461,867\n 824,181 824,303 0 824,303 556,380\n$ (167,099) $ 88,197,749 $ 0 $ 88,197,749 $ 90,568,352\n$ 0 $ 1,482,046 $ 0 $ 1,482,046 $ 1,525,090\n 0 584,005 0 584,005 492,394\n 0 0 0 0 0\n 0 37,703,353 0 37,703,353 37,647,721\n 0 120,401,746 0 120,401,746 113,111,572\n 0 0 0 0 0\n 0 3,844,524 0 3,844,524 3,351,504\n$ (167,099) $ 252,213,423 $ 0 $ 252,213,423 $ 246,696,633\n\n\n\n\n$ (1,371,627) $ 1,918,309 $ 0 $ 1,918,309 $ 1,706,731\n 0 0 0 0 0\n (85,449) 2,372,261 0 2,372,261 2,402,903\n$ (1,457,076) $ 4,290,570 $ 0 $ 4,290,570 $ 4,109,634\n$ 413,469 $ 10,137,011 $ 0 $ 10,137,011 $ 9,460,194\n 0 1,663,650 0 1,663,650 1,632,843\n\n 0 39,760,514 0 39,760,514 40,366,172\n 0 12,394 0 12,394 12,293\n 0 6,401,916 0 6,401,916 8,669,192\n$ (1,043,607) $ 62,266,055 $ 0 $ 62,266,055 $ 64,250,328\n\n\n\n$ 876,508 $ 74,704,745 $ 0 $ 74,704,745 $ 73,238,304\n 0 115,242,623 0 115,242,623 109,208,001\n$ 876,508 $ 189,947,368 $ 0 $ 189,947,368 $ 182,446,305\n\n$ (167,099) $ 252,213,423 $ 0 $ 252,213,423 $ 246,696,633\n\n\n\n\n FY 2005 Army Annual Financial Statement 103\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATING STATEMENT OF NET COST\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Active Army Army Reserve Army National Guard\n\xc2\xac\xc2\xac\xc2\xacProgram\xc2\xacCosts\nA.\xc2\xacMilitary\xc2\xacPersonnel\n Intragovernmental Gross Costs $ (746) $ 0 $ 0\n (Less: Intragovernmental Earned Revenue) (118,985) (18,470) 4,186\n Intragovernmental Net Costs $ (119,731) $ (18,470) $ 4,186\n Gross Costs With the Public $ 43,328,299 $ 3,678,830 $ 6,299,842\n (Less: Earned Revenue From the Public) 7,509 620 (8,596)\n Net Costs With the Public $ 43,335,808 $ 3,679,450 $ 6,291,246\n Total Net Cost $ 43,216,077 $ 3,660,980 $ 6,295,432\nB.\xc2\xacOperation\xc2\xacand\xc2\xacMaintenance 0\n Intragovernmental Gross Costs $ 8,838,719 $ 10,086 $ 21,379\n (Less: Intragovernmental Earned Revenue) (10,860,946) (60,950) (155,148)\n Intragovernmental Net Costs $ (2,022,227) $ (50,864) $ (133,769)\n Gross Costs With the Public $ 62,432,671 $ 1,832,231 $ 4,729,764\n (Less: Earned Revenue From the Public) (921,770) (3,339) (5,687)\n Net Costs With the Public $ 61,510,901 $ 1,828,892 $ 4,724,077\n Total Net Cost $ 59,488,674 $ 1,778,028 $ 4,590,308\nC.\xc2\xacProcurement\n Intragovernmental Gross Costs $ 969,985 $ 0 $ 0\n (Less: Intragovernmental Earned Revenue) (927,288) 0 0\n Intragovernmental Net Costs $ 42,697 $ 0 $ 0\n Gross Costs With the Public $ 10,210,123 $ 0 $ 0\n (Less: Earned Revenue From the Public) (49,382) 0 0\n Net Costs With the Public $ 10,160,741 $ 0 $ 0\n Total Net Cost $ 10,203,438 $ 0 $ 0\nD.\xc2\xacResearch,\xc2\xacDevelopment,\xc2\xacTest\xc2\xac&\xc2\xacEvaluation\n Intragovernmental Gross Costs $ 3,077,434 $ 0 $ 0\n (Less: Intragovernmental Earned Revenue) (3,411,852) 0 0\n Intragovernmental Net Costs $ (334,418) $ 0 $ 0\n Gross Costs With the Public $ 10,373,745 $ 0 $ 0\n (Less: Earned Revenue From the Public) (127,135) 0 0\n Net Costs With the Public $ 10,246,610 $ 0 $ 0\n Total Net Cost $ 9,912,192 $ 0 $ 0\nE.\xc2\xacMilitary\xc2\xacConstruction/Family\xc2\xacHousing\n Intragovernmental Gross Costs $ 3,655,992 $ 1,804 $ 0\n (Less: Intragovernmental Earned Revenue) (3,725,421) 0 0\n Intragovernmental Net Costs $ (69,429) $ 1,804 $ 0\n Gross Costs With the Public $ 493,506 $ 13,824 $ 427,008\n (Less: Earned Revenue From the Public) (138,852) 0 0\n Net Costs With the Public $ 354,654 $ 13,824 $ 427,008\n Total Net Cost $ 285,225 $ 15,628 $ 427,008\n\n\n\n\n104 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Combined Total Eliminations 2005 Consolidated 2004 Consolidated\n\n\n\n$ (746) $ 0 $ (746) $ 8,816,058\n (133,269) 0 (133,269) (371,996)\n$ (134,015) $ 0 $ (134,015) $ 8,444,062\n$ 53,306,971 $ 0 $ 53,306,971 $ 38,206,501\n (467) 0 (467) 18,804\n$ 53,306,504 $ 0 $ 53,306,504 $ 38,225,305\n$ 53,172,489 $ 0 $ 53,172,489 $ 46,669,367\n\n$ 8,870,184 $ 0 $ 8,870,184 $ 8,721,639\n (11,077,044) 0 (11,077,044) (10,871,264)\n$ (2,206,860) $ 0 $ (2,206,860) $ (2,149,625)\n$ 68,994,666 $ 0 $ 68,994,666 $ 62,739,839\n (930,796) 0 (930,796) (832,216)\n$ 68,063,870 $ 0 $ 68,063,870 $ 61,907,623\n$ 65,857,010 $ 0 $ 65,857,010 $ 59,757,998\n\n$ 969,985 $ 0 $ 969,985 $ 826,430\n (927,288) 0 (927,288) (778,486)\n$ 42,697 $ 0 $ 42,697 $ 47,944\n$ 10,210,123 $ 0 $ 10,210,123 $ 17,237,458\n (49,382) 0 (49,382) (64,604)\n$ 10,160,741 $ 0 $ 10,160,741 $ 17,172,854\n$ 10,203,438 $ 0 $ 10,203,438 $ 17,220,798\n\n$ 3,077,434 $ 0 $ 3,077,434 $ 2,588,330\n (3,411,852) 0 (3,411,852) (2,703,026)\n$ (334,418) $ 0 $ (334,418) $ (114,696)\n$ 10,373,745 $ 0 $ 10,373,745 $ 8,684,468\n (127,135) 0 (127,135) (123,475)\n$ 10,246,610 $ 0 $ 10,246,610 $ 8,560,993\n$ 9,912,192 $ 0 $ 9,912,192 $ 8,446,297\n\n$ 3,657,796 $ 0 $ 3,657,796 $ 2,340,929\n (3,725,421) 0 (3,725,421) (3,267,676)\n$ (67,625) $ 0 $ (67,625) $ (926,747)\n$ 934,338 $ 0 $ 934,338 $ 1,956,026\n (138,852) 0 (138,852) (144,173)\n$ 795,486 $ 0 $ 795,486 $ 1,811,853\n$ 727,861 $ 0 $ 727,861 $ 885,106\n\n\n\n\n FY 2005 Army Annual Financial Statement 105\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATING STATEMENT OF NET COST\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Active Army Army Reserve Army National Guard\nF.\xc2\xacOther\n Intragovernmental Gross Costs $ 61,873 $ 0 $ 0\n (Less: Intragovernmental Earned Revenue) (9,060) 0 0\n Intragovernmental Net Costs $ 52,813 $ 0 $ 0\n Gross Costs With the Public $ 6,662,016 $ 0 $ 0\n (Less: Earned Revenue From the Public) (2,655) 0 0\n Net Costs With the Public $ 6,659,361 $ 0 $ 0\n Total Net Cost $ 6,712,174 $ 0 $ 0\n\nG.\xc2\xacTotal\xc2\xacProgram\xc2\xacCosts\n Intragovernmental Gross Costs $ 16,603,257 $ 11,890 $ 21,379\n (Less: Intragovernmental Earned Revenue) (19,053,552) (79,420) (150,962)\n Intragovernmental Net Costs $ (2,450,295) $ (67,530) $ (129,583)\n Gross Costs With the Public $ 133,500,360 $ 5,524,885 $ 11,456,614\n (Less: Earned Revenue From the Public) (1,232,285) (2,719) (14,283)\n Net Costs With the Public $ 132,268,075 $ 5,522,166 $ 11,442,331\n Total Net Cost $ 129,817,780 $ 5,454,636 $ 11,312,748\n\xc2\xac\xc2\xac\xc2\xacCost\xc2\xacNot\xc2\xacAssigned\xc2\xacto\xc2\xacPrograms $ 0 $ 0 $ 0\n\xc2\xac\xc2\xac\xc2\xac(Less:Earned\xc2\xacRevenue\xc2\xacNot\xc2\xacAttributable\xc2\xacto\xc2\xacPrograms) 0 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ 129,817,780 $ 5,454,636 $ 11,312,748\n\n\n\n\n106 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Component Level Combined Total Eliminations 2005 Consolidated 2004 Consolidated\n\n\n$ 23,350,794 $ 23,412,667 $ 0 $ 23,412,667 $ 12,166,754\n 10,792,774 10,783,714 0 10,783,714 10,604,070\n$ 34,143,568 $ 34,196,381 $ 0 $ 34,196,381 $ 22,770,824\n$ (34,302,547) $ (27,640,531) $ 0 $ (27,640,531) $ (19,962,477)\n 0 (2,655) 0 (2,655) (6,391)\n$ (34,302,547) $ (27,643,186) $ 0 $ (27,643,186) $ (19,968,868)\n$ (158,979) $ 6,553,195 $ 0 $ 6,553,195 $ 2,801,956\n\n\n\n$ 23,350,794 $ 39,987,320 $ 0 $ 39,987,320 $ 35,460,140\n 10,792,774 (8,491,160) 0 (8,491,160) (7,388,378)\n$ 34,143,568 $ 31,496,160 $ 0 $ 31,496,160 $ 28,071,762\n$ (34,302,547) $ 116,179,312 $ 0 $ 116,179,312 $ 108,861,815\n 0 (1,249,287) 0 (1,249,287) (1,152,055)\n$ (34,302,547) $ 114,930,025 $ 0 $ 114,930,025 $ 107,709,760\n$ (158,979) $ 146,426,185 $ 0 $ 146,426,185 $ 135,781,522\n$ 0 $ 0 $ 0 $ 0 $ 0\n 0 0 0 0 0\n$ (158,979) $ 146,426,185 $ 0 $ 146,426,185 $ 135,781,522\n\n\n\n\n FY 2005 Army Annual Financial Statement 107\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATING STATEMENT OF CHANGES IN NET POSITION\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Active Army Army Reserve Army National Guard\nCUMULATIVE\xc2\xacRESULTS\xc2\xacOF\xc2\xacOPERATIONS\n Beginning\xc2\xacBalances $ 107,622,334 $ 1,338,565 $ 247,102\n Prior Period Adjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0 0\n Correction of Errors (+/-) 0 0 0\n Beginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 107,622,334 $ 1,338,565 $ 247,102\n Budgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0 0\n Appropriations transferred-in/out (+/-) 0 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0 0\n Appropriations used 133,021,007 5,605,817 11,580,888\n Nonexchange revenue 9,331 0 0\n Donations and forfeitures of cash and cash equivalents 5,609 0 0\n Transfers-in/out without reimbursement (+/-) 3,721,535 0 0\n Other budgetary financing sources (+/-) 2,141 0 0\n Other\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0 0\n Transfers-in/out without reimbursement (+/-) 456,293 0 0\n Imputed financing from costs absorbed by others 1,092,805 0 0\n Other (+/-) (2,538,572) (171,969) (165,099)\n Total\xc2\xacFinancing\xc2\xacSources $ 135,770,149 $ 5,433,848 $ 11,415,789\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 129,817,780 5,454,636 11,312,748\n Net\xc2\xacChange $ 5,952,369 $ (20,788) $ 103,041\n Ending\xc2\xacBalance $ 113,574,703 $ 1,317,777 $ 350,143\n\nUNEXPENDED\xc2\xacAPPROPRIATIONS\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances $ 69,762,599 $ 761,566 $ 1,996,609\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacPrior\xc2\xacperiod\xc2\xacadjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0 0\n Correction of Errors (+/-) 0 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 69,762,599 $ 761,566 $ 1,996,609\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBudgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 132,583,149 5,823,476 11,425,313\n Appropriations transferred-in/out (+/-) 2,512,119 (54,903) 103,543\n Other adjustments (rescissions, etc) (+/-) (732,165) (43,320) (102,038)\n Appropriations used (133,021,006) (5,605,817) (11,580,888)\n Nonexchange revenue 0 0 0\n Donations and forfeitures of cash and cash equivalents 0 0 0\n Transfers-in/out without reimbursement (+/-) 0 0 0\n Other budgetary financing sources (+/-) 0 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacOther\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0 0\n Transfers-in/out without reimbursement (+/-) 0 0 0\n Imputed financing from costs absorbed by others 0 0 0\n Other (+/-) 0 0 0\n Total\xc2\xacFinancing\xc2\xacSources $ 1,342,097 $ 119,436 $ (154,070)\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 0 0 0\n Net\xc2\xacChange $ 1,342,097 $ 119,436 $ (154,070)\n Ending\xc2\xacBalance $ 71,104,696 $ 881,002 $ 1,842,539\n\n\n\n108 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Component Level Combined Total Eliminations 2005 Consolidated 2004 Consolidated\n\n\n$ 0 $ 109,208,001 $ 0 $ 109,208,001 $ 100,631,646\n\n 0 0 0 0 0\n 0 0 0 0 0\n$ 0 $ 109,208,001 $ 0 $ 109,208,001 $ 100,631,646\n\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n (158,979) 150,048,733 0 150,048,733 127,335,115\n 0 9,331 0 9,331 5,143\n 0 5,609 0 5,609 4,663\n 0 3,721,535 0 3,721,535 13,189,641\n 0 2,141 0 2,141 2,540,445\n\n 0 0 0 0 0\n 71,778 528,071 0 528,071 400,794\n 0 1,092,805 0 1,092,805 882,077\n (71,778) (2,947,418) 0 (2,947,418) 0\n$ (158,979) $ 152,460,807 $ 0 $ 152,460,807 $ 144,357,878\n (158,979) 146,426,185 0 146,426,185 135,781,522\n$ 0 $ 6,034,622 $ 0 $ 6,034,622 $ 8,576,356\n$ 0 $ 115,242,623 $ 0 $ 115,242,623 $ 109,208,002\n\n\n\n$ 717,530 $ 73,238,304 $ 0 $ 73,238,304 $ 47,674,714\n\n 0 0 0 0 0\n 0 0 0 0 0\n$ 717,530 $ 73,238,304 $ 0 $ 73,238,304 $ 47,674,714\n\n 0 149,831,938 0 149,831,938 149,547,719\n 0 2,560,759 0 2,560,759 4,745,349\n 0 (877,523) 0 (877,523) (1,394,364)\n 158,978 (150,048,733) 0 (150,048,733) (127,335,114)\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n$ 158,978 $ 1,466,441 $ 0 $ 1,466,441 $ 25,563,590\n 0 0 0 0 0\n$ 158,978 $ 1,466,441 $ 0 $ 1,466,441 $ 25,563,590\n$ 876,508 $ 74,704,745 $ 0 $ 74,704,745 $ 73,238,304\n\n\n\n FY 2005 Army Annual Financial Statement 109\n\x0cDepartment of Defense - Department of the Army\nCOMBINING STATEMENT OF BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Active Army Army Reserve Army National Guard\nBudgetary Financing Accounts\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 132,598,127 $ 5,823,476 $ 11,425,313\n Borrowing authority 0 0 0\n Contract authority 0 0 0\n Net transfers (+/-) 737,956 5,792 302,824\n Other 0 0 0\n Unobligated balance:\n Beginning of period 22,015,477 185,127 680,153\n Net transfers, actual (+/-) 2,629,163 (60,695) (199,281)\n Anticipated Transfers Balances 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0\n Collected 20,660,481 78,351 209,406\n Receivable from Federal sources (374,726) 3,789 (44,162)\n Change in unfilled customer orders 0 0 0\n Advance received 78,015 (301) 19\n Without advance from Federal sources 2,155,926 6,572 (2,559)\n Anticipated for the rest of year, without advances 0 0 0\n Previously unavailable 0 0 0\n Transfers for trust funds 0 0 0\n Subtotal $ 22,519,696 $ 88,411 $ 162,704\n Recoveries of prior year obligations 14,784,600 722,876 1,525,971\n Temporarily not available pursuant to Public Law 0 0 0\n Permanently not available (732,165) (43,320) (102,038)\n\xc2\xac \xc2\xac Total\xc2\xacBudgetary\xc2\xacResources $ 194,552,854 $ 6,721,667 $ 13,795,646\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 155,608,378 $ 6,434,921 $ 13,042,916\n Reimbursable 24,184,351 97,240 225,069\n Subtotal $ 179,792,729 $ 6,532,161 $ 13,267,985\n Unobligated balance:\n Apportioned 13,461,059 21,928 182,465\n Exempt from apportionment 11,980 0 0\n Other available 1 1 0\n Unobligated Balances Not Available 1,287,085 167,577 345,196\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 194,552,854 $ 6,721,667 $ 13,795,646\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net - beginning of period $ 52,852,406 $ 1,419,081 $ 2,750,912\n Obligated Balance transferred, net (+/-) 0 0 0\n Obligated Balance, Net - end of period:\n Accounts receivable (1,435,542) (19,534) (23,273)\n Unfilled customer order from Federal sources (14,835,779) (32,652) (4,678)\n Undelivered orders 64,893,024 706,276 1,206,084\n Accounts payable 11,579,523 437,665 1,898,308\n Outlays:\n Disbursements 155,878,110 6,126,250 11,463,206\n Collections (20,738,496) (78,050) (209,425)\n Subtotal $ 135,139,614 $ 6,048,200 $ 11,253,781\n Less: Offsetting receipts (195,234) 0 0\n\xc2\xac Net\xc2\xacOutlays $ 134,944,380 $ 6,048,200 $ 11,253,781\n\n\n\n110 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Component Level 2005 Combined 2004 Combined\n\n\n\n\n$ 0 $ 149,846,916 $ 149,559,892\n 0 0 0\n 0 0 0\n 0 1,046,572 2,517,085\n 0 0 0\n\n 0 22,880,757 8,212,989\n 0 2,369,187 4,698,264\n 0 0 0\n\n 0 0 0\n 0 20,948,238 18,739,994\n 0 (415,099) 412,742\n 0 0 0\n 0 77,733 306,576\n 0 2,159,939 1,896,851\n 0 0 0\n 0 0 0\n 0 0 0\n$ 0 $ 22,770,811 $ 21,356,163\n 0 17,033,447 13,996,679\n 0 0 0\n 0 (877,523) (1,394,364)\n$ 0 $ 215,070,167 $ 198,946,708\n\n\n\n\n$ 0 $ 175,086,215 $ 152,590,936\n 0 24,506,660 23,475,016\n$ 0 $ 199,592,875 $ 176,065,952\n\n 0 13,665,452 21,458,641\n 0 11,980 13,411\n 0 2 0\n 0 1,799,858 1,408,704\n$ 0 $ 215,070,167 $ 198,946,708\n\n$ 0 $ 57,022,399 $ 46,482,855\n 0 0 0\n\n 0 (1,478,349) (1,893,446)\n 0 (14,873,109) (12,713,171)\n (33,121) 66,772,263 56,509,574\n 33,121 13,948,617 15,119,442\n\n 0 173,467,566 149,220,137\n 0 (21,025,971) (19,046,568)\n$ 0 $ 152,441,595 $ 130,173,569\n 0 (195,234) (63,289)\n$ 0 $ 152,246,361 $ 130,110,280\n\n\n\n\n FY 2005 Army Annual Financial Statement 111\n\x0cDepartment of Defense - Department of the Army\nCOMBINING STATEMENT OF BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Active Army Army Reserve Army National Guard\nNon-Budgetary Financing Accounts\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 0 $ 0 $ 0\n Borrowing authority 0 0 0\n Contract authority 0 0 0\n Net transfers (+/-) 0 0 0\n Other 0 0 0\n Unobligated balance:\n Beginning of period 1,424 0 0\n Net transfers, actual (+/-) 0 0 0\n Anticipated Transfers Balances 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0\n Collected 101 0 0\n Receivable from Federal sources 0 0 0\n Change in unfilled customer orders 0 0 0\n Advance received 0 0 0\n Without advance from Federal sources 0 0 0\n Anticipated for the rest of year, without advances 0 0 0\n Previously unavailable 0 0 0\n Transfers for trust funds 0 0 0\n Subtotal $ 101 $ 0 $ 0\n Recoveries of prior year obligations 0 0 0\n Temporarily not available pursuant to Public Law 0 0 0\n Permanently not available 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 1,525 $ 0 $ 0\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 0 $ 0 $ 0\n Reimbursable 0 0 0\n Subtotal $ 0 $ 0 $ 0\n Unobligated balance:\n Apportioned 1,525 0 0\n Exempt from apportionment 0 0 0\n Other available 0 0 0\n Unobligated Balances Not Available 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 1,525 $ 0 $ 0\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net - beginning of period $ 0 $ 0 $ 0\n Obligated Balance transferred, net (+/-) 0 0 0\n Obligated Balance, Net - end of period:\n Accounts receivable 0 0 0\n Unfilled customer order from Federal sources 0 0 0\n Undelivered orders 0 0 0\n Accounts payable 0 0 0\n Outlays:\n Disbursements 0 0 0\n Collections (101) 0 0\n Subtotal $ (101) $ 0 $ 0\n Less: Offsetting receipts 0 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ (101) $ 0 $ 0\n\n\n\n112 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Component Level 2005 Combined 2004 Combined\n\n\n\n\n$ 0 $ 0 $ 0\n 0 0 0\n 0 0 0\n 0 0 0\n 0 0 0\n\n 0 1,424 1,272\n 0 0 0\n 0 0 0\n\n 0 0 0\n 0 101 152\n 0 0 0\n 0 0 0\n 0 0 0\n 0 0 0\n 0 0 0\n 0 0 0\n 0 0 0\n$ 0 $ 101 $ 152\n 0 0 0\n 0 0 0\n 0 0 0\n$ 0 $ 1,525 $ 1,424\n\n\n\n\n$ 0 $ 0 $ 0\n 0 0 0\n$ 0 $ 0 $ 0\n\n 0 1,525 1,424\n 0 0 0\n 0 0 0\n 0 0 0\n$ 0 $ 1,525 $ 1,424\n\n$ 0 $ 0 $ 0\n 0 0 0\n\n 0 0 0\n 0 0 0\n 0 0 0\n 0 0 0\n\n 0 0 0\n 0 (101) (152)\n$ 0 $ (101) $ (152)\n 0 0 0\n$ 0 $ (101) $ (152)\n\n\n\n\n FY 2005 Army Annual Financial Statement 113\n\x0cDepartment of Defense - Department of the Army\nCONSOLIDATING STATEMENT OF FINANCING\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Active Army Army Reserve\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacActivities:\nBudgetary Resources Obligated\n Obligations incurred $ 179,792,729 $ 6,532,161\n Less: Spending authority from offsetting collections (37,304,397) (811,287)\n and recoveries (-)\n Obligations net of offsetting collections and recoveries $ 142,488,332 $ 5,720,874\n Less: Offsetting receipts (-) (195,234) 0\n Net obligations $ 142,293,098 $ 5,720,874\nOther Resources\n Donations and forfeitures of property 0 0\n Transfers in/out without reimbursement (+/-) 456,293 0\n Imputed financing from costs absorbed by others 1,092,805 0\n Other (+/-) (2,538,572) (171,969)\n Net other resources used to finance activities $ (989,474) $ (171,969)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacactivities $ 141,303,624 $ 5,548,905\n\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacItems\xc2\xacnot\xc2\xacPart of\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\n Change in budgetary resources obligated for goods,\n services and benefits ordered but not yet provided\n Undelivered Orders (-) $ (10,668,692) $ (121,479)\n Unfilled Customer Orders 2,233,941 6,271\n Resources that fund expenses recognized in prior periods (1,276,787) (3,123)\n Budgetary offsetting collections and receipts that do not affect net cost of operations 195,334 0\n Resources that finance the acquisition of assets (26,103,979) (336,314)\n Other resources or adjustments to net obligated resources\n that do not affect net cost of operations\n Less: Trust or Special Fund Receipts Related to Exchange in the Entity's Budget (-) 0 0\n Other (+/-) 2,082,280 171,968\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacitems\xc2\xacnot part\xc2\xacof\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations $ (33,537,903) $ (282,677)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof operations $ 107,765,721 $ 5,266,228\n\nComponents\xc2\xacof\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xacthat\xc2\xacwill\nnot\xc2\xacRequire\xc2\xacor\xc2\xacGenerate\xc2\xacResources\xc2\xacin\xc2\xacthe\xc2\xacCurrent\xc2\xacPeriod:\nComponents Requiring or Generating Resources in Future Period:\n Increase in annual leave liability $ 81,190 $ 5,901\n Increase in environmental and disposal liability 0 0\n Upward/Downward reestimates of credit subsidy expense (+/-) 0 0\n Increase in exchange revenue receivable from the the public (-) 0 0\n Other (+/-) 52,127 454\n Total components of Net Cost of Operations that $ 133,317 $ 6,355\n will require or generate resources in future periods\nComponents not Requiring or Generating Resources:\n Depreciation and amortization 16,747,389 181,309\n Revaluation of assets or liabilities (+/-) 0 0\n Other (+/-)\n Trust Fund Exchange Revenue (82) 0\n Cost of Goods Sold 0 0\n Operating Material & Supplies Used 0 0\n Other 5,171,436 743\n Total components of Net Cost of Operations that will not require or generate resources $ 21,918,743 $ 182,052\nTotal\xc2\xaccomponents\xc2\xacof\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations\xc2\xacthat\nwill\xc2\xacnot\xc2\xacrequire\xc2\xacor\xc2\xacgenerate\xc2\xacresources\xc2\xacin\xc2\xacthe\xc2\xaccurrent period $ 22,052,060 $ 188,407\nNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ 129,817,781 $ 5,454,635\n\n\n\n114 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Army National Guard Component Level 2005 Consolidated 2004 Consolidated\n\n\n\n$ 13,267,985 $ 0 $ 199,592,875 $ 176,065,951\n (1,688,675) 0 (39,804,359) (35,352,991)\n\n$ 11,579,310 $ 0 $ 159,788,516 $ 140,712,960\n 0 0 (195,234) (63,289)\n$ 11,579,310 $ 0 $ 159,593,282 $ 140,649,671\n\n 0 0 0 0\n 0 71,778 528,071 400,794\n 0 0 1,092,805 882,077\n (165,099) (71,778) (2,947,418) 0\n$ (165,099) $ 0 $ (1,326,542) $ 1,282,871\n$ 11,414,211 $ 0 $ 158,266,740 $ 141,932,542\n\n\n\n\n$ 6,245 $ (158,979) $ (10,942,905) $ (12,185,137)\n (2,540) 0 2,237,672 2,203,425\n (2,427) 0 (1,282,337) (870,785)\n 0 0 195,334 63,441\n (312,198) 0 (26,752,491) (9,901,005)\n\n\n 0 0 0 0\n 165,098 0 2,419,346 (400,794)\n$ (145,822) $ (158,979) $ (34,125,381) $ (21,090,855)\n$ 11,268,389 $ (158,979) $ 124,141,359 $ 120,841,687\n\n\n\n\n$ 4,564 $ 0 $ 91,655 $ 95,284\n 0 0 0 3,103,711\n 0 0 0 10,869\n 0 0 0 0\n 2,327 0 54,908 63,634\n$ 6,891 $ 0 $ 146,563 $ 3,273,498\n\n\n 36,376 0 16,965,074 9,815,563\n 1,074 0 1,074 515,037\n\n 0 0 (82) (36)\n 0 0 0 0\n 0 0 0 0\n 18 0 5,172,197 1,335,773\n$ 37,468 $ 0 $ 22,138,263 $ 11,666,337\n\n$ 44,359 $ 0 $ 22,284,826 $ 14,939,835\n$ 11,312,748 $ (158,979) $ 146,426,185 $ 135,781,522\n\n\n\n FY 2005 Army Annual Financial Statement 115\n\x0cDepartment of Defense - Department of the Army\nCOMBINING STATEMENT OF CUSTODIAL ACTIVITY\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Active Army Army Reserve Army National Guard\nSOURCE\xc2\xacOF\xc2\xacCOLLECTIONS\n Deposits by Foreign Governments $ 136,000 $ 0 $ 0\n Seized Iraqi Cash 1 0 0\n Other Collections 0 0 0\n Total Cash Collections 136,001 0 0\n Accrual Adjustments (+/-) 0 0 0\n Total Custodial Collections $ 136,001 $ 0 $ 0\nDISPOSITION\xc2\xacOF\xc2\xacCOLLECTIONS\n Disbursed on Behalf of Foreign Governments and $ 82,613 $ 0 $ 0\n International Organizations\n Seized Assets Disbursed on behalf of Iraqi People 52,061 0 0\n Increase (Decrease) in Amounts to be Transferred 53,387 0 0\n Collections Used for Refunds and Other Payments 0 0 0\n Retained by The Reporting Entity 0 0 0\n Seized Assets Retained for Support of the Iraqi People (52,060) 0 0\n Total Disposition of Collections $ 136,001 $ 0 $ 0\nNET\xc2\xacCUSTODIAL\xc2\xacCOLLECTION\xc2\xacACTIVITY $ 0 $ 0 $ 0\n\n\n\n\n Component Level 2005 Combined 2004 Combined\nSOURCE\xc2\xacOF\xc2\xacCOLLECTIONS\n Deposits by Foreign Governments $ 0 $ 136,000 $ 0\n Seized Iraqi Cash 0 1 118,349\n Other Collections 0 0 0\n Total Cash Collections 0 136,001 118,349\n Accrual Adjustments (+/-) 0 0 0\n Total Custodial Collections $ 0 $ 136,001 $ 118,349\nDISPOSITION\xc2\xacOF\xc2\xacCOLLECTIONS\n Disbursed on Behalf of Foreign Governments and $ 0 $ 82,613 $ 0\n International Organizations\n Seized Assets Disbursed on behalf of Iraqi People 0 52,061 283,058\n Increase (Decrease) in Amounts to be Transferred 0 53,387 0\n Collections Used for Refunds and Other Payments 0 0 0\n Retained by The Reporting Entity 0 0 0\n Seized Assets Retained for Support of the Iraqi People 0 (52,060) (164,709)\n Total Disposition of Collections $ 0 $ 136,001 $ 118,349\nNET\xc2\xacCUSTODIAL\xc2\xacCOLLECTION\xc2\xacACTIVITY $ 0 $ 0 $ 0\n\n\n\n\n116 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\nNational Defense Property, Plant, and Equipment\nThe Federal Accounting Standards Advisory Board (FASAB) revised the Statement of Federal Financial Accounting\nStandards No. 6 to require the capitalization and depreciation of military equipment (formerly National Defense\nProperty, Plant and Equipment/ND PP&E) for \xef\xac\x81scal years (FY) 2003 and beyond, and encouraged early\nimplementation.\n\n\n Heritage Assets\n For Fiscal Year Ended September 30, 2005\n\n (a) (b) (c) (d) (e) (f)\n Measurement / As of As of\n Quantity 10/1/04 Additions Deletions 9/30/05\n Museums (Note 2) Each 60 0 0 60\n Monuments and Memorials Each 1,411 38 209 1,240\n (Note 3)\n Cemeteries (Note 4) Sites 523 61 118 466\n Archeological Sites (Note 6) Sites 0 68,280 0 68,280\n Buildings & Structures (Note 1) Each 10,019 1,404 1,357 10,066\n Major Collections (Note 5) Each 6 84 0 90\n\n\nNarrative Statement:\nIn most cases, the additions/deletions are the result of sites/installations: (a) identifying cemeteries and historical\nfacilities; (b) disposing of BRAC Closure property or excess installations; and (c) privatization/RCI program. BRAC\nMission Closure installations/sites are included in this report.\n\n\nNotes:\n1. Historical Buildings and Structures: buildings and structures designated as historical exclude museums,\n monuments, and memorials. The number of Buildings and Structures increased as a result of the following\n initiatives:\n Installations conducting real property surveys and making adjustments according to their \xef\xac\x81ndings\n Active installations now reporting previously omitted National Guard Bureau buildings and structures\n designated as heritage assets\n Both National Guard and Reserve are now reporting new buildings and structures designated as heritage\n assets\n2. Museums: The Army Museum System consists of 60 museums and museum activities in the active Army and\n Army Reserve. There are a relatively small number of federally owned artifacts in National Guard Museum\n activities, which are primarily state entities. In addition, there is historical property displayed in numerous\n regimental rooms, trophy rooms, of\xef\xac\x81cer\xe2\x80\x99s clubs, visitor\xe2\x80\x99s centers, chapels, and headquarters building elements\n that are not individually recognized by the Department of the Army as museums or museum activities. Solely\n for reporting purposes, we have consolidated all of these separate and smaller collections during this reporting\n period.\n Army had previously reported 117 museums as of 9/30/2004. There are 57 museum activities or other\n collections located on National Guard property that contain primarily State owned artifacts, and whose\n employees and operations are funded by their States. As a result, these 57 museum activities have been\n removed from the Army\xe2\x80\x99s Heritage Asset report.\n\n\n\n FY 2005 Army Annual Financial Statement 117\n\x0c3. Memorial/Monuments: includes category code 76020 (monuments).\n4. Cemeteries: includes category code 76030 (cemetery), 76031 (National Cemetery), 76032 (Veterans Cemetery),\n and excludes 76033 (Pet Cemeteries).\n5. Major Collections: The US Army Tank automotive & Armaments Life Cycle Management Command (TACOM\n LCMC) reports two (2) major collections under the Army Donations Program consisting of Ceremonial Ri\xef\xac\x82es\n and Monuments/Static Displays. The Ceremonial Ri\xef\xac\x82e collection consists of approximately 300,000 weapons\n in the hands of over 23,000 veterans\xe2\x80\x99 organizations, law enforcement agencies and National cemeteries. This\n collection is in good condition with 95% accountability of serial number tracking. The Monuments/Static\n Display collection consists of approximately 4760 major end items which are in good condition with 100%\n accountability.\n Major collections also includes 84 archeological collections identi\xef\xac\x81ed at individual Army installations. The\n Army is including Archeological Collections in the number of Major Collections for the \xef\xac\x81rst time. These\n collections are managed in accordance with Federal Regulations and are kept in perpetuity. Some collections\n are accessible to the public but not all items within an Archeological Collection are accessible to the public\n due to Federal regulations such as the Native American Graves Protection and Repatriation Act (1990). Each\n installation maintaining an archeological collection is considered to have only one collection per installation\n regardless of whether the collection is divided among different facilities or locations. The collections are the\n responsibility of the Army but may be in the care of a contractor, a public institution or other entity.\n The condition of the Army\xe2\x80\x99s Archeological Collections is good. Only 15% of the Army\xe2\x80\x99s existing archeological\n collections need upgrading of either curatorial facilities, accessioning, packaging and/or conservation to meet\n Federal requirements under 36 CFR 79.\n6. Archeological collections: The Army counted all sites recorded on Army owned/controlled Federal land that\n are known to exist but may or may not have been evaluated to determine if they are historically signi\xef\xac\x81cant and\n eligibility for the National Register of Historic Places. This number was omitted from previous Army annual\n reports. This number was calculated as of 30 June 2005.\n The Army is reporting Archeological Sites for the \xef\xac\x81rst time in the Annual Financial Statement. The number is\n inclusive of all sites recorded on Army owned Federal land that are known to exist but may or may not have\n been evaluated to determine eligibility for the National Register of Historic Places. This number was omitted\n from previous Army annual reports. This number was calculated as of 30 June 2005. In future years the number\n will also be counted as of 30 June CY until such time as the Army has in place a automated system that can\n calculate the number of sites as of the end of the Financial Year. Next year the Army intends to separate out\n the number of archeological sites that are on or eligible to be on the National Register of Historic Places from\n the total number of recorded archeological sites and will report them separately. The Army does not generally\n acquire or remove new archeological sites annually but instead identi\xef\xac\x81es new sites on existing Army land\n or evaluates existing sites during the course of the \xef\xac\x81nancial year. New land acquisitions that include new\n archeological sites will be speci\xef\xac\x81cally noted in future calendar year \xe2\x80\x9cadditions\xe2\x80\x9d.\n The condition of archeological sites across the Army range varies depending on factors including the\n environmental setting, the type of the site, and past impacts from Army activities. If an Army activity has\n the potential to adversely impact an archeological site eligible for the National Register of Historic Places,\n the installation\xe2\x80\x99s Installation Cultural Resource Management Plan (ICRMP) contains provisions for how the\n installation would proceed to mitigate those impacts. ICRMPs are the plan that installations use to manage their\n cultural resources including archeological sites in compliance with federal requirements. These plans provide\n for site protection, site conditions monitoring, and mitigation procedures for adverse impacts to sites. Overall,\n the conditions of sites on Army installations are variable based on the Army\xe2\x80\x99s cultural resource management\n procedures.\n\n\n\n\n118 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\n\n Stewardship Land\n For Fiscal Year Ended September 30, 2005\n (Acres in Thousands)\n\n (a) (b) (c) (d) (e)\n As of 10/1/04 Additions Deletions As of 9/30/05\n Land Use\n Mission (Note 1) 6,910.0 28.8 24.2 6,914.5\n Parks & Historic Sites (Note 2) .94 .07 .08 .94\n Total\n\nNarrative Statement:\nAdditions/deletions are the result of: (a) acquiring additional land through donation or withdrawal from public\ndomain; (b) identi\xef\xac\x81cation of missing land records; and (c) disposal of BRAC Closure sites or transfer of land to\nanother DOD agency. BRAC Mission Closure installations/sites are included in this report\n\n\nNotes:\n1. Mission Land: includes the following category codes: 91120, 91131, 91141, 91210, 91310, 91320, 91330, 91410,\n 92111, 92121, 92131, 92190. These category codes represent land that was not purchased, but was either donated\n or withdrawn from public domain.\n2. Parks/Historic Sites: Same as Cemetery Acreage on Heritage Report (includes category codes 76030, 76031,\n and 76032; excludes Pet Cemeteries). Unable to determine if cemeteries are purchased, donated or transferred\n property. This value could be double reported within Mission Related; therefore; this report should not be\n totaled.\n\n\n\n\n FY 2005 Army Annual Financial Statement 119\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\n\n Nonfederal Physical Property\n Yearly Investment in State and Local Governments\n For Fiscal Years FY 2001 through FY 2005\n (In Millions of Dollars)\n\n (a) (b) (c) (d) (e) (f)\n Categories FY 2001 FY 2002 FY 2003 FY 2004 FY 2005\n Transferred Assets:\n National Defense Mission Related $94.8 $7.4 $85.0 $54.7 $70.7\n Funded Assets:\n National Defense Mission Related 0 0 0 0 0\n Total $94.8 $7.4 $85.0 $54.7 $70.7\n\n\nNarrative Statement:\nInvestments in Nonfederal Physical Property refers to those expenses incurred by the Army for the purchase,\nconstruction, or major renovation of physical property owned by State and Local Governments, including major\nadditions, alterations and replacements; the purchase of major equipment; and the purchase of improvement of\nother physical assets. The following is a schedule of estimated investments value of state-owned properties that are\nused by the Federal Government.\n\n\nNotes:\n1. Investment values included in this report are based on Nonfederal Physical Property outlays (expenditures).\n Outlays are used because current DoD systems are unable to capture and summarize costs in accordance with\n the Federal Accounting Standards requirements.\n2. Data provided here are signi\xef\xac\x81cant because these are properties that are owned by the various U.S. Property and\n Fiscal Of\xef\xac\x81ces and are essential in accomplishing the mission of the Army National Guard.\n3. Costs of maintenance of these non-federal assets are included in the budgetary resources of Army National\n Guard.\n4. These properties represent non-cash items that were transferred to State and local governments.\n\n\n\n\n120 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\n\n Investments in Research and Development\n Yearly Investment in Research and Development\n For Fiscal Years FY 2001 through FY 2005\n (In Millions of Dollars)\n\n (a) (b) (c) (d) (e) (f)\n Categories FY 2001 FY 2002 FY 2003 FY 2004 FY 2005\n Basic Research $209.2 $206.4 $226.9 $291.6 $360.0\n Applied Research 806.6 864.1 847.2 886.8 995.1\n Development\n Advanced Technology Development 821.9 863.1 988.6 1,010.4 1,185.8\n Advanced Component Development and Prototypes 622.6 897.7 880.1 767.7 830.3\n Systems Development and Demonstration 1,653.0 1,954.9 2,265.1 3,288.3 4,309.4\n Research, Development, Test and Evaluation 888.8 880.9 979.4 1.069.8 1,157.3\n Management Support\n Operational Systems Development 849.3 970.4 964.9 929.8 1,156.7\n Total $5,851.4 $6,637.5 $7,152.2 $8,244.4 $9,994.6\n\n\nNarrative Statement:\nBasic Research is the systematic study directed toward greater knowledge or understanding of the fundamental\naspects of phenomena and of observable facts without speci\xef\xac\x81c applications towards processes or products in\nmind. It includes all scienti\xef\xac\x81c study and experimentation directed toward increasing fundamental knowledge and\nunderstanding in those \xef\xac\x81elds of the physical, engineering, environmental, and life sciences related to long-term\nnational security needs. It is farsighted high payoff research that provides the basis for technological progress.\n\nThe following are two representative program examples for each of the major categories:\n\nDefense Research Sciences (PE 0601102A): This program fosters fundamental scienti\xef\xac\x81c knowledge while sustaining\nU.S. Army scienti\xef\xac\x81c and technological superiority in land war\xef\xac\x81ghting capability. This research provides new\ntechnology concepts and operational applications for the Army\xe2\x80\x99s Future Force. These investments also provide the\nresources to exploit scienti\xef\xac\x81c breakthroughs and avoid technological surprises. This program fosters innovation\nin Army niche areas and where the commercial incentive to invest is lacking due to limited markets. It also\nfocuses university single investigators on research in areas of Army interest. The in-house portion of the program\ncapitalizes on the Army\xe2\x80\x99s scienti\xef\xac\x81c talent and specialized facilities to expeditiously transition knowledge and\ntechnology into practical applications. The extramural program leverages the research efforts of other government\nagencies, academia, and industry. This promotes ef\xef\xac\x81ciency while eliminating undesirable duplication to achieve\na well-integrated program that is executed by four primary contributors: 1) the Army Research, Development and\nEngineering Command (RDECOM); 2) the U.S. Army Engineer Research and Development Center (ERDC); 3) the\nArmy Medical Research and Materiel Command (MRMC) laboratories; and 4) the Army Research Institute for\nBehavioral and Social Sciences (ARI). The basic research program is coordinated with the other Services through\nthe Defense Basic Research Advisory Group, the Defense Basic Research Technology Area Review and Assessment\n(TARA) process and other inter-service working groups. This program responds to the scienti\xef\xac\x81c and technological\nrequirements of the Department of Defense Basic Research Plan by enabling the technologies that can signi\xef\xac\x81cantly\nimprove joint war \xef\xac\x81ghting capabilities.\n\nUniversity and Industry Research Centers (PE 0601104A): A signi\xef\xac\x81cant portion of the work performed within this\nprogram directly supports US Army requirements by providing research that supports enabling technologies for\nthe Future Force. Broadly, the work in this program falls into three categories: Collaborative Technology Alliances\n\n\n\n FY 2005 Army Annual Financial Statement 121\n\x0c(CTAs), University Centers of Excellence (COE), and University-Af\xef\xac\x81liated Research Centers (UARCs). The Army\nhas formed CTAs to leverage large investments by the commercial sector in basic research areas that are of great\ninterest to the Army. Collaborative Technology Alliances involve partnerships between industry, academia, and the\nArmy Research Laboratory to incorporate the practicality of industry, the expansion of boundaries of knowledge\nfrom universities, and Army scientists to shape, mature and transition technology. The Army\xe2\x80\x99s COEs focus on\nexpanding the frontiers of knowledge in research areas where the Army has enduring needs. Centers of Excellence\ncouple state-of-the-art research programs at academic institutions with broad-based graduate education programs\nto increase the supply of scientists and engineers in information sciences, materials science, electronics, automotive\nand rotary wing technology. Additionally, Historically Black Colleges and Universities and Minority Institution\n(HBCU/MI) Centers of Excellence address critical research areas for Army Transformation. Also included in this\nprogram is eCYBERMISSION, the Army\xe2\x80\x99s national web-based competition to stimulate interest in science, math\nand technology among middle and high school students. This program also includes four \xe2\x80\x9cparadigm shifting\xe2\x80\x9d\nresearch centers seeking to accelerate opportunities in speci\xef\xac\x81c areas of potentially high payoff. The centers are: The\nInstitute of Advanced Technology, the Institute for Soldier Nanotechnologies (ISN) at the Massachusetts Institute\nof Technology, the Institute for Collaborative Biotechnologies, and the Army\xe2\x80\x99s Institute of Creative Technologies\n(ICT) -- a partnership with academia and the entertainment and gaming industries pursuing research in immersive\nsimulations.\n\nApplied Research is the systematic study to understand the means to meet a recognized and speci\xef\xac\x81c need. It is a\nsystematic expansion and application of knowledge to develop useful materials, devices, systems or methods. It\nmay be oriented, ultimately, toward the design, development, and improvement of prototypes and new processes to\nmeet general mission area requirements. Applied research may translate promising basic research into solutions for\nbroadly de\xef\xac\x81ned military needs, short of system development.\n\nThe following are two representative program examples for this category:\n\nMaterials Technology (PE 0602105A): This program researches and evaluates material technologies for armor\nand armaments that will signi\xef\xac\x81cantly enhance the survivability and lethality of Future Force systems and, where\nfeasible, can be exploited to enhance Current Force capabilities. It provides the technology base required for solving\nmaterials-related problems in soldier support equipment, armor, armaments, aircraft, ground and combat vehicles,\nand combat support.\n\nCombat Vehicle and Automotive Technology (PE 0602601A): This program researches, investigates and applies\ncombat vehicle and automotive component technologies that will improve survivability, mobility, sustainability,\nand maintainability of Army ground combat and tactical vehicles. As combat vehicle systems become smaller\nand lighter to provide the necessary strategic deployability and tactical mobility, one of the greatest technological\nand operational challenges is providing adequate crew protection without reliance on heavy passive armor. This\nchallenge is being met by using a layered approach, including long-range situational awareness, multi-spectral\nsignature reduction, Active Protection systems and advanced lightweight armor in place of heavy conventional\narmor. This program also funds the National Automotive Center (NAC). The goal of the NAC is to leverage large\ncommercial investments in automotive technology research and development by pursuing automotive-oriented\ntechnology programs that have potential bene\xef\xac\x81t to military ground vehicles. This program also investigates hybrid\nelectric propulsion and electronic vehicle component technologies.\n\nDevelopment takes what has been discovered or learned from basic and applied research and uses it to establish\ntechnological feasibility, assessment of operability, and production capability. Development is comprised of \xef\xac\x81ve\nstages de\xef\xac\x81ned below:\n\n1. Advanced Technology Development: This area of technology includes all efforts to mature technology\n (hardware or software) suf\xef\xac\x81cient for demonstration in an operational environment\xe2\x80\x94this may be live or virtual.\n In this program experimental systems or subsystems are demonstrated to prove the technical feasibility and\n military utility of the approach selected. Advanced technology development provides the path for the rapid\n development and demonstration of new components and systems. The most complex efforts in this program\n\n\n122 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c are designated as Advanced Technology Demonstrations (ATDs). The Army\xe2\x80\x99s ATDs are developed to facilitate\n the smooth transition of advanced technology into systems as part of a formal acquisition program.\n2. Advanced Component Development and Prototypes (ACD&P) evaluates integrated technologies in as\n realistic an operating environment as possible to assess the performance or cost reduction potential of advanced\n technology. Programs in this phase are generally system speci\xef\xac\x81c. Major outputs of ACD&P development are\n hardware and software components, or complete weapon systems, ready for operational and developmental\n testing and \xef\xac\x81eld use.\n3. System Development and Demonstration concludes the program or project and prepares it for production. It\n consists primarily of preproduction efforts, such as logistics and repair studies. Major outputs are weapons\n systems \xef\xac\x81nalized for complete operational and developmental testing.\n4. RDT&E Management Support includes research, development, test and evaluation efforts and funds to\n sustain and/or modernize the installations or operations required for general research, development, test and\n evaluation.\n5. Operational Systems Development includes developmental efforts to upgrade systems that have been\n \xef\xac\x81elded or have received approval for full rate production and anticipate production funding in the current or\n subsequent \xef\xac\x81scal years.\nThe following are \xef\xac\x81ve representative program examples of development:\n\nElectronic Warfare Advanced Technology (PE 0603008A): The goal of this program is to provide enabling\ntechnologies for a secure, mobile, wireless network that will operate reliably in diverse and complex terrain, in\nall environments for the Army\xe2\x80\x99s Future Force and, where feasible, exploit opportunities to enhance Current Force\ncapabilities. Technologies will be matured and demonstrated to address this challenge with distributed, mobile,\nsecure, self-organizing communications networks. A key objective is to demonstrate seamlessly integrated\ncommunications technologies across all network tiers, ranging from unattended networks and sensors through\nmaneuver elements and airborne/space assets. To accomplish that goal this program will investigate and\nleverage external communication technologies and combine technology options in a series of Command, Control,\nCommunications, and Computers Intelligence, Surveillance and Reconnaissance (C4ISR) On-The-Move (OTM)\nexperiments to measure the battle\xef\xac\x81eld effectiveness for Future Combat Systems (FCS) and the Future Force. This\nprogram also provides: protection technologies for tactical wireless networks against modern network attacks; smart\ncommunication technologies to network and control unmanned systems anywhere on the battle\xef\xac\x81eld; advanced\nantenna technologies for greater communications mobility, range and throughput; and automated network\nmanagement aids. Several tasks are conducted in conjunction with the Defense Advanced Research Projects Agency\n(DARPA) and the other Services.\n\nAdvanced Tank Armament System (PE 0603653A): This program supports the development of the Family of\nStryker vehicles. A critical need exists to improve the deployability and operational effectiveness of rapid response/\nearly entry forces. The Stryker equipped Brigade Combat Team (BCT) will be capable of deployment to anywhere\non the globe in a combat ready con\xef\xac\x81guration. Immediate response by a lethal, versatile, tactically agile joint force\ncapable of operational maneuver once in the Area of Operations is essential to ful\xef\xac\x81lling the war\xef\xac\x81ghting needs of the\nU. S. Army. The Stryker family includes: the Infantry Carrier, the Reconnaissance Vehicle, the Mobile Gun System,\nthe Mortar Carrier, the Commander\xe2\x80\x99s Vehicle, the Fire Support Vehicle, the Engineer Squad Vehicle, the Medical\nEvacuation Vehicle, the Anti-Tank Guided Missile Vehicle, and the Nuclear/Biological/Chemical Reconnaissance\nVehicle. The use of a common platform/common chassis design reduces requirements for repair parts and logistics\nsupport in the area of operations.\n\nAir Defense Command, Control and Intelligence \xe2\x80\x93 Engineering Development (PE 0604741A): This program\nsupports the Air and Missile Defense Planning and Control System (AMDPCS), which is an Army Future Force\nSystem with Homeland Defense capabilities that allows for the integration of Air and Missile Defense (AMD)\noperations. It also supports the Forward Area Air Defense Command, Control, and Intelligence (FAAD C2I)\nSystem which provides continuously tailored situational awareness and situational understanding of the battle\n\n\n FY 2005 Army Annual Financial Statement 123\n\x0cspace. Unique FAAD command and control (C2) software will provide this mission capability by integrating\nFAAD C2 engagement operations software with the Joint Digital Radio (JDR), Single Channel Ground and Airborne\nRadio System (SINCGARS), Enhanced Position Location Reporting System (EPLRS), Global Positioning System\n(GPS), Airborne Warning and Control System (AWACS), Sentinel, and the Army Battle Command System (ABCS)\narchitecture. It also provides joint command and control interoperability and horizontal integration with Patriot,\nthe Terminal High-Altitude Area Defense (THAAD) program, the Medium Extended Air Defense System (MEADS),\nthe Joint Land Attack Cruise Missile Defense Elevated Netted Sensor System (JLENS) and short-range air defense\nweapon systems.\n\nArmy Test Ranges and Facilities (0605601A): This program provides the institutional funding required to operate\nthe developmental test activities required by Department of Defense (DoD), weapons systems developers and\nResearch, Development, and Engineering Centers. This program provides resources to operate four Army Major\nRange and Test Facility Bases (MRTFB): White Sands Missile Range, New Mexico; Aberdeen Test Center and\nAberdeen Proving Ground, Aberdeen, Maryland; and Yuma Proving Ground, Arizona.\n\nThis program also provides the resources to operate the Army\xe2\x80\x99s developmental test capabilities at the Aviation\nTechnical Test Center, Fort Rucker, Alabama; and the Redstone Technical Test Center, Redstone Arsenal, Alabama.\nIt also provides the resources for test planning and safety veri\xef\xac\x81cation/con\xef\xac\x81rmation at the Developmental Test\nCommand located at Aberdeen Proving Ground, Maryland. Developmental test capabilities at the test ranges\nhave been uniquely established, are in place to support test and evaluation (T&E) requirements of funded weapons\nprograms, and are required to assure technical performance, adherence to safety requirements, reliability, logistics\nsupportability, and quality of materiel in development and in production.\n\nMultiple Launch Rocket System (MLRS) Product Improvement Program (PIP) (0603778A): This program provides\nsupport for the following improvements to MLRS: High Mobility Artillery Rocket System (HIMARS), M270A1,\nGuided Multiple Launch Rocket System (GMLRS) and GMLRS Unitary munition which provide precision strike\ncapability.\n\n HIMARS, is a C-130 transportable launcher mounted on a Family of Medium Tactical Vehicles (FMTV) chassis.\n HIMARS is capable of \xef\xac\x81ring either six MLRS Family of Munitions (MFOM) rockets or one Army Tactical Missile\n (ATACMS) Family of Munitions (AFOM) missile, including precision munitions, to a range of 300KM.\n The M270A1 upgraded MLRS launcher is mounted on a Bradley Fighting Vehicle chassis, and is capable of\n \xef\xac\x81ring the MFOM and the AFOM, including precision munitions, to a range of 300KM.\n GMLRS is a precision munition which provides an increased range and Global Positioning System (GPS)\n accuracy. Fired from M270A1 and HIMARS launchers, GMLRS comes in two variants: Dual Purpose Improved\n Conventional Munitions (DPICM) which contains 414 submunitions, for attacking area targets with improved\n accuracy and signi\xef\xac\x81cantly reduced hazardous duds; and GMLRS Unitary which has a 200lb High Explosive\n (HE) warhead for attacking point targets with reduced collateral damage.\n\n\n\n\n124 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\n\n General Property, Plant, and Equipment\n Real Property Deferred Maintenance Amounts\n As of September 30, 2005\n\n\nNarrative Statement:\nFY2005 sustainment requirements for the Army are from version 5.1 of the DoD Facilities Sustainment Model\n(FSM). The required and executed amounts represent facilities funded from Operations & Maintenance (O&M),\nArmy Family Housing (AFH), and Working Capital Fund (WCF) appropriations, and from Non-Appropriated\nFunds (NAF). Sustainment funding contributions from host nation funding (Japan) and military pay are included.\nThe appropriated amount includes no contribution from WCF, NAF and host nation funding as these funds are\nnot appropriated by Congress. Army sustainment data includes facilities that are multi-use heritage assets. The\nsustainment data excludes facilities funded from Research, Development, Test and Evaluation (RDTE), and\nProcurement appropriations, and Chemical Depots, because we lack separately identi\xef\xac\x81able sustainment funding for\nthese locations.\n\n Annual Sustainment FY 2005\n Property Type 1. Required 2. Appropriated 3. Executed 4. Difference\n Buildings, Structures, and Utilities $3,175.8M $2,648.0M $2,167.8M $1,008.0M\n Annual Deferred Sustainment Trend\n Property Type FY 2002 FY 2003 FY 2004 FY 2005\n Buildings, Structures, and Utilities $913.4M $792.3M $959.9M $1,008.0M\n\nArmy Restoration & Modernization (R&M) requirements are modeled in the annual Installation Status Report (ISR).\nDuring ISR data collection, facility occupants evaluate the condition of each facility against published standards.\nThe inspection generates a quality improvement cost estimate for each facility based on the condition rating of each\ncomponent of the facility, and the component improvement cost factor. Improvement cost factors are developed for\neach component within each facility type.\n\nThe requirement reported for General PP&E R&M is the ISR cost to improve the quality of facilities to full up Q-1\nstatus, which represents full improvement cost for each facility. For FY2005, these requirements address facility\ntypes funded from Army appropriated operations and maintenance (O&M), working capital fund (WCF), and Army\nfamily housing (AFH) funds. The Army\xe2\x80\x99s R&M requirement does not include requirements for facilities funded by\nDepartment of Defense agencies (DECA, DLA, TMA, DODDS), non-appropriated funds-NAF (recreation, sports),\nArmy Air Force Exchange Service, and private funding. The R&M requirement also excludes costs for utilities\nplanned for privatization, closures from base realignment and closure (BRAC) decisions, ammunition plants and\nchemical depots.\n\nThe Army\xe2\x80\x99s estimate to return these facilities to a full-up Q-1 status for FY 2005 is $24.4B, based on the 2005 ISR.\nReduced requirements for FY 2005 are a result of three actions:\n\n ISR 2005 data re\xef\xac\x82ects a signi\xef\xac\x81cant change in the ISR methodology. The Army completely revised the ISR\n Infrastructure standards to reduce subjectivity, and revised the quality improvement cost methodology to more\n accurately estimate the quality improvement cost.\n Investments in restoration and modernization show improvements to the condition of facilities.\n Privatization efforts continue to move utilities and Army family housing away from Army responsibility to\n recapitalize.\n\n\n\n\n FY 2005 Army Annual Financial Statement 125\n\x0c Restoration & Modernization Requirements\n Property Type End FY 2004 End FY 2005 Change\n Buildings, Structures, and Utilities $32.1B $24.4B -$7.7B\n\n\n Military Equipment\n Deferred Maintenance Amounts\n As of September 30, 2005\n (Amount in Thousands)\n (a) (b)\n Major Type\n 1. Aircraft $ 74,500\n 2. Ships 0\n 3. Missiles 10,000\n 4. Combat Vehicles 164,352\n 5. Other Weapons Systems 256,600\n Total $505,452\n\n\nThe FY 2005 Op-30 Report was used to compile the deferred depot level maintenance. Language has been\nincorporated into the draft AR 750-1 (currently released to the \xef\xac\x81eld for worldwide for staf\xef\xac\x81ng) that will require\nthe reporting of depot-level deferred maintenance requirements into Depot Maintenance Operations and Planning\nSystem (DMOPS). DMOPS is the automated system for capturing depot-level deferred maintenance data.\n\nThe following amounts of depot-level deferred maintenance are reported as follows: a) Aircraft -74,500K; b) Missile\nMaintenance-10,000K; c) Combat Vehicles-164,352K; d) Other Weapons Systems-256,600K. The total amount of\n$505,452 thousand includes depot-level deferred maintenance for the active and reserve component.\n\nSpecial Note: The MDEP used to compile deferred Field-Level Maintenance was divested by PA&E because they\ndetermined that the Army Fleet Readiness Program (AFRP) was not a valid requirement.\n\n\n\n\n126 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cFY 2005 Army Annual Financial Statement 127\n\x0cDepartment of Defense - Department of the Army\nSTATEMENT OF DISAGGREGATED BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n\n Research, Development, Operation and\nBudgetary Financing Accounts Other Test & Evaluation Maintenance\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 8,803,516 $ 10,682,659 $ 50,222,363\n Borrowing authority 0 0 0\n Contract authority 0 0 0\n Net transfers (+/-) (901,008) (91,962) 3,268,840\n Other 0 0 0\n Unobligated balance:\n Beginning of period 287,087 1,737,106 14,520,858\n Net transfers, actual (+/-) (33,414) (15,350) 1,298,325\n Anticipated Transfers Balances 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0\n Collected 20,672 3,557,863 12,205,176\n Receivable from Federal sources (9,038) (18,876) (197,337)\n Change in unfilled customer orders 0 0 0\n Advance received (3,400) 53,315 44,545\n Without advance from Federal sources (12,468) 1,273,925 (32,823)\n Anticipated for the rest of year, without advances 0 0 0\n Transfers from trust funds 0 0 0\n Subtotal $ (4,234) $ 4,866,227 $ 12,019,561\n Recoveries of prior year obligations 180,709 1,316,462 10,575,388\n Temporarily not available pursuant to Public Law 0 0 0\n Permanently not available (1,895) (159,975) (424,916)\n\xc2\xac\xc2\xac\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 8,330,761 $ 18,335,167 $ 91,480,419\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 2,739,091 11,031,051 76,915,312\n Reimbursable 14,807 4,995,892 13,039,467\n Subtotal 2,753,898 16,026,943 89,954,779\n Unobligated balance:\n Apportioned 5,546,332 2,219,181 360,158\n Exempt from apportionment 11,980 0 0\n Other available 0 0 0\n Unobligated Balances Not Available 18,551 89,043 1,165,481\n\xc2\xac\xc2\xac\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 8,330,761 $ 18,335,167 $ 91,480,418\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net ? beginning of period $ 1,183,133 $ 5,250,125 $ 27,917,307\n Obligated Balance transferred, net (+/-) 0 0 0\n Obligated Balance, Net ? end of period:\n Accounts receivable 93 (173,658) (1,137,543)\n Unfilled customer order from Federal sources (4,365) (3,303,484) (5,223,233)\n Undelivered orders 1,746,786 8,085,774 25,200,133\n Accounts payable 172,174 783,875 9,098,442\n Outlays:\n Disbursements 1,863,139 13,313,051 79,589,060\n Collections (17,272) (3,611,178) (12,249,721)\n Subtotal $ 1,845,867 $ 9,701,873 $ 67,339,339\n Less: Offsetting receipts (195,234) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ 1,650,633 $ 9,701,873 $ 67,339,339\n\n\n\n\n128 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Military Military Construction/\n Procurement Personnel Family Housing 2005 Combined 2004 Combined\n\n\n\n$ 23,239,203 $ 52,886,976 $ 4,012,199 $ 149,846,916 $ 149,559,892\n 0 0 0 0 0\n 0 0 0 0 0\n 894,232 (2,139,445) 15,915 1,046,572 2,517,085\n 0 0 0 0 0\n\n 3,058,013 1,249,522 2,028,170 22,880,757 8,212,989\n 1,597,849 (234,709) (243,514) 2,369,187 4,698,264\n 0 0 0 0 0\n\n 0 0 0 0 0\n 973,007 295,082 3,896,438 20,948,238 18,739,994\n 3,662 (161,345) (32,166) (415,099) 412,742\n 0 0 0 0 0\n (5,011) 0 (11,715) 77,733 306,576\n 644,252 11,228 275,825 2,159,939 1,896,851\n 0 0 0 0 0\n 0 0 0 0 0\n$ 1,615,910 $ 144,965 $ 4,128,382 $ 22,770,811 $ 21,356,163\n 1,031,465.00 3,092,929 836,494 17,033,447 13,996,679\n 0 0 0 0 0\n (160,518) (89,384) (40,835) (877,523) (1,394,364)\n$ 31,276,154 $ 54,910,854 $ 10,736,811 $ 215,070,167 $ 198,946,708\n\n\n\n\n 26,391,549 54,213,579 3,795,634 175,086,215 152,590,936\n 1,745,499 366,472 4,344,523 24,506,660 23,475,016\n 28,137,048 54,580,051 8,140,157 199,592,875 176,065,952\n\n 2,824,379 122,008 2,593,394 13,665,452 21,458,641\n 0 0 0 11,980 13,411\n 0 0 0 2 0\n 314,726 208,796 3,262 1,799,858 1,408,704\n$ 31,276,153 $ 54,910,855 $ 10,736,813 $ 215,070,167 $ 198,946,708\n\n$ 15,444,383 $ 4,687,457 $ 2,539,993 $ 57,022,399 $ 46,482,855\n 0 0 0 0 0\n\n (72,171) (5,777) (89,293) (1,478,349) (1,893,446)\n (2,172,766) (25,733) (4,143,528) (14,873,109) (12,713,171)\n 24,540,050 59,692 7,139,828 66,772,263 56,509,574\n 2,098,471 1,131,622 664,033 13,948,617 15,119,442\n\n 17,508,467 55,164,891 6,028,958 173,467,566 149,220,137\n (967,995) (295,082) (3,884,723) (21,025,971) (19,046,568)\n$ 16,540,472 $ 54,869,809 $ 2,144,235 $ 152,441,595 $ 130,173,569\n 0 0 0 (195,234) (63,289)\n$ 16,540,472 $ 54,869,809 $ 2,144,235 $ 152,246,361 $ 130,110,280\n\n\n\n\n FY 2005 Army Annual Financial Statement 129\n\x0cDepartment of Defense - Department of the Army\nSTATEMENT OF DISAGGREGATED BUDGETARY RESOURCES\nAs of September 30, 2005 ($ in Thousands)\n Research, Development, Operation and\nNon-Budgetary Financing Accounts Other Test & Evaluation Maintenance\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 0 $ 0 $ 0\n Borrowing authority 0 0 0\n Contract authority 0 0 0\n Net transfers (+/-) 0 0 0\n Other 0 0 0\n Unobligated balance:\n Beginning of period 1,424 0 0\n Net transfers, actual (+/-) 0 0 0\n Anticipated Transfers Balances 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0\n Collected 101 0 0\n Receivable from Federal sources 0 0 0\n Change in unfilled customer orders 0 0 0\n Advance received 0 0 0\n Without advance from Federal sources 0 0 0\n Anticipated for the rest of year, without advances 0 0 0\n Transfers from trust funds 0 0 0\n Subtotal $ 101 $ 0 $ 0\n Recoveries of prior year obligations 0 0 0\n Temporarily not available pursuant to Public Law 0 0 0\n Permanently not available 0 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 1,525 $ 0 $ 0\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 0 0 0\n Reimbursable 0 0 0\n Subtotal 0 0 0\n Unobligated balance:\n Apportioned 1,525 0 0\n Exempt from apportionment 0 0 0\n Other available 0 0 0\n Unobligated Balances Not Available 0 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 1,525 $ 0 $ 0\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net ? beginning of period $ 0 $ 0 $ 0\n Obligated Balance transferred, net (+/-) 0 0 0\n Obligated Balance, Net ? end of period:\n Accounts receivable 0 0 0\n Unfilled customer order from Federal sources 0 0 0\n Undelivered orders 0 0 0\n Accounts payable 0 0 0\n Outlays:\n Disbursements 0 0 0\n Collections (101) 0 0\n Subtotal $ (101) $ 0 $ 0\n Less: Offsetting receipts 0 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ (101) $ 0 $ 0\n\n\n\n\n130 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Military Military Construction/\n Procurement Personnel Family Housing 2005 Combined 2004 Combined\n\n\n\n$ 0 $ 0 $ 0 $ 0 $ 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n\n 0 0 0 1,424 1,272\n 0 0 0 0 0\n 0 0 0 0 0\n\n 0 0 0 0 0\n 0 0 0 101 152\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n$ 0 $ 0 $ 0 $ 101 $ 152\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n$ 0 $ 0 $ 0 $ 1,525 $ 1,424\n\n\n\n\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n\n 0 0 0 1,525 1,424\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n$ 0 $ 0 $ 0 $ 1,525 $ 1,424\n\n$ 0 $ 0 $ 0 $ 0 $ 0\n 0 0 0 0 0\n\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n\n 0 0 0 0 0\n 0 0 0 (101) (152)\n$ 0 $ 0 $ 0 $ (101) $ (152)\n 0 0 0 0 0\n$ 0 $ 0 $ 0 $ (101) $ (152)\n\n\n\n\n FY 2005 Army Annual Financial Statement 131\n\x0c Required Supplemental Information - Part A\n\nAT21 - Army General Fund\n($ Amounts in Thousands)\nSchedule, Part A DoD Intra-governmental Asset Treasury Fund Balance Accounts Loans\nBalances. Index: with Treasury Receivable Receivable Investments Other\nExecutive Office of the President 11 $1,017\nDepartment of Agriculture 12 $85 $575\nDepartment of Commerce 13 $630 $4,788\nDepartment of the Interior 14 $89 $588,991\nDepartment of Justice 15 $10,444 $512\nDepartment of Labor 16 $24\nNavy General Fund 17 $62,306\nDepartment of State 19 $11,722\nDepartment of the Treasury 20 $87,093,317 $1,830 $3,495 $162\nOffice of Personnel Management 24 $16,422\nDepartment of Veterans Affairs 36 $356\nGeneral Service Administration 47 $1,257\nNational Science Foundation 49 $20\nAir Force General Fund 57 $58,326 $15,778\nEnvironmental Protection Agency 68 $264 $3,918\nDepartment of Transportation 69 $674 $3,789\nHomeland Security 70 $7,450 $71,681\nSmall Business Administration 73 $248\nDepartment of Health and Human Services 75 $368 $41\nNational Aeronautics and Space Administration 80 $266 $21,239\nDepartment of Energy 89 $470 $3,956\nOther Legislative Branch Agencies 9 $10\nUS Army Corps of Engineers 96 $2,930\nOther Defense Organizations General Funds 97 $59,469\nOther Defense Organizations Working Capital Funds 97-4930 $29,386 $72,511\nArmy Working Capital Fund 97-4930.001 $26,041 $19,661\nNavy Working Capital Fund 97-4930.002 $11\nAir Force Working Capital Fund 97-4930.003 $1,220\nTotals $87,093,317 $276,634 $3,495 $824,303\n\n\n\n\n132 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Required Supplemental Information - Part B\n\nAT21 - Army General Fund\n($ Amounts in Thousands)\n Treasury Accounts Debts/Borrowings From\nSchedule, Part B DoD Intra-governmental entity liabilities. Index: Payable Other Agencies Other\nExecutive Office of the President 11 $46,755\nDepartment of Agriculture 12 $8,896 $84\nDepartment of Commerce 13 $469\nDepartment of the Interior 14 $10,360 $1\nDepartment of Justice 15 $2,771 $23\nDepartment of Labor 16 $13 $423,617\nNavy General Fund 17 $37,536 $207\nDepartment of State 19 $2,205 $2,630\nDepartment of the Treasury 20 $227,678 $1,494\nOffice of Personnel Management 24 $3,236 $58,708\nFederal Communications Commission 27 $595\nLibrary of Congress 3 $23\nNuclear Regulatory Commission 31 $104\nDepartment of Veterans Affairs 36 $3,938 $984\nGeneral Service Administration 47 $477,169 $67\nNational Science Foundation 49 $670\nCentral Intelligence Agency 56 $325\nAir Force General Fund 57 $26,277 $2,249\nTennessee Valley Authority 64 $5,777\nEnvironmental Protection Agency 68 $10,336\nDepartment of Transportation 69 $15,980 $177\nHomeland Security 70 $12,130 $37,919\nSmall Business Administration 73 $184\nDepartment of Health and Human Services 75 $1,594 $44,645\nNational Aeronautics and Space Administration 80 $10,963 $443\nDepartment of Energy 89 $24,515 $48\nUS Army Corps of Engineers 96 $15,948\nOther Defense Organizations General Funds 97 $68,587 $2,082\nOther Defense Organizations Working Capital Funds 97-4930 $592,630\nArmy Working Capital Fund 97-4930.001 $312,950 $0\nNavy Working Capital Fund 97-4930.002 $10,484\nAir Force Working Capital Fund 97-4930.003 $1,347\nThe General Fund of the Treasury 99 $1,749,780\nDoD Medicare-Eligible Retiree Health Care Fund $32,970\nTotals $1,918,312 $2,372,261\n\n\n\n\n FY 2005 Army Annual Financial Statement 133\n\x0c Required Supplemental Information - Part C\n\nAT21 - Army General Fund\n($ Amounts in Thousands)\n Treasury\nSchedule, Part C DoD Intra-governmental revenue and related costs. Index: Earned Revenue\nExecutive Office of the President 11 $38,746\nDepartment of Agriculture 12 $2,772\nDepartment of Commerce 13 $7,017\nDepartment of the Interior 14 $1,206\nDepartment of Justice 15 $72,317\nDepartment of Labor 16 $105\nNavy General Fund 17 $826,324\nDepartment of State 19 $272,302\nDepartment of the Treasury 20 $13,889\nLibrary of Congress 3 $1,038\nDepartment of Veterans Affairs 36 $3,740\nGeneral Service Administration 47 $5,860\nCentral Intelligence Agency 56 $14,621\nAir Force General Fund 57 $1,463,044\nEnvironmental Protection Agency 68 $7,402\nDepartment of Transportation 69 $12,711\nHomeland Security 70 $100,329\nDepartment of Health and Human Services 75 $47,765\nNational Aeronautics and Space Administration 80 $28,131\nDepartment of Housing and Urban Development 86 $41\nDepartment of Energy 89 $30,711\nOther Legislative Branch Agencies 9 $10\nDepartment of Education 91 $870\nUS Army Corps of Engineers 96 $390,711\nOther Defense Organizations General Funds 97 $4,429,253\nOther Defense Organizations Working Capital Funds 97-4930 $170,421\nArmy Working Capital Fund 97-4930.001 $386,412\nAir Force Working Capital Fund 97-4930.003 $8,285\nDoD Medicare-Eligible Retiree Health Care Fund $113,180\nTotals $8,449,213\n\n\n\n\n134 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Required Supplemental Information - Part E\n\nAT21 - Army General Fund\n($ Amounts in Thousands)\n Treasury Index: Transfers In Transfers Out\nExecutive Office of the President 11 $2,866,535\nAir Force General Fund 57 $36,234\nUS Army Corps of Engineers 96 $34 $361\nOther Defense Organizations General Funds 97 $621,827 $129,669\nOther Defense Organizations Working Capital Funds 97-4930 $5\nArmy Working Capital Fund 97-4930.001 $700,000\nAir Force Working Capital Fund 97-4930.003 $155,000\nThe General Fund of the Treasury 99 $9,290 $9,290\nTotals $4,388,925 $139,320\n\n\n\n\n FY 2005 Army Annual Financial Statement 135\n\x0c INSPECTOR GENERAL\n DEPARTMENT OF DEFENSE\n 400 ARMY NAVY DRIVE\n ARLINGTON, VIRGINIA 22202-4704\n\n\n\n\n November 8, 2005\n\nMEMORANDUM FOR ASSISTANT SECRETARY OF THE ARMY (FINANCIAL MANAGEMENT\n AND COMPTROLLER)\n\nSUBJECT: Independent Auditor\xe2\x80\x99s Report on the Fiscal Year 2005 Army General Fund Financial\n Statements (Report No. D 2006 015)\n\nThe Chief Financial Of\xef\xac\x81cers Act of 1990, as amended, requires the Department of Defense Inspector General to\naudit the accompanying Army General Fund Consolidated Balance Sheet as of September 30, 2005 and 2004, the\nrelated Consolidated Statement of Net Cost, the Consolidated Statement of Changes in Net Position, the Combined\nStatement of Budgetary Resources, the Combined Statement of Financing, and the Statement of Custodial Activity\nfor the \xef\xac\x81scal years then ended. The \xef\xac\x81nancial statements are the responsibility of Army management. The Army\nis also responsible for implementing effective internal control and for complying with laws and regulations. We\nare unable to give an opinion on the Fiscal Year 2005 \xef\xac\x81nancial statements of the Army General Fund because of\nlimitations on the scope of our work. Thus, the \xef\xac\x81nancial statements may be unreliable. In addition to our disclaimer\nof opinion on the \xef\xac\x81nancial statements, we are including the required Report on Internal Control and Compliance\nwith Laws and Regulations. The Report on Internal Control and Compliance with Laws and Regulations is an\nintegral part of our disclaimer of opinion on the \xef\xac\x81nancial statements and should be considered in assessing the\nresults of the audit.\n\n\nDisclaimer of Opinion on the Financial Statements\nThe Assistant Secretary of the Army (Financial Management and Comptroller) acknowledged to us that \xef\xac\x81nancial\nmanagement systems do not substantially comply with Federal \xef\xac\x81nancial management system requirements,\ngenerally accepted accounting principles, or the U.S. Government Standard General Ledger at the transaction\nlevel. Therefore, Army cannot provide adequate evidence supporting various material amounts on the \xef\xac\x81nancial\nstatements. As a result, we did not perform auditing procedures to determine whether material amounts on the\n\xef\xac\x81nancial statements were fairly presented. We did not perform these and other auditing procedures because Section\n1008(d) of the FY 2002 National Defense Authorization Act limits the Department of Defense Inspector General to\nperform only audit procedures required by generally accepted government auditing standards that are consistent\nwith the representations made by management. The Army has also acknowledged, and prior audits have identi\xef\xac\x81ed,\nthe material weaknesses listed in the Summary of Internal Control. These material weaknesses also affect the\nreliability of certain information contained in the annual \xef\xac\x81nancial statements\xe2\x80\x94much of which is taken from the\nsame data sources as the principal \xef\xac\x81nancial statements.* Therefore, we are unable to express, and we do not express,\nan opinion on the \xef\xac\x81nancial statements and the accompanying information.\n\n\n\n\n* The annual \xef\xac\x81nancial statements include the principal \xef\xac\x81nancial statements, management discussion and analysis, consolidating and combining \xef\xac\x81nancial statements, Required Supplementary Stewardship Information,\nRequired Supplementary Information, and Other Accompanying Information.\n\n\n\n\n136 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cSummary of Internal Control\nIn planning our audit, we considered Army internal control over \xef\xac\x81nancial reporting and compliance. We did\nthis to determine our procedures for auditing the \xef\xac\x81nancial statements and to comply with Of\xef\xac\x81ce of Management\nand Budget guidance, but our purpose was not to express an opinion on internal control. Accordingly, we do not\nexpress an opinion on internal control over \xef\xac\x81nancial reporting and compliance. However, previously identi\xef\xac\x81ed\nreportable conditions, all of which are material, continue to exist in the following areas.\n\n Financial Management Systems\n Accounting Adjustments\n Intragovernmental Transactions and Eliminations\n Abnormal Account Balances\n Fund Balance with Treasury\n Accounts Receivable\n Inventory and Related Property\n General Property, Plant, and Equipment\n Accounts Payable\n Environmental Liabilities\n Statement of Net Cost\n Statement of Budgetary Resources\n Statement of Financing\n\nMaterial weaknesses are reportable conditions in which internal controls do not reduce (to a relatively low level)\nthe risk of misstatements that are material to the \xef\xac\x81nancial statements and that might not be timely detected by\nemployees while performing their normal, assigned functions.\n\nIn addition, we identi\xef\xac\x81ed weaknesses in reporting contingent legal liabilities, which we consider to be a reportable\ncondition. Reportable conditions are matters coming to the auditor\xe2\x80\x99s attention that, in his or her judgment, should\nbe communicated to management because they represent signi\xef\xac\x81cant de\xef\xac\x81ciencies in the design or operation of\ninternal control, which could adversely affect the organization\xe2\x80\x99s ability to initiate, record, process, and report\n\xef\xac\x81nancial data consistent with the assertions of management in \xef\xac\x81nancial statements.\n\nOur internal control work would not necessarily disclose all reportable conditions. See the Attachment for\nadditional details on reportable conditions, most of which we consider to be material internal control weaknesses.\n\n\nSummary of Compliance with Laws and Regulations\nOur work to determine compliance with selected provisions of applicable laws and regulations related to\n\xef\xac\x81nancial reporting was limited because management acknowledged, and prior audits con\xef\xac\x81rm, that instances of\nnoncompliance continue to exist. The Assistant Secretary of the Army (Financial Management and Comptroller)\nacknowledged to us that the Army was unable to comply with the requirements of the Chief Financial Of\xef\xac\x81cers Act\nof 1990, as amended. The Army has also acknowledged that many of its \xef\xac\x81nancial management and feeder systems\ndo not comply with the requirements of the Federal Financial Management Information Act of 1996. The Army\nwas also unable to comply with Government Performance and Results Act requirements because it did not have\ncost accounting systems in place to collect, process, and report operating costs. Therefore, we did not determine\nwhether the Army was in compliance with all applicable laws and regulations related to \xef\xac\x81nancial reporting. See the\nAttachment for additional details on compliance with laws and regulations.\n\n\n\n FY 2005 Army Annual Financial Statement 137\n\x0cManagement Responsibility\nManagement is responsible for:\n\n preparing the \xef\xac\x81nancial statements in conformity with generally accepted accounting principles;\n establishing, maintaining, and assessing internal control to provide reasonable assurance that the\n broad control objectives of the Federal Managers\xe2\x80\x99 Financial Integrity Act are met; and\n complying with applicable laws and regulations.\n\nWe provided a draft of this report to Army of\xef\xac\x81cials.\n\n\n\n\nAttachment:\nAs stated\n\n\n\n\n138 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cReport on Internal Control and Compliance with Laws and Regulations\nInternal Control\nManagement is responsible for implementing effective internal control and for providing reasonable assurance\nthat accounting data are accumulated, recorded, and reported properly and that assets are safeguarded against\nmisappropriation and abuse. Our purpose was not to, and we do not, express an opinion on internal control over\n\xef\xac\x81nancial reporting. However, we have identi\xef\xac\x81ed the following material weaknesses and reportable conditions that\ncould adversely affect a favorable opinion on internal control.\n\nMaterial Weaknesses. Management acknowledged that previously identi\xef\xac\x81ed reportable conditions, all of which are\nmaterial, continue to exist.\n\nFinancial Management Systems. Army accounting systems lack a single, standard transaction-driven general\nledger. The Army also needs to upgrade or replace many of its non\xef\xac\x81nancial feeder systems so that \xef\xac\x81nancial\nstatement reporting requirements can be met. The lack of integrated, transaction-driven \xef\xac\x81nancial management\nsystems will continue to prevent the Army from preparing auditable \xef\xac\x81nancial statements.\n\nThe Army has acknowledged that its \xef\xac\x81nancial management systems were unable to meet all of the requirements\nfor full accrual accounting. Many of the Army \xef\xac\x81nancial systems, non\xef\xac\x81nancial feeder systems, and processes were\ndesigned and implemented before generally accepted accounting principles were issued and, therefore, were not\ndesigned to collect and record \xef\xac\x81nancial information on the accrual basis. Until the Army\xe2\x80\x99s systems and processes\nare updated in accordance with generally accepted accounting principles, the Army\xe2\x80\x99s \xef\xac\x81nancial data will be based on\nbudgetary transactions, non\xef\xac\x81nancial feeder system transactions, and adjustments for known accruals of major items.\nThe Army derives its reported values and information for major asset and liability accounts from non\xef\xac\x81nancial\nfeeder systems, such as inventory and logistics systems. Major assets include Property, Plant, and Equipment\nand Inventory and Related Property. In addition, budgetary transactions are recorded in line items such as Fund\nBalance with Treasury, Accounts Receivable, Accounts Payable, Gross Costs, and Earned Revenue. Until the Army\nsystems are updated, Army \xef\xac\x81nancial data will be based on budgetary transactions (obligations, disbursements, and\ncollections).\n\nAccounting Adjustments. Because of inadequate \xef\xac\x81nancial management systems and processes, journal voucher\nadjustments and data calls are used to prepare the Army General Fund \xef\xac\x81nancial statements. Defense Finance and\nAccounting Service Indianapolis did not adequately support $241.5 billion in journal voucher adjustments used\nto prepare the Army General Fund \xef\xac\x81nancial statements. Speci\xef\xac\x81cally, Defense Finance and Accounting Service\nIndianapolis made:\n\n $71.1 billion in unsupported adjustments to force amounts to agree with records, other sources of\n information, or \xef\xac\x81nancial statement lines,\n $26.2 billion in unsupported adjustments to intragovernmental accounts to force the accounts to\n agree with the records of the Army\xe2\x80\x99s trading partners,\n $72.0 billion in unsupported adjustments to correct errors and reclassify amounts to other accounts,\n and\n $72.2 billion in unsupported adjustments to force general ledger accounts to agree with status of\n appropriations data (or ending balance adjustments) without reconciling the differences or\n determining which data source was correct.\n\nIntragovernmental Transactions and Eliminations. DoD is unable to collect, exchange, and reconcile buyer and\nseller intragovernmental transactions, resulting in adjustments that cannot be veri\xef\xac\x81ed. This is primarily because\nof systems limitations, as the majority of the systems currently used within DoD do not allow for the capture\nof buyer-side information for use in reconciliations and eliminations. DoD and Army accounting systems are\nunable to capture trading partner data at the transaction level in a manner that facilitates required trading partner\n\n\n FY 2005 Army Annual Financial Statement 139\n\x0celiminations, and DoD guidance does not require adequate support for eliminations. In addition, DoD procedures\nrequire that buyer-side transaction data be forced to agree with seller-side transaction data without performing\nproper reconciliations. Therefore, Defense Finance and Accounting Service Indianapolis made $26.2 billion in\nunsupported adjustments to intragovernmental accounts to force the accounts to agree with the records of Army\xe2\x80\x99s\ntrading partners.\n\nAbnormal Account Balances. Defense Finance and Accounting Service Indianapolis did not detect, report, or\ntake action to eliminate abnormal balances included in the Army General Fund accounting records. The FY 2005\ntrial balance data for the Army General Fund included 224 general ledger accounts with $1.2 trillion of unresolved\nabnormal balances.\n\nDoD Regulation 7000.14-R, \xe2\x80\x9cDoD Financial Management Regulation,\xe2\x80\x9d volume 6B, \xe2\x80\x9cForm and Content of the DoD\nAudited Financial Statements,\xe2\x80\x9d requires the separate disclosure of any individual components that represent\nmore than 10 percent of a line item identi\xef\xac\x81ed as \xe2\x80\x9cOther\xe2\x80\x9d on the \xef\xac\x81nancial statements and notes. An $825.3 million\nabnormal balance that is part of the Non-Federal Other Assets (With the Public) line item on the Balance Sheet was\nnot disclosed or explained in Note 6, Other Assets.\n\nIn response to DoD IG Report No. D-2004-118, \xe2\x80\x9cArmy General Fund Controls Over Abnormal Balances For Field\nAccounting Activities,\xe2\x80\x9d September 28, 2004, Defense Finance and Accounting Service Indianapolis stated that\nthe Defense Departmental Reporting System-Budgetary Module (Budgetary Module) would signi\xef\xac\x81cantly reduce\nabnormal balances in accounting records. Defense Finance and Accounting Service Indianapolis estimated the\ncompletion date for corrective action as September 30, 2005. However, the implementation of the Budgetary Module\nhas been delayed until December 2005. The DoD Financial Management Regulation has not been revised to require\nthe disclosure of the amounts of unresolved abnormal balances for all \xef\xac\x81nancial statement lines impacted in the notes\nto the \xef\xac\x81nancial statements. Abnormal balances not only distort the Army General Fund \xef\xac\x81nancial statements, but\nalso indicate internal control and operational de\xef\xac\x81ciencies and may conceal instances of fraud.\n\nFund Balance with Treasury. DoD has long-standing problems in reconciling transaction activity in their Fund\nBalance with Treasury accounts. Army appropriation balances recorded in the accounting records do not agree with\nbalances held at the Department of Treasury. Therefore, the Defense Finance and Accounting Service Indianapolis\nmade unsupported adjustments that had a net effect of $44.0 billion on the three Fund Balance With Treasury line\nitems.\n\nAccounts Receivable. DoD has acknowledged weaknesses in its accounts receivable management. The weaknesses\nare considered to be DoD-Wide and apply to both public and intragovernmental receivables at the Army General\nFund level. Weaknesses include:\n\n noncompliance with policies and procedures regarding referrals to the Debt Management Of\xef\xac\x81ce\n and the Department of Treasury and for write-offs of 2 year old debt;\n a lack of controls to ensure all entitlement system receivables (vendor pay, civilian pay, and\n interest) are recorded in the accounting systems; and\n a lack of controls to ensure that accounts receivable balances are supportable at the transaction\n level.\n\nAs a result, Defense Finance and Accounting Service Indianapolis made $476.1 million in unsupported adjustments\nfor FY 2005 that decreased accounts receivable balances by $421 million.\n\nInventory and Related Property. Inventories are reported at approximate historical cost using Latest Acquisition\nCost adjusted for holding gains and losses. The systems do not maintain historical cost data necessary to comply\nwith Statement of Federal Financial Accounting Standards No. 3, \xe2\x80\x9cAccounting for Inventory and Related Property.\xe2\x80\x9d\nThe systems are also unable to produce \xef\xac\x81nancial transactions using the U.S. Government Standard General Ledger.\nStatement of Federal Financial Accounting Standards No. 3 states that Operating Materials and Supplies will be\n\n\n140 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cexpensed when the items are consumed. However, DoD has acknowledged that signi\xef\xac\x81cant amounts of Operating\nMaterials and Supplies were expensed when purchased, instead of when consumed.\n\nGeneral Property, Plant, and Equipment. Statement of Federal Financial Accounting Standards No. 6, \xe2\x80\x9cAccounting\nfor Property, Plant, and Equipment,\xe2\x80\x9d requires that all General Property, Plant, and Equipment be recorded at\ncost, and that depreciation expense be recognized on all General Property, Plant, and Equipment. The Army has\nacknowledged that real property was not recorded at acquisition or historical cost and did not include all costs\nneeded to bring the real property to a form and location suitable for its intended use. Also, the Army could not\nsupport the reported cost of Military Equipment in accordance with Statement of Federal Financial Accounting\nStandards No. 6. Military Equipment was not recorded at acquisition or historical cost and did not include all costs\nneeded to bring the equipment to a form and location suitable for its intended use. The Army also lacks property\naccountability systems for all its Military Table of Equipment unit property books that comply with the Federal\nFinancial Management Improvement Act of 1996.\n\nAccounts Payable. The Army is unable to properly account for and report Accounts Payable. Defense Finance and\nAccounting Service Indianapolis made $14.4 billion in unsupported adjustments for FY 2005 that increased Accounts\nPayable by $9.6 billion. In addition, the Army accounting systems do not capture trading partner data at the\ntransaction level in a manner that facilitates trading partner aggregations for intra-agency sales. Therefore, the Army\nhas acknowledged that it is unable to reconcile intragovernmental accounts payable to the related intragovernmental\naccounts receivable that generate the payables.\n\nEnvironmental Liabilities. The Army has not properly estimated and reported its environmental liabilities. For\nexample, the processes used to report environmental liabilities for the Defense Environmental Restoration Program,\nBase Realignment and Closure, and the non Defense Environmental Restoration Program on the \xef\xac\x81nancial statements\nare not adequate to establish or maintain suf\xef\xac\x81cient documentation and audit trails. Although estimators were\nproperly quali\xef\xac\x81ed to perform estimates, the Army did not document supervisory reviews of estimates and does\nnot have adequate quality control programs in place to ensure the reliability of data. The Defense Finance and\nAccounting Service has identi\xef\xac\x81ed ongoing actions to correct the reporting of environmental liabilities by October\n2006.\n\nStatement of Net Cost. The \xef\xac\x81nancial information in the Statement of Net Cost is not presented by programs\nthat align with major goals and outputs described in the DoD strategic and performance plans required by the\nGovernment Performance and Results Act. Because \xef\xac\x81nancial processes and systems do not collect costs in line with\nperformance measures, revenues and expenses are reported by appropriation categories. The amounts presented\nin the Statement of Net Cost are based on funding, obligation, and disbursing transactions, which are not always\nrecorded using accrual accounting. Army systems do not always record the transactions on an accrual basis as\nrequired by generally accepted accounting principles. To capture all cost and \xef\xac\x81nancing sources for the Army,\nthe information presented also includes data from non\xef\xac\x81nancial feeder systems. In addition, Army General Fund\nbudgetary and proprietary information does not correlate. As a result, Defense Finance and Accounting Service\nIndianapolis made $10.5 billion in unsupported adjustments to force costs to agree with obligation information.\nSpeci\xef\xac\x81cally, these adjustments forced costs reported on the Statement of Net Cost to match the value of Expended\nAppropriations minus the amount of Capitalized Assets reported on the Statement of Financing.\n\nStatement of Budgetary Resources. The Army accounting systems do not provide or capture data needed for\nobligations incurred and recoveries of prior year obligations in accordance with Of\xef\xac\x81ce of Management and\nBudget Circular No. A 11, \xe2\x80\x9cPreparation, Submission, and Execution of the Budget Requirements.\xe2\x80\x9d Although the\nArmy developed an alternative methodology to calculate these items, the amount of distortion cannot be reliably\ndetermined. Because the Statement of Budgetary Resources does not include eliminating entries, a Disaggregated\nStatement of Budgetary Resources is included in the Required Supplementary Information section of the \xef\xac\x81nancial\nstatements. The Army uses budget execution data composed of transaction report codes to prepare both the\nmonthly Standard Form 133 and the quarterly Federal Agencies Centralized Trial Balance System II budgetary\ngeneral ledger accounts. Defense Finance and Accounting Service Indianapolis personnel use the Federal Agencies\n\n\n\n FY 2005 Army Annual Financial Statement 141\n\x0cCentralized Trial Balance System II data to prepare the Statement of Budgetary Resources. Because both the\nStandard Form 133 and the Statement of Budgetary Resources are prepared using budget execution data, there is\nno true reconciliation between the two reports. Of\xef\xac\x81ce of Management and Budget Circular No. A-136, \xe2\x80\x9cFinancial\nReporting Requirements,\xe2\x80\x9d states that the Statement of Budgetary Resources should be predominantly derived from\nan entity\xe2\x80\x99s budgetary general ledger, instead of based on budget execution data. In FY 2005, Defense Finance and\nAccounting Service Indianapolis prepared $1.8 billion in unsupported adjustments that affected general ledger\naccounts used in the Statement of Budgetary Resources.\n\nStatement of Financing. The Of\xef\xac\x81ce of Management and Budget requires a consolidated Statement of Financing,\nexcept for the budgetary information used to calculate net obligations, which must be presented on a combined\nbasis. However, the Statement of Financing for the Army General Fund is prepared on a combined basis. Also,\nbecause the differences between the Statement of Net Cost and the Statement of Financing were not reconciled,\nthe Statement of Financing does not accurately present the relationship between budgetary obligations incurred\nby the Army General Fund and its Net Cost of Operations. For example, Defense Finance and Accounting Service\nIndianapolis prepared $10.5 billion in unsupported adjustments to force costs to agree with obligation information.\n\nReportable Conditions. During FY 2005, we noted de\xef\xac\x81ciencies related to contingent legal liabilities. The Army\nlegal representation process did not provide meaningful assessments of potential liabilities and was not linked\nto the Army process for reporting and disclosing contingent legal liabilities on the \xef\xac\x81nancial statements. The\nlegal representation letter from the Army Of\xef\xac\x81ce of General Counsel and its attached management schedule did\nnot corroborate the $187 million reported on the Balance Sheet as part of Non-Federal Other Liabilities nor the\n$255 million disclosed as contingent legal liabilities on footnote 16 in the FY 2005 Army General Fund Financial\nStatements. In addition, the legal representation letter and management schedule did not disclose $5.8 billion in\ncontingent liabilities that, individually, were not considered material but, when aggregated, exceeded the materiality\nthreshold requested by the auditors.\n\nThese \xef\xac\x81nancial management de\xef\xac\x81ciencies are indications of material weaknesses in internal control that may\nadversely affect any decision by the Army that is based, in whole or in part, on information that is inaccurate\nbecause of these de\xef\xac\x81ciencies. Financial information reported by DoD may also contain misstatements resulting from\nthese de\xef\xac\x81ciencies.\n\n\nCompliance with Laws and Regulations\nManagement is responsible for compliance with existing laws and regulations related to \xef\xac\x81nancial reporting. Our\nwork to determine compliance with selected provisions of the applicable laws and regulations was limited because\nmanagement acknowledged instances of noncompliance, and previously reported instances of noncompliance\ncontinue to exist. Therefore, we did not determine whether the Army was in compliance with selected provisions of\nall applicable laws and regulations related to \xef\xac\x81nancial reporting. Our objective was not to, and we do not, express\nan opinion on compliance with applicable laws and regulations.\n\nStatutory Financial Management Systems Reporting Requirements. The Army is required to comply with\n\xef\xac\x81nancial management systems reporting requirements. For example, the Federal Financial Management\nInformation Act of 1996 requires the Army to establish and maintain \xef\xac\x81nancial management systems that comply\nsubstantially with Federal \xef\xac\x81nancial management systems requirements, applicable Federal accounting standards,\nand the U.S. Government Standard General Ledger at the transaction level. In addition, the Federal Managers\xe2\x80\x99\nFinancial Integrity Act of 1982 requires DoD to evaluate the systems and to annually report whether those systems\nare in compliance with applicable requirements. The Act requires that each agency develop and maintain an\nintegrated agency accounting and \xef\xac\x81nancial management system, including \xef\xac\x81nancial reporting and internal control.\nThe system should comply with internal control standards and applicable accounting principles, standards, and\nrequirements; and it should provide for complete, reliable, consistent, and timely information.\n\nThe Army acknowledged that many of its critical \xef\xac\x81nancial management and feeder systems do not comply\nsubstantially with Federal \xef\xac\x81nancial management systems requirements, Federal accounting standards, and the U.S.\n\n\n142 General Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cGovernment Standard General Ledger at the transaction level. The Army is also unable to comply with the Chief\nFinancial Of\xef\xac\x81cers Act because its \xef\xac\x81nancial management systems are not integrated, and it has acknowledged that\nmany of its \xef\xac\x81nancial management and feeder systems do not comply with applicable Federal accounting standards.\n\nGovernment Performance and Results Act. The Government Performance and Results Act requires that each\nFederal agency prepare a strategic plan and annual performance plans and reports. The Army did not comply with\nthe Government Performance and Results Act because it does not have cost accounting systems in place to collect,\nprocess, and report operating costs. As a result, the Army General Fund Statement of Net Cost cannot provide\ncost-of-operations data that are consistent with the Government Performance and Results Act performance goals and\nmeasures.\n\n\nAudit Disclosures\nThe Assistant Secretary of the Army (Financial Management and Comptroller) acknowledged to us on January 11,\n2005, that the Army \xef\xac\x81nancial management systems cannot provide adequate evidence supporting various material\namounts on the \xef\xac\x81nancial statements. Therefore, we did not conduct audit work related to the previously identi\xef\xac\x81ed\nde\xef\xac\x81ciencies.\n\nIn addition, we did not perform audit work related to the following selected provisions of laws and regulations.\n\n Antide\xef\xac\x81ciency Act\n Provisions Governing Claims of the United States Government\n Federal Credit Reform Act of 1990\n Pay and Allowance System for Civilian Employees\n Prompt Payment Act\n\nThis report does not include recommendations to correct the material internal control weaknesses and instances of\nnoncompliance because previous audit reports contained recommendations for corrective actions.\n\n\n\n\n FY 2005 Army Annual Financial Statement 143\n\x0c Working Capital Fund\n\n The Letterkenny Army Depot - the things they do there in terms of the\n equipment refurbishment, design and manufacture for some of the Special\n Operations forces, is remarkable. I mean...the work they do is going right\n to the \xef\xac\x81eld, right in the hands of Soldiers and is improving their combat\n effectiveness within hours of being unloaded from the dock.\n Mr. Michael A. Kirby, Executive Director for Institutional Army Transformation\n\n\n\n\n144 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0cWorking Capital Fund \xe2\x80\x93 Management\xe2\x80\x99s Discussion & Analysis\nOverview\nThe business operations of the Army Working Capital\nFund (AWCF) generated over $16 billion during FY\n2005 in support of Army and other DoD logistics\nrequirements. This equates to a 13% increase in\nbusiness volume from FY 2004. They employed\napproximately 24,000 civilians and 42 uniformed\npersonnel at 18 locations in the continental United\nStates (CONUS). Supply Management\nThe Army manages two AWCF activity groups, Supply Management, Army (SMA) buys and maintains\nSupply Management and Industrial Operations (a stocks of materiel for sale to Army operating units and\nconsolidation of the former Depot Maintenance and other DoD customers. The Army\xe2\x80\x99s equipment and\nOrdnance activity groups, the reasons for which will operational readiness, and its combat capability, are\nbe discussed in the Industrial Operations Performance directly to the availability of this materiel. As a result\nResults section). These activity groups provide the of deployments to Southwest Asia and continued\ncapability to satisfy the peacetime and wartime needs support of the Global War on Terrorism (GWOT),\nof the Department of Defense (DoD) by providing inventory sales are signi\xef\xac\x81cantly higher than for\nsupplies, equipment, and ordnance necessary to previous budget submissions. For example, in the\nproject, sustain, and reconstitute forces. The support peacetime conditions of FY 2002, SMA gross sales were\nservices provided by AWCF activity groups are $5.8 billion. In FY 2005, SMA gross sales were\nessential to the readiness and sustainability of Army $11.5 billion. The level of activity during FY 2005\noperating forces and are an integral part of the total re\xef\xac\x82ects the SMA activity group\xe2\x80\x99s on-going efforts to\nDoD team. This becomes more apparent as the Army satisfy increased customer demands from Operation\ncontinues to wage war on global terrorism and to Iraqi Freedom (OIF). This high level of demand is\nprovide disaster relief and humanitarian assistance expected to continue until FY 2007.\naround the world.\n This activity group is committed to meeting the needs\n of Soldiers by ensuring that supplies and equipment\nMission are available when and where needed during\nThe primary mission of AWCF activities is to help peacetime and when at war. The major subordinate\nthe Army maintain constant readiness by providing commands of the Army Materiel Command (AMC)\nsupplies, equipment, and ordnance necessary to manage this activity.\nsupport the projection and sustainment of its forces.\nIn carrying out this mission, the activities are obligated\nto control and reduce costs. In addition, the activities Industrial Operations\nmust maintain their capability to quickly ramp up The Industrial Operations (IO) activity group provides\nfrom peacetime workload levels to meet wartime the equipment and ordnance necessary to project,\nrequirements. sustain, and reconstitute forces as required to satisfy\n the peacetime and wartime needs of the DoD.\n\n The IO activity group is composed of \xef\xac\x81ve maintenance\n depots, three arsenals, two ammunition plants, three\n ammunition storage depots, and three munitions\n centers. The activity group provides the Army and\n DoD with the organic industrial capability to:\n\n\n\n\n 145\n\x0c perform depot-level maintenance, repair, and Table 10. Supply Management, Army\n modernization of weapon systems and component \xe2\x80\x9cWholesalers\xe2\x80\x9d that buy and maintain stocks of materiel for sale to operating force units and other\n parts; customers\n\n\n manufacture, renovate, and demilitarize materiel; Command/Location Area of Materiel Support\n Aviation and Missile Command, Aircraft and aviation ground\n produce quality munitions and large-caliber Huntsville, AL (AMCOM) support items, missile system\n weapons; items.\n Communications\xe2\x80\x93Electronics Command, Communication and\n perform a full range of ammunition maintenance Fort Monmouth, NJ (CECOM) electronics items.\n services for the DoD and U.S. Allies; Tank\xe2\x80\x93automotive and Armaments Combat, automotive, and\n Command, Warren, MI (TACOM-W) construction items.\n perform ammunition receipt, store, and issue\n Tank\xe2\x80\x93automotive and Armaments Weapons, special weapons,\n functions; and Command, Acquisition and Logistics and \xef\xac\x81re control systems.\n Activity, Rock Island, IL (TACOM-RI)\n provide installation base support to mission\n Tank\xe2\x80\x93automotive and Armaments Ground support items and\n elements and tenant activities. Command, Soldier and Biological chemical weapons.\n Chemical, Natick, MA (TACOM-SBC)\nIn its industrial activities IO both competes and\npartners with the private sector to ensure that its goods\nand services are delivered ef\xef\xac\x81ciently and effectively. AMC also serves as the management command for\nThe \xef\xac\x81ve heavy maintenance depots (Anniston, Corpus the IO activity group. Installations or activities in this\nChristi, Letterkenny, Red River, and Tobyhanna) group fall under the direct command and control of\nhave been designated as centers of industrial and AMC major subordinate commands each aligned in\ntechnical excellence (CITE) for the performance of accordance with the nature of its mission (Table 11).\ncore maintenance workload in support of the DoD Corpus Christi and Letterkenny Army Depots report\nand America\xe2\x80\x99s foreign allies. The CITE designation to the Aviation and Missile Command (AMCOM)\nprovides the depots with the authority to partner with located at Redstone Arsenal, AL. Anniston, Red\nand/or lease facilities to industry on programs relating River, and Sierra Army Depots, as well as Rock\nto core maintenance expertise. Island and Watervliet Arsenals report to the Tank-\n automotive and Armaments Command (TACOM) in\n Warren, MI. Tobyhanna Army Depot reports to the\nOrganization Communication-Electronics Command (CECOM)\nAMC, headquartered at Fort Belvoir, VA, serves as at Ft. Monmouth, NJ. Pine Bluff Arsenal reports\nthe management command for the AWCF activities. to the CMA at Aberdeen Proving Ground, MD.\nIt does this through the major supply management Bluegrass and Tooele Army Depots, as well as Crane\nsubordinate commands shown in Table 10, the Army Army Ammunition Activity and McAlester Army\nField Support Command (AFSC) at Rock Island, Ammunition Plant report to the AFSC at Rock Island\nIL, and the Chemical Munitions Agency (CMA) at Arsenal, IL.\nAberdeen Proving Ground, MD.\n\n\n\n\nA Soldier from 3rd Brigade, 3rd Infantry Division, returns to Forward Operating Base Warhorse in his M2A2 Bradley Fighting Vehicle after a mission near Baqubah, Iraq. (by Staff Sgt. Suzanne Day)\n\n\n\n\n146 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0cTable 11. Industrial Operations\n\n Activity/Location Combat Systems Command/Activity/Location Command/Activity/Location\n TACOM Maintains, repairs, overhauls, and upgrades heavy-tracked combat vehicles and\n Anniston Army Depot, Anniston, AL* artillery.\n AMCOM Maintains, repairs, overhauls, and upgrades rotary wing aircraft, engines, and\n Corpus Christi Army Depot, Corpus Christi, TX components.\n AMCOM Maintains, repairs, overhauls, and upgrades tactical missile systems.\n Letterkenny Army Depot, Chambersburg, PA*\n TACOM Maintains, repairs, overhauls, and upgrades light armored vehicles and select\n Red River Army Depot, Texarkana, TX* missile systems.\n CECOM Maintains, repairs, overhauls, and upgrades communications\xe2\x80\x94electronics and\n Tobyhanna Army Depot, Tobyhanna, PA* missile guidance and control systems and equipment.\n CMA Manufactures conventional ammunition and chemical and biological defense items.\n Pine Bluff Arsenal, Pine Bluff, AR* Produces and rebuilds decontaminating kits, large \xef\xac\x81lters, masks, and defensive\n chemical test equipment.\n TACOM Produces weapons for infantry, artillery, and air defense; armament for tanks,\n Rock Island Arsenal, Rock Island, IL* artillery, and personnel- and cargo-carriers; and special tools and tool sets.\n TACOM Produces mortars, recoilless ri\xef\xac\x82es, cannon for tanks and towed and self-propelled\n Watervliet Arsenal, Watervliet, NY* artillery, special tool sets, and training devices and simulators.\n AFSC Produces, loads and assembles, stores, distributes, renovates, maintains, and\n Crane Army Ammunition Activity, Crane, IN demilitarizes conventional ammunition and ammunition-related components.\n AFSC Produces, loads and assembles, stores, distributes, renovates, maintains, and\n McAlester Army Ammunition Plant, McAlester, OK* demilitarizes bombs, missiles, and conventional ammunition and missiles.\n TACOM Responsible for receipt, storage, and care of supplies in storage; as well as repair,\n Sierra Army Depot, Herlong, CA* assembly, disassembly, and shipment of major and secondary items for operational\n project stocks.\n AFSC Designs and develops ammunition-peculiar equipment. Stores, maintains,\n Tooele Army Depot, Tooele, UT* distributes, and demilitarizes conventional ammunition.\n AFSC Responsible for receipt, issue, storage, testing, and minor repair of chemical\n Blue Grass Army Depot, Richmond, KY* defense equipment. Stores, maintains, distributes, and demilitarizes conventional\n ammunition.\n AFSC Store, maintain, distribute, and demilitarize conventional ammunition.\n Red River Munitions Center, Texarkana, TX\n AFSC\n Letterkenny Munitions Center, Chambersburg, PA\n AFSC\n Anniston Munitions Center, Anniston, AL\n*Also provides base support services to tenant organizations\n\n\n\n\nAMC reports to the Army Deputy Chief of Staff, G-4 year limitation (no-year account). The fund operates\nand to the Assistant Secretary of the Army (Financial through a \xef\xac\x81ve-step process shown in Figure 11. First,\nManagement and Comptroller) (ASA (FM&C)). A Congress appropriates funds to support programs\nDoD corporate board provides oversight of AWCF and projects of AWCF customers. Second, a customer\nfunctions; the board is comprised of representatives sends an AWCF activity a funded request for a given\n amount of products or services, such as overhauling\nfrom the military services, defense agencies, DoD\n 100 tanks. Third, the AWCF activity performs the\nof\xef\xac\x81ces, and oversight organizations.\n work, incurring costs such as for labor and materials,\n which are paid for from AWCF cash. Fourth, the\nAbout Working Capital Funds AWCF activity bills the customer for the cost of the\nThe AWCF is a revolving fund, which is an account order. Finally, the customer deposits payment in the\nthat operates much like a business, deriving income AWCF, thus replenishing the fund so that it can supply\nfrom, and incurring costs for, operations without \xef\xac\x81scal working capital to other projects.\n\n\n\n\n 147\n\x0cFigure 11. How the AWCF Operates Performance Measures\n Cash Management\n The ability to generate and manage cash is dependent\n Bill AWCF activity supplies\n goods and services. The on: (1) setting rates to recover full costs, including\n provider bills the customer any previous year losses; (2) accurately projecting\nCongress and is paid.\napproves the workload; and (3) meeting established operational\nannual budget for\nthe customers. goals. The Army must maintain suf\xef\xac\x81cient cash on\n AWCF activity: hand in the AWCF account at the U.S. Treasury to pay\n Incurs Costs\n $ Produces Goods or liabilities when due. To minimize the cash balance\n Services\n Buys Parts or Services required for operating and capital disbursements, the\nCustomer sends funded Army manages cash at the corporate level. Rather than\norder to AWCF activity.\n having to maintain a positive cash balance, the AWCF\n Project activity groups and installations project collections and\n Order\n disbursements on a monthly basis, working within a 10\n percent margin of error.\n\nPricing Projecting cash \xef\xac\x82ows has, in past years, proven\n challenging. A direct correlation can be made between\nAWCF activities bill customers in one of two manners:\n monthly revenue and collections, but no direct\n correlation can be made between monthly expenses\n The SMA activity group bills customers by\n and disbursements. The dif\xef\xac\x81culty arises within the\n applying a surcharge to the cost of the materiel\n SMA activity group where monthly expenses are based\n or item being requisitioned. The surcharge is\n on the cost of goods sold, while disbursements are\n designed to recover the actual costs of operating\n based on deliveries of materiel on order or in repair.\n the supply business.\n The IO activity group bills customers based on The Defense Finance and Accounting Service\n a direct labor hour rate, which is designed to (DFAS), the Army\xe2\x80\x99s accounting services provider,\n recover all costs associated with the work being is implementing systems improvements that are\n performed (e.g., labor, materials, and overhead). expected to enable the Army to see collections and\n Once the standard direct labor hour rate is set in disbursements in real-time.\n the budget process, it does not change in the year\n of execution. This shields customers from price Table 12 shows the actual collections, disbursements,\n swings and enables them to plan their budgets and and outlays at the Army corporate level for the last\n appropriation requests with more certainty than if three \xef\xac\x81scal years, and the resulting cash balance that\n costs re\xef\xac\x82ected short-term market variations. will be used to pay suppliers and producers of goods.\n The AWCF ended FY 2005 with a cash balance of $623.3\nWorking Capital Fund Performance million, $212.7 million above plan. This represents a\n variance of 34 percent. The ending cash balance re\xef\xac\x82ects\nResults the results of the increase in consumption of repair\n parts and production at Army industrial facilities that\nCorporate Performance\n is due to the GWOT. In addition, the Army transferred\nThe mission of the AWCF is to provide support $700 million in FY 2005 and $1.3 billion in FY 2004\nservices to the operating forces in the most ef\xef\xac\x81cient in cash to the Operations and Maintenance, Army\nand cost-effective manner possible. Support services (OMA) appropriation in support of the GWOT. The\nprovided by AWCF activities are essential to the $2.0 billion will need to be returned to the AWCF at a\nsuccess of operating forces. Assessing the performance future date in order for the fund to pay its suppliers\nof the AWCF through the use of \xef\xac\x81nancial and program and producers of goods. As operations in Iraq and\nperformance measures indicates how well the AWCF is Afghanistan are drawn down and payments associated\naccomplishing its mission.\n\n\n\n148 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0cwith the delivery of replacement stocks and repair of Table 14. Total Corporate Revenue by Customer ($ millions)\nequipment are made, the AWCF cash balance should\nreturn to a level closer to its corpus requirement. FY 2003 FY 2004 FY 2005\n Operations and Maintenance, Army $8,358.3 $10,297.7 $11,325.5\nTable 12. Corporate Collections, Disbursements, and Outlays\n($ millions) Army Procurement 680.0 493.7 1,000.0\n AWCF 1,570.4 1,441.8 2,075.8\n FY 2003 FY 2004 FY 2005 Other Army 224.0 337.0 253.6\n Collections, Appropriations, $9,714.1 $12,467.9 $14,383.6 Other Services 641.2 825.7 794.5\n and Transfers-in\n Other DoD 351.9 284.0 107.1\n Disbursements and $8,416.6 $13,067.9 $14,708.7\n Transfers-out Foreign Military Sales 315.4 318.0 357.7\n Net Outlays $1,297.5 $600.0 $325.1 Non-DoD 40.8 87.5 64.5\n Cash Balance $1,548.5 $948.4 $623.3 Total Revenue* $12,182.0 $14,085.4 $15,978.7\n *This is revenue from operations only. Does not include direct appropriations or transfers-in.\n\n\n\nTotal Revenue Personnel Resources\nTotal revenue is an indicator of the volume of work To achieve maximum ef\xef\xac\x81ciency of performance,\ncompleted by the AWCF activity groups. The total the AWCF activity groups need to achieve the\nprojected revenue for FY 2005 was $15.3 billion. Actual con\xef\xac\x81guration of skilled workforce that is most\nrevenue was $16.1 billion, 5 percent greater than appropriate to the workload. Skill mismatches\nprojected. This was primarily due to operations in sometimes occur as a result of deviations between\nsupport of the GWOT. planned and actual workload. They also can be caused\n by workforce reductions realized through voluntary\nTable 13 displays total revenue and direct separation and hiring freezes. Such mismatches can\nappropriations by activity group. SMA generates the lead to unplanned operating losses.\nlargest balances, accounting for more than $11.5 billion\n Table 15. Military and Civilian Personnel by Activity Group\nin revenue, or 72 percent of all AWCF revenue. In\naddition to the revenue shown in Table 13 and Table Personnel FY 2003 FY 2004 FY 2005\n14, the AWCF received $184 million in FY 2005 in\n Supply Management\ntransfers-in.\n Civilian End Strength 2,893 2,779 3,017\nTable 13. Total Revenue and Direct Appropriations by Activity Civilian FTEs 2,790 2,935 3,044\nGroup ($ millions)\n Military End Strength 13 13 11\n Appropriation FY 2003 FY 2004 FY 2005 Military Average Strength 13 13 11\n\n Supply Management, Army $9,558.0 $10,620.6 $11,526.8 Industrial Operations\n Industrial Operations $2,885.3 $3,684.1 $4,551.5 Civilian End Strength 17,709 19,917 21,687\n Information Services $96.7 $0.0 $0.0 Civilian FTEs 17,007 18,393 20,950\n Total Revenue and Appropriation $12,540.0 $14,304.7 $16,078.3 Civilian OT Usage (% DLH) NA 17.1% 16.9%\n Productive Yield NA 1,634 1,596\n Military End Strength 48 33 31\nTable 14 displays total corporate revenue by customer.\n Military Average Strength 48 26 31\nThe largest customer for the AWCF is OMA, which\naccounted for revenues of $11.3 billion. Total\n Civilian End Strength 20,602 22,696 24,704\n Civilian FTEs 19,797 21,328 23,994\n Military End Strength 61 46 42\n Military Average Strength 61 39 42\n\n\n\n\n 149\n\x0c Figure 12. SMA Personnel Indicators \xe2\x80\x93 Civilian Full-Time\nSupply Management, Army Equivalents\n\nProgram Scope Civilian Full-Time Equivalents\nCustomer Revenue (Program Size) 0 1000 2000 3000 4000\n\n 2,869 | 2,790\nSMA revenue from customer sales in FY 2005 was $11.5 FY 2003\n\n\n\nbillion. This exceeded the President\xe2\x80\x99s Budget estimate FY 2004 2,941 | 2,936\n\nof $10.7 billion. This excess revenue was a direct result FY 2005 2,987 | 3,044\n\nof increased operations conducted in support of the\n Variance 67 46 57\nGWOT. Included in the revenue table are SMA\xe2\x80\x99s direct Var (%) 2 2 2\n FY 2003 FY 2004 FY 2005\nappropriations for war reserves of $89 million in\nFY 2003 and $105.4 million in FY 2004, and a transfer-in Military End Strength\nof $84.4 million in FY 2005. 0 5 10 15 20\n\n FY 2003 13 | 13\nTable 16. Total SMA Revenue by Customer ($ millions)\n FY 2004 13 | 13\n\n Appropriation FY 2003 FY 2004 FY 2005 FY 2005 11 | 11\n\n Operations and $7,379.8 $8,785.4 $9,573.0 Variance 0 0 0\n Maintenance, Army Var (%) 0 0 0\n FY 2003 FY 2004 FY 2005\n Army Procurement 374.8 161.5 300.3\n Plan\n AWCF 468.5 434.5 740.5 Actual\n\n Other Army 187.4 209.3 77.4 Financial Performance\n Other Services 562.1 589.5 528.8 The \xef\xac\x81nancial performance of the SMA activity group is\n Other DoD 93.6 22.3 13.2 evaluated on a variety of \xef\xac\x81scal measures. The primary\n Foreign Military Sales 281.1 271.2 288.8\n measure, unit cost, is used as a managerial control and\n relates resources consumed to outputs produced. The\n Non-DoD 9.4 41.5 4.8\n aim of the unit cost measure is to associate total cost\n Total Revenue $9,356.7 $10,515.2 $11,526.8 to the work or output. Other measures include total\n gross sales; revenue; cost; net operating results; capital\n investment; cash collections, disbursements, and\nPersonnel\n outlays; and stock availability and stock turn.\nAs Figure 12 shows, the FY 2005 actual number of\ncivilian full-time equivalent employees varied less than Wholesale Unit Costs. The wholesale division sells\ntwo percent from plan. Military employment was on principally to federal government customers and,\nplan, with two positions converted to civilian staf\xef\xac\x81ng through the Foreign Military Sales Program, to foreign\nfrom FY 2004 to FY 2005 governments. Wholesale costs include the costs of\n\n\n\n\nSoldiers from 1st Battalion, 41st Infantry Regiment, 3rd Brigade, 1st Armored Division, scan the landing zone for possible hostile forces in northern Baghdad. The troops are on their way to\nrefurbish an outdoor playground at an Iraqi public school. (by Tech. Sgt. Russell Cooley IV)\n\n\n\n\n150 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0clogistics operations, the cost of materiel, and credit Gross Sales. To achieve its goals in inventory\nissued to customers for materiel returns. Unit cost is management and operations management, and to\nmeasured by dividing these costs by gross wholesale recoup operations costs, it is essential that the AWCF\nsales. attain its projected sales levels.\n Figure 13. SMA Gross Sales\n\n Wholesale Sales ($ millions)\n 0 5000 10000 15000\n\n FY 2003 $7,056 | 8,573\n\n\n FY 2004 $8,074 | 9,342\n\n\n FY 2005 $9,314 | 10,186\n\n\n Variance $1,517 1,268 872\n Var (%) 21 16 9\n FY 2003 FY 2004 FY 2005\n\n\n\n\n NAMI/Retail Sales ($ millions)\n 0 400 800 1200 1600 2000\n\n FY 2003 $791 | 726\n\n\n FY 2004 $1,017 | 1,154\n\nBruce Telincho, a Pittston Township resident, tests a telephone circuit switch power supply FY 2005 $1,348 | 1,307\ncomponent at Tobyhanna Army Depot. The component will be used in AN/TTC-46 and 47\nMobile Subscriber Equipment. (by Anthony Ricchiazzi)\n Variance ($65) 137 41\n Var (%) (8) 13 3\nIn FY 2005, the wholesale division achieved a unit cost FY 2003 FY 2004 FY 2005\n\n\nof $1.12. The initial unit cost goal (UCG) of $0.98 was Plan\n Actual\nrevised during the \xef\xac\x81scal year to allow the execution\nof immediate requirements for OIF and the GWOT Financial Operation Measures. Budgetary guidelines\nresulting in higher\xe2\x80\x93than-expected sales and high require the SMA activity group to recover its operating\nhardware obligations. costs and fees while achieving zero accumulated\n operating results at the end of the budget period. To\nNAMI/Retail Unit Costs. Implementation of the Single achieve this goal, AWCF activities set stabilized rates\nStock Fund (SSF) in FY 2003 has altered the mission of eight or more months prior to the beginning of each\nthe retail division. Prior to SSF, the retail divisions sold \xef\xac\x81scal year. These rates are based on forecasts of the\nto authorized customers within their local geographical potential workload and the cost of meeting workload\narea. The retail divisions bought and sold both Army requirements. This projection is then used to set a\nmanaged items (AMI) and non-Army managed items standard price for AWCF goods and services. Since\n(NAMI) at the catalog price of the source of supply. revenue is de\xef\xac\x81ned as gross sales at standard price, the\nUnder SSF, the retail division consists only of NAMI. logical \xef\xac\x81nancial measures of AWCF operations are\n revenue, cost, and net operating results. In FY 2005, the\nIn FY 2005, gross materiel costs were greater than rates were set to achieve a net operating result (NOR)\nplanned, producing a unit cost of $1.12 that was above of $218.0 million. The actual NOR, less extraordinary\nthe UCG of $0.98. The higher costs occurred due to items, was a gain of $193 million. Results of operations,\nincreased inventory requirements caused by OIF and computed according to budget guidance, are presented\nthe GWOT. in Table 17.\n\n\n\n\n 151\n\x0cTable 17. Financial Operation Measures ($ millions) for SMA\n\n FY 2003 FY 2004 FY 2005\n Variance Variance Variance\n Plan Actual (%) Plan Actual (%) Plan Actual (%)\n Revenue $5,595 $9,358 67% $9,097 $10,515 31% $10,669 $11,527 8%\n Cost of Goods Sold $4,496 $8,450 87% $9,052 $10,381 30% $10,451 $11,334 8%\n Net Operating Results $239 $908 280% $45 $134 197% $218 $193 (12%)\n Accumulated Operating Results $11 $29 164% $99 $29 (71%) $0 ($42) 0%\n\n\nCapital Investment. The SMA activity group\xe2\x80\x99s capital based common technology enterprise architecture,\ninvestment program is focused primarily on the which will pull all relevant business processes into the\ndevelopment of computer software to assist managerial integrated domain to ensure the Army can maximize\ndecision-making, to enable the sharing of databases, its return on investment. It will allow users access to\nand to support the development of more ef\xef\xac\x81cient all logistics automated tools within the Army logistics\nbusiness practices. enterprise through a single workstation.\nTable 18. Capital Budget Obligations ($ millions) for SMA\n Cash Management\n Category FY 2003 FY 2004 FY 2005 The Army manages AWCF cash at the corporate level.\n Equipment $0.0 $0.0 $0.0 The performance of individual activity groups is\n ADPE and Telecom 0.0 1.2 0.0 measured against planned collections, disbursements,\n Software 45.7 31.3 24.8 and outlays rather than against independent cash\n Total $45.7 $32.5 $24.8 balances. FY 2005 collections were greater than\n projected because of the increase in customer sales\n associated with OIF and the GWOT. These increases\nFY 2005 Capital Investment Program (CIP) projects\n far exceeded planned increases. Disbursements\ninclude the purchase of the following:\n included a cash transfer of $700 million from AWCF to\nLogistics Modernization Program (LMP) ($21.5 the OMA appropriation in support of GWOT.\nmillion). The goal of the LMP is to re-engineer existing\nlogistics processes to provide \xef\xac\x82exibility in support Program Performance\nof CONUS-based power projection scenarios. The Supply Management uses the following program\nprogram leverages modern information technology performance measure:\nenablers to provide real-time visibility of the entire\nlogistics supply chain and thereby support the Stock Availability: Stock availability measures the\ntransformation of military logistics. percentage of SMA requisitions for stocked items\n completely \xef\xac\x81lled within Uniform Materiel Movement\nExchange Pricing (EP) ($2.0 million). The goals of and Issue Priority System (UMMIPS) timeframes. DoD\nEP are to stabilize credit for reparable secondary items, and the Army have set a target of 85 percent stock\nseparate credit from OPTEMPO funding, enable a availability. High demands continued in FY 2005.\nmultiple price/exchange price structure, signi\xef\xac\x81cantly On-going contingency operations and the high level of\nimprove tracking carcass returns to the supply system, OPTEMPO in support of OIF and the GWOT continue\nreduce associated logistical and \xef\xac\x81nancial transactions to impact stock availability as item managers\xe2\x80\x99 focus\nand employee workloads, and reduce risk to AWCF on high priority demands for deployed forces. While\nSMA cash \xef\xac\x82ow by providing credit only where credit stock availability improved, adverse environmental\nis due. impacts and long supply pipelines continued to\n drawdown strategic assets faster than the SMA activity\nCommon Operating Environment (COE) ($1.3 group could replace them.\nmillion). The goal of COE is to provide a windows-\n\n\n\n152 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0cFigure 14. SMA Cash Management\n\nCollections ($ millions) Disbursements ($ millions)\n 0 5000 10000 15000 0 3000 6000 9000 12000 15000\n\nFY 2003 $5,719 | 7,124 FY 2003 $5,212 | 5,651\n\nFY 2004 $6,734 | 8,781 FY 2004 $8,160 | 9,552\n\nFY 2005 $8,589 | 9,795 FY 2005 $8,902 | 10,188\n\n\n Variance $1,405 2,047 1,206 Variance $439 1,392 1,286\n Var (%) 25 30 14 Var (%) 8 17 14\n FY 2003 FY 2004 FY 2005 FY 2003 FY 2004 FY 2005\n\n\n\nOutlays ($ millions)\n -1500 -1000 -500 0 500 1000 1500 2000 2500 3000\n\nFY 2003 ($506) | (1,472)\n\n\nFY 2004 $1,426 | 771\n\n\nFY 2005 $314 | (307)\n\n\n Variance ($966) 655 (621)\n Var (%) (191) 46 (198)\n FY 2003 FY 2004 FY 2005\n\n Plan\n Actual\n\nNote: Positive outlays drain cash\n\n\nTable 19. SMA Stock Availability (percentage)\n\n 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter\n FY 2003 85 80 75 70\n FY 2004 73 69 74 76\n FY 2005 76 78 82 79\n\n\n\n\n 153\n\x0cIndustrial Operations which represents equipment and facilities purposely\n held above peacetime requirements to support\nProgram Scope mobilization and surge requirements. Direct funding\nAs mentioned previously, the IO activity group keeps the cost of maintaining this capacity out of the\nre\xef\xac\x82ects the consolidation of the former AWCF Depot rates charged to mission customers.\nMaintenance and Ordnance activity groups into a Table 20. IO Revenue by Customer ($ millions)\nconsolidated Industrial Operations activity group. The\nArmy took this action primarily because the activities Appropriation FY 2003 FY 2004 FY 2005\noperate very similarly from a \xef\xac\x81nancial perspective\n Operations and $978.5 $1,512.3 $1,752.5\nand there are bene\xef\xac\x81ts from consolidation. These Maintenance, Army\nbene\xef\xac\x81ts include the creation of a more integrated Army Procurement 305.2 332.2 699.7\nbusiness perspective that encourages cooperation and AWCF 1,101.9 1,007.3 1,335.3\npartnering and focusing capital investment on the\n Other Army 36.6 127.7 176.2\ngood of the business entity rather than on the good of\n Other Services 79.1 236.2 265.7\nindividual installations. This combination of activities\ndoes not include any increase in organizational Other DoD 258.3 261.7 93.9\nstructure or cost. It leverages the capabilities of Foreign Military Sales 34.3 46.8 68.9\ndepots and arsenals to improve the quality and Non-DoD 31.4 46.0 59.7\nresponsiveness of logistics services and better support Total Revenue $2,825.3 $3,570.2 $4,451.9\nthe requirements of future customers and Army\ntransformation.\n A key objective of the Army is to have the correct\nCustomer Revenue (Program Size) number of appropriately skilled people in the right\nCustomer requirements drive workload. Revenue places to meet customer workload demands. As\ngenerated by providing goods and services to meet re\xef\xac\x82ected in Figure 15, the workforce continues to\ncustomer requirements was $4.5 billion in FY 2005. expand to meet this objective. These workforce\nTable 20 displays customer revenue for the past three requirements are supported by the Army workload\n\xef\xac\x81scal years by appropriation. and performance system, which is a model designed\n to help AWCF activities staff their operations\nTotal revenue increased $882 million, or 25 percent, appropriately for the workload. In FY 2005, activities\nbetween FY 2004 and FY 2005. This increase used both permanent and non-permanent sources of\nwas attributable primarily to heightened global labor, multiple shifts, and additional overtime to help\ncommitments and OPTEMPO. Revenue increases meet increasing customer requirements.\nsupport ongoing combat requirements as well as\nintensive efforts to convert the Army from a division-\ncentric operating force to a more scalable brigade-\ncentric force. This concept, known as modularity,\ngenerates high equipment requirements. Satisfying\nthese requirements involves a combination of\nmethods, which include resetting equipment used in\nthe extreme desert operating environment to pre-war\noperating condition and continuing to recapitalize\n(recap) selected legacy systems to bring them back to\nnear zero-time, zero-miles condition. In addition to\nthe revenue shown in Table 20, the IO activity group\nreceived direct appropriations of $60 million in\nFY 2003 and $113.9 million in FY 2004, and a transfer-\nin of $99.6 million in FY 2005. This funding supports\n Four M-1 Abrams tanks are in various stages of upgrade on the reassembly line at Anniston\ncosts associated with industrial mobilization capacity, Army Depot Combat Vehicle Facility.\n\n\n\n\n154 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0cFigure 15. IO Personnel Indicators also known as the unit cost, which re\xef\xac\x82ects macro-level\nCivilian Full-Time Equivalents\n changes in the cost of providing goods and services.\n 0 6000 12000 18000 24000 30000\n Table 21. IO Cost per Direct Labor Hour\nFY 2003 16,725 | 17,007\n\n\nFY 2004 19,067 | 18,393 FY 2003 FY 2004 FY 2005\nFY 2005 21,040 | 20,950 Actual Actual Actual\n Variance 282 (674) (90) Cost per Direct Labor Hour $152.0 $150.3 $156.3\n Var (%) 1.69 (3.5) (0.4)\n FY 2003 FY 2004 FY 2005\n Change from Prior Year (%) (0.81%) (1.2%) 4%\n Direct Labor Hours (thousands) 18,552 23,072 27,897\nMilitary End Strength\n 0 25 50 75\n\nFY 2003 49 | 49\n Financial Operating Measures. Under the full-cost\n recovery concept, stabilized rates are set to cover\nFY 2004 36 | 33\n all costs and produce a zero accumulated operating\nFY 2005 31 | 31\n result (AOR) at the end of the \xef\xac\x81scal year. The rates\n Variance 0 (3) 0 are stabilized so that customers\xe2\x80\x99 programs will not be\n Var (%) 0 (8.3) 0 affected during execution, even though the actual costs\n FY 2003 FY 2004 FY 2005\n\n Plan\n of the AWCF activity may be higher or lower than\n Actual planned. They are included in the President\xe2\x80\x99s Budget,\n published approximately eight months in advance of\nPerformance Measures the year of execution.\nFinancial Performance\n During execution, the IO activity group may\nFinancial performance measures include cost per direct\n experience either a positive or negative net operating\nlabor hour, revenue, cost of goods sold, accumulated\n result (NOR). The gain or loss shown in the NOR is\noperating results, customer revenue rate, capital added to the AOR from past years. Deviations from\ninvestment, and cash management. the plan impact the IO activity group to the extent that\n an unplanned gain or loss must be included in the\nCost per Direct Labor Hour. The cost per direct labor following year\xe2\x80\x99s rates to bring the AOR to zero. Any\nhour (DLH) is computed by taking the sum of all labor change in rates may result in an increase or decrease in\nand non-labor expenses (direct, indirect, and general the customer buying power.\nand administrative (G&A)), plus the change in work in\nprocess, and dividing that sum by the total number of Table 22 shows \xef\xac\x81nancial operating measures for the\nDLHs worked during the \xef\xac\x81scal year. This calculation is past three \xef\xac\x81scal years. FY 2005 revenue and costs were\n\nTable 22. IO Financial Operation Measures ($ millions)\n\n FY 2003 FY 2004 FY 2005\n Plan Actual Plan Actual Plan Actual\n Revenue $2,340.3 $2,885.2 $4,087.9 $3,684.1 $4,625.5 $4,551.5\n Cost of Goods Sold 2,358.2 2,820.8 4,107.6 3,466.6 4464.4 $4,361.2\n Operating Results (17.9) 64.4 (19.7) 217.5 161.1 $190.3\n (less Cash Surcharge) 0.4 0.7 0.5 0.6 0.3 ($0.3)\n (less Extraordinary Items) 0.0 0.0 0.0 0.0 0.0 $0.0\n Net Operating Results (18.3) 63.7 (20.2) 216.9 160.8 $190.0\n Beginning AOR 135.7 142.6 213.9 213.9 455.2 $455.2\n (less Adjustments) 0.0 7.6 (74.7) 24.4 (124.7) $1.9\n Beginning AOR Adjusted 135.7 150.2 139.2 238.3 330.5 $457.0\n AOR (NOR plus adjusted AOR) $117.4 $213.9 $119.0 $455.2 $491.3 $647.0\n\n\n\n\n 155\n\x0c$4.5 billion and $4.4 billion respectively. replace worn and obsolete equipment, to eliminate\nFY 2005 variance from plan was low at minus 2 percent, environmental hazards, and to increase throughput via\nwhich is a remarkable achievement given the number enhanced productivity.\nof installations and spectrum of production lines\ninvolved. Table 24 represents capital obligation authority.\n Selected FY 2005 highlights include $39.4 million\nCustomer Revenue Rate. Customer revenue rates are for new facility equipment to repair, rebuild, and\nset per DLH and are stabilized so that the customer\xe2\x80\x99s test reciprocating engines at Anniston Army Depot;\nbuying power is protected in the year of execution. $18.9 million to replace obsolete Patriot missile test\nTable 23 shows the composite stabilized revenue station equipment ensuring missile reliability at Red\nrates per DLH. Because the Depot Maintenance and River Army Depot; and $9.1 million to conduct non-\nOrdnance activity groups were merged into the IO destructive tests of \xef\xac\x82ight critical parts at Corpus Christi\nactivity group in FY 2005, consolidated rates are not Army Depot. The FY 2005 capital budget is higher than\navailable for FY 2003 and FY 2004. Therefore, the FY 2003 and FY 2004 based on the increasing volume of\nseparate revenue rates are shown for those years. work being performed in the organic industrial base in\n support of wartime workload.\nTable 23. IO Stabilized Rates\n Table 24. IO Capital Budget ($ millions)\n Direct Labor Rate FY 2003 FY 2004 FY 2005\n Depot Maintenance\n Category FY 2003 FY 2004 FY 2005\n\n Customer Revenue Rate ($) 133.80 144.91 NA Equipment $40.8 $41.9 $114.6\n\n Customer Rate Change (%) 7.4% 8.3% NA Minor Construction 4.5 15.3 17.7\n ADPE and Telecom 0.0 2.6 3.6\n Ordnance\n Software 21.3 20.9 17.8\n Customer Revenue Rate ($) 69.07 70.05 NA\n Customer Rate Change (%) (27.0%) 1.4% NA Total $66.6 $80.7 $153.7\n\n Industrial Operations\n Customer Revenue Rate ($) NA NA 129.57 Cash Management.\n Customer Rate Change (%) NA NA NA The Army manages AWCF cash at the corporate\n level maintaining a single merged account for both\nCapital Investment. The AWCF capital investment SMA and IO. The performance of individual activity\nthreshold is $100,000. Any items purchased at or above groups is measured against planned collections,\nthe threshold are capitalized and then depreciated disbursements, and outlays rather than in terms of\nthrough the operating budget. cash balances. IO collections and disbursements in\n FY 2005 were $4.5 billion each. Outlays exceeded the\nThe activity group seeks to maintain and develop plan by $51.3 million as installations pre-positioned a\ncapabilities through capital acquisition of new signi\xef\xac\x81cant amount of spare parts in support of repair\nequipment and minor construction projects. The and manufacturing programs to help preclude breaks\ncapital investment program provides a way to in production.\n\n\n\n\nBradley manufacturing division at Red River Army Depot, Texarkana, Texas. (by Staff Sgt. Reeba Critser)\n\n\n\n\n156 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0cFigure 16. IO Cash Management ($ millions)\n\nCollections ($ millions) Disbursements ($ millions)\n 0 1500 3000 4500 6000 0 1500 3000 4500 6000\n\nFY 2003 $2,093 | 2,492 FY 2003 $2,435 | 2,691\n\nFY 2004 $4,156 | 3,669 FY 2004 $4,173 | 3,498\n\nFY 2005 $4,537 | 4,505 FY 2005 $4,502 | 4,521\n\n\n Variance $399 (488) (32) Variance $257 (676) 19\n Var (%) 19 (12) (1) Var (%) 11 (16) 0\n FY 2003 FY 2004 FY 2005 FY 2003 FY 2004 FY 2005\n\n\n\nOutlays ($ millions)\n -300 -200 -100 0 100 200 300 400 500 600\n\nFY 2003 342 | 200\n\n\nFY 2004 17 | (171) Ammunition Short Tons\nFY 2005 (35) | 16 Ammunition short tons is a measure of the amount\n Variance ($142) (188) 51\n of short tons (2,000 pounds) of ordnance received,\n Var (%) (142) (1,125) (147) issued, or demilitarized. Based on standards at the\n FY 2003 FY 2004 FY 2005\n\n Plan\n installations, this \xef\xac\x81gure has a direct correlation to\n Actual personnel, funding, and rates (see Table 26).\n\nProgram Performance\nProgram performance measures include production\n Table 26. Ammunition Short Tons\noutput, schedule conformance, and ammunition short\ntons received, issued, or demilitarized. FY 2003 FY 2004 FY 2005\n Variance\nTable 25 lists the quantity and customer price for Actual Actual Plan Actual (%)\nrepresentative items over the last three \xef\xac\x81scal years. Receipts 162,395 257,744 136,635 214,066 56%\nThe table highlights a speci\xef\xac\x81c repair item at each\n Issues 202,655 198,661 152,500 192,066 26%\nmaintenance depot. Prices indicated are per unit\n Demilitarized 19,780 19,806 20,797 23,348 12%\nprices. Fluctuations are attributable primarily to\nchanges in direct materiel costs.\n\nTable 25. IO Production Output\n\n\n\n FY 2003 FY 2004 FY 2005\n Actual Unit Price Actual Unit Price Proposed Actual Deviation Unit Price\n Maintenance Item (Installation) Quantity ($) Quantity ($) Quantity Quantity (%) ($)\n Engine, Turbine, T701C (Anniston) 560 $149,848 355 $213,776 153 188 23% $287,060\n Engine, Turbine, T700-GE (Corpus Christi) 55 $264,751 130 $258,972 144 185 28% $265,793\n Patriot Launcher (Letterkenny) 40 $699,575 40 $653,725 34 34 0 $581,804\n Wheel, Solid Rubber (Red River)* 8,945 $208 8,975 $214 19,868 13,580 (32) $263\n Visual Display Unit, AH64 (Tobyhanna) 49 $8,438 60 $8,755 100 100 0 $9,411\n *The quantities and unit prices re\xef\xac\x82ected for Red River are for 26x6 road wheels only.\n\n\n\n\n 157\n\x0cSchedule Conformance. This performance measure in the supply requirements determination process,\nrecords the number of units completed on schedule as the price/credit and repair process, and the budget\na percentage of the number of units scheduled. Units strati\xef\xac\x81cation processes. As a result, several RIEs have\ncompleted include both major end items and secondary been conducted to develop ways to improve these\nitems (reparable parts) (see Figure 17). processes notably by streamlining the requirements\n determination process and the price/credit process\nFigure 17. IO Schedule Conformance (percentage)\n used to determine customer prices and obligation\n 0 30 60 90 120 150\n authority requirements for AWCF inventory. Many of\nFY 2003 96 | 95\n these new initiatives will be implemented beginning in\n FY 2006. The RIE teams continue to create meaningful\nFY 2004 96 | 95\n dialogue between all stakeholders and identify critical\n 96 | 96\nFY 2005\n areas to be addressed. As these RIE teams work\n Var (%) (1) (1) 0 through the process and identify more ef\xef\xac\x81cient ways of\n FY 2003 FY 2004 FY 2005\n doing business, these solutions will be implemented.\n Plan\n Actual\n Lean/Six Sigma\n In recent years, the Army has begun implementing\n Lean/Six Sigma to re-engineer many of its\nFuture Effects of Existing Conditions manufacturing and administrative processes. This\n year, tangible and measurable bene\xef\xac\x81ts have been\nCash Corpus realized as Lean/Six Sigma implementations mature,\nOver the past two years, in FY 2004 with congressional particularly in the manufacturing, recapitalization,\nnoti\xef\xac\x81cation and in FY 2005 with congressional maintenance, and repair facilities operated by AMC,\napproval, the Army has transferred $2.0 billion from which is leading the execution of the program.\nthe AWCF to the OMA account. The AWCF is required Lean/Six Sigma initiatives are designed to streamline\nto maintain cash only in the amount that is needed operations across the enterprise, reduce bureaucracy,\nfor current operations. These transfers were made in and improve \xef\xac\x82exibility and agility. Process\nsupport of higher priority items, based on unforeseen improvements have resulted in millions of dollars of\nmilitary requirements, stemming from the GWOT. savings that will be passed back directly to customers\nThe cash was excess to current requirements of the in the form of reduced costs and/or more production\nAWCF. Funds will need to be returned in future years output.\nas operations are drawn down and the fund returns to\npeacetime operations. The cash may be replenished by Letterkenny Army Depot. Prior to Lean/Six Sigma,\neither a direct appropriation to the AWCF or by adding approximately 8,000 Patriot air defense missile\na cash surcharge to the rates. system components were processed per month in the\n directorate of maintenance. Following the Lean/Six\n Sigma implementation, throughput and productivity\nAdvancing the President\xe2\x80\x99s signi\xef\xac\x81cantly increased. During 2004, with OIF mission\nManagement Agenda surge, parts volume increased to about 20,000 parts\nThe President\xe2\x80\x99s management agenda has great per month without having to add personnel. During\nrelevance in the logistics arena. By improving their 2005, three additional workers were hired as the parts\nmanagement ef\xef\xac\x81ciency, all AWCF activities should be volume rose to a high of 36,912 parts in March 2005 \xe2\x80\x93 a\nable to lower the rates they charge to customers. productivity increase of 312 percent when factoring in\n the added manpower. Process quality improved to the\n point in March 2005 when zero rejects were recorded\nImproved Financial Performance and, during the six month period of November 2003\nRapid Improvement Event (RIE) Initiatives through April 2005, only nine external rejects were\nIn FY 2005, the AWCF initiated a value stream analysis recorded equating to a 99.993 percent quality rating.\nprocess to assess inef\xef\xac\x81ciencies and redundancies\n\n\n\n158 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0cRed River Army Depot. The High Mobility which is also commonly referred to as business\nMultipurpose Wheeled Vehicle (HMMWV) enterprise architecture (BEA)-logistics, or BEA-LOG,\nrecapitalization production line was averaging just has six principal components: total lifecycle systems\nthree vehicles weekly and required over 400 man-hours management (TLCSM), end-to-end customer support,\nper vehicle in July 2004. In June 2005, the HMMWV condition-based maintenance, depot partnering,\nteam was producing 84 vehicles a week, with a new executive agency, and enterprise integration. All\none-day record of 21 vehicles produced in a 10 hour services must ensure that their enterprise integration\nwork shift. efforts and architectures are in concert with the FLE/\n BEA-LOG, which in turn maps to the BEA. The desired\n outcome is that within DoD, all services and the\n Defense Logistics Agency (DLA) will operate a single\n integrated solution whose technical and functional\n architecture supports the war\xef\xac\x81ghter.\n\n The central objective of the SALE is to develop a fully\n integrated knowledge environment that builds and\n sustains war\xef\xac\x81ghting capability. Logistics, \xef\xac\x81nancial,\n acquisition, and product data will be brought together\n in an environment that operates in a near seamless\n fashion from the Soldier, to the major Army command,\n to Army headquarters, across DoD, and across\n industry. Business systems will capture and integrate\n data \xef\xac\x82owing from automatic identi\xef\xac\x81cation technology\nVice Chief of Staff Gen. Richard A. Cody looks at the \xef\xac\x81nished uparmor kits produced by the\nemployees at Red River Army Depot, Texarkana, Texas. (by Staff Sgt. Reeba Critser) and embedded weapons system diagnostics, and\n will make these data available to logisticians, system\nCorpus Christi Army Depot. Corpus Christi Army engineers, and war\xef\xac\x81ghters.\nDepot (CCAD) has used Lean/Six Sigma to reduce\nby more than half the amount of time it takes to The Army has adopted an incremental approach to\nrecapitalize the Black Hawk and Apache helicopter delivering SALE capabilities as quickly as possible to\nT-700 engines. In 2000, it took more than 260 days to its Soldiers. The SALE strategy consists of four phases.\ndisassemble one T-700 engine and reassemble it with Today, in phase 1, the Army is enhancing its current\nnew parts; CCAD now averages only 81 days and the logistics legacy systems at the tactical level in support\ntotal annual number of units shipped has increased of modularity. Simultaneously, the Army is \xef\xac\x81elding\nfrom 520 to 1344 over the same period. the Logistics Modernization Program (LMP) at the\n national level through FY 2007. In phase 2, projected\nAnniston Army Depot. A Lean/Six Sigma in the FY 2007-2008 timeframe, the Army will include\nimplementation on the M88 assembly line has the \xef\xac\x81elding of the modernized tactical level, enterprise\nincreased production from eight vehicles per month to resource planning (ERP) programs: Global Combat\n12 vehicles per month. Support System (Field/Tactical) and GCSS-Army\n (Product Lifecycle Management Plus) along with\n delivering LMP to the installation level. In phases\nExpand Electronic Government 3 and 4 the Army will accelerate the elimination of\nSingle Army Logistics Enterprise interfaces and integrate logistics functions more clearly\nThe Single Army Logistics Enterprise (SALE) involves into one SALE \xe2\x80\x93 providing even greater capability to\nintegrating several modernizing initiatives, including sustain the combat readiness of deployed forces.\nLMP, the Global Combat Support System-Army\n(GCSS-Army) (Field/Tactical), and GCSS-Army Logistics Modernization Program\n(Product Lifecycle Management Plus) within the The LMP, a key component of Army transformation,\nDoD Future Logistics Enterprise (FLE). The FLE, will update the Army\xe2\x80\x99s national-level logistics business\n\n\n\n 159\n\x0cpractices and supporting information technology. The in Figure 18. LMP is implemented at CECOM;\nLMP will provide integrated logistics management Headquarters, AMC; and associated DFAS sites.\ncapabilities such as total asset visibility, a single Deployment to AMCOM and associated DFAS sites\nsource of data, better forecasting accuracy, and real- is scheduled to begin in 2006. The \xef\xac\x81nal deployment\ntime access to enterprise information. The Army also will be to the remainder of AMC, Army CONUS\nexpects that LMP will improve readiness measurably. installations, and OCONUS war reserve and Army\nAMC initiated the pilot phase in July 2003, as shown prepositioned stocks locations, beginning in 2007.\n\nFigure 18. Logistics Modernization Program\n\n\n Institutional Risk Streamline Decision Processes, Financial Management Acquisition Excellence\n\n FY 2003 FY 2004 FY 2005 FY 2006\n 1 2 3 4 1 2 3 4 1 2 3 4 1 2 LMP is in Pilot\n Stabilization Phase\n Making Steady Progress\n Pilot Stabilization Pilot Stabilization in Correcting Items to\n effort started effort to be\n completed/ Complete This Phase.\n validated\n Pilot Go-Live\n Overall LMP is Rated\n Yellow\n Pilot 2nd Deployment 3rd Deployment\n Communications-Electronics Aviation & Missle Tank-automotive & Armaments Command (TACOM) As of 30 July 2004,\n Command (CECOM) Command (AMCOM) Anniston Army Depot (ANAD)\n HQ Army Materiel Command (AMC) Corpus Christi Army Depot (CCAD) Red River Army Depot (RRAD) 584 of 722 items\n Tobyhanna Army Depot (TYAD) Letterkenny Army Depot (LEAD) Army Field Support Command (AFSC)\n Defense Finance & Accounting Service (DFAS) Joint Munitions Command (JMC)\n completed (81\n percent through Pilot\n Description: AIR 13 - Log Modernization Program Stabilization).\n Provide the Army with integrated logistics management capabilities such as total asset visibility, a single\n source or data, improved forecasting accuracy, and realtime access to enterprise information. Pilot\n Stabilization/Financial\n Parameter:\n Green: On schedule, Yellow: 1 Quarter behind schedule, Red: 2 Quarters behind schedule Correction will be\n completed end of\n Metric: Milestones planned/achieved October\n Owner: AMC\n *As of September 2005\n\n\n\n\n160 Working Capital Fund | FY 2005 Army Annual Financial Statement\n\x0cPhoto Credits\nWorking Capital Fund Opening Photo\nSgt. Matthew Crawford, from the 818th Maintenance Company, 1225th Corps Support\nBattalion, 917th Corps Support Group, welds armor on a vehicle in Q-West, Iraq. (by Sonise\nLumbaca)\n\n\n\n\n 161\n\x0c Principal Financial Statements, Notes, and Supplementary Information\n\n\n\n\n162 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cLIMITATIONS\nLIMITATIONS OF THE FINANCIAL STATEMENTS\n\nThe \xef\xac\x81nancial statements have been prepared to report the \xef\xac\x81nancial position and results\nof operations for the entity, pursuant to the requirements of Title 31, United States Code,\nsection 3515(b).\n\nWhile the statements have been prepared from the books and records of the entity, in\naccordance with the formats prescribed by the Of\xef\xac\x81ce of Management and Budget, the\nstatements are in addition to the \xef\xac\x81nancial reports used to monitor and control budgetary\nresources which are prepared from the same books and records.\n\nTo the extent possible, the \xef\xac\x81nancial statements have been prepared in accordance with\nfederal accounting standards. At times, the department is unable to implement all elements\nof the standards due to \xef\xac\x81nancial management systems limitations. The department\ncontinues to implement system improvements to address these limitations. There are other\ninstances when the department\xe2\x80\x99s application of the accounting standards is different from\nthe auditor\xe2\x80\x99s application of the standards. In those situations, the department has reviewed\nthe intent of the standard and applied it in a manner that management believes ful\xef\xac\x81lls that\nintent.\n\nThe statements should be read with the realization that they are for a component of the\nUnited States Government, a sovereign entity. One implication of this is that the liabilities\ncannot be liquidated without legislation that provides resources to do so.\n\n\n\n\n FY 2005 Army Annual Financial Statement 163\n\x0c164 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - Army Working Capital Fund\nCONSOLIDATED BALANCE SHEET\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\n\xc2\xac\xc2\xac\xc2\xacASSETS\xc2\xac(Note\xc2\xac2)\n Intragovernmental:\n Fund Balance with Treasury (Note 3)\n Entity $ 623,330 $ 948,463\n Non-Entity Seized Iraqi Cash 0 0\n Non-Entity-Other 0 0\n Investments (Note 4) 0 0\n Accounts Receivable (Note 5) 366,622 444,923\n Other Assets (Note 6) 0 79\n Total Intragovernmental Assets $ 989,952 $ 1,393,465\n\n Cash and Other Monetary Assets (Note 7) $ 0 $ 0\n Accounts Receivable (Note 5) 12,035 13,482\n Loans Receivable (Note 8) 0 0\n Inventory and Related Property (Note 9) 15,933,141 13,916,672\n General Property, Plant and Equipment (Note 10) 1,228,213 899,438\n Investments (Note 4) 0 0\n Other Assets (Note 6) 333,741 265,122\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacASSETS $ 18,497,082 $ 16,488,179\n\n\xc2\xac\xc2\xac\xc2\xacLIABILITIES\xc2\xac(Note\xc2\xac11)\n Intragovernmental:\n Accounts Payable (Note 12) $ 105,603 $ 159,150\n Debt (Note 13) 0 0\n Other Liabilities (Note 15 & Note 16) 75,579 67,660\n Total Intragovernmental Liabilities $ 181,182 $ 226,810\n\n Accounts Payable (Note 12) $ 295,820 $ 372,054\n Military Retirement Benefits and Other Employment-Related 286,523 304,976\n Actuarial Liabilities (Note 17)\n Environmental Liabilities (Note 14) 0 0\n Loan Guarantee Liability (Note 8) 0 0\n Other Liabilities (Note 15 and Note 16) 642,522 213,452\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES $ 1,406,047 $ 1,117,292\n\n\xc2\xac\xc2\xac\xc2\xacNET\xc2\xacPOSITION\n Unexpended Appropriations $ 0 $ 53\n Cumulative Results of Operations 17,091,035 15,370,834\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacNET\xc2\xacPOSITION $ 17,091,035 $ 15,370,887\n\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES\xc2\xacAND\xc2\xacNET\xc2\xacPOSITION $ 18,497,082 $ 16,488,179\n\n\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 165\n\x0cDepartment of Defense - Army Working Capital Fund\nCONSOLIDATED STATEMENT OF NET COST\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\n\xc2\xac\xc2\xac\xc2\xacProgram\xc2\xacCosts\n Intragovernmental Gross Costs $ 2,016,164 $ 2,847,994\n (Less: Intragovernmental Earned Revenue) (7,556,355) (8,456,053)\n Intragovernmental Net Costs $ (5,540,191) $ (5,608,059)\n Gross Costs With the Public $ 10,600,436 $ 8,161,300\n (Less: Earned Revenue From the Public) (6,918,271) (4,951,052)\n Net Costs With the Public $ 3,682,165 $ 3,210,248\n Total Net Cost $ (1,858,026) $ (2,397,811)\n\xc2\xac\xc2\xac\xc2\xacCost\xc2\xacNot\xc2\xacAssigned\xc2\xacto\xc2\xacPrograms 0 0\n\xc2\xac\xc2\xac\xc2\xac(Less:Earned\xc2\xacRevenue\xc2\xacNot\xc2\xacAttributable\xc2\xacto\xc2\xacPrograms) 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ (1,858,026) $ (2,397,811)\n\n\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n166 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - Army Working Capital Fund\nCONSOLIDATED STATEMENT OF CHANGES IN NET POSITION\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\nCUMULATIVE\xc2\xacRESULTS\xc2\xacOF\xc2\xacOPERATIONS\n Beginning\xc2\xacBalances $ 15,370,834 $ 13,883,676\n Prior Period Adjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n Beginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 15,370,834 $ 13,883,676\n Budgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0\n Appropriations transferred-in/out (+/-) 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0\n Appropriations used 53 231,207\n Nonexchange revenue 0 0\n Donations and forfeitures of cash and cash equivalents 0 0\n Transfers-in/out without reimbursement (+/-) (515,944) (1,448,600)\n Other budgetary financing sources (+/-) 0 175,918\n Other\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0\n Transfers-in/out without reimbursement (+/-) 1 0\n Imputed financing from costs absorbed by others 147,135 130,821\n Other (+/-) 230,930 0\n Total\xc2\xacFinancing\xc2\xacSources $ (137,825) $ (910,654)\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) (1,858,026) (2,397,811)\n Net\xc2\xacChange $ 1,720,201 $ 1,487,157\n Ending\xc2\xacBalance $ 17,091,035 $ 15,370,833\n\nUNEXPENDED\xc2\xacAPPROPRIATIONS\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances $ 53 $ 11,960\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacPrior\xc2\xacperiod\xc2\xacadjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 53 $ 11,960\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBudgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 219,300\n Appropriations transferred-in/out (+/-) 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0\n Appropriations used (53) (231,207)\n Nonexchange revenue 0 0\n Donations and forfeitures of cash and cash equivalents 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Other budgetary financing sources (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacOther\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Imputed financing from costs absorbed by others 0 0\n Other (+/-) 0 0\n Total\xc2\xacFinancing\xc2\xacSources $ (53) $ (11,907)\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-)\n Net\xc2\xacChange (53) (11,907)\n Ending\xc2\xacBalance $ 0 $ 53\n\n\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 167\n\x0cDepartment of Defense - Army Working Capital Fund\nCOMBINED STATEMENT OF BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n\n Budgetary Financing Accounts Non-Budgetary Financing Accounts\n 2005 Combined 2004 Combined 2005 Combined 2004 Combined\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 0 $ 219,300 $ 0 $ 0\n Borrowing authority 0 0 0 0\n Contract authority 10,951,904 2,106,368 0 0\n Net transfers (+/-) 0 (1,448,600) 0 0\n Other 0 0 0 0\n Unobligated balance:\n Beginning of period 1,530,242 2,093,703 0 0\n Net transfers, actual (+/-) (515,944) 0 0 0\n Anticipated Transfers Balances 0 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0 0\n Collected 14,180,280 12,265,860 0 0\n Receivable from Federal sources (29,369) (53,776) 0 0\n Change in unfilled customer orders 0 0 0 0\n Advance received 19,271 (17,246) 0 0\n Without advance from Federal sources (774,190) (128,900) 0 0\n Anticipated for the rest of year, without advances 0 0 0 0\n Previously unavailable 0 0 0 0\n Transfers for trust funds 0 0 0 0\n Subtotal $ 13,395,992 $ 12,065,938 $ 0 $ 0\n Recoveries of prior year obligations 1,435,592 499,733 0 0\n Temporarily not available pursuant to Public Law 0 0 0 0\n Permanently not available (8,798,841) 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 17,998,945 $ 15,536,442 $ 0 $ 0\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 0 $ 0 $ 0 $ 0\n Reimbursable 16,822,445 14,006,202 0 0\n Subtotal $ 16,822,445 $ 14,006,202 $ 0 $ 0\n Unobligated balance:\n Apportioned 1,176,499 1,530,241 0 0\n Exempt from apportionment 0 0 0 0\n Other available 1 (1) 0 0\n Unobligated Balances Not Available 0 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 17,998,945 $ 15,536,442 $ 0 $ 0\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net - beginning of period $ 3,968,080 $ 1,898,332 $ 0 $ 0\n Obligated Balance transferred, net (+/-) 0 0 0 0\n Obligated Balance, Net - end of period:\n Accounts receivable (433,233) (462,602) 0 0\n Unfilled customer order from Federal sources (3,748,523) (4,522,713) 0 0\n Undelivered orders 9,775,648 8,334,654 0 0\n Accounts payable 555,861 618,741 0 0\n Outlays:\n Disbursements 14,008,740 11,619,397 0 0\n Collections (14,199,551) (12,248,614) 0 0\n Subtotal $ (190,811) $ (629,217) $ 0 $ 0\n Less: Offsetting receipts 0 0 0 0\n\xc2\xac\xc2\xac Net\xc2\xacOutlays $ (190,811) $ (629,217) $ 0 $ 0\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n168 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - Army Working Capital Fund\nCONSOLIDATED STATEMENT OF FINANCING\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacActivities:\nBudgetary Resources Obligated\n Obligations incurred $ 16,822,445 $ 14,006,202\n Less: Spending authority from offsetting collections (14,831,585) (12,565,671)\n and recoveries (-)\n Obligations net of offsetting collections and recoveries $ 1,990,860 $ 1,440,531\n Less: Offsetting receipts (-) 0 0\n Net obligations $ 1,990,860 $ 1,440,531\nOther Resources\n Donations and forfeitures of property 0 0\n Transfers in/out without reimbursement (+/-) 1 0\n Imputed financing from costs absorbed by others 147,135 130,821\n Other (+/-) 230,930 0\n Net other resources used to finance activities $ 378,066 $ 130,821\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacactivities $ 2,368,926 $ 1,571,352\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacItems\xc2\xacnot\xc2\xacPart of\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\n Change in budgetary resources obligated for goods,\n services and benefits ordered but not yet provided\n Undelivered Orders (-) $ (1,514,883) $ (2,497,681)\n Unfilled Customer Orders (754,919) (146,147)\n Resources that fund expenses recognized in prior periods (21,283) (23,337)\n Budgetary offsetting collections and receipts that do not affect net cost of operations 0 0\n Resources that finance the acquisition of assets (7,998,974) (6,214,549)\n Other resources or adjustments to net obligated resources\n that do not affect net cost of operations\n Less: Trust or Special Fund Receipts Related to Exchange in the Entity's Budget (-) 0 0\n Other (+/-) (230,931) 6,872\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacitems\xc2\xacnot part\xc2\xacof\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations $ (10,520,990) $ (8,874,842)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof operations $ (8,152,064) $ (7,303,490)\n\nComponents\xc2\xacof\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xacthat\xc2\xacwill\nnot\xc2\xacRequire\xc2\xacor\xc2\xacGenerate\xc2\xacResources\xc2\xacin\xc2\xacthe\xc2\xacCurrent\xc2\xacPeriod:\nComponents Requiring or Generating Resources in Future Period:\n Increase in annual leave liability $ 28,898 $ 1,376\n Increase in environmental and disposal liability 0 0\n Upward/Downward reestimates of credit subsidy expense (+/-) 0 0\n Increase in exchange revenue receivable from the the public (-) 0 0\n Other (+/-) 0 172\n Total components of Net Cost of Operations that $ 28,898 $ 1,548\n will require or generate resources in future periods\nComponents not Requiring or Generating Resources:\n Depreciation and amortization 95,884 82,909\n Revaluation of assets or liabilities (+/-) 699,913 257,468\n Other (+/-)\n Trust Fund Exchange Revenue 0 0\n Cost of Goods Sold 6,025,370 5,003,845\n Operating Material & Supplies Used 0 0\n Other (556,029) (440,090)\n Total components of Net Cost of Operations that\n will not require or generate resources $ 6,265,138 $ 4,904,132\nTotal\xc2\xaccomponents\xc2\xacof\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations\xc2\xacthat\nwill\xc2\xacnot\xc2\xacrequire\xc2\xacor\xc2\xacgenerate\xc2\xacresources\xc2\xacin\xc2\xacthe\xc2\xaccurrent period $ 6,294,036 $ 4,905,680\nNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ (1,858,028) $ (2,397,810)\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 169\n\x0cNote 1. Signi\xef\xac\x81cant Accounting Policies\n1.A. Basis of Presentation\nThese \xef\xac\x81nancial statements have been prepared to report the \xef\xac\x81nancial position and results of operations of the\nArmy Working Capital Fund (AWCF), as required by the Chief Financial Of\xef\xac\x81cers Act of 1990, expanded by the\nGovernment Management Reform Act of 1994, and other appropriate legislation. The \xef\xac\x81nancial statements have\nbeen prepared from the books and records of the AWCF in accordance with the Department of Defense (DoD)\nFinancial Management Regulation, Of\xef\xac\x81ce of Management and Budget (OMB) Circular A-136, Financial Reporting\nRequirements, and to the extent possible, Federal Generally Accepted Accounting Principles (GAAP).\n\nThe accompanying \xef\xac\x81nancial statements account for all resources for which the AWCF is responsible. Under the\nabove guidance, classi\xef\xac\x81ed assets, programs, and operations have been excluded from the statement, or otherwise\naggregated and reported, in such a manner that they are no longer classi\xef\xac\x81ed. The AWCF \xef\xac\x81nancial statements are\nin addition to the \xef\xac\x81nancial reports also prepared by the AWCF pursuant to OMB directives that are used to monitor\nand control the AWCF use of budgetary resources.\n\nThe AWCF is unable to fully implement all elements of Federal GAAP and OMB Circular A-136 due to limitations\nof its \xef\xac\x81nancial and non-\xef\xac\x81nancial management processes and systems. The Army derives its reported values and\ninformation for major asset and liability categories largely from non-\xef\xac\x81nancial feeder systems, such as inventory\nand logistics systems. These systems were designed to support reporting requirements focusing on maintaining\naccountability over assets and reporting the status of federal appropriations rather than preparing \xef\xac\x81nancial\nstatements in accordance with Federal GAAP. As a result, the AWCF cannot currently implement every aspect of\nFederal GAAP and OMB Circular A-136. The AWCF continues to implement processes and system improvements\naddressing the limitations of its \xef\xac\x81nancial and non-\xef\xac\x81nancial feeder systems. Further explanation of these \xef\xac\x81nancial\nstatement elements is provided in the applicable note.\n\nThe accounting structure of federal agencies is designed to re\xef\xac\x82ect both accrual and budgetary accounting\ntransactions. Under the accrual method of accounting, revenues are recognized when earned, and expenses are\nrecognized when incurred, without regard to receipt or payment of cash. The budgetary accounting principles, on\nthe other hand, are designed to recognize the obligation of funds according to legal requirements, which in many\ncases is prior to the occurrence of an accrual-based transaction. The recognition of budgetary accounting transactions\nis essential for compliance with legal constraints and controls over the use of federal funds.\n\n\n1.B. Mission of the Reporting Entity\nThe AWCF is part of the Defense Working Capital Fund, and is divided into two separate business areas: Supply\nManagement and Industrial Operations. In October 2004, the Depot Maintenance and Ordnance business areas were\nconsolidated into what is now Industrial Operations. These business areas ensure delivery of critical items, such\nas petroleum products, repair parts, consumable supplies, depot maintenance services, munitions and weapons to\nsupport the deployment and projection of lethal force as and when required by the nation.\n\n\n1.C. Appropriations and Funds\nThe Army appropriations and funds are divided into the general, working capital (revolving funds), trust, special,\nand deposit funds. These appropriations and funds are used to fund and report how the resources have been used\nin the course of executing the Army missions.\n\nWorking capital funds (revolving funds) receive their initial working capital through an appropriation or a\ntransfer of resources from existing appropriations or funds and use those capital resources to \xef\xac\x81nance the initial\ncost of products and services. Financial resources to replenish the initial working capital and to permit continuing\noperations are generated by the acceptance of customer orders. The AWCF operates with \xef\xac\x81nancial principles that\nprovide improved cost visibility and accountability to enhance business management and improve the decision-\n\n\n170 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cmaking process. The activities provide goods and services on a reimbursable basis. Receipts derived from\noperations generally are available in their entirety for use without further congressional action.\n\n\n1.D. Basis of Accounting\nThe AWCF generally records transactions on an accrual accounting basis as is required by Federal GAAP. For\nFY 2005, the AWCF \xef\xac\x81nancial management systems are unable to meet all of the requirements for full accrual\naccounting. Many of the AWCF \xef\xac\x81nancial and non-\xef\xac\x81nancial feeder systems and processes were designed and\nimplemented prior to the issuance of Federal GAAP for federal agencies and, therefore, were not designed to collect\nand record \xef\xac\x81nancial information on the full accrual accounting basis as required by Federal GAAP.\n\nThe AWCF has undertaken efforts to determine the actions required to bring all of its \xef\xac\x81nancial and non-\xef\xac\x81nancial\nfeeder systems and processes into compliance with all elements of Federal GAAP. One such action is the current\nrevision of its accounting systems to record transactions based on the U.S. Standard General Ledger (USSGL). At\nthis time, not all AWCF accounting systems are USSGL compliant. In addition, with the full implementation of\nthe Logistics Modernization Program (LMP), the AWCF will be in compliance with Statement of Federal Financial\nAccounting Standard (SFFAS) No. 4, \xe2\x80\x9cManagerial Cost Accounting Concepts and Standards for the Federal\nGovernment.\xe2\x80\x9d As of December 31, 2003, LMP has been implemented at Tobyhanna Army Depot, Communications\nand Electronics Command, and other Army Materiel Command activities. Until LMP is fully implemented and all\nof the processes are updated to collect and report \xef\xac\x81nancial information as required by Federal GAAP, some of the\nAWCF \xef\xac\x81nancial data will be based on budgetary transactions (obligations, disbursements, collections), and non-\n\xef\xac\x81nancial feeder systems. For example, most \xef\xac\x81nancial information presented on the Statement of Net Costs is based\non accrued costs; however, some of the \xef\xac\x81nancial information is based on obligations and disbursements.\n\nIn addition, the Army identi\xef\xac\x81es programs based upon the major appropriation groups provided by Congress. The\nArmy does not, however, accumulate costs for major programs based on performance measures because its \xef\xac\x81nancial\nprocesses and systems do not account for costs in line with established measures. The Army is reviewing available\ndata and attempting to develop a cost reporting methodology that provides the cost information required by the\nStatement of Federal Financial Accounting Standard (SFFAS) No. 4, Managerial Cost Accounting Concepts and\nStandards for the Federal Government.\n\n\n1.E. Revenues and Other Financing Sources\nThe AWCF revenue is recognized according to the percentage of completion method for Industrial Operations\nactivities. Revenue for Supply Management activities is recognized when an inventory item is sold. Prices set for\nproducts and services offered through the AWCF are intended to recover the full costs (cost plus administrative fees)\nincurred by these activities. Unearned revenue is recorded as deferred revenue until earned.\n\nOther \xef\xac\x81nancing sources reported by the AWCF do not include non-monetary support provided by our allies for\ncommon defense and mutual security. The U.S. has agreements with foreign countries that include both direct\nand indirect sharing of costs that each country incurs in support of the same general purpose. Examples include\ncountries where there is a mutual or reciprocal defense agreement, where U.S. troops are stationed, or where the U.S.\n\xef\xac\x82eet is serviced in a port. The DoD is reviewing these types of \xef\xac\x81nancing and cost reductions in order to establish\naccounting policies and procedures to identify what, if any, of these costs are appropriate for disclosure in the\nAWCF \xef\xac\x81nancial statements in accordance with Federal GAAP. Recognition of support provided by host nations\nwould affect both \xef\xac\x81nancing sources and expense recognition.\n\n\n1.F. Recognition of Expenses\nFor \xef\xac\x81nancial reporting purposes, the DoD policy requires the recognition of operating expenses in the period\nincurred. However, because the AWCF \xef\xac\x81nancial and non-\xef\xac\x81nancial feeder systems were not designed to collect and\nrecord \xef\xac\x81nancial information on the full accrual accounting basis, accrual adjustments are made for major items such\nas payroll expenses and accounts payable. Expenditures for capital and other long-term assets are not recognized\n\n\n FY 2005 Army Annual Financial Statement 171\n\x0cas expenses in the AWCF operations until depreciated as in the case of property, plant and equipment (PP&E).\nNet increases or decreases in unexpended appropriations are recognized as a change in the net position. Certain\nexpenses, such as annual leave earned but not taken, are recognized in the period in which payments are made.\n\nThe AWCF adjusted operating expenses as a result of the elimination of balances between DoD Components. See\nNote 18, Disclosures Related to the Statement of Net Cost, for disclosure of elimination amounts.\n\n\n1.G. Accounting for Intragovernmental Activities\nThe AWCF, as an agent of the Federal government, interacts with and is dependent upon the \xef\xac\x81nancial activities of\nthe Federal government as a whole. Therefore, these \xef\xac\x81nancial statements do not re\xef\xac\x82ect the results of all \xef\xac\x81nancial\ndecisions applicable to the AWCF as though it was a stand-alone entity.\n\nThe AWCF proportionate share of public debt and related expenses of the Federal government are not included.\nDebt issued by the Federal government and the related costs are not apportioned to federal agencies. The AWCF\n\xef\xac\x81nancial statements, therefore, do not report any portion of the public debt or interest, nor do the \xef\xac\x81nancial\nstatements report the source of public \xef\xac\x81nancing whether from issuance of debt or tax revenues.\n\nFinancing for the construction of DoD facilities is obtained through budget appropriations. To the extent this\n\xef\xac\x81nancing may have been obtained through the issuance of public debt, interest costs have not been capitalized since\nthe Department of Treasury does not allocate such interest costs to the bene\xef\xac\x81ting agencies.\n\nThe AWCF civilian employees participate in the Civil Service Retirement System (CSRS) or the Federal Employees\nRetirement Systems (FERS). Employees and personnel covered by FERS also have varying coverage under Social\nSecurity. The AWCF funds a portion of civilian and military pensions. Reporting civilian pensions under CSRS\nand FERS is the responsibility of the Of\xef\xac\x81ce of Personnel Management (OPM). The AWCF recognizes an imputed\nexpense for the portion of civilian employee pensions and other retirement bene\xef\xac\x81ts funded by the OPM in the\nStatement of Net Cost and recognizes corresponding imputed revenue from the civilian employee pensions and\nother retirement bene\xef\xac\x81ts in the Statement of Changes in Net Position.\n\nTo prepare reliable \xef\xac\x81nancial statements, transactions occurring between components or activities within the\nAWCF must be eliminated for consolidated \xef\xac\x81nancial reporting purposes. However, the entire Federal government,\nincluding the AWCF, cannot accurately identify all intragovernmental transactions by its related components\nor activities. The Defense Finance and Accounting Service (DFAS) is responsible for eliminating transactions\nbetween components or activities of the AWCF. Beginning in FY 1999, seller entities within the AWCF provided\nsummary seller-side balances for revenue, accounts receivable, transfers-in/out, and unearned revenue to the\nbuyer-side internal AWCF accounting of\xef\xac\x81ces. In most cases, the buyer-side records have been adjusted to recognize\nunrecorded costs and accounts payable. The AWCF intragovernmental balances are then eliminated.\n\nThe Department of the Treasury Financial Management Service (FMS) is responsible for eliminating transactions\nbetween the DoD and other federal agencies. In September 2000, the FMS issued the \xe2\x80\x9cFederal Intragovernmental\nTransactions Accounting Policies and Procedures Guide.\xe2\x80\x9d The AWCF was not able to fully implement the policies\nand procedures in this Guide relating to reconciling intragovernmental assets, liabilities, revenues, and expenses for\nnon-\xef\xac\x81duciary transactions. However, the AWCF was able to implement the policies and procedures contained in\nthe \xe2\x80\x9cIntragovernmental Fiduciary Transactions Accounting Guide,\xe2\x80\x9d as updated by the \xe2\x80\x9cFederal Intragovernmental\nTransactions Accounting Policies and Procedures Guide\xe2\x80\x9d issued in October 2002 for reconciling intragovernmental\ntransactions. These transactions pertain to Federal Employees\xe2\x80\x99 Compensation Act transactions with the Department\nof Labor (DOL), and bene\xef\xac\x81t program transactions with the OPM.\n\n\n1.H. Transactions with Foreign Governments and International Organizations\nEach year, the AWCF sells defense items and services to foreign governments and international organizations,\nprimarily under the provisions of the Arms Export Control Act of 1976. Under the provisions of the Act, the DoD\n\n\n172 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0chas the authority to sell defense articles and services to foreign countries and international organizations generally at\nno pro\xef\xac\x81t or loss to the U.S. government. Customers may be required to make payments in advance.\n\n\n1.I. Funds with the U.S. Treasury\nThe AWCF \xef\xac\x81nancial resources are maintained in U.S. Treasury accounts. DFAS, Military Services, U.S. Army\nCorps of Engineers (USACE) disbursing stations as well as the Department of State \xef\xac\x81nancial service centers process\nthe majority of cash collections, disbursements, and adjustments for the Federal government worldwide. Each\ndisbursing station prepares monthly reports, which provide information to the U.S. Treasury on check issues,\nelectronic fund transfers, interagency transfers and deposits.\n\nIn addition, the DFAS sites and the USACE Finance Center submit reports to the Department of the Treasury, by\nappropriation, on interagency transfers, collections received, and disbursements issued. The Department of the\nTreasury then records this information to the applicable Fund Balance with Treasury (FBWT) account maintained in\nthe Treasury\xe2\x80\x99s system. Differences between the AWCF and Treasury\xe2\x80\x99s records sometime result and are subsequently\nreconciled. Material disclosures are provided in Note 3. Differences between accounting of\xef\xac\x81ces\xe2\x80\x99 detail-level records\nand Treasury FBWT accounts are disclosed in Note 3, Fund Balance With Treasury, speci\xef\xac\x81cally differences caused by\nin-transit disbursements and unmatched disbursements which are not recorded in the accounting of\xef\xac\x81ces\xe2\x80\x99 detail-level\nrecords.\n\n\n1.J. Foreign Currency\nNot applicable.\n\n\n1.K. Accounts Receivable\nAs presented in the Balance Sheet, accounts receivable includes accounts, claims, and refunds receivables from\nother federal agencies and the public. Federal accounts receivable arise generally from the provision of goods and\nservices to other federal agencies and, with the exception of occasional billing disputes, are considered to be fully\ncollectible. Receivables from the public generally arise from the provision of goods and services to state, local, and\nforeign governments. Refunds receivable, however, are overpayments by the Federal government in the process of\nbeing collected. An allowance for doubtful accounts is established for reporting purposes based on past experience\nin the collection of accounts receivable and analysis of outstanding balances by fund type. The AWCF recognizes an\nallowance of 50 percent for all non-federal debt between 180 days and two years old and a 100 percent allowance for\nall non-federal debt over two years old. The allowance is updated annually, based on the aged accounts receivable\nat the end of the 2nd Quarter. The AWCF does not recognize an allowance for estimated uncollectible amounts from\nother federal agencies. Claims against other federal agencies are to be resolved between the agencies. Material\ndisclosures are provided in Note 5, Accounts Receivable.\n\n\n1.L. Loans Receivable\nNot applicable.\n\n\n1.M. Inventories and Related Property\nNot all of the AWCF inventory reported in the \xef\xac\x81nancial statements is valued using the same valuation method.\nThe AWCF inventories are reported using the Latest Acquisition Cost (LAC), which approximates historical cost,\nadjusted for holding gains and losses, and Moving Average Cost (MAC), which computes a new average cost\neach time a purchase is made. The AWCF uses the LAC method because its inventory systems were designed for\nmaterial management rather than accounting, except for activities that have transitioned to LMP. The systems\nprovide accountability and visibility over inventory items. They do not maintain the exact historical cost data\nnecessary to comply with SFFAS No. 3, \xe2\x80\x9cAccounting for Inventory and Related Property,\xe2\x80\x9d nor can they directly\nproduce \xef\xac\x81nancial transactions using the USSGL, as required by the Federal Financial Management Improvement\n\n\n FY 2005 Army Annual Financial Statement 173\n\x0cAct of 1996. The AWCF transition to LMP will also allow the use of a MAC methodology for valuing inventory that,\nwhen fully implemented, will allow the AWCF to comply with SFFAS No. 3. (See Note 9, Inventory and Related\nProperty)\n\nSFFAS No. 3 distinguishes between inventory held for sale and inventory held in reserve for future sale. There is no\nmanagement or valuation difference between the two USSGL accounts. Further, the DoD manages only military or\ngovernment-speci\xef\xac\x81c material under normal conditions. Items commonly used in and available from the commercial\nsector are not managed in the DoD material management activities. Operational cycles are irregular, and the\nmilitary risks associated with stock-out positions have no commercial parallel. The AWCF holds material based on\nmilitary need and support for contingencies. Therefore, the AWCF does not attempt to account separately for items\nheld for current or future sale.\n\nIn accordance with new DoD policy, the Army accounts for condemned material as excess, obsolete, and\nunserviceable. The net value of this type of condemned material is zero, because the costs of disposal are greater\nthan the potential scrap value. Potentially redistributable material, presented in previous years as excess, obsolete,\nand unserviceable, is included in held for use or held for repair categories according to its condition.\n\nIn addition, past audit results identi\xef\xac\x81ed uncertainties about the completeness and existence of quantities used to\nproduce the reported values. Material disclosures related to inventory and related property are provided in Note 9,\nInventory and Related Property.\n\n\n1.N Investments in U.S. Treasury Securities\nNot applicable.\n\n\n1.O. General Property, Plant and Equipment\nGeneral Property, Plant & Equipment (PP&E) assets are capitalized at historical acquisition cost plus capitalized\nimprovements when an asset has a useful life of two or more years, and when the acquisition cost equals or exceeds\nthe DoD capitalization threshold of $100 thousand. Also, improvement costs over the DoD capitalization threshold\nof $100,000 for General PP&E are required to be capitalized. All General PP&E, other than land, is depreciated on a\nstraight-line basis. Land is not depreciated.\n\nPrior to FY 1996, General PP&E with an acquisition cost of $15 thousand, $25 thousand, and $50 thousand for FY\n1993, FY 1994, and FY 1995 respectively, and an estimated useful life of two or more years was capitalized. These\nassets remain capitalized and reported on AWCF \xef\xac\x81nancial statements.\n\nFor the AWCF activities, all PP&E used in the performance of their mission is categorized as General PP&E, whether\nor not it meets the de\xef\xac\x81nition of any other PP&E categories. Heritage Assets and Stewardship Land owned or\nmaintained on an AWCF installation are reported in the Required Supplemental Stewardship Information Report of\nthe applicable military department. Material disclosures are provided in Note 10, General PP&E, Net.\n\nInternal use software is capitalized at cost if the acquisition cost is $100 thousand or more. For commercial off-the-\nshelf software, the capitalized costs include the amount paid to the vendor for the software; for contractor-developed\nsoftware it includes the amount paid to a contractor to design, program, install, and implement the software.\nCapitalized costs for internally developed software include the full cost (direct and indirect) incurred during the\nsoftware development stage. The estimated useful life for calculating amortization of software is two to \xef\xac\x81ve years\nusing the straight-line method.\n\n\n1.P. Advances and Prepayments\nThe AWCF records payments made prior to the receipt of goods and services as advances or prepayments and\nreports them as assets on the Balance Sheet. Advances and prepayments are recognized as expenditures and\nexpenses when the related goods and services are received.\n\n\n174 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c1.Q. Leases\nNot applicable.\n\n\n1.R. Other Assets\nThe AWCF conducts business with commercial contractors under two primary types of contracts--\xef\xac\x81xed price and\ncost reimbursable. To alleviate the potential \xef\xac\x81nancial burden on the contractor that long-term contracts can cause,\nthe AWCF provides \xef\xac\x81nancing payments. One type of \xef\xac\x81nancing payment that the AWCF makes, for real property, is\nbased upon a percentage of completion. In accordance with the SFFAS No. 1, \xe2\x80\x9cAccounting for Selected Assets and\nLiabilities,\xe2\x80\x9d such payments are treated as construction-in-process and are reported on the General PP&E line and in\nNote 10, General PP&E, Net.\n\nIn addition, based on the Federal Acquisition Regulation, the AWCF makes \xef\xac\x81nancing payments under \xef\xac\x81xed price\ncontracts. The AWCF reports these \xef\xac\x81nancing payments as \xe2\x80\x9cOther Assets\xe2\x80\x9d because the AWCF becomes liable only\nafter the contractor delivers the goods in conformance with the contract terms. If the contractor does not deliver a\nsatisfactory product, the AWCF is not obligated to reimburse the contractor for its costs and the contractor is liable to\nrepay the AWCF for the full amount of the advance.\n\n\n1.S. Contingencies and Other Liabilities\nThe SFFAS No. 5, \xe2\x80\x9cAccounting for Liabilities of the Federal Government,\xe2\x80\x9d de\xef\xac\x81nes a contingency as an existing\ncondition, situation, or set of circumstances that involves an uncertainty as to possible gain or loss to the AWCF. The\nuncertainty will be resolved when one or more future events occur or fail to occur. A contingency is recognized as a\nliability when a past event or exchange transaction has occurred, a future loss is probable and the amount of loss can\nbe reasonably estimated.\n\nFinancial statement reporting is limited to disclosure when conditions for liability recognition do not exist but there\nis at least a reasonable possibility that a loss or additional loss will be incurred. Loss contingencies include the\ncollectibility of receivables, pending or threatened litigation, and possible claims and assessments. The Army\xe2\x80\x99s loss\ncontingencies arising as a result of pending or threatened litigation or claims and assessments occur due to events\nsuch as aircraft, ship and vehicle accidents; medical malpractice; property or environmental damages; and contract\ndisputes.\n\n\n1.T. Accrued Leave\nCivilian annual leave that has been accrued and not used as of the balance sheet date is reported as a liability. The\nliability reported at the end of the \xef\xac\x81scal year re\xef\xac\x82ects the current pay rates.\n\n\n1.U. Net Position\nNet Position consists of unexpended appropriations and cumulative results of operations. Unexpended\nappropriations represent budget authority, which is unobligated and has not been rescinded or withdrawn, and\nfunds obligated but for which legal liabilities have not been incurred.\n\nCumulative results of operations for AWCF represents the excess of revenues over expenses less refunds to\ncustomers and returns to the U.S. Treasury since fund inception.\n\n\n1.V. Treaties for Use of Foreign Bases\nNot applicable.\n\n\n\n\n FY 2005 Army Annual Financial Statement 175\n\x0c1.W. Comparative Data\nThe Financial Statements and accompanying Notes to the Financial Statements report the \xef\xac\x81nancial position and\nresults of operations for the FY 2005. Financial statement \xef\xac\x82uctuations greater than two percent of total assets on the\nBalance Sheet and/or greater than ten percent between FY 2004 and FY 2005 are explained within the Notes to the\nFinancial Statements.\n\n\n1.X. Unexpended Obligations\nThe AWCF obligates funds to provide goods and services for outstanding orders not yet delivered. The \xef\xac\x81nancial\nstatements do not re\xef\xac\x82ect this liability for payment for goods or services not yet delivered.\n\n\n1.Y. Undistributed Disbursements and Collections\nUndistributed disbursements and collections represent the difference between disbursements and collections\nmatched at the transaction level to a speci\xef\xac\x81c obligation, payable, or receivable in the activity \xef\xac\x81eld records as opposed\nto those reported by the U.S. Treasury. These amounts should agree with the undistributed amounts reported on the\ndepartmental accounting reports.\n\nThe Department of Defense policy is to allocate supported undistributed disbursements and collections between\nfederal and nonfederal categories based on the percentage of Federal and nonfederal accounts payable and accounts\nreceivable. Unsupported undistributed disbursements are recorded in accounts payable. Unsupported undistributed\ncollections are recorded in other liabilities. The AWCF follows this procedure.\n\n\n1.Z. Logistics Modernization Program (LMP) Issues\nThe Logistics Modernization Program (LMP) is a key component in the Army\xe2\x80\x99s major transformation to become\nmore responsive, deployable, agile, versatile, lethal, survivable, and sustainable. The LMP solution will provide\nan integrated logistics management capability that enables total asset visibility; enhanced decision support; a\ncollaborative planning environment; a single, actionable source of data; improved forecasting accuracy; and real-\ntime, easy access to enterprise-wide information. Since its implementation in July, 2003, the Army has experienced\ndata conversion problems from legacy accounting and logistics systems to LMP. These issues have presented\nmany challenges that are re\xef\xac\x82ected throughout the AWCF \xef\xac\x81nancial statements as adjustments, corrections, and\nfootnote disclosures. The Department of Army has developed a speci\xef\xac\x81c plan to address the \xef\xac\x81nancial and inventory\nmanagement problems recognized in these statements.\n\n\n\n\n176 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 2. Nonentity Assets\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Intragovernmental Assets\n A. Fund Balance with Treasury $ 0 $ 0\n B. Investments 0 0\n C. Accounts Receivable 0 0\n D. Other Assets 0 0\n E. Total Intragovernmental Assets $ 0 $ 0\n 2. Nonfederal Assets\n A. Cash and Other Monetary Assets $ 0 $ 0\n B. Accounts Receivable 0 0\n C. Loans Receivable 0 0\n D. Inventory & Related Property 0 0\n E. General PP&E 0 0\n F. Investments 0 0\n G. Other Assets 0 0\n H. Total Nonfederal Assets $ 0 $ 0\n 3. Total Nonentity Assets $ 0 $ 0\n 4. Total Entity Assets $ 18,497,082 $ 16,488,179\n 5. Total Assets $ 18,497,082 $ 16,488,179\n\nAssets are categorized as:\n\nNonentity asset are assets held by an entity but are not available for use in the operations of the entity. The Army\nWorking Capital Fund (AWCF) does not have nonentity assets.\n\nEntity assets are resources that the AWCF has the authority to use or where management is legally obligated to use\nfunds to meet entity obligations.\n\n\nFluctuations and/or Abnormalities\nTotal Assets increased $2.0 billion, or 12 percent, from FY 2004 to FY 2005. This increase is due primarily to increases\nin general property plant and equipment and inventory in FY 2005.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 3, Fund Balance With Treasury\nNote 5, Accounts Receivable\nNote 6, Other Assets\nNote 9, Inventory and Related Property\nNote 10, General PPE, Net\n\n\n\n\n FY 2005 Army Annual Financial Statement 177\n\x0cNote 3. Fund Balance with Treasury\n\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Fund Balances\n A. Appropriated Funds $ 0 $ 53\n B. Revolving Funds 623,330 948,410\n C. Trust Funds 0 0\n D. Special Funds 0 0\n E. Other Fund Types 0 0\n F. Total Fund Balances $ 623,330 $ 948,463\n 2. Fund Balances Per Treasury Versus Agency\n A. Fund Balance per Treasury $ 623,330 $ 948,463\n B. Fund Balance per AWCF 623,330 948,463\n 3. Reconciling Amount $ 0 $ 0\n\n\nFluctuations and/or Abnormalities\nAppropriated Funds decreased $53 thousand, or 100 percent, from FY 2004 to FY 2005 due to Of\xef\xac\x81ce of the Secretary\nof Defense guidance stating that all Working Capital Fund, Fund Balance With Treasury Appropriated Funds should\nbe reported as Revolving Funds.\n\nRevolving funds decreased $325.1 million or 34 percent, from FY 2004 to FY 2005. During FY 2005 the AWCF did not\nreceive direct appropriations. However, the AWCF did receive transfers in of budgetary resources of $84.4 million\nfor war reserves and $99.6 million received for industrial mobilization capacity, totaling $184.1 million in accordance\nwith the DoD Appropriations Act, 2005, P.L. 108-287. The AWCF transferred out $250.0 million to the Army General\nFund, Operations and Maintenance Appropriation in accordance with Critical Army Requirements, Reprogramming\nAction FY 05-27 PA and $450.0 million to the Army General Fund, Operations and Maintenance Appropriation in\naccordance with Critical Army Requirements, Reprogramming Action FY 05-47 PA.\n\n\nOther disclosures\nDefense Finance and Accounting Service increased \xef\xac\x81eld-reported data by $183 thousand to agree with the FBWT\nreported on the Treasury trial balance.\n\nThe deposit differences are reconcilable differences reported by the Treasury or the Army. The Army has no deposit\ndifferences greater than 180 days old as of September 30, 2005.\n\nThe Intragovernmental Payment and Collection (IPAC) differences are reconcilable differences that represent\namounts recorded by the Treasury but not reported by the organization. The Army had no IPAC differences greater\nthan 180 days old as of September 30, 2005.\n\nAutomated reconciliation tools have virtually eliminated all existing differences for the Army. Field sites requiring\nadditional documentation to record the transaction in their accounting system, accounting errors, or timing\ndifferences between disbursing and Treasury cut-off dates are the only reasons for an IPAC difference to exist today.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 1.I, Funds with the U.S. Treasury\n\n\n\n\n178 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cStatus of Fund Balance with Treasury\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Unobligated Balance\n A. Available $ 1,176,499 $ 1,530,240\n B. Unavailable 0 0\n 2. Obligated Balance not yet Disbursed $ 10,331,508 $ 8,953,395\n 3. Non-Budgetary FBWT $ 0 $ 0\n 4. Non-FBWT Budgetary Accounts $ (10,884,677) $ (9,535,172)\n 5. Total $ 623,330 $ 948,463\n\n\nUnobligated Balance Available represents the budgetary resources from contract authority, reimbursable orders,\nappropriations, and transfers in of budgetary resources that have not yet been obligated.\n\nUnobligated balance available decreased $353.7 million, or 23 percent from FY 2004 to FY 2005 as the AWCF\nobligated projects in FY 2005 from FY 2004 reimbursable orders.\n\nThe Obligated Balance not yet Disbursed increased $1.4 billion or 15 percent. The increase is attributable to\nincreased undelivered orders in support of contingency missions Operation Enduring Freedom, Operation Iraqi\nFreedom and Noble Eagle.\n\nNon-FBWT Budgetary Accounts increased $1.3 billion, or 14 percent. During FY 2005, the AWCF received authority\nto incur obligations exceeding earnings in the Supply Management Business to support anticipated operational\nrequirements in support of contingency missions Operation Enduring Freedom, Operation Iraqi Freedom and Noble\nEagle.\n\n\nDisclosures Related to Suspense/Budget Clearing Accounts\nNot applicable.\n\nThe Suspense/Budget Clearing Accounts are maintained and reported by the Army General Fund. Some\ntransactions relating to the AWCF may be in suspense accounts, but are not identi\xef\xac\x81able. When they are identi\xef\xac\x81ed to\nthe AWCF, they will be transferred from the suspense/clearing account to the correct Treasury appropriation.\n\n\nDisclosures Related to Problem Disbursements and In-Transit Disbursements\n (Decrease)/\n Increase from FY\n As of September 30 2003 2004 2005 2004 - 2005\n (Amounts in thousands)\n1. Total Problem Disbursements, Absolute Value\n A. Unmatched Disbursements (UMDS) $ 46,298 $ 25,484 $ 10,064 $ (15,420)\n B. Negative Unliquidated Obligations (NULO) 2,850 3,810 3,773 ( 37)\n2. Total In-transit Disbursements, Net $ 69,687 $ 135,730 $ 94,626 $ (41,104)\n\nDe\xef\xac\x81nitions:\nAbsolute value is the sum of the positive values of debit and credit transactions without regard to the sign.\n\nUnmatched Disbursements (UMDs) occur when payments do not match to a corresponding obligation in the\naccounting system.\n\n\n\n FY 2005 Army Annual Financial Statement 179\n\x0cNegative Unliquidated Obligations (NULOs) occur when payments have a valid obligation but the payment is\ngreater than the amount of the obligation recorded in the of\xef\xac\x81cial accounting system. These payments use available\nfunds for valid receiving reports on delivered goods and services under valid contracts.\n\nIn-Transits represents the net value of disbursements and collections made by a DoD disbursing activity on behalf of\nan accountable activity but not yet attempted to be posted in an accounting system.\n\nAged UMDs and NULOs:\nThe Army absolute value UMDs, NULOs, and $1.8 million in aged in-transit disbursements represent problem\ndisbursements. UMDs and NULOs are considered to be problem disbursements immediately, while in-transits are\nconsidered normal business activity up to the 30-day aging category. After 30 days, they are identi\xef\xac\x81ed as problem\ndisbursements. Fluctuations in the schedule represent normal activity for UMDs and NULOs based on the in\xef\xac\x82ow\nof undistributed disbursements received for processing. Total in-transit balances have increased at the primary\naccounting sites supporting the war, contingency operations, and supply and materiel replenishment.\n\nNote 4. Investments and Related Interest\nNot applicable.\n\nNote 5. Accounts Receivable\n 2005 2004\n Allowance For\n Gross Amount Estimated Accounts Accounts\n As of September 30 Due Uncollectibles Receivable, Net Receivable, Net\n (Amounts in thousands)\n 1. Intragovernmental Receivables $ 366,622 N/A $ 366,622 $ 444,923\n 2. Nonfederal Receivables (From the Public) $ 18,732 $ (6,697) $ 12,035 $ 13,482\n 3. Total Accounts Receivable $ 385,354 $ (6,697) $ 378,657 $ 458,405\n\n\nAllowance method:\nThe Army Working Capital Fund (AWCF) recognizes an allowance of 50 percent for all non-federal debt between\n180 days and two years old and a 100 percent allowance for all non-federal debt over two years old. The allowance is\nupdated annually based on the aged accounts receivable at the end of the 2nd Quarter.\n\n\nFluctuations and/or Abnormalities\nIntragovernmental Receivables decreased $78.3 million, or 18 percent from FY 2004 to FY 2005. The majority of the\ndecrease is attributable to the Supply Management business area. For FY 2005, the Defense Finance and Accounting\nService (DFAS) extended the billing cycle cutoff dates for the Commodity Command Standard System (CCSS),\nthereby accelerating automated collection of accounts receivable.\n\nNon Federal Receivables, Net decrease $1.4 million or 11 percent from FY 2004 to FY 2005. The decrease is primarily\nattributable to increased efforts to reduce delinquent debt during FY 2005.\n\n\nOther Disclosures\nThe DoD policy is to allocate supported undistributed collections between intragovernmental and non-federal\ncategories based on the percentage of each category of receivables. A review of data for the previous twelve months\nfound no transactions for undistributed collections involving a non-federal entity. Therefore, all undistributed\ncollections are assigned to federal entities.\n\n\n\n180 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cFor FY 2005, the AWCF reported unsupported undistributed collections of $891 thousand. These collections are\nreported as a Liability for Deposit Funds, Clearing Funds, and Undeposited Collections, as required by the\nDFAS-Arlington year-end guidance.\n\nThe AWCF accounting systems do not capture trading partner data at the transaction level in a manner that\nfacilitates trading partner aggregations. Therefore, the AWCF was unable to reconcile intragovernmental accounts\nreceivable balances with its trading partners\xe2\x80\x99 accounts payable balances. The DoD intends to develop long-term\nsystems improvements that will address this issue.\n\nIntragovernmental accounts receivable include $5.3 million in receivables over 180 days old which is less than one\npercent of the total intragovernmental accounts receivable.\n\nNon-federal accounts receivable includes $5.0 million over 180 days old. Of this amount, $4.0 million was for\ncontractor debt. The remaining amount is due to Non-Appropriated Fund Instrumentalities and Individual Out-of-\nService debt.\n\nFor FY 2005, AWCF reported non-federal refunds receivable of $2.0 million.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 1.K, Accounts Receivable\nNote 12, Accounts Payable\nNote 15, Other Liabilities\n\nNote 6. Other Assets\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Intragovernmental Other Assets\n A. Advances and Prepayments $ 0 $ 79\n B. Total Intragovernmental Other Assets $ 0 $ 79\n 2. Nonfederal Other Assets\n A. Outstanding Contract Financing Payments $ 331,500 $ 262,338\n B. Other Assets (With the Public) 2,241 2,784\n C. Total Nonfederal Other Assets $ 333,741 $ 265,122\n 3. Total Other Assets $ 333,741 $ 265,201\n\n\nFluctuations and/or Abnormalities\nIntragovernmental advances and prepayments decreased by $79 thousand, or 100 percent, from FY 2004 to FY 2005.\nThis account balance is dictated by trading partner reports of unearned revenue made by other DoD entities.\n\nOutstanding Contract Financing Payments increased $69.2 million or 26 percent. The majority of the increase is\nattributable to payments made for contracts initiated by the Communications and Electronic Command (CECOM).\n\nOther Assets (With the Public) decreased $543 thousand, or 20 percent, from FY 2004 to FY 2005. The majority of\nthis amount is attributable to a decrease in Prepayments of $511 thousand.\n\n\n\n\n FY 2005 Army Annual Financial Statement 181\n\x0cNon-Federal Other Assets - Other Assets (With the Public)\n(Amounts in thousands)\n\nType of Assets 2005 2004\nAdvances to Others:\n Contractor Advance $2,012 $2,010\n Travel Advances 39 73\nPrepayments 190 701\nTotals $2,241 $2,784\n\n\nAdvances and Prepayments\nIn accordance with DoD elimination guidance, the FY 2005 AWCF intragovernmental advances to others balance\nincreased by $6.0 million to agree with seller-side unearned revenue from other DoD reporting entities. The note\nalso re\xef\xac\x82ects $6.0 million in elimination entries within the AWCF, leaving a zero balance.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 1.R, Other Assets\n\nNote 7. Cash and Other Monetary Assets\nNot applicable.\n\nNote 8. Direct Loan and/or Loan Guarantee Programs\nNot applicable.\n\nNote 9. Inventory and Related Property\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Inventory, Net $ 15,933,141 $ 13,916,672\n 2. Operating Materials & Supplies, Net 0 0\n 3. Stockpile Materials, Net 0 0\n 4. Total $ 15,933,141 $ 13,916,672\n\n\n9.A. Inventory, Net\n 2005 2004\n Inventory, Revaluation Valuation\n As of September 30 Gross Value Allowance Inventory, Net Inventory, Net Method\n (Amounts in thousands)\n 1. Inventory Categories\n A. Available and Purchased for Resale $ 17,507,575 $ (4,118,134) 13,389,441 $ 12,467,075 LAC,MAC\n B. Held for Repair 3,762,831 (1,244,899) 2,517,932 1,428,303 LAC,MAC\n C. Excess, Obsolete, and Unserviceable 577,538 (577,538) 0 0 NRV\n D. Raw Materials 25,768 0 25,768 21,294 MAC,SP,LAC\n E. Work in Process 0 0 0 0 AC\n F. Total $ 21,873,712 $ (5,940,571) 15,933,141 $ 13,916,672\n\n\n\n\n182 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cLegend for Valuation Methods:\nAdjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses\nNRV = Net Realizable Value\nSP = Standard Price\nAC = Actual Cost\nMAC = Moving Average Cost\n\n\nRestrictions of Inventory Use, Sale, or Disposition:\nThere are no restrictions on the use, sale, or disposition of inventory except in the following situations:\n\n1) Distributions without reimbursement are made when authorized by DoD directives;\n2) War reserve material includes petroleum products and subsistence items that are considered restricted; and\n3) Inventory, with the exception of safety stocks, may be sold to foreign, state and local governments; private\n parties; and contractors in accordance with current policies and guidance or at the direction of the President.\n\nDe\xef\xac\x81nitions\nInventory \xe2\x80\x93 spare and repair parts, clothing and textiles, petroleum products, and ammunition.\n\nInventory held for repair \xe2\x80\x93 damaged material that requires repair to make it usable.\n\nExcess, obsolete, and unserviceable inventory \xe2\x80\x93 condemned materiel that must be retained for management\npurposes.\n\nRaw materials \xe2\x80\x93 items consumed in the production of goods for sale or in the provision of services for a fee.\n\nWork in process \xe2\x80\x93 munitions in production and maintenance work with its associated labor, applied overhead, and\nsupplies used in the delivery of maintenance services.\n\n\nFuture Sales\nIn addition to the account balances shown in Table 9.A., Federal Generally Accepted Accounting Principles require\ndisclosure of the amount of inventory held for future sale. The Army Working Capital Fund (AWCF) estimates that\nall of the Inventory Held for Sale will be sold within 24 months from the end of FY 2005.\n\n\nFluctuations/Abnormalities\nTotal inventory increased $2.0 billion, or 14 percent, from FY 2004 to FY 2005. This increase is detailed in the\nparagraphs below.\n\nThe Inventory Available and Purchased for Resale increased $922.4 million, or 7 percent, from FY 2004 to FY 2005.\nThe increase is attributable to requirements for increased stockage levels in FY 2006.\n\nThe Inventory Held for Repair increased $1.1 billion, or 76 percent, from FY 2004 to FY 2005. The increase is due\nto an increase in the volume of returned items needing repair in support of the contingency missions Operations\nEnduring Freedom, Iraqi Freedom, and Noble Eagle.\n\nRaw Materials increased $4.5 million, or 21 percent, from FY 2004 to FY 2005. This increase is primarily attributable\nto increased purchases of raw materials needed to complete orders at Tobyhanna Army Depot.\n\n\nOther disclosures\nThe AWCF began transitioning to the Logistics Modernization Program (LMP) during June 2003. Therefore,\n\n\n FY 2005 Army Annual Financial Statement 183\n\x0cnot all AWCF inventory reported is valued under the same method. Inventory at Tobyhanna Army Depot,\nCommunications-Electronics Command, and other Army Materiel Command (AMC) activities using LMP is valued\nat MAC. The remainder of the AWCF inventory is valued at LAC.\n\nThe AWCF expects to be fully converted to Moving Average Costing for Inventory Items with full deployment\nof LMP, which is currently scheduled for Round 3 (Final deployment) in September 2007. However, per recent\nGAO recommendations, until LMP addresses certain systemic problems related to data conversion, etc., Round 3\ndeployment has been delayed.\n\nThe Commodity Command Standard System (CCSS) inventory reported as Available and Purchased for Resale\nincludes a net upward adjustment of $3.0 billion to bring \xef\xac\x81nancial records into agreement with the logistics records.\nSome transactions are not passing from logistical records to \xef\xac\x81nancial records. Upon replacement of CCSS with LMP,\nthis adjustment should no longer be required.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 18, Disclosures Related to the Statement of Net Cost\n\n\nOperating Materials and Supplies, Net\nNot applicable.\n\nThe AWCF expenses rather than capitalizes OM&S because it is normally used within a year of purchase.\n\n\nStockpile Materials, Net\nNot applicable.\n\nNote 10. General PP&E, Net\n 2005 2004\n Depreciation/ (Accumulated\n Amortization Service Acquisition Depreciation/ Net Book Prior FY Net\n As of September 30 Method Life Value Amortization) Value Book Value\n (Amounts in thousands)\n 1. Major Asset Classes\n A. Land N/A N/A $ 0 N/A $ 0 $ 0\n B. Buildings, Structures, and Facilities S/L 20 Or 40 2,158,945 $ (1,361,716) 797,229 526,691\n C. Leasehold Improvements S/L lease term 95,213 (76,337) 18,876 21,585\n D. Software S/L 2-5 Or 10 349,675 (262,583) 87,092 103,215\n E. General Equipment S/L 5 or 10 1,535,870 (1,260,079) 275,791 218,546\n F. Military Equipment S/L Various 0 0 0 0\n G. Assets Under Capital Lease S/L lease term 0 0 0 0\n H. Construction-in-Progress N/A N/A 49,225 N/A 49,225 29,401\n I. Other 0 0 0 0\n 2. Total General PP&E $ 4,188,928 $ (2,960,715) $ 1,228,213 $ 899,438\n1\n Note 15 for additional information on Capital Leases\n\n\nLegend for Valuation Methods:\nS/L = Straight Line\nN/A = Not Applicable\n\nTotal General Property Plant & Equipment increased $328.8 million or 37 percent, from FY 2004 to FY 2005. The\nincrease is detailed in the following paragraphs.\n\n\n\n184 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cBuildings, Structures, and Facilities\nBuildings, Structures, and Facilities increased by $270.1 million or 51 percent, from FY 2004 to FY 2005. This increase\nis primarily due to the acquisition of a Chemical Weapons Disposal facility for $267.1 million at the Pine Bluff\nArsenal.\n\nLeasehold Improvements\nThe entire amount shown on this line is for improvements made to facilities at Corpus Christi Army Depot, which is\na tenant on a Navy installation, but does not maintain a lease with the Navy. Improvements made on these facilities\nare recorded as leasehold improvements. The decrease of $2.7 million, or 13 percent, from FY 2004 to FY 2005 is due\nto depreciation recorded.\n\nSoftware\nSoftware decreased $16.1 million, or 16 percent, from FY 2004 to FY 2005. The AWCF depreciates software at\napproximately 20 percent annually.\n\nGeneral Equipment\nGeneral Equipment increased $57.2 million, or 26 percent, from FY 2004 to FY 2005. The majority of this increase,\n$39.4 million, is for Power Train project equipment at Anniston Army Depot. Additionally, Anniston purchased\n$5.4 million in other general equipment. Corpus Christi Army Depot purchased general equipment for \xef\xac\x82ight critical\nparts inspection and treatment, valued at $9.1 million and compression hot section repair cell equipment valued at\n$7.0 million.\n\nConstruction in Progress\nConstruction in Progress increased by $19.8 million, or 67 percent, from FY 2004 to FY 2005. The majority of the\nincrease is attributable to projects at Tobyhanna Army Depot, with other projects reported by Anniston Army Depot,\nSierra Army Depot, Bluegrass Army Depot, and Pine Bluff Arsenal.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 1.O, General Plant, Property and Equipment\n\n\nAssets Under Capital Lease\nNot applicable.\n\nCorpus Christi Army Depot is a tenant on a Navy installation, but does not maintain a lease with the Navy.\nImprovements made on these facilities are recorded as leasehold improvements.\n\n\n\n\n FY 2005 Army Annual Financial Statement 185\n\x0cNote 11. Liabilities Not Covered by Budgetary Resources\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Intragovernmental Liabilities\n A. Accounts Payable $ 0 $ 0\n B. Debt 0 0\n C. Other 47,253 50,084\n D. Total Intragovernmental Liabilities $ 47,253 $ 50,084\n 2. Nonfederal Liabilities\n A. Accounts Payable $ 0 $ 0\n B. Military Retirement Benefits and\n 286,523 304,976\n Other Employment-Related Actuarial Liabilities\n C. Environmental Liabilities 0 0\n D. Loan Guarantee Liability 0 0\n E. Other Liabilities 0 66,859\n F. Total Nonfederal Liabilities $ 286,523 $ 371,835\n 3. Total Liabilities Not Covered by Budgetary Resources $ 333,776 $ 421,919\n 4. Total Liabilities Covered by Budgetary Resources 1,072,271 695,373\n 5. Total Liabilities $ 1,406,047 $ 1,117,292\n\nLiabilities Not Covered by Budgetary Resources are liabilities incurred by the reporting entity which are not covered\nby realized budgetary resources as of the balance sheet date.\n\nLiabilities Covered by Budgetary Resources are liabilities incurred by the reporting entity which are covered by\nrealized budget resources as of the balance sheet date. Budgetary resources encompass not only new budget\nauthority, but also other resources available to cover liabilities for speci\xef\xac\x81ed purposes in a given year. Realized\nbudgetary resources include:\n\n1. New budget authority\n2. Spending authority from offsetting collections (credited to an appropriation or fund account)\n3. Recoveries of unexpired budget authority through downward adjustments of prior year obligations\n4. Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior year balances\n during the year\n5. Permanent inde\xef\xac\x81nite appropriations or borrowing authority, which have been enacted and signed into law as\n of the balance sheet date, provided that the resources may be apportioned by the Of\xef\xac\x81ce of Management and\n Budget without further action by the Congress or without a contingency \xef\xac\x81rst having to be met\n\n\n\n\n186 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cFluctuations and/or Abnormalities\nNon-Federal Other Liabilities decreased by $66.9 million, or 100 percent, from FY 2004 to FY 2005. During FY\n2004, the AWCF reported annual leave as a not covered by budgetary resources liability due to systems reporting\nlimitations. In FY 2005, these reporting limitations were resolved and the liability is properly reported as unfunded\ncovered by budgetary resources.\n\nOther Liabilities Not Covered by Budgetary Resources:\n(Amounts in thousands)\n\n 2005 2004\nIntragovernmental - Other Liabilities\n FECA Reimbursement to the Dept. of Labor $ 47,253 $50,084\n\n\nLegend:\nFECA \xe2\x80\x93 Federal Employees Compensation Act\n\nThe FECA bill is paid by the Department of Labor (DOL), which then bills the Army. At this time, the Army is not\nable to split out the DOL bill between AWCF and Army General Fund (AGF). Therefore the portions for AWCF and\nAGF are estimated. The AWCF estimate is based on the actual bill that was due to DOL in October 2004, which was\nactually paid in February 2005. The FECA billing period runs from July through June and bills are due and payable\nin the month of October, two years later.\n\nCurrently, the AWCF has a liability for two years, plus one quarter of FECA liability. The liability covers the period\nJuly 2003 through September 2005.\n\nNon-federal Liabilities\nEmployment-Related Actuarial Liabilities consist of the FECA actuarial liability.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 12, Accounts Payable\nNote 15, Other Liabilities\nNote 17, Military Retirement Bene\xef\xac\x81ts and Other Employment Related Actuarial Liabilities\n\nNote 12. Accounts Payable\n 2005 2004\n Interest, Penalties, and\n As of September 30 Accounts Payable Administrative Fees Total Total\n (Amounts in thousands)\n 1. Intragovernmental Payables $ 105,603 $ N/A $ 105,603 $ 159,150\n 2. Non-Federal Payables (to the Public) 295,817 3 295,820 372,054\n 3. Total $ 401,420 $ 3 $ 401,423 $ 531,204\n\n\nIntragovernmental Payables - amounts owed to other federal agencies for goods or services ordered and received\nbut not yet paid. Interest, penalties and administrative fees are not applicable to intragovernmental payables.\n\nNon-federal Payables (to the Public) - payables for debts owed to individuals and entities outside the Federal\nGovernment.\n\n\n\n\n FY 2005 Army Annual Financial Statement 187\n\x0cFluctuation and/or Abnormalities\nThe Army Working Capital Fund (AWCF) Intragovernmental Payables decreased $53.5 million, or 34 percent, from\nFY 2004 to FY 2005. The decrease is due to decreased activity with federal trading partners.\n\nThe AWCF Non-Federal Payables decreased $76.2 million, or 20 percent, from FY 2004 to FY 2005. This decrease is\ndue to a higher liquidation rate since FY 2004 for Accounts Payable arising from delivered goods and services.\n\n\nOther disclosures\nUndistributed Disbursements\nUndistributed disbursements are the difference between disbursements recorded in the activity \xef\xac\x81eld records of\nthe AWCF versus those reported by the U.S. Treasury. The DoD policy is to allocate supported undistributed\ndisbursements between intragovernmental and non-federal categories based on the percentage of each category\nof payables. The AWCF allocated supported undistributed disbursements based on a 24-month review of detail\ntransactions. Unsupported undistributed disbursements are those disbursements reported at the U.S. Treasury for\nwhich no supporting voucher exists to post to the appropriate line in the accounting records.\n\nUnsupported Undistributed Disbursements\nUnsupported undistributed disbursements are recorded in United States Standard General Ledger account 2120,\nDisbursements in Transit. The AWCF currently has $2.4 million in unsupported undistributed disbursements.\n\nIntragovernmental Eliminations\nThe DoD summary level seller accounts receivable balances were compared to the AWCF payable balances. As\na result of this comparison, adjusting entries were entered to decrease the AWCF intragovernmental payables by\n$123.3 million. In addition, $54.0 million of payables within the AWCF were eliminated from the report. For the\nmajority of intragovernmental sales, the AWCF accounting systems do not capture trading partner data at the\ntransaction level in a manner that facilitates trading partner aggregations. Therefore, the AWCF was unable to\nreconcile its intragovernmental payables with its trading partners\xe2\x80\x99 receivables. The DoD intends to develop long-\nterm systems improvements that will address this issue.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 1.G, Accounting for Intragovernmental Activities\n\nNote 13. Debt\nNot applicable.\n\nNote 14. Environmental Liabilities and Disposal Liabilities\nNot applicable.\n\n\n\n\n188 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 15. Other Liabilities\n As of September 30 2005 2004\n Current Noncurrent\n Total Total\n Liability Liability\n (Amounts in thousands)\n 1. Intragovernmental\n A. Advances from Others $ 19,660 $ 0 $ 19,660 $ 10,962\n B. Deposit Funds and Suspense Account Liabilities 0 0 0 0\n C. Disbursing Officer Cash 0 0 0 0\n D. Judgment Fund Liabilities 0 0 0 0\n E. FECA Reimbursement to the Department of Labor 21,002 26,252 47,254 50,084\n F. Other Liabilities 8,665 0 8,665 6,614\n G. Total Intragovernmental Other Liabilities $ 49,327 $ 26,252 $ 75,579 $ 67,660\n 2. Nonfederal\n A. Accrued Funded Payroll and Benefits $ 91,586 $ 0 $ 91,586 $ 67,790\n B. Advances from Others 42,429 0 42,429 37,206\n C. Deferred Credits 0 0 0 0\n D. Deposit Funds and Suspense Accounts (891) 0 ( 891) (854)\n E. Temporary Early Retirement Authority 0 0 0 0\n F. Nonenvironmental Disposal Liabilities\n (1) Military Equipment (Nonnuclear) 0 0 0 0\n (2) Excess/Obsolete Structures 0 0 0 0\n (3) Conventional Munitions Disposal 0 0 0 0\n (4) Other 0 0 0 0\n G. Accrued Unfunded Annual Leave 95,756 0 95,756 66,859\n H. Capital Lease Liability 0 0 0 0\n I. Other Liabilities 413,642 0 413,642 42,451\n J. Total Nonfederal Other Liabilities $ 642,522 $ 0 $ 642,522 $ 213,452\n\n 3. Total Other Liabilities $ 691,849 $ 26,252 $ 718,101 $ 281,112\n\n\n\nFluctuations and/or Abnormalities\nIntragovernmental Other Liabilities\nTotal Intragovernmental Other Liabilities increased $7.9 million, or 12 percent, from FY 2004 to FY 2005 because of\nthe following reasons:\n\nIntragovernmental Advances from others increased $8.7 million, or 79 percent, from FY 2004 to FY 2005 primarily\nfrom FY 2004 and FY 2005 orders from the Army General Fund that were collected in advance of work performed.\nThese orders will be completed and the resulting revenue recognized in later periods.\n\nIntragovernmental Other Liabilities increased $2.1 million, or 31 percent, from FY 2004 to FY 2005. The change is\na result of increased employee bene\xef\xac\x81t liabilities as reported by the Of\xef\xac\x81ce of Personnel Management (OPM). The\nAWCF is required to balance with what OPM has reported to the Department of the Treasury as an accrual for the\nreporting period.\n\nTotal Non-Federal Other Liabilities\nTotal Non-Federal Other Liabilities increased $429.1 million, or 201 percent, because of the following reasons:\n\nAccrued Funded Payroll and Bene\xef\xac\x81ts increased $23.8 million, or 35 percent, from FY 2004 to FY 2005. The increase\nin Accrued Funded Payroll and Bene\xef\xac\x81ts re\xef\xac\x82ects \xef\xac\x82uctuations in personnel strengths and the number of days accrued\nfor the payroll cycle from FY 2004 to FY 2005.\n\n\n\n\n FY 2005 Army Annual Financial Statement 189\n\x0cNon-Federal Advances from Others increased $5.2 million, or 14 percent, from FY 2004 to FY 2005. During FY 2005,\nthe AWCF increased workload with non-federal entities.\n\nAccrued Unfunded Annual Leave increased $28.9 million, or 43 percent, from FY 2004 to FY 2005 because Supply\nManagement was unable to accrue leave due to system de\xef\xac\x81ciencies in prior periods. Previously, the Standard\nOperations Maintenance, Army Research Development System (SOMARDS) posted unfunded annual leave for the\nSupply Management Business Area to the Army General Fund. In March 2005, the Defense Finance and Accounting\nService (DFAS) began posting SOMARDS data to the Army Working Capital Fund. Additionally, the Logistics\nModernization Program (LMP) began performing the leave accrual function for Supply Management activities on\nLMP.\n\nNon-Federal Other Liabilities increased $371.2 million, or 874 percent, from FY 2004 to FY 2005. The increase is\nattributable to inventory intransit posted by the Logistics Modernization Program (LMP). The LMP records a\nliability for inventory intransit to the Communications and Electronics Command (CECOM) when inventory is\nreleased from the vendor and Army takes ownership. This process was not in place during FY 2004. The process\nrecords an accrual in the current month and a reversal is posted at the beginning of the following month, which\nallows LMP to identify the proper liability for inventory intransit.\n\nOther disclosures\nThe Federal Employment Compensation Act (FECA) is administered by the Department of Labor (DOL), Of\xef\xac\x81ce\nof Workers\xe2\x80\x99 Compensation Programs. Workers\xe2\x80\x99 Compensation claims are submitted to and approved by the\nDOL. The DOL pays the claim holders and prepares a chargeback billing to the AWCF. The FECA law, P.L. 93-\n416, Section 8147, essentially gives agencies two years to pay the chargeback bill, thereby allowing time for the\napplicable amount to be included in budget submissions. Pursuant to the FECA law, funding should be paid within\n30 days. The current liability is the amount that is payable in October 2005. The non-current liability is payable in\nOctober 2006. Only the Industrial Operations business area reports a FECA liability because it is composed of host\ninstallations responsible for paying Workers\xe2\x80\x99 Compensation. The Supply Management business area is made up of\nselected personnel at other installations, whose FECA liabilities are paid by the Army General Fund.\n\nThe Unemployment Bene\xef\xac\x81ts Liability bill received from the DOL is not broken out by appropriation. The AWCF\ndoes not report an Unemployment Bene\xef\xac\x81ts liability. The Army determined that the General Fund is responsible for\nthe entire liability and reports it on the General Fund statements.\n\nOther Liabilities: (Amounts in Thousands)\n FY 2005 FY 2004\nIntragovernmental - Other Liabilities\n VSIP $0 $0\n CSRS, FERS, FEGLI, FEHB 8,665 6,614\n FECA Payable, Past Due 0 0\nTotal Intragovernmental Other Liabilities $8,665 $6,614\nNon-Federal \xe2\x80\x93Other Liabilities\n Contract Holdbacks $41,249 $32,852\n Employers Contributions to TSP and Taxes Payable 11,451 9,599\n Contingent Liability 450 0\n Liabilities for Intransit Inventory 360,492 0\nTotal Non-Federal Other Liabilities $413,642 $42,451\nTotal Other Liabilities $422,307 $49,065\n\n\n\n\n190 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cLegend:\nVSIP \xe2\x80\x93 Voluntary Separation Incentive Pay\nCSRS \xe2\x80\x93 Civil Service Retirement System\nFERS \xe2\x80\x93 Federal Employees Retirement System\nFEGLI \xe2\x80\x93 Federal Employees Group Life Insurance\nFEHB \xe2\x80\x93 Federal Employees Health Bene\xef\xac\x81ts\nFECA \xe2\x80\x93 Federal Employees Compensation Act\nTSP \xe2\x80\x93 Thrift Savings Plan\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 1.S, Contingencies and Other Liabilities\nNote 11, Liabilities Not Covered by Budgetary Resources\nNote 17, Military Retirement Bene\xef\xac\x81ts and Other Employment Related Actuarial Liabilities\n\n\nCapital Lease Liability\nNot applicable.\n\nNote 16. Commitments and Contingencies\nDisclosures Related to Commitments and Contingencies:\n\n\nRelevant Information for Comprehension\nNature of Contingency\nThe Army Working Capital Fund (AWCF) has other contingent liabilities in which the possibility of loss is\nconsidered reasonable. These liabilities are not accrued in the AWCF\xe2\x80\x99s \xef\xac\x81nancial statements.\n\nAs of September 30, 2005, the AWCF has approximately $873 thousand in claims considered reasonably possible.\nThe possible contingent liability is primarily attributable to a review and legal assessment at Crane Army\nAmmunition Activity regarding the likelihood of a claim payment to a contractor. These contingent liabilities and\nestimates are presented in the following table.\n\nEstimate of the Possible Liability\nTitle of Contingent Liabilities Estimate (in thousands)\nArmy Materiel Command $873\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 1.S, Contingencies and Other Liabilities\n\n\n\n\n FY 2005 Army Annual Financial Statement 191\n\x0cNote 17. Military Retirement Bene\xef\xac\x81ts and Other Employment Related Actuarial\n Liabilities\n 2005 2004\n Actuarial Present Assume (Less: Assets Unfunded\n Value of Projected Interest Available to Pay Actuarial Unfunded Actuarial\n As of September 30 Plan Benefits Rate (%) Benefits) Liability Liability\n (Amounts in thousands)\n 1. Pension and Health Benefits\n A. Military Retirement Pensions $ 0 $ 0 $ 0 $ 0\n B. Military Retirement Health Benefits 0 0 0 0\n C. Medicare-Eligible Retiree Benefits 0 0 0 0\n D. Total Pension and Health Benefits $ 0 $ 0 $ 0 $ 0\n 2. Other\n A. FECA $ 286,523 4.53 $ 0 $ 286,523 $ 304,976\n B. Voluntary Separation Incentive Programs 0 0 0 0\n C. DoD Education Benefits Fund 0 0 0 0\n E. Total Other $ 286,523 $ 0 $ 286,523 $ 304,976\n 3. Total Military Retirement Benefits and Other\n Employment Related Actuarial Liabilities: $ 286,523 $ 0 $ 286,523 $ 304,976\n\n\nActuarial Cost Method Used: The Army\xe2\x80\x99s actuarial liability for Workers\xe2\x80\x99 Compensation bene\xef\xac\x81ts is developed by the\nDepartment of Labor and provided to the Army at the end of each \xef\xac\x81scal year. The liability includes the expected\nliability for death, disability, medical, and miscellaneous costs for approved compensation cases. The liability is\ndetermined using a method that utilizes historical bene\xef\xac\x81t payment patterns to predict the ultimate payments.\n\nAssumptions: The projected annual bene\xef\xac\x81t payments are discounted to the present value using the Of\xef\xac\x81ce of\nManagement and Budget economic assumptions for 10-year U.S. Treasury notes and bonds. Cost of Living\nadjustments and medical in\xef\xac\x82ation factors are applied to the calculation of projected future bene\xef\xac\x81ts.\n\nMarket Value of Investments in Market-based and Marketable Securities: Not applicable.\n\n\nMilitary Retirement Bene\xef\xac\x81ts\nThe Army General Fund pays the Army Working Capital Fund (AWCF) military retirement bene\xef\xac\x81ts.\n\n\nFederal Employment Compensation Act (FECA)\nThe Industrial Operations business area reports a FECA liability because it includes host installations responsible for\npaying Workers\xe2\x80\x99 Compensation. The Supply Management business area does not report FECA liability because it is\nmade up of selected personnel at other installations, whose FECA liabilities are paid by the Army General Fund.\n\nThe Of\xef\xac\x81ce of Personnel Management provides updated Army actuarial liabilities during the 4th Quarter of each\n\xef\xac\x81scal year. The AWCF computes its portion of the total Army actuarial liability based on the percentage of the\nAWCF FECA expense to the total Army FECA expense.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 11, Liabilities Not Covered by Budgetary Resources\nNote 15, Other Liabilities\n\n\n\n\n192 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 18. Disclosures Related to the Statement of Net Cost\nThe Consolidated Statement of Net Cost in the Federal Government is unique because its principles are driven\nby understanding the net cost of programs and/or organizations that the Federal Government supports through\nappropriations or other means. This statement provides gross and net cost information that can be related to the\namount of output or outcome for a given program and/or organization administered by a responsible reporting\nentity.\n\nWhile the Army Working Capital Fund (AWCF) activities generally record transactions on an accrual basis, as is\nrequired by Federal Generally Accepted Accounting Principles (GAAP), the systems do not always capture actual\ncosts. Information presented on the Consolidated Statement of Net Cost is primarily based on budgetary obligation,\ndisbursements, or collection transactions, as well as information from non-\xef\xac\x81nancial feeder systems. The Army is in\nthe process of upgrading its \xef\xac\x81nancial and logistical feeder systems to the Logistics Modernization Program (LMP) to\naddress this issue.\n\n\nFluctuations and/or Abnormalities\nThe AWCF net costs decreased $539.8 million, or 23 percent, between FY 2004 and FY 2005. This decrease is largely\nattributable to the following:\n\nIntragovernmental gross costs decreased $831.8 million, or 29 percent between FY 2004 and FY 2005. During FY\n2005, the AWCF placed more orders with the public than with intragovernmental sources in support of contingency\nmissions Operation Enduring Freedom, Iraqi Freedom, and Noble Eagle.\n\nIntragovernmental earned revenue decreased $899.7 million or 11 percent, between FY 2004 and FY 2005. This\ndecrease is primarily attributable to a decrease in revenue received from the Army General Fund.\n\nGross Costs with the Public increased $2.4 billion, or 30 percent, between FY 2004 and FY 2005. Earned revenue\nfrom the Public increased $2.0 billion, or 40 percent between FY 2004 and FY 2005. The change in net costs is\nattributable to a decrease in gains on inventory adjustments in the Supply Management Business Area.\n\nDuring FY 2004, it was discovered that inventory transactions in LMP were causing overstatement of other gains\nand other losses, impacting the Communication and Electronics Command (CECOM), Tobyhanna Army Depot,\nand other Army Materiel Command (AMC) activities. During 2nd Quarter FY 2005, as part of the LMP stabilization\nplan, AMC and the Defense Finance and Accounting Service (DFAS), and LMP contractor support processed journal\nvoucher entries to correct this problem. These correcting entries created large offsetting gains and losses. The DFAS\nprepared adjusting entries to reduce the inventory gains and losses in order to properly re\xef\xac\x82ect the current year gains\nand losses being reported. The total adjustment of $5.6 billion included $5.56 billion for CECOM and $48.0 million\nfor Tobyhanna Army Depot activities using LMP.\n\nIn addition, elimination balancing entries to bring the AWCF buyer-side costs into agreement with the seller-side\nrevenues caused a reclassi\xef\xac\x81cation of $984.8 million from Public Gross and Net Costs to Intragovernmental Gross\nand Net Costs. For the majority of intragovernmental sales, the AWCF accounting systems do not capture trading\npartner data at the transaction level in a manner that facilitates trading partner aggregations. Therefore, the AWCF\nwas unable to reconcile its intragovernmental expenses with its trading partners\xe2\x80\x99 revenues. The DoD intends to\ndevelop long-term systems improvements that will address this issue.\n\n\n\n\n FY 2005 Army Annual Financial Statement 193\n\x0cNote 19. Disclosures Related to the Statement of Changes in Net Position\n 2005 2005 2004 2004\n Cumulative Cumulative\n Results of Unexpended Results of Unexpended\n As of September 30 Operations Appropriations Operations Appropriations\n\n 1. Prior Period Adjustments Increases (Decreases)\n to Net Position\n A. Changes in Accounting Standards $ 0 $ 0 $ 0 $ 0\n B. Errors and Omissions in Prior Year Accounting\n Reports 0 0 0 0\n C. Other Prior Period Adjustments 0 0 0 0\n D. Total Prior Period Adjustments $ 0 $ 0 $ 0 $ 0\n 2. Imputed Financing\n A. Civilian CSRS/FERS Retirement $ 55,172 $ 0 $ 56,020 $ 0\n B. Civilian Health 91,750 0 74,612 0\n C. Civilian Life Insurance 213 0 189 0\n D. Judgment Fund 0 0 0 0\n E. Total Imputed Financing $ 147,135 $ 0 $ 130,821 $ 0\n\n\nLegend:\nCSRS \xe2\x80\x93 Civil Service Retirement System\nFERS \xe2\x80\x93 Federal Employees Retirement System\n\nPrior Period Adjustments\nThe Department of the Treasury emphasized the reporting of prior period adjustments for material changes only.\nThe Of\xef\xac\x81ce of the Under Secretary of Defense (Comptroller) and the Defense Finance and Accounting Service\nguidance also emphasized the position that use of prior period adjustments should be infrequent. Individual entities\nwithin the Army Working Capital Fund (AWCF) submitted prior period adjustments, which were subsequently\nreported on internal monthly \xef\xac\x81nancial reports. These adjustments, totaling $82.5 million, did not meet the\nmateriality threshold established for \xef\xac\x81nancial statement reporting. These balances were reclassi\xef\xac\x81ed to accounts that\nwould have been affected if they had occurred in the current year.\n\nImputed Financing\nTotal Imputed Financing increased $16.3 million, or 12 percent, from FY 2004 to FY 2005. This was primarily due\nto an increase in Civilian Health costs of $17.1 million, or 23 percent, and an increase in Civilian Life Insurance of\n$24 thousand, or 13 percent from FY 2004 to FY 2005. This increase is attributable to an increase in the government\xe2\x80\x99s\nshare of Federal Employees Health Bene\xef\xac\x81ts (FEHB) and Federal Employees Group Life Insurance (FEGLI). Federal\nGAAP requires the reporting of government employee bene\xef\xac\x81ts. The amounts remitted to the OPM by and for\ncovered employees do not generally cover the actual cost of the bene\xef\xac\x81ts those employees will receive after their\ncareers are over. As a consequence, for FY 2005, the AWCF must recognize an imputed cost equal to the difference\nbetween the true cost of providing future bene\xef\xac\x81ts to its employees and the employer and employee contributions\nthey remit to the OPM.\n\n\nFluctuations and/or Abnormalities\nCumulative Results of Operations:\nAppropriations used decreased $231.2 million, or 100 percent, from FY 2004 to FY 2005, as the AWCF did not receive\nany current appropriations.\n\nBudgetary Financing Sources Transfers-in/out without reimbursement changed $932.7 million, or 64 percent,\nfrom FY 2004 to FY 2005. During FY 2005, the AWCF received transfers in of budgetary resources of $84.4 million\n\n\n194 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cfor war reserves and $99.6 million received for industrial mobilization capacity, totaling $184.1 million from the\nDoD Appropriations Act, 2005, P.L. 108 287. The AWCF transferred out $250.0 million to the Army General Fund,\nOperations and Maintenance Appropriation in accordance with Critical Army Requirements, Reprogramming\nAction FY 05-27 PA and $450.0 million to the Army General Fund, Operations and Maintenance Appropriation in\naccordance with Critical Army Requirements, Reprogramming Action FY 05-47 PA.\n\nOther Budgetary Financing Sources decreased by $175.9 million, or 100 percent, from FY 2004 to FY 2005. This\ndecrease resulted from a change in accounting procedures. During FY 2004, other gains and losses were reported as\nhaving a budgetary impact and recorded on this line. The AWCF began reporting other gains and losses as having\nno budgetary impact during FY 2005. Other gains and losses are now reported on the Other Financing Sources\nOther line.\n\nOther Financing Sources Other increased by $230.9 million, or 100 percent, from FY 2004 to FY 2005. This increase\nresulted from a change in accounting procedures. During FY 2004, other gains and losses were reported as having a\nbudgetary impact and recorded on the Other Budgetary Financing Sources line. The AWCF began reporting other\ngains and losses as having no budgetary impact during FY 2005. Other gains and losses are now reported on the\nOther Financing Sources Other line.\n\nThe AWCF net costs decreased by $539.8 million, or 23 percent, between FY 2004 and FY 2005. This is due to\nincreased workload in support of contingency missions Operation Enduring Freedom, Iraqi Freedom, and Noble\nEagle.\n\nUnexpended Appropriations:\nAppropriations received decreased by $219.3 million or 100 percent, from FY 2004 to FY 2005 as the AWCF did not\nreceive any FY 2005 appropriations.\n\nAppropriations used decreased $231.2 million or 100 percent as the AWCF did not receive any FY 2005\nappropriations.\n\n\nNote Reference\nFor Additional Line Item discussion, see:\nNote 18, Disclosures Related to the Statement of Net Cost\nNote 20, Disclosures Related to the Statement of Budgetary Resources\n\nNote 20. Disclosures Related to the Statement of Budgetary Resources\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Net Amount of Budgetary Resources Obligated for Undelivered\n Orders at the End of the Period $ 10,115,417 $ 8,600,534\n 2. Available Borrowing and Contract Authority at the End of the Period 6,702,921 4,549,857\n\n\nThe Army Working Capital Fund (AWCF) reports all obligations as reimbursable per Of\xef\xac\x81ce of Management and\nBudget (OMB) circular A-11, Section 83.5. Primary funding for the AWCF is earned through customer orders, as\ndescribed in Note 1.C.\n\n\n\n\n FY 2005 Army Annual Financial Statement 195\n\x0cAvailable contract authority as of September 30, 2005, is as follows: (Amounts in thousands)\n\n Unused Contract Authority Contract Authority Contract Authority Available\nBusiness Area as of September 30, 2004 Realized For FY 2005 as of September 30, 2005\nIndustrial Operations $33,695 $27,565 $61,260\nSupply Management 4,516,162 2,125,499 6,641,661\nTotal AWCF $4,549,857 $2,153,064 $6,702,921\nUnobligated balances from spending authority from offsetting collections (revenues earned) as of September 30,\n2005, are as follows: (Amounts in thousands)\n\n Change in Un\xef\xac\x81lled Total Spending Authority from\nBusiness Area Earned Orders Anticipated Offsetting Collections\nIndustrial Operations $4,405,895 $(53,752) $0 $4,352,143\nSupply Management 9,745,017 (701,167) 0 9,043,850\nTotal AWCF $14,150,912 $(754,919) $0 $13,395,993\n\nFluctuations and/or Abnormalities\nAppropriations Received decreased $219.3 million, or 100 percent, from FY 2004 to FY 2005. The AWCF did not\nreceive direct appropriations in FY 2005.\n\nAll business activity increased from FY 2004 to FY 2005 due to increased reimbursable activity with the Army\nGeneral Fund, as well as within the AWCF, in support of the contingency missions Operations Enduring Freedom,\nIraqi Freedom, and Noble Eagle.\n\nContract authority increased $8.8 billion, or 420 percent from FY 2004 to FY 2005. Prior to FY 2005, the net remaining\ncontract authority was reported on the contract authority line of the statement. The Department of Defense issued\nreporting instructions in FY 2005, which now require reporting the total contract authority on this line.\n\nBudget Authority, Net transfers changed $1.4 billion, or 100 percent, between FY 2004 to FY 2005. No budgetary\nauthority has been transferred in or out of the AWCF during this period.\n\nUnobligated balance, Net transfers, Actual changed $515.9 million, or 100 percent, between FY 2004 and FY 2005.\nThe Army received two transfers from Defense Logistics Agency (DLA) amounting to $99.6 million for Industrial\nMobilization Capacity and $84.4 million for war reserves in accordance with the DoD Appropriations Act, 2005,\nP.L. 108-287. The AWCF transferred out $250.0 million to the Army General Fund, Operation and Maintenance\nAppropriation in accordance with Critical Army Requirements, Reprogramming Action FY 05-27 PA and $450.0\nmillion to the Army General Fund, Operation and Maintenance Appropriation in accordance with Critical Army\nRequirements, Reprogramming Action FY 05-47 PA.\n\nSpending Authority from Offsetting Collections increased $1.3 billion, or 11 percent, from FY 2004 to FY 2005. This\nincrease occurred because of increased orders from the Army General Fund. The increase was primarily within the\nSupply Management business area to replenish supplies and repair parts. Industrial Operations also recognized\nincreased orders to repair major end items. These increases are noted below:\n\n Earned - Collected increased by $1.9 billion, or 16 percent, in FY 2005.\n Earned - Receivable from Federal Sources changed by $24.4 million, or 45 percent, in FY 2004 to FY 2005.\n Change in Un\xef\xac\x81lled Customer Orders \xe2\x80\x93 Advance Received changed by $36.5 million, or 212 percent, from FY\n 2004 to FY 2005.\n Change in Un\xef\xac\x81lled Customer Orders \xe2\x80\x93 Without Advance from Federal Sources increased by $645.3 million, or\n 501 percent, from FY 2004 to FY 2005.\n\n\n\n196 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cRecoveries of Prior Year Obligations increased by $935.9 million, or 187 percent, from FY 2004 to FY 2005. During\n2nd Quarter FY 2005, and throughout FY 2005 as part of the Logistics Modernization Program (LMP) stabilization\nplan, the Army Materiel Command (AMC), the Defense Finance and Accounting Service (DFAS), and the LMP\ncontractor support were doing data migration cleanup to adjust obligations and unliquidated obligations on a\ntransactional basis. These adjustments resulted in large recoveries during FY 2005.\n\nPermanently not available increased by $8.8 billion, or 100 percent, from FY 2004 to FY 2005. The amount represents\ncontract authority replaced by other budgetary resources throughout the year. Prior to FY 2005, the permanently not\navailable was not re\xef\xac\x82ected on the AWCF reports. The Department of Defense issued reporting instructions in FY\n2005, which now require reporting.\n\nReimbursable obligations increased by $2.8 billion, or 20 percent, from FY 2004 to FY 2005. The AWCF recognized\nthis increase primarily in the Supply Management business area due to increased orders for secondary items in\nsupport of the contingency missions Operations Enduring Freedom, Iraqi Freedom, and Noble Eagle.\n\nUnobligated balance apportioned decreased $353.7 million, or 23 percent from FY 2004 to FY 2005 as the AWCF\nobligated projects in FY 2005 from FY 2004 reimbursable orders.\n\nUn\xef\xac\x81lled customer orders from federal sources decreased $774.2 million, or 17 percent, from FY 2004 to FY 2005. Due\nto increased receipt of inventory, the Supply Management business area was able to clear more back order items\nduring FY 2005.\n\nUndelivered Orders increased $1.4 billion, or 17 percent, from FY 2004 to FY 2005 primarily in the Supply\nManagement business area. The increase is due to increased demand for secondary items in support of the\ncontingency missions Operations Enduring Freedom, Iraqi Freedom, and Noble Eagle.\n\nAccounts Payable decreased $62.9 million, or 10 percent, from FY 2004 to FY 2005. This decrease is due to a higher\nliquidation rate since FY 2004 for delivered goods and services.\n\nNet Outlays decreased $438.4 million, or 70 percent, from FY 2004 to FY 2005. Disbursements increased $2.4 billion,\nor 21 percent, and Collections increased $2 billion, or 16 percent, from FY 2004 to FY 2005. This re\xef\xac\x82ects increased\ndisbursing and collecting activity in support of the contingency missions Operations Enduring Freedom, Iraqi\nFreedom, and Noble Eagle.\n\n\nOther disclosures\nThe AWCF does not make eliminating entries in the Statement of Budgetary Resources because the statements are\npresented as combined and combining and, therefore, are presented as a Disaggregated Statement of Budgetary\nResources in the Required Supplementary Information section of the \xef\xac\x81nancial statements.\n\nAdjustments in funds that are temporarily not available pursuant to public law, and those that are permanently\nnot available, are not included in the Spending Authority From Offsetting Collections and Adjustments line on the\nStatement of Budgetary Resources or the Spending Authority for Offsetting Collections and Adjustments line on the\nStatement of Financing.\n\nAWCF had reimbursable obligations for apportionment category B of $11.9 billion and $5.0 billion obligations\nexempt from apportionment.\n\nThe Statement of Budgetary Resources does not eliminate for intragovernmental receivables, nor does it include\ncontractor debt or refunds receivable.\n\nAccounts payable on the Statement of Budgetary Resources includes the employee payroll liability and does not\neliminate for intragovernmental payables. The Balance Sheet eliminates for intragovernmental payables and reports\nthe employee payroll liability in Other Liabilities. This results in different balances between the Statement of\nBudgetary Resources and the Balance Sheet.\n\n\n FY 2005 Army Annual Financial Statement 197\n\x0cThe AWCF contains obligation and unliquidated obligation values that were migrated to the LMP at values higher\nthan what was reported in the respective legacy systems at time of migration. This overstatement occurred at the\nSupply Management activities for the Communication-Electronics Command and Tobyhanna Army Depot. The\nArmy Materiel Command believes that the majority of these overstatements were corrected during FY 2005.\n\n\nNote Reference\nFor Additional Line Item discussion, see:\nNote 1, Signi\xef\xac\x81cant Accounting Policies\nNote 5, Accounts Receivable\nNote 12, Accounts Payable\nNote 18, General Disclosures Related to the Statement of Net Cost\nNote 19, General Disclosures Related to the Statement of Changes in Net Position\n\nNote 21. Disclosures Related to the Statement of Financing\nDisclosures Related to the Statement of Financing:\n\nThe objective of the Statement of Financing is to allow users to understand the difference between the Statement\nof Budgetary Resources and the Statement of Net Cost. The statement provides this understanding through a\ncomprehensive reconciliation process.\n\nThe Army Working Capital Fund\xe2\x80\x99s (AWCF) budgetary data does not agree with its proprietary expenses and\nassets capitalized. This results in a difference in net cost between the Statement of Net Cost and the Statement of\nFinancing. Resources that \xef\xac\x81nance the acquisition of assets were adjusted by $1.4 billion to bring the statements\ninto agreement. The differences between budgetary and proprietary data for the AWCF were reported as material\nweaknesses in the FY 2005 AWCF \xef\xac\x81nancial statement report.\n\n\nFluctuations and/or Abnormalities\nObligations incurred increased by $2.8 billion, or 20 percent, from FY 2004 to FY 2005. The AWCF recognized this\nincrease primarily in the Supply Management business area due to increased sales and demand for secondary items\nin support of the contingency missions Operations Enduring Freedom, Iraqi Freedom, and Noble Eagle.\n\nSpending Authority from offsetting collections and recoveries increased by $2.3 billion, or 18 percent, from FY 2004\nto FY 2005. The AWCF recognized this increase primarily in the Supply Management business area due to increased\nsales and demand for secondary items in support of the contingency missions Operations Enduring Freedom, Iraqi\nFreedom, and Noble Eagle. Collections increased $1.9 billion from FY 2004 to FY 2005. Recoveries of prior year\nobligations increased $935.9 million from FY 2004 and FY 2005. These increases in spending authority were offset by\nreductions in the amount of orders received without advances, which amounted to a decrease of $645.3 million from\nFY 2004 to FY 2005.\n\nTotal Imputed Financing increased $16.3 million, or 12 percent, from FY 2004 to FY 2005. This was primarily due\nto an increase in Civilian Health costs of $17.1 million, or 23 percent, and an increase in Civilian Life Insurance of\n$24 thousand, or 13 percent from FY 2004 to FY 2005. This increase is attributable to an increase in the government\xe2\x80\x99s\nshare of Federal Employees Health Bene\xef\xac\x81ts (FEHB) and Federal Employees Group Life Insurance (FEGLI). Federal\nGAAP requires the reporting of government employee bene\xef\xac\x81ts. The amounts remitted to the Of\xef\xac\x81ce of Personnel\nManagement (OPM) by and for covered employees do not generally cover the actual cost of the bene\xef\xac\x81ts those\nemployees will receive after their careers are over. As a consequence, for FY 2005, the AWCF must recognize an\nimputed cost equal to the difference between the true cost of providing future bene\xef\xac\x81ts to its employees and the\nemployer and employee contributions they remit to the OPM.\n\nThe Budgetary Resources Obligated - Other line increased by $230.9 million, or 100 percent from FY 2004 to FY 2005.\n\n\n198 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cThe FY 2005 balance represents inventory gains and losses reported as non-exchange gains and losses. During FY\n2005 the presentation of this line was changed to include non-exchange gains and losses.\n\nChange in Undelivered Orders decreased $982.8 million, or 39 percent, from FY 2004 to FY 2005. This re\xef\xac\x82ects the\nincreased delivery of items ordered in prior years in support of the contingency missions Operations Enduring\nFreedom, Iraqi Freedom, and Noble Eagle.\n\nChange in Un\xef\xac\x81lled Customer Orders increased by $608.8 million, or 417 percent, from FY 2004 to FY 2005. This\nre\xef\xac\x82ects the increased order volume in support of the contingency missions Operations Enduring Freedom, Iraqi\nFreedom, and Noble Eagle.\n\nResources that \xef\xac\x81nance the Acquisition of Assets increased $1.8 billion, or 29 percent due to purchases of inventory to\nincrease balances on hand.\n\nOther Resources or Adjustments to Net Obligated Resources \xe2\x80\x93 Other decreased $237.8 million, or 3461 percent. The\nmajority of the change resulted from a presentation change for non-exchange gains and losses on the Statement of\nFinancing.\n\nIncrease in Annual Leave Liability increased by $27.5 million, or 2000 percent, from FY 2004 to FY 2005. The Supply\nManagement activities previously reported the annual leave liability in the Army General Fund Financial Statements\nbut began reporting in the AWCF Financial Statements during the 2nd Quarter FY 2005.\n\nComponents Requiring or Generating Resources in Future Period \xe2\x80\x93 Other decreased by $172 thousand or 100\npercent. In FY 2004 this line contained an increase in the Federal Employee Compensation Act (FECA) expense.\nIn FY 2005 the FECA expense decreased and is reported on the Resources that Fund Expenses Recognized in Prior\nPeriods.\n\nDepreciation and amortization increased $13.0 million, or 16 percent, from FY 2004 to FY 2005. This increase is\nattributable to the acquisition of general property plant and equipment during FY 2005.\n\nRevaluation of Assets or Liabilities increased by $442.4 million, or 172 percent, from FY 2004 to FY 2005. The increase\nis due to additional inventory valuation adjustments for Supply Management activities. The Army and the Defense\nFinance and Accounting Service continue to monitor inventory reporting values.\n\nOther Cost of Goods Sold increased by $1.0 billion, or 20 percent from FY 2004 to FY 2005. This is a result of\nincreased sales made in FY 2005 in support of Operations Enduring Freedom, Iraqi Freedom, and Noble Eagle.\n\nOther Other changed by $115.9 million, or 26 percent, from FY 2004 to FY 2005. The change is attributable to\nTreasury regulations requiring posting to a cost capitalization offset account. The AWCF implemented this\naccounting procedure in FY 2005.\n\n\nOther disclosures\nTransactions within the AWCF have not been eliminated because the statements are presented as combined and\ncombining.\n\n\nNote Reference\nFor Additional Line Item discussion, see:\nNote 10, General PP&E\nNote 11, Liabilities Not Covered by Budgetary Resources\nNote 18, Disclosures Related to the Statement of Net Cost\nNote 20, Disclosures Related to the Statement of Budgetary Resources\n\n\n\n FY 2005 Army Annual Financial Statement 199\n\x0cNote 22. Disclosures Related to the Statement of Custodial Activity\nNot applicable.\n\nNote 23. Other Disclosures\nNot applicable.\n\n\n\n\n200 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cFY 2005 Army Annual Financial Statement 201\n\x0cDepartment of Defense - Army Working Capital Fund\nCONSOLIDATING BALANCE SHEET\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Supply Management Industrial Operations Component Level\n\xc2\xac\xc2\xac\xc2\xacASSETS\xc2\xac(Note\xc2\xac2)\n Intragovernmental:\n Fund Balance with Treasury (Note 3)\n Entity $ (308,788) $ (16,494) $ 948,612\n Non-Entity Seized Iraqi Cash 0 0 0\n Non-Entity-Other 0 0 0\n Investments (Note 4) 0 0 0\n Accounts Receivable (Note 5) 221,126 199,464 (53,968)\n Other Assets (Note 6) 38,831 51,295 (90,126)\n Total Intragovernmental Assets $ (48,831) $ 234,265 $ 804,518\n Cash and Other Monetary Assets (Note 7) $ 0 $ 0 $ 0\n Accounts Receivable (Note 5) 8,611 3,424 0\n Loans Receivable (Note 8) 0 0 0\n Inventory and Related Property (Note 9) 15,527,728 405,413 0\n General Property, Plant and Equipment (Note 10) 75,650 1,152,563 0\n Investments (Note 4) 0 0 0\n Other Assets (Note 6) 333,529 212 0\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacASSETS $ 15,896,687 $ 1,795,877 $ 804,518\n\n\xc2\xac\xc2\xac\xc2\xacLIABILITIES\xc2\xac(Note\xc2\xac11)\n Intragovernmental:\n Accounts Payable (Note 12) $ 106,160 $ 176,680 $ (177,237)\n Debt (Note 13) 0 0 0\n Other Liabilities (Note 15 & Note 16) 100,896 70,837 (96,154)\n Total Intragovernmental Liabilities $ 207,056 $ 247,517 $ (273,391)\n Accounts Payable (Note 12) $ 38,262 $ 131,857 $ 125,701\n Military Retirement Benefits and Other Employment-Related 0 286,523 0\n Actuarial Liabilities (Note 17)\n Environmental Liabilities (Note 14) 0 0 0\n Loan Guarantee Liability (Note 8) 0 0 0\n Other Liabilities (Note 15 and Note 16) 469,132 174,281 (891)\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES $ 714,450 $ 840,178 $ (148,581)\n\n\xc2\xac\xc2\xac\xc2\xacNET\xc2\xacPOSITION\n Unexpended Appropriations $ 0 $ 0 $ 0\n Cumulative Results of Operations 15,182,237 955,699 953,099\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacNET\xc2\xacPOSITION $ 15,182,237 $ 955,699 $ 953,099\n\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES\xc2\xacAND\xc2\xacNET\xc2\xacPOSITION $ 15,896,687 $ 1,795,877 $ 804,518\n\n\n\n\n202 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Combined Total Eliminations 2005 Consolidated 2004 Consolidated\n\n\n\n\n$ 623,330 $ 0 $ 623,330 $ 948,463\n 0 0 0 0\n 0 0 0 0\n 0 0 0 0\n 366,622 0 366,622 444,923\n 0 0 0 79\n$ 989,952 $ 0 $ 989,952 $ 1,393,465\n$ 0 $ 0 $ 0 $ 0\n 12,035 0 12,035 13,482\n 0 0 0 0\n 15,933,141 0 15,933,141 13,916,672\n 1,228,213 0 1,228,213 899,438\n 0 0 0 0\n 333,741 0 333,741 265,122\n$ 18,497,082 $ 0 $ 18,497,082 $ 16,488,179\n\n\n\n\n$ 105,603 $ 0 $ 105,603 $ 159,150\n 0 0 0 0\n 75,579 0 75,579 67,660\n$ 181,182 $ 0 $ 181,182 $ 226,810\n$ 295,820 $ 0 $ 295,820 $ 372,054\n 286,523 0 286,523 304,976\n\n 0 0 0 0\n 0 0 0 0\n 642,522 0 642,522 213,452\n$ 1,406,047 $ 0 $ 1,406,047 $ 1,117,292\n\n\n\n$ 0 $ 0 $ 0 $ 53\n 17,091,035 0 17,091,035 15,370,834\n$ 17,091,035 $ 0 $ 17,091,035 $ 15,370,887\n\n$ 18,497,082 $ 0 $ 18,497,082 $ 16,488,179\n\n\n\n\n FY 2005 Army Annual Financial Statement 203\n\x0cDepartment of Defense - Army Working Capital Fund\nCONSOLIDATING STATEMENT OF NET COST\nAs of September 30, 2005 and 2004 ($ in Thousands)\n 2005 2004\n\xc2\xac\xc2\xac\xc2\xacProgram\xc2\xacCosts Combined Total Eliminations Consolidated Consolidated\nA.\xc2\xacComponent\xc2\xacLevel\n Intragovernmental Gross Costs $ 979,547 $ 0 $ 979,547 $ 2,112,347\n (Less: Intragovernmental Earned Revenue) 5,761,732 0 5,761,732 3,290,147\n Intragovernmental Net Costs $ 6,741,279 $ 0 $ 6,741,279 $ 5,402,494\n Gross Costs With the Public $ (6,746,549) $ 0 $ (6,746,549) $ (5,375,497)\n (Less: Earned Revenue From the Public) 0 0 0 0\n Net Costs With the Public $ (6,746,549) $ 0 $ (6,746,549) $ (5,375,497)\n Total Net Cost $ (5,270) $ 0 $ (5,270) $ 26,997\nB.\xc2\xacIndustrial Operations\n Intragovernmental Gross Costs $ 384,554 $ 0 $ 384,554 $ 0\n (Less: Intragovernmental Earned Revenue) (4,275,537) 0 (4,275,537) 0\n Intragovernmental Net Costs $ (3,890,983) $ 0 $ (3,890,983) $ 0\n Gross Costs With the Public $ 9,140,787 $ 0 $ 9,140,787 $ 0\n (Less: Earned Revenue From the Public) (5,094,022) 0 (5,094,022) 0\n Net Costs With the Public $ 4,046,765 $ 0 $ 4,046,765 $ 0\n Total Net Cost $ 155,782 $ 0 $ 155,782 $ 0\nC.\xc2\xacSupply\xc2\xacManagement\n Intragovernmental Gross Costs $ 652,063 $ 0 $ 652,063 $ 386,277\n (Less: Intragovernmental Earned Revenue) (9,042,550) 0 (9,042,550) (8,245,086)\n Intragovernmental Net Costs $ (8,390,487) $ 0 $ (8,390,487) $ (7,858,809)\n Gross Costs With the Public $ 8,206,198 $ 0 $ 8,206,198 $ 8,185,419\n (Less: Earned Revenue From the Public) (1,824,249) 0 (1,824,249) (2,810,651)\n Net Costs With the Public $ 6,381,949 $ 0 $ 6,381,949 $ 5,374,768\n Total Net Cost $ (2,008,538) $ 0 $ (2,008,538) $ (2,484,041)\n\n\n\n\n204 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c 2005 2004\n Combined Total Eliminations Consolidated Consolidated\nD.\xc2\xacDepot\xc2\xacMaintenance\n Intragovernmental Gross Costs $ 0 $ 0 $ 0 $ 271,082\n (Less: Intragovernmental Earned Revenue) 0 0 0 (2,653,482)\n Intragovernmental Net Costs $ 0 $ 0 $ 0 $ (2,382,400)\n Gross Costs With the Public $ 0 $ 0 $ 0 $ 4,195,038\n (Less: Earned Revenue From the Public) 0 0 0 (1,917,228)\n Net Costs With the Public $ 0 $ 0 $ 0 $ 2,277,810\n Total Net Cost $ 0 $ 0 $ 0 $ (104,590)\nE.\xc2\xacOrdnance\n Intragovernmental Gross Costs $ 0 $ 0 $ 0 $ 78,288\n (Less: Intragovernmental Earned Revenue) 0 0 0 (847,632)\n Intragovernmental Net Costs $ 0 $ 0 $ 0 $ (769,344)\n Gross Costs With the Public $ 0 $ 0 $ 0 $ 1,156,340\n (Less: Earned Revenue From the Public) 0 0 0 (223,173)\n Net Costs With the Public $ 0 $ 0 $ 0 $ 933,167\n Total Net Cost $ 0 $ 0 $ 0 $ 163,823\nF.\xc2\xacTotal\xc2\xacProgram\xc2\xacCosts\n Intragovernmental Gross Costs $ 2,016,164 $ 0 $ 2,016,164 $ 2,847,994\n (Less: Intragovernmental Earned Revenue) (7,556,355) 0 (7,556,355) (8,456,053)\n Intragovernmental Net Costs $ (5,540,191) $ 0 $ (5,540,191) $ (5,608,059)\n Gross Costs With the Public $ 10,600,436 $ 0 $ 10,600,436 $ 8,161,300\n (Less: Earned Revenue From the Public) (6,918,271) 0 (6,918,271) (4,951,052)\n Net Costs With the Public $ 3,682,165 $ 0 $ 3,682,165 $ 3,210,248\n Total Net Cost $ (1,858,026) $ 0 $ (1,858,026) $ (2,397,811)\n\xc2\xac\xc2\xac\xc2\xacCost\xc2\xacNot\xc2\xacAssigned\xc2\xacto\xc2\xacPrograms $ 0 $ 0 $ 0 $ 0\n\xc2\xac\xc2\xac\xc2\xac(Less:Earned\xc2\xacRevenue\xc2\xacNot\xc2\xacAttributable\xc2\xacto\xc2\xacPrograms) 0 0 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ (1,858,026) $ 0 $ (1,858,026) $ (2,397,811)\n\n\n\n\n FY 2005 Army Annual Financial Statement 205\n\x0cDepartment of Defense - Army Working Capital Fund\nCONSOLIDATING STATEMENT OF CHANGES IN NET POSITION\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Supply Management Industrial Operations\nCUMULATIVE\xc2\xacRESULTS\xc2\xacOF\xc2\xacOPERATIONS\n Beginning\xc2\xacBalances $ 13,088,913 $ 732,617\n Adjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n Beginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 13,088,913 $ 732,617\n Budgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0\n Appropriations transferred-in/out (+/-) 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0\n Appropriations used 53 0\n Nonexchange revenue 0 0\n Donations and forfeitures of cash and cash equivalents 0 0\n Transfers-in/out without reimbursement (+/-) (615,575) 99,631\n Other budgetary financing sources (+/-) (14,080) 14,080\n Other\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0\n Transfers-in/out without reimbursement (+/-) 772,617 (171,142)\n Imputed financing from costs absorbed by others 17,834 129,301\n Other (+/-) (76,064) 306,994\n Total\xc2\xacFinancing\xc2\xacSources $ 84,785 $ 378,864\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) (2,008,538) 155,782\n Net\xc2\xacChange 2,093,323 223,082\n Ending\xc2\xacBalance $ 15,182,236 $ 955,699\n\nUNEXPENDED\xc2\xacAPPROPRIATIONS\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances $ 53 $ 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacPrior\xc2\xacperiod\xc2\xacadjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 53 $ 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBudgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0\n Appropriations transferred-in/out (+/-) 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0\n Appropriations used (53) 0\n Nonexchange revenue 0 0\n Donations and forfeitures of cash and cash equivalents 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Other budgetary financing sources (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacOther\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Imputed financing from costs absorbed by others 0 0\n Other (+/-) 0 0\n Total\xc2\xacFinancing\xc2\xacSources $ (53) $ 0\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-)\n Net\xc2\xacChange (53) 0\n Ending\xc2\xacBalance $ 0 $ 0\n\n\n\n206 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Component Level Combined Total Eliminations 2005 Consolidated 2004 Consolidated\n\n\n$ 1,549,304 $ 15,370,834 $ 0 $ 15,370,834 $ 13,883,676\n\n 0 0 0 0 0\n 0 0 0 0 0\n$ 1,549,304 $ 15,370,834 $ 0 $ 15,370,834 $ 13,883,676\n\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 53 0 53 231,207\n 0 0 0 0 0\n 0 0 0 0 0\n 0 (515,944) 0 (515,944) (1,448,600)\n 0 0 0 0 175,918\n\n 0 0 0 0 0\n (601,474) 1 0 1 0\n 0 147,135 0 147,135 130,821\n 0 230,930 0 230,930 0\n$ (601,474) $ (137,825) $ 0 $ (137,825) $ (910,654)\n (5,270) (1,858,026) 0 (1,858,026) (2,397,811)\n (596,204) 1,720,201 0 1,720,201 1,487,157\n$ 953,100 $ 17,091,035 $ 0 $ 17,091,035 $ 15,370,833\n\n\n\n$ 0 $ 53 $ 0 $ 53 $ 11,960\n\n 0 0 0 0 0\n 0 0 0 0 0\n$ 0 $ 53 $ 0 $ 53 $ 11,960\n\n 0 0 0 0 219,300\n 0 0 0 0 0\n 0 0 0 0 0\n 0 (53) 0 (53) (231,207)\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n$ 0 $ (53) $ 0 $ (53) $ (11,907)\n\n 0 (53) 0 (53) (11,907)\n$ 0 $ 0 $ 0 $ 0 $ 53\n\n\n\n\n FY 2005 Army Annual Financial Statement 207\n\x0cDepartment of Defense - Army Working Capital Fund\nCOMBINING STATEMENT OF BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Supply Management Industrial Operations\nBudgetary Financing Accounts\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 0 $ 0\n Borrowing authority 0 0\n Contract authority 10,780,125 171,779\n Net transfers (+/-) 0 0\n Other 0 0\n Unobligated balance:\n Beginning of period 115,216 1,378,313\n Net transfers, actual (+/-) (615,575) 99,631\n Anticipated Transfers Balances 0 0\n Spending authority from offsetting collections:\n Earned 0 0\n Collected 9,788,111 4,392,206\n Receivable from Federal sources (43,094) 13,688\n Change in unfilled customer orders 0 0\n Advance received 6,475 12,796\n Without advance from Federal sources (707,642) (66,548)\n Anticipated for the rest of year, without advances 0 0\n Previously unavailable 0 0\n Transfers for trust funds 0 0\n Subtotal $ 9,043,850 $ 4,352,142\n Recoveries of prior year obligations 1,187,808 247,784\n Temporarily not available pursuant to Public Law 0 0\n Permanently not available (8,654,627) (144,214)\n\xc2\xac\xc2\xac Total\xc2\xacBudgetary\xc2\xacResources $ 11,856,797 $ 6,105,435\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 0 $ 0\n Reimbursable 11,850,805 4,971,640\n Subtotal $ 11,850,805 $ 4,971,640\n Unobligated balance:\n Apportioned 5,991 1,133,794\n Exempt from apportionment 0 0\n Other available 1 1\n Unobligated Balances Not Available 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 11,856,797 $ 6,105,435\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net - beginning of period $ 4,279,888 $ (313,201)\n Obligated Balance transferred, net (+/-) 0 0\n Obligated Balance, Net - end of period:\n Accounts receivable (230,875) (201,467)\n Unfilled customer order from Federal sources (2,209,533) (1,538,990)\n Undelivered orders 8,490,049 1,285,599\n Accounts payable 156,182 397,246\n Outlays:\n Disbursements 9,487,799 4,521,127\n Collections (9,794,586) (4,405,002)\n Subtotal $ (306,787) $ 116,125\n Less: Offsetting receipts 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ (306,787) $ 116,125\n\n\n\n208 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Component Level 2005 Combined 2004 Combined\n\n\n\n\n$ 0 $ 0 $ 219,300\n 0 0 0\n 0 10,951,904 2,106,368\n 0 0 (1,448,600)\n 0 0 0\n\n 36,713 1,530,242 2,093,703\n 0 (515,944) 0\n 0 0 0\n\n 0 0 0\n (37) 14,180,280 12,265,860\n 37 (29,369) (53,776)\n 0 0 0\n 0 19,271 (17,246)\n 0 (774,190) (128,900)\n 0 0 0\n 0 0 0\n 0 0 0\n$ 0 $ 13,395,992 $ 12,065,938\n 0 1,435,592 499,733\n 0 0 0\n 0 (8,798,841) 0\n$ 36,713 $ 17,998,945 $ 15,536,442\n\n\n\n\n$ 0 $ 0 $ 0\n 0 16,822,445 14,006,202\n$ 0 $ 16,822,445 $ 14,006,202\n\n 36,714 1,176,499 1,530,241\n 0 0 0\n (1) 1 (1)\n 0 0 0\n$ 36,713 $ 17,998,945 $ 15,536,442\n\n$ 1,393 $ 3,968,080 $ 1,898,332\n 0 0 0\n\n (891) (433,233) (462,602)\n 0 (3,748,523) (4,522,713)\n 0 9,775,648 8,334,654\n 2,433 555,861 618,741\n\n (186) 14,008,740 11,619,397\n 37 (14,199,551) (12,248,614)\n$ (149) $ (190,811) $ (629,217)\n 0 0 0\n$ (149) $ (190,811) $ (629,217)\n\n\n\n\n FY 2005 Army Annual Financial Statement 209\n\x0cDepartment of Defense - Army Working Capital Fund\nCONSOLIDATING STATEMENT OF FINANCING\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Supply Management\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacActivities:\nBudgetary Resources Obligated\n Obligations incurred $ 11,850,805\n Less: Spending authority from offsetting collections (10,231,658)\n and recoveries (-)\n Obligations net of offsetting collections and recoveries $ 1,619,147\n Less: Offsetting receipts (-) 0\n Net obligations $ 1,619,147\nOther Resources\n Donations and forfeitures of property 0\n Transfers in/out without reimbursement (+/-) 772,617\n Imputed financing from costs absorbed by others 17,834\n Other (+/-) (76,064)\n Net other resources used to finance activities $ 714,387\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacactivities $ 2,333,534\n\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacItems\xc2\xacnot\xc2\xacPart of\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\n Change in budgetary resources obligated for goods,\n services and benefits ordered but not yet provided\n Undelivered Orders (-) $ (1,385,704)\n Unfilled Customer Orders (701,167)\n Resources that fund expenses recognized in prior periods 0\n Budgetary offsetting collections and receipts that do not affect net cost of operations 0\n Resources that finance the acquisition of assets (6,042,800)\n Other resources or adjustments to net obligated resources\n that do not affect net cost of operations\n Less: Trust or Special Fund Receipts Related to Exchange in the Entity's Budget (-) 0\n Other (+/-) (696,553)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacitems\xc2\xacnot part\xc2\xacof\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations $ (8,826,224)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof operations $ (6,492,690)\n\nComponents\xc2\xacof\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xacthat\xc2\xacwill\nnot\xc2\xacRequire\xc2\xacor\xc2\xacGenerate\xc2\xacResources\xc2\xacin\xc2\xacthe\xc2\xacCurrent\xc2\xacPeriod:\nComponents Requiring or Generating Resources in Future Period:\n Increase in annual leave liability $ 23,239\n Increase in environmental and disposal liability 0\n Upward/Downward reestimates of credit subsidy expense (+/-) 0\n Increase in exchange revenue receivable from the the public (-) 0\n Other (+/-) 0\n Total components of Net Cost of Operations that $ 23,239\n will require or generate resources in future periods\nComponents not Requiring or Generating Resources:\n Depreciation and amortization 48,864\n Revaluation of assets or liabilities (+/-) 665,661\n Other (+/-)\n Trust Fund Exchange Revenue 0\n Cost of Goods Sold 3,757,369\n Operating Material & Supplies Used 0\n Other (10,982)\n Total components of Net Cost of Operations that\n will not require or generate resources $ 4,460,912\nTotal\xc2\xaccomponents\xc2\xacof\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations\xc2\xacthat\nwill\xc2\xacnot\xc2\xacrequire\xc2\xacor\xc2\xacgenerate\xc2\xacresources\xc2\xacin\xc2\xacthe\xc2\xaccurrent period $ 4,484,151\nNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ (2,008,539)\n\n\n\n210 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Industrial Operations Component Level 2005 Consolidated 2004 Consolidated\n\n\n\n$ 4,971,640 $ 0 $ 16,822,445 $ 14,006,202\n (4,599,927) 0 (14,831,585) (12,565,671)\n\n$ 371,713 $ 0 $ 1,990,860 $ 1,440,531\n 0 0 0 0\n$ 371,713 $ 0 $ 1,990,860 $ 1,440,531\n\n 0 0 0 0\n (171,142) (601,474) 1 0\n 129,301 0 147,135 130,821\n 306,994 0 230,930 0\n$ 265,153 $ (601,474) $ 378,066 $ 130,821\n$ 636,866 $ (601,474) $ 2,368,926 $ 1,571,352\n\n\n\n\n$ (123,909) $ (5,270) $ (1,514,883) $ (2,497,681)\n (53,752) 0 (754,919) (146,147)\n (21,283) 0 (21,283) (23,337)\n 0 0 0 0\n (1,956,174) 0 (7,998,974) (6,214,549)\n\n\n 0 0 0 0\n (135,852) 601,474 (230,931) 6,872\n$ (2,290,970) $ 596,204 $ (10,520,990) $ (8,874,842)\n$ (1,654,104) $ (5,270) $ (8,152,064) $ (7,303,490)\n\n\n\n\n$ 5,659 $ 0 $ 28,898 $ 1,376\n 0 0 0 0\n 0 0 0 0\n 0 0 0 0\n 0 0 0 172\n$ 5,659 $ 0 $ 28,898 $ 1,548\n\n\n 47,020 0 95,884 82,909\n 34,252 0 699,913 257,468\n\n 0 0 0 0\n 2,268,001 0 6,025,370 5,003,845\n 0 0 0 0\n (545,047) 0 (556,029) (440,090)\n\n$ 1,804,226 $ 0 $ 6,265,138 $ 4,904,132\n\n$ 1,809,885 $ 0 $ 6,294,036 $ 4,905,680\n$ 155,781 $ (5,270) $ (1,858,028) $ (2,397,810)\n\n\n\n FY 2005 Army Annual Financial Statement 211\n\x0cDepartment of Defense - Army Working Capital Fund\nSTATEMENT OF DISAGGREGATED BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Working Capital Funds 2005 Combined 2004 Combined\nBudgetary Financing Accounts\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 0 $ 0 $ 219,300\n Borrowing authority 0 0 0\n Contract authority 10,951,904 10,951,904 2,106,368\n Net transfers (+/-) 0 0 (1,448,600)\n Other 0 0 0\n Unobligated balance:\n Beginning of period 1,530,241 1,530,241 2,093,704\n Net transfers, actual (+/-) (515,944) (515,944) 0\n Anticipated Transfers Balances 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0\n Collected 14,180,280 14,180,280 12,265,860\n Receivable from Federal sources (29,369) (29,369) (53,776)\n Change in unfilled customer orders 0 0 0\n Advance received 19,271 19,271 (17,247)\n Without advance from Federal sources (774,189) (774,189) (128,900)\n Anticipated for the rest of year, without advances 0 0 0\n Transfers from trust funds 0 0 0\n Subtotal 13,395,993 13,395,993 12,065,937\n Recoveries of prior year obligations 1,435,592 1,435,592 499,733\n Temporarily not available pursuant to Public Law 0 0 0\n Permanently not available (8,798,841) (8,798,841) 0\n\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 17,998,945 $ 17,998,945 $ 15,536,442\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred: $\n Direct 0 0 0\n Reimbursable 16,822,446 16,822,445 14,006,202\n Subtotal 16,822,446 16,822,445 14,006,202\n Unobligated balance:\n Apportioned 1,176,499 1,176,499 1,530,241\n Exempt from apportionment 0 0 0\n Other available 0 1 (1)\n Unobligated Balances Not Available 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 17,998,945 $ 17,998,945 $ 15,536,442\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net beginning of period $ 3,968,080 $ 3,968,080 $ 1,898,332\n Obligated Balance transferred, net (+/-) 0 0 0\n Obligated Balance, Net end of period:\n Accounts receivable (433,233) (433,233) (462,602)\n Unfilled customer order from Federal sources (3,748,523) (3,748,523) (4,522,713)\n Undelivered orders 9,775,648 9,775,648 8,334,654\n Accounts payable 555,861 555,861 618,741\n Outlays:\n Disbursements 14,008,740 14,008,740 11,619,397\n Collections (14,199,551) (14,199,551) (12,248,614)\n Subtotal (190,811) (190,811) (629,217)\n Less: Offsetting receipts 0 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ (190,811) $ (190,811) $ (629,217)\n\n\n\n212 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Working Capital Funds 2005 Combined 2004 Combined\nNon-Budgetary Financing Accounts\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 0 $ 0 $ 0\n Borrowing authority 0 0 0\n Contract authority 0 0 0\n Net transfers (+/-) 0 0 0\n Other 0 0 0\n Unobligated balance:\n Beginning of period 0 0 0\n Net transfers, actual (+/-) 0 0 0\n Anticipated Transfers Balances 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0\n Collected 0 0 0\n Receivable from Federal sources 0 0 0\n Change in unfilled customer orders 0 0 0\n Advance received 0 0 0\n Without advance from Federal sources 0 0 0\n Anticipated for the rest of year, without advances 0 0 0\n Transfers from trust funds 0 0 0\n Subtotal 0 0 0\n Recoveries of prior year obligations 0 0 0\n Temporarily not available pursuant to Public Law 0 0 0\n Permanently not available 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 0 $ 0 $ 0\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred: $\n Direct 0 0 0\n Reimbursable 0 0 0\n Subtotal 0 0 0\n Unobligated balance:\n Apportioned 0 0 0\n Exempt from apportionment 0 0 0\n Other available 0 1 (1)\n Unobligated Balances Not Available 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 0 $ 0 $ 0\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net beginning of period $ 0 $ 0 $ 0\n Obligated Balance transferred, net (+/-) 0 0 0\n Obligated Balance, Net end of period:\n Accounts receivable 0 0 0\n Unfilled customer order from Federal sources 0 0 0\n Undelivered orders 0 0 0\n Accounts payable 0 0 0\n Outlays:\n Disbursements 0 0 0\n Collections 0 0 0\n Subtotal 0 0 0\n Less: Offsetting receipts 0 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ 0 $ 0 $ 0\n\n\n\n FY 2005 Army Annual Financial Statement 213\n\x0c Required Supplemental Information - Part A\n\nAT97 - Army Working Capital Fund\n($ Amounts in Thousands)\nSchedule, Part A DoD Intra-governmental Asset Treasury Fund Balance Accounts Loans\nBalances. Index: with Treasury Receivable Receivable Investments Other\nExecutive Office of the President 11 $193\nDepartment of Agriculture 12 $2\nDepartment of the Interior 14 $10\nDepartment of Justice 15 $210\nNavy General Fund 17 $13,783\nDepartment of State 19 $138\nDepartment of the Treasury 20 $623,331 $305\nArmy General Fund 21 $312,950\nLibrary of Congress 3 $46\nDepartment of Veterans Affairs 36 $13\nGeneral Service Administration 47 $358\nCentral Intelligence Agency 56 $652\nAir Force General Fund 57 $5,609\nDepartment of Transportation 69 $411\nHomeland Security 70 $4,366\nDepartment of Health and Human Services 75 $155\nNational Aeronautics and Space Administration 80 $10\nDepartment of Energy 89 $241\nUS Army Corps of Engineers 96 $1,989\nOther Defense Organizations General Funds 97 $9,769\nOther Defense Organizations Working Capital Funds 97-4930 $7,488\nNavy Working Capital Fund 97-4930.002 $5,039\nAir Force Working Capital Fund 97-4930.003 $2,884\nTotals $623,331 $366,621\n\n\n\n\n214 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Required Supplemental Information - Part B\n\nAT97 - Army Working Capital Fund\n($ Amounts in Thousands)\n Treasury Accounts Debts/Borrowings\n Other\nSchedule, Part B DoD Intra-governmental entity liabilities. Index: Payable From Other Agencies\nDepartment of Labor 16 $47,253\nNavy General Fund 17 $2,053\nArmy General Fund 21 $26,041 $19,661\nOffice of Personnel Management 24 $8,665\nAir Force General Fund 57 $421\nUS Army Corps of Engineers 96 $0\nOther Defense Organizations General Funds 97 $80\nOther Defense Organizations Working Capital Funds 97-4930 $67,316\nNavy Working Capital Fund 97-4930.002 $6,634\nAir Force Working Capital Fund 97-4930.003 $3,059\nTotals $105,604 $75,579\n\n\n\n\n FY 2005 Army Annual Financial Statement 215\n\x0c Required Supplemental Information - Part C\n\nAT97 - Army Working Capital Fund\n($ Amounts in Thousands)\nSchedule, Part C DoD Intra-governmental revenue and related costs. Treasury Index: Earned Revenue\nExecutive Office of the President 11 $627\nDepartment of Agriculture 12 $80\nDepartment of the Interior 14 $41\nDepartment of Justice 15 $1,328\nNavy General Fund 17 $372,869\nDepartment of State 19 $1,442\nDepartment of the Treasury 20 $669\nArmy General Fund 21 $6,143,838\nLibrary of Congress 3 $283\nDepartment of Veterans Affairs 36 $18\nGeneral Service Administration 47 $1,638\nCentral Intelligence Agency 56 $3,987\nAir Force General Fund 57 $247,796\nDepartment of Transportation 69 $3,585\nHomeland Security 70 $22,224\nDepartment of Health and Human Services 75 $1,135\nNational Aeronautics and Space Administration 80 $524\nDepartment of Energy 89 $295\nUS Army Corps of Engineers 96 $4,528\nOther Defense Organizations General Funds 97 $190,876\nOther Defense Organizations Working Capital Funds 97-4930 $51,174\nNavy Working Capital Fund 97-4930.002 $205,357\nAir Force Working Capital Fund 97-4930.003 $302,041\nTotals $7,556,355\n\n\n\n\n216 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Required Supplemental Information - Part E\n\nAT97 - Army Working Capital Fund\n($ Amounts in Thousands)\n Treasury Index: Transfers In Transfers Out\nArmy General Fund 21 $700,000\nOther Defense Organizations Working Capital Funds 97-4930 $184,056\nTotals $184,056 $700,000\n\n\n\n\n FY 2005 Army Annual Financial Statement 217\n\x0c INSPECTOR GENERAL\n DEPARTMENT OF DEFENSE\n 400 ARMY NAVY DRIVE\n ARLINGTON, VIRGINIA 22202-4704\n\n\n\n\n November 08, 2005\n\nMEMORANDUM FOR ASSISTANT SECRETARY OF THE ARMY (FINANCIAL MANAGEMENT\n AND COMPTROLLER)\n\nSUBJECT: Independent Auditor\xe2\x80\x99s Report on the Fiscal Year 2005 Army Working Capital Fund\n Financial Statements (Report No. D 2006 014)\n\nThe Chief Financial Of\xef\xac\x81cers Act of 1990, as amended, requires the Department of Defense Inspector General to audit\nthe accompanying Army Working Capital Fund Consolidated Balance Sheet as of September 30, 2005 and 2004, the\nrelated Consolidated Statement of Net Cost, the Consolidated Statement of Changes in Net Position, the Combined\nStatement of Budgetary Resources, and the Combined Statement of Financing for the \xef\xac\x81scal years then ended. The\n\xef\xac\x81nancial statements are the responsibility of Army management. The Army is also responsible for implementing\neffective internal control and for complying with laws and regulations. We are unable to give an opinion on the\nFiscal Year 2005 \xef\xac\x81nancial statements of the Army Working Capital Fund because of limitations on the scope of our\nwork. Thus, the \xef\xac\x81nancial statements may be unreliable. In addition to our disclaimer of opinion on the \xef\xac\x81nancial\nstatements, we are including the required Report on Internal Control and Compliance with Laws and Regulations.\nThe Report on Internal Control and Compliance with Laws and Regulations is an integral part of our disclaimer of\nopinion on the \xef\xac\x81nancial statements and should be considered in assessing the results of the audit.\n\n\nDisclaimer of Opinion on the Financial Statements\nThe Assistant Secretary of the Army (Financial Management and Comptroller) acknowledged to us that the\n\xef\xac\x81nancial management and feeder systems that Army relies on to provide evidence supporting the Army Working\nCapital Fund \xef\xac\x81nancial statements do not comply with Federal \xef\xac\x81nancial management system requirements,\ngenerally accepted accounting principles, and the U.S. Government Standard General Ledger at the transaction\nlevel. Therefore, we did not perform auditing procedures to determine whether material amounts on the \xef\xac\x81nancial\nstatements were fairly presented. We did not perform these and other auditing procedures because Section 1008(d)\nof the FY 2002 National Defense Authorization Act limits the Department of Defense Inspector General to perform\nonly audit procedures required by generally accepted government auditing standards that are consistent with the\nrepresentations made by management. The Army has also acknowledged, and prior audits have identi\xef\xac\x81ed, the\nmaterial weaknesses listed in the Summary of Internal Control. These material weaknesses also affect the reliability\nof certain information contained in the annual \xef\xac\x81nancial statements\xe2\x80\x94much of which is taken from the same data\nsources as the principal \xef\xac\x81nancial statements.1 Therefore, we are unable to express, and we do not express, an\nopinion on the \xef\xac\x81nancial statements and the accompanying information.\n\n\nSummary of Internal Control\nIn planning our audit, we considered Army internal control over \xef\xac\x81nancial reporting and compliance. We did this to\ndetermine our procedures for auditing the \xef\xac\x81nancial statements and to comply with Of\xef\xac\x81ce of Management\n\n\n\n1\n The annual \xef\xac\x81nancial statements include the principal \xef\xac\x81nancial statements, management discussion and analysis, consolidating and combining \xef\xac\x81nancial statements, Required Supplementary Information, and Other\nAccompanying Information.\n\n\n\n\n218 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cand Budget guidance, but our purpose was not to express an opinion on internal control. Accordingly, we do not\nexpress an opinion on internal control over \xef\xac\x81nancial reporting and compliance. However, previously identi\xef\xac\x81ed\nreportable conditions,2 all of which are material, continue to exist in the following areas.\n\n Financial Management Systems and Processes\n Inventory\n General Property, Plant, and Equipment\n Intragovernmental Transactions and Eliminations\n Accounting Adjustments\n Accounts Payable\n Statement of Net Cost\n Statement of Financing\n\nMaterial weaknesses are reportable conditions in which internal controls do not reduce (to a relatively low level)\nthe risk of misstatements that are material to the \xef\xac\x81nancial statements and that might not be timely detected by\nemployees while performing their normal, assigned functions. Our internal control work would not necessarily\ndisclose all material weaknesses. See the Attachment for additional details on material internal control weaknesses.\n\n\nSummary of Compliance with Laws and Regulations\nOur work to determine compliance with selected provisions of applicable laws and regulations related to\n\xef\xac\x81nancial reporting was limited because management acknowledged, and prior audits con\xef\xac\x81rm, that instances of\nnoncompliance continue to exist. The Army acknowledged to us that many of its critical \xef\xac\x81nancial management and\nfeeder systems do not comply with the requirements of the Federal Financial Management Information Act of 1996.\nTherefore, we did not determine whether the Army was in compliance with all applicable laws and regulations\nrelated to \xef\xac\x81nancial reporting. See the Attachment for additional details on compliance with laws and regulations.\n\n\nManagement Responsibility\nManagement is responsible for:\n\n preparing the \xef\xac\x81nancial statements in conformity with generally accepted accounting principles;\n establishing, maintaining, and assessing internal control to provide reasonable assurance that the\n broad control objectives of the Federal Managers\xe2\x80\x99 Financial Integrity Act are met; and\n complying with applicable laws and regulations.\n\nWe provided a draft of this report to Army of\xef\xac\x81cials.\n\n\n\n\nAttachment:\nAs stated\n\n2\n Reportable conditions are matters coming to the auditor\xe2\x80\x99s attention that, in his or her judgment, should be communicated to management because they represent signi\xef\xac\x81cant de\xef\xac\x81ciencies in the design or operation of\ninternal control, which could adversely affect the organization\xe2\x80\x99s ability to initiate, record, process, and report \xef\xac\x81nancial data consistent with the assertions of management in \xef\xac\x81nancial statements.\n\n\n\n\n FY 2005 Army Annual Financial Statement 219\n\x0cReport on Internal Control and Compliance with Laws and Regulations\nInternal Control\nManagement is responsible for implementing effective internal control and for providing reasonable assurance\nthat accounting data are accumulated, recorded, and reported properly and that assets are safeguarded against\nmisappropriation and abuse. Our purpose was not to, and we do not, express an opinion on internal control over\n\xef\xac\x81nancial reporting. However, we have identi\xef\xac\x81ed the following material weaknesses that could adversely affect a\nfavorable opinion on internal control.\n\nMaterial Weaknesses. Management acknowledged that previously identi\xef\xac\x81ed reportable conditions, all of which are\nmaterial, continue to exist.\n\nFinancial Management Systems and Processes. Army Working Capital Fund systems are unable to meet all of the\nrequirements for full accrual accounting. The systems do not collect and record \xef\xac\x81nancial information, as required by\ngenerally accepted accounting principles. Financial and non\xef\xac\x81nancial feeder systems are not integrated and do not\ncontain an audit trail for the proprietary and budgetary accounts. The Army Working Capital Fund derives most of\nits \xef\xac\x81nancial information for major accounts from noncompliant \xef\xac\x81nancial systems, such as the Commodity Command\nStandard System and the Logistics Modernization Program.\n\nIn FY 2003, the Army began deployment of the Logistics Modernization Program as the system solution for\nachieving a clean opinion for the Army Working Capital Fund. The scheduled completion date for the second\ndeployment of the Logistics Modernization Program was initially February 2005, with full deployment anticipated\nby September 2005. However, numerous development problems and the inability to stabilize data at the initial\ndeployment sites prevented the second deployment from occurring during FY 2005. The second of three planned\ndeployments has slipped at least until the third quarter of FY 2006. The Army was unable to provide a \xef\xac\x81rm date\nfor the full deployment of the Logistics Modernization Program. This delay severely impairs the Army\xe2\x80\x99s ability to\nobtain a clean opinion on the Army Working Capital Fund \xef\xac\x81nancial statements in the near future.\n\nThe DoD-Wide systemic de\xef\xac\x81ciencies in \xef\xac\x81nancial management systems and business processes result in the inability\nto collect and report \xef\xac\x81nancial and performance information that is accurate, reliable, and timely. The Under\nSecretary of Defense (Comptroller)/Chief Financial Of\xef\xac\x81cer recommended updating the Logistics Modernization\nProgram to support the Standard Financial Information Structure. The Standard Financial Information Structure\nembodies the end-to-end defense \xef\xac\x81nancial management process, enabling traceability of budget resources\nthroughout a transaction\xe2\x80\x99s lifecycle. It will allow future core \xef\xac\x81nancial system interoperability, establish tracking\nand audit traceability at the transaction level, and provide a \xef\xac\x81nancial data framework compliant with Federal\nrequirements and consistent with private-sector best practices. Updating the Logistics Modernization Program\nto support the Standard Financial Information System may further delay full deployment of the Logistics\nModernization Program.\n\nOther system changes are necessary. For example, the Logistics Modernization Program is unable to record\nmemorandum entries in the U.S. Government Standard General Ledger for current year asset activity as required\nby the Federal \xef\xac\x81nancial management systems. This is a critical reporting shortfall for which a system change is\nneeded. The Army Working Capital Fund disclosed \xef\xac\x81nancial management system de\xef\xac\x81ciencies in notes to the FY\n2005 \xef\xac\x81nancial statements.\n\nInventory. The existing inventory valuation method does not produce an auditable approximation of historical\ncost. The Army uses the latest acquisition cost method of valuing most of the inventory because its legacy inventory\nsystems were designed for materiel management rather than accounting. The systems provide accountability and\nvisibility over inventory items, but do not maintain the historical cost data necessary to comply with Statement of\nFederal Financial Accounting Standards No. 3, \xe2\x80\x9cAccounting for Inventory and Related Property.\xe2\x80\x9d The systems are\nunable to produce \xef\xac\x81nancial transactions using the U.S. Government Standard General Ledger accounts and neither\nthe Defense Finance and Accounting Service nor the Army reconciled all differences between the accounting records\n\n\n220 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cand the logistical records. Instead, they accepted the data from the logistical records and adjusted the accounting\nrecords by about $3 billion. During the initial deployment of the Logistics Modernization Program, Army and\nDefense Finance and Accounting Service users reported problems associated with duplicate and inaccurate postings\nof inventory and \xef\xac\x81nancial transactions. During FY 2005, at least $5.6 billion in adjustments were made to correct the\ninaccurate postings.\n\nGeneral Property, Plant, and Equipment. The value of Army Working Capital Fund General Property, Plant,\nand Equipment is not reliably reported because the Army lacks supporting documentation, is unable to properly\ncalculate depreciation costs, and fails to report the full value of property in the possession of contractors.\nInformation on the acquisition date and cost is not always available and is sometimes recorded incorrectly. During\nFY 2005, the Army implemented system improvements to the Integrated Facilities System, designed to bring the\nsystem into compliance with the Federal Financial Management Information Act of 1996. They also took actions to\nresolve issues in reporting the value of general equipment and property in the possession of contractors and internal\nuse software in the Defense Property Accountability System.\n\nIntragovernmental Transactions and Eliminations. DoD is unable to collect, exchange, and reconcile buyer and\nseller intragovernmental transactions, resulting in adjustments that cannot be veri\xef\xac\x81ed. DoD and Army systems\ndo not adequately capture the \xef\xac\x81nancial data for buyer-side trading partners at the transaction level for use in\nreconciliation and elimination. As a result, DoD did not require trading partner reconciliations. Instead, the Defense\nFinance and Accounting Service required adjusting buyer-side transaction data to equal the seller-side transactions\ndata without performing proper reconciliations. Defense Finance and Accounting Service Indianapolis made\n$10.8 billion in adjustments to intragovernmental accounts to force the accounts to agree with the records of Army\nWorking Capital Fund trading partners.\n\nAccounting Adjustments. Defense Finance and Accounting Service Indianapolis did not adequately support\napproximately $1.5 billion in adjustments. This amount is a forced balance made to agree with other sources\nof information and records used to prepare the FY 2005 Army Working Capital Fund Financial Statements. An\nadditional $78.5 million in adjustments did not have adequate documentation attached to the journal vouchers to\nsupport either the reason for the adjustments or the dollar values. The unsupported adjusting accounting entries\npresented a material uncertainty regarding the line item balances on the FY 2005 Army Working Capital Fund\nFinancial Statements. These adjustments affected the \xef\xac\x81nancial information on all of the statements. Defense Finance\nand Accounting Service Indianapolis did not always follow the established minimum requirements for documenting\njournal vouchers to support adjusting accounting entries made to the general ledger accounts.\n\nAccounts Payable. Defense Finance and Accounting Service Indianapolis made signi\xef\xac\x81cant adjustments to the\naccounts payable balances to derive the reported balances. Defense Finance and Accounting Service Indianapolis\nadjusted accounts payable with the public upward by $2.4 million for undistributed disbursements. Also, Defense\nFinance and Accounting Service Indianapolis was unable to reconcile intragovernmental accounts payable to the\nrelated intragovernmental accounts receivable that generated the payable. As a result, the Defense Finance and\nAccounting Service made $123.3 million in unsupported adjustments to decrease intragovernmental accounts\npayable to force the amounts to agree with Army Working Capital Fund trading partners. In addition, accounts\npayable in the Supply Management activity group were not established in accordance with Statement of Federal\nFinancial Accounting Standards No. 1, \xe2\x80\x9cAccounting for Selected Assets and Liabilities,\xe2\x80\x9d which requires that an\naccounts payable be established when the Army accepts title to the goods or services. The Army Working Capital\nFund recognized accounts payable based on the physical receipt of the goods or services rather than when the\nGovernment accepted title to the goods or services. Further, the accounts payable balances were misstated by\napproximately $360 million because the Logistics Modernization Program reported accounts payable related to\ninventories in transit as \xe2\x80\x9cother liabilities.\xe2\x80\x9d As a result, the Army Working Capital Fund could not ensure that its\nAccounts Payable line was not materially misstated.\n\nStatement of Net Cost. The Statement of Net Cost was not presented by responsibility segments consistent with\nDoD performance goals and measures. Accounting systems were unable to accurately capture costs for Army\n\n\n\n FY 2005 Army Annual Financial Statement 221\n\x0cWorking Capital Fund programs and properly account for intragovernmental transactions and related eliminations.\nIn addition, some of the Army Working Capital Fund\xe2\x80\x99s \xef\xac\x81nancial data presented on the Statement of Net Cost were\nbased on budgetary transactions.\n\nStatement of Financing. The Statement of Financing was prepared on a combined basis, while the Statement of Net\nCost was prepared on a consolidated basis. In addition, the Army cannot reconcile budgetary obligations to net cost\nwithout making unsupported adjustments.\n\nThese \xef\xac\x81nancial management de\xef\xac\x81ciencies are indications of material weaknesses in internal control that may\nadversely affect any decision by the Army that is based, in whole or in part, on information that is inaccurate\nbecause of these de\xef\xac\x81ciencies. Financial information reported by DoD may also contain misstatements resulting from\nthese de\xef\xac\x81ciencies.\n\n\nCompliance with Laws and Regulations\nManagement is responsible for compliance with existing laws and regulations related to \xef\xac\x81nancial reporting. Our\nwork to determine compliance with selected provisions of the applicable laws and regulations was limited because\nmanagement acknowledged instances of noncompliance, and previously reported instances of noncompliance\ncontinue to exist. Therefore, we did not determine whether the Army Working Capital Fund was in compliance\nwith selected provisions of all applicable laws and regulations related to \xef\xac\x81nancial reporting. Our objective was not\nto, and we do not, express an opinion on compliance with applicable laws and regulations.\n\nStatutory Financial Management Systems Reporting Requirements. The Army Working Capital Fund is required\nto comply with \xef\xac\x81nancial management systems reporting requirements. For example, the Federal Financial\nManagement Information Act of 1996 requires DoD to establish and maintain \xef\xac\x81nancial management systems that\ncomply substantially with Federal \xef\xac\x81nancial management systems requirements, applicable Federal accounting\nstandards, and the U.S. Government Standard General Ledger at the transaction level. In addition, the Federal\nManagers\xe2\x80\x99 Financial Integrity Act of 1982 requires the Army to evaluate its systems and to report annually whether\nthose systems comply with applicable requirements. The Chief Financial Of\xef\xac\x81cers Act of 1990 requires that each\nagency develop and maintain an integrated agency accounting and \xef\xac\x81nancial management system, including\n\xef\xac\x81nancial reporting and internal control. The system should comply with internal control standards and applicable\naccounting principles, standards, and requirements; and it should provide complete, reliable, consistent, and timely\ninformation.\n\nThe Army acknowledged that many of its critical \xef\xac\x81nancial management and feeder systems did not substantially\ncomply with Federal \xef\xac\x81nancial management systems requirements, generally accepted accounting principles, and\nU.S. Government Standard General Ledger at the transaction level. The Army was also unable to comply with the\nChief Financial Of\xef\xac\x81cers Act of 1990, which requires agencies to develop and maintain integrated agency accounting\nand \xef\xac\x81nancial systems.\n\nAudit Disclosures\nThe Army acknowledged to us on April 13, 2005, that the Army Working Capital Fund \xef\xac\x81nancial management\nsystems cannot provide adequate evidence supporting various material amounts on the \xef\xac\x81nancial statements.\nTherefore, we did not conduct audit work related to the previously identi\xef\xac\x81ed de\xef\xac\x81ciencies.\n\n\n\n\n222 Working Capital Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cIn addition, we did not perform audit work related to the following selected provisions of laws and regulations.\n\n Antide\xef\xac\x81ciency Act\n Provisions Governing Claims of the United States Government\n Federal Credit Reform Act of 1990\n Pay and Allowance System for Civilian Employees\n Prompt Payment Act\n\nThis report does not include recommendations to correct the material internal control weaknesses and instances of\nnoncompliance because previous audit reports contained recommendations for corrective actions.\n\n\n\n\n FY 2005 Army Annual Financial Statement 223\n\x0c Civil Works Fund\n\n The Civil Works\xe2\x80\x99 mission is constantly evolving to keep pace with\n the changing needs of the Nation. Today, those missions fall in four\n broad areas: water infrastructure, environmental management and\n restoration, emergency response and assistance, and engineering\n support and technical services.\n\n\n\n\n224 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cCivil Works Fund \xe2\x80\x93 Management\xe2\x80\x99s Discussion & Analysis\nOverview\nMission\nThe civil works mission is to contribute to the national\nwelfare and serve the public by providing the nation\nand the Army with quality, responsive development\nand management of the nation\xe2\x80\x99s water resources;\nprotection, restoration, and management of the\nenvironment; disaster response and recovery; and The changing role of the civil works mission in water\nengineering and technical services. The mission will supply has been directed by a series of water resources\nbe accomplished in an environmentally sustainable, development acts. The Water Supply Act of 1958 gave\neconomic, and technically sound manner through the civil works program the authority to include water\npartnerships with other governmental agencies and storage in both new and existing reservoir projects\nnongovernmental organizations. for municipal and industrial uses at 100 percent\n nonfederal cost.\nDeveloping and Managing Water Resources\nThe original civil works mission, as it related to Protecting, Restoring, and Managing the Environment\ndeveloping and managing water resources, was to The Rivers and Harbors Act of 1899 required the Corps\nsupport navigation by maintaining and improving to prevent the obstruction of navigable waterways. As\nwater channels. In 1824, legislation authorized the concern over the environment grew in the late 20th\nU.S. Army Corps of Engineers (Corps of Engineers, century, the Clean Water Act of 1972 greatly broadened\nthe Corps) to improve safety on the Ohio and the Corps\xe2\x80\x99 responsibility by providing authority over\nMississippi Rivers. The Rivers and Harbors Act of 1909 the dredging and \xef\xac\x81lling in of United States\xe2\x80\x99 waters,\nauthorized the consideration of various water uses\xe2\x80\x94 including the country\xe2\x80\x99s wetlands. The civil works\nincluding hydroelectric power generation\xe2\x80\x94in the program\xe2\x80\x99s environmental responsibilities were further\nplanning, design, and construction of water resource broadened by new legislation introduced in 1986\ndevelopment projects. The 1917 Flood Control Act that expanded the Corps\xe2\x80\x99 traditional environmental\nestablished a role for the civil works program in \xef\xac\x82ood mitigation activities to include the enhancement and\ndamage reduction, and in 1936 a \xef\xac\x82ood control act gave restoration of the natural environment at Corps\xe2\x80\x99\nthe program the responsibility for providing \xef\xac\x82ood projects and in areas not directly tied to those projects.\nprotection for the entire country. This legislation made the provision of environmental\n protection one of the primary missions of the Corps\xe2\x80\x99\nRecreational facilities at reservoirs were added to water resource development activities.\nthe portfolio by the Flood Control Act of 1944. The\n1962 River and Harbor Flood Control Act expanded\nthe recreation mission, providing authority to build, Responding and Assisting in Disaster Relief\nwhere feasible, recreational facilities as part of all water Throughout the Corps\xe2\x80\x99 history, America has relied on\nresource development projects. Another aspect of the civil works program for help in times of national\nwater resources management is that of water supply. disaster. This help is now provided under two basic\n authorities: the Flood Control and Coastal Emergency\n Act (P.L. 84-99, as amended), and the Robert T.\n Stafford Disaster and Emergency Assistance Act.\n Under P.L. 84-99, the program has direct authority\n to provide emergency assistance during or following\n \xef\xac\x82ooding events to protect lives, public facilities, and\n\n\n\n\n 225\n\x0cU.S. Army Corps of Engineers deployable tactical operations system (DTOS) trailers assist in hurricane recovery effort.\n\n\ninfrastructure. Under the Stafford Act, the program it shows the funds used for executive direction and\nsupports the Federal Emergency Management Agency management for those programs. The ninth program,\n(FEMA) in carrying out the Federal Response Plan, support for others, is conducted on a reimbursable\nwhich calls upon 26 federal departments and agencies basis. Each program speci\xef\xac\x81cally addresses a single\nto provide coordinated disaster relief and recovery mission component, but all nine programs may also\noperations. The primary role of the civil works contribute to one or more of the other missions.\nprogram in emergency relief and recovery operations is\nto provide public works and engineering support.\n Navigation\n The navigation program is responsible for providing\nProviding Engineering Support and Technical Services safe, reliable, ef\xef\xac\x81cient, and environmentally sustainable\nIn Titles 10 and 33 of the U.S. Code, Congress waterborne transportation systems for the movement\nexpresses its intent that the Corps provide services of commercial goods and for national security needs.\non a reimbursable basis to other federal entities; state, The program seeks to meet this responsibility through\nlocal, and tribal governments; private \xef\xac\x81rms; and a combination of capital improvements and the\ninternational organizations. Additional authorities operation and maintenance of existing infrastructure\nto provide services that are applicable to all federal projects. The navigation program is vital to the\nagencies are provided in Titles 15, 22, and 31. These nation\xe2\x80\x99s economic prosperity: 95 percent of America\xe2\x80\x99s\nauthorities include providing services to friendly overseas international trade moves through its ports.\nforeign governments.\n Our nation\xe2\x80\x99s marine transportation system (MTS)\nCivil Works Programs encompasses a network of navigable channels,\n waterways, and infrastructure maintained by the\nThe Corps utilizes nine programs to accomplish the\n Corps, as well as publicly and privately owned\nfour components of its mission. Figure 19 lists the eight\n vessels, marine terminals, inter-modal connections,\nprograms that receive direct appropriations; further\n\n\n\n\n226 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cFigure 19. FY 2005 Civil Works Initial Appropriation by Program\n $2 million\n $170 million\n $281 million\n\n\n $5 million\n\n\n\n\n Navigation\n\n Flood and Coastal Storm Damage Prevention\n\n Hydropower\n $777 million\n $1.8 billion Regulatory\n\n Environment\n\n$144 million Emergency Management\n\n Recreation\n\n Water Supply\n\n $1.2 billion\n $285 milion\n Executive Direction & Management\n\n\n\n\nshipyards, and repair facilities. The MTS consists of\n Major Commodities Moved on Inland Waterways in\napproximately 12,000 miles of inland and intracoastal Calendar Year (CY) 2004\nwaterways; 926 coastal, Great Lakes, and inland\nharbors; and channel projects that are maintained by Crude Oil 613 million tons\n\nthe Corps. Petroleum Products 501 million tons\n\n Coal 306 million tons\nAmerica\xe2\x80\x99s inland waterways provide a highly fuel-\nef\xef\xac\x81cient mode of transportation, with waterborne Food and Farm Products 271 million tons\nshipping able to move freight at more than 530 ton- NOTE: Statistics are compiled on a calendar year basis. CY 2005 statistics not available at time of\n printing.\nmiles per gallon of fuel, compared to the approximately\n420 ton-miles per gallon that rail transportation\nachieves. Use of waterways rather than rail or other accounting for 28 percent of the nation\xe2\x80\x99s gross domestic\nmodes translates to an annual savings of $7 billion in product, and creates employment for 13 million people.\ntransportation costs. The U.S. marine transportation\nindustry supports nearly $1 trillion in commerce, The MTS is nearing capacity, but it is projected that\n\n\n\n\n 227\n\x0c and environmentally acceptable upstream sediment\n control and best management practices. Nonstructural\n solutions include more reliance on traf\xef\xac\x81c management\n planning on inland waterways with the aid of new\n technologies for traf\xef\xac\x81c control and lock operations that\n are compatible with aquatic ecosystems, and more\n ef\xef\xac\x81cient use of multi-modal transportation systems.\n\n In FY 2005, this $1.81 billion navigation program\n accounted for almost 39 percent of civil works\n appropriations.\n\n\n Flood and Coastal Storm Damage Reduction\n Program\n This program is aimed at saving lives and reducing\n property damage in\n Average Annual Damage\n the event of \xef\xac\x82oods and Results for Period\n coastal storms. The 1995 \xe2\x80\x93 2004\n civil works program Damaged Suffered $5.4 billion\n has constructed 8,500\n Damage Prevented $22.9 billon\n miles of levees and\n dikes, 383 reservoirs,\n and more than 90 shore protection projects along 240\n miles of the nation\xe2\x80\x99s 2,700 miles of shoreline. With the\n exception of the reservoirs, most of the infrastructure\n constructed under this program is owned and operated\n by the sponsoring cities, towns, and agricultural\n districts.\n\n The \xef\xac\x82ood and coastal storm damage reduction\nA container vessel navigates the Kill Van Kull channel as it passes under the Bayonne Bridge,\nN.J. The Corps has deepened this channel to accommodate modern shipping vessels. program has compiled an impressive record of\n performance. In the period 1995\xe2\x80\x932004, \xef\xac\x82oods in\nthe demand on it will grow substantially: the volume unprotected areas caused the United States an average\nof domestic and international marine trade is expected of $5.4 billion yearly in property damage. In the same\nto double by 2020. The containership of choice is period, Corps projects in protected areas prevented\nrapidly becoming a vessel requiring 45 to 50 feet of $22.9 billion in average annual damages. Through\ndepth. Few U.S. ports have a 50-foot depth, but many FY 2000, the nation had invested $43.6 billion ($122\ninternational ports do. Global competitiveness requires billion, adjusted for in\xef\xac\x82ation) in \xef\xac\x82ood damage\nready ports, which in turn requires maintaining reduction projects, preventing an estimated $419 billion\nadequate channels. The deepening and widening of ($709 billion, adjusted for in\xef\xac\x82ation) of \xef\xac\x82ood damage.\nchannels will produce greater quantities of dredged Adjusted for in\xef\xac\x82ation, these \xef\xac\x81gures show a return on\nmaterial; therefore, stressing both the physical investment of more than $6.36 in damage prevented for\ncapacity of the U.S. dredging \xef\xac\x82eet and the ability to each dollar spent. The program also has helped reduce\ndispose of the dredged material economically and in the number of lives lost annually due to \xef\xac\x82oods from\nan environmentally acceptable manner. Managing an average of 179 in the decade 1972\xe2\x80\x931981 to 89 in the\nsediment materials raises environmental issues on period 1991\xe2\x80\x932000.\nthe inland system. Sustainable approaches that can\nreduce dredging and disposal needs include innovative As an increasingly mobile society moves toward\n\n\n\n228 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cAmerica\xe2\x80\x99s coastal regions, protecting the coastline \xef\xac\x82oodplain ecosystems to America\xe2\x80\x99s natural habitats.\nis a matter of rising federal concern. The \xef\xac\x82ood and\ncoastal storm damage reduction program seeks the One example is the Corps\xe2\x80\x99 continuing work on the\nmost economical and environmentally sound solutions Kissimmee River Project in Florida. This civil works\nto provide \xef\xac\x82ood and coastal protection. Most shore project will restore 52 miles of the river and 27,000\nprotection projects are carried out at the request of local acres of wetlands, improving water quality and\nsponsors and are authorized and funded by Congress. restoring the natural habitat for more than 300 species\nThe costs of these projects are shared with the state of \xef\xac\x81sh and wildlife.\nand local governments within whose jurisdiction the\nproject falls. Projects are performed only on publicly\naccessible beaches and only after thorough studies\nhave determined that there exists a positive bene\xef\xac\x81t-to-\ncost ratio.\n\nFor example, the Corps recently completed a seven-\nyear project that will protect millions of Americans\nin Los Angeles County. In the early 1990s, the 2,000-\nsquare-mile Los Angeles County drainage area was\nonly partially protected from \xef\xac\x82oods. Enormous\npopulation growth in the area rendered the existing\n\xef\xac\x82ood control system inadequate, to the extent that\nFEMA required residents to hold mandatory \xef\xac\x82ood\ninsurance. Initiated in 1996 at an estimated cost of Kissimme River C-38 Restoration Project, FL.\nmore than $450 million, the Los Angeles County\nDrainage Area Project was completed for roughly $200\nmillion, of which the civil works program paid $150\nmillion. The project built 21 miles of parapet walls,\nreinforced the back slopes of levees, and modi\xef\xac\x81ed or\nraised 26 bridges. One result of these improvements\nwas FEMA removing the requirement for \xef\xac\x82ood\ninsurance.\n\nIn FY 2005, this $1.19 billion \xef\xac\x82ood and coastal storm\ndamage reduction program accounted for more than 25\npercent of civil works appropriations.\n\n\nEnvironmental Protection, Restoration, and\nManagement Ducks, geese and other waterfowl are protected on more than 85,200 acres of Army Corps of\nThis evolving and growing business program Engineers land devoted to wildlife management.\n\nemphasizes environmental stewardship, ecosystem\nrestoration, mitigation, environmental compliance, and In another example, the Corps and the Nature\nresearch and development. Responding to the growing Conservancy are collaborating on the Sustainable\nnational demand for restoration and protection, the Rivers Project, an effort to improve the management of\nprogram\xe2\x80\x99s work takes many forms, ranging from: dams on nine rivers. The project seeks to improve dam\nmonitoring water quality at dam sites, to operating \xef\xac\x81sh operations, helping to restore and protect the health of\nhatcheries with the states, to restoring the environment rivers and surrounding natural areas, while continuing\nat the sites of earlier projects. Since 1998 the Corps has to meet human needs for services such as \xef\xac\x82ood damage\nadded more than 120,000 acres of aquatic, wetland, and reduction and power generation. The collaborative\n\n\n\n 229\n\x0ceffort is initially examining the potential to improve The Corps must make \xef\xac\x81nal permit decisions that\noperations at 13 dams on nine rivers in nine states. are not contrary to the public interest; therefore, the\n Corps authorizes only projects that represent the\nIn 1997, the civil works program took over from the least environmentally damaging practical alternative.\nDepartment of Energy the Formerly Utilized Sites The Corps works with project proponents \xef\xac\x81rst and\nRemedial Action Program, which mandates the foremost to avoid and minimize impacts to the\ncleanup of former Manhattan Project and Atomic aquatic environment. Unavoidable adverse impacts\nEnergy Commission sites. The transfer of this to the aquatic environment must be offset by the\nprogram to civil works capitalizes on the Corps\xe2\x80\x99 implementation of compensatory mitigation projects\nexperience gained in cleaning up former military sites that are designed to restore, enhance, establish, or\nand hazardous waste sites under the Environmental protect and maintain aquatic functions and values. A\nProtection Agency\xe2\x80\x99s Superfund Program. critical objective for the Corps is that it make ef\xef\xac\x81cient\n and timely permit decisions that result in regulatory\nIn FY 2005, this $777 million environmental protection, consistency and predictability for all interested parties.\nrestoration, and management program accounted for\nover 16 percent of civil works appropriations. In FY 2005, this $144 million regulation of wetlands and\n waterways program accounted for three percent of civil\n works appropriations.\nRegulation of Wetlands and Waterways\nIn accordance with the Rivers and Harbors Act of\n1899 (Sec. 10) and the Clean Water Act of 1972 (Sec. Emergency Management\n404), as amended, the Army Civil Works Regulatory Emergency management is an increasingly important\nProgram regulates the discharge of dredged and \xef\xac\x81ll part of the civil works program. The Corps responds\nmaterial into waters of the United States, including to more than 30 presidential disaster declarations\nwetlands. Section 10 applies to navigable waters, in a typical year, and its highly trained workforce is\nwhile section 404 applies more broadly to waters of the prepared to deal with both man-made and natural\nUnited States, which include navigable waters, their disasters. In 2005 the Corps publicly demonstrated\ntributaries, and wetlands. its value and versatility in its response to Hurricanes\n Dennis and Katrina, removing water from New\nThroughout the permit evaluation process, the Corps Orleans, restoring levees, removing debris, opening\nmust comply with the National Environmental Policy waterways, and delivering valuable supplies. It also\nAct and other applicable environmental and historic performed lower-pro\xef\xac\x81le but equally important work\npreservation laws. The objective of the program is to during the St Georges, UT, wild\xef\xac\x81res; in its response\nprotect America\xe2\x80\x99s aquatic resources while allowing to the four hurricanes that hit Florida in 2004; and in\nreasonable use of private property for important numerous other emergency support operations..\neconomic or infrastructure development on both\nprivate and public lands. The southeastern United States was hit by three major\n hurricanes within a 13-week period at the end of FY\nThe Corps must consider the views of other federal, 2005:.\ntribal, state, and local governments and agencies;\ninterest groups; and the general public when rendering Hurricane Dennis \xe2\x80\x93 Category 3 \xe2\x80\x93 July 1, 2005\nits \xef\xac\x81nal permit decisions. The regulatory program\n Hurricane Katrina \xe2\x80\x93 Category 4 \xe2\x80\x93 August 29, 2005\nseeks to balance the reasonably foreseeable bene\xef\xac\x81ts\nand detriments of proposed projects with the goal of Hurricane Rita \xe2\x80\x93 Category 3 \xe2\x80\x93 September 24, 2005\nmaking permit decisions that recognize the essential\nvalues of aquatic ecosystems to the general public and\nnational security.\n\n\n\n\n230 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cIn its September 1, 2005, tropical weather summary, the\nNational Weather Service wrote:\n\n Katrina will likely be recorded as the worst\n natural disaster in the history of the United States\n ... producing catastrophic damage and untold\n casualties in the New Orleans area and along the\n Mississippi Gulf Coast ... and additional casualties\n in South Florida. The extent of the physical and\n human devastation from this hurricane cannot yet\n be estimated.\nOn September 26, 2005, the death toll from Hurricane\nKatrina was raised to 1,069; on September 19, 2005,\nproperty damage was estimated to be between $100\n Two barge loads of pumping equipment and their support crew from the Corps of Engineers\nand $200 billion, making Katrina the most expensive Little Rock District pass through the Inner Harbor Navigation Canal Lock. The equipment was\n unloaded in New Orleans to help pump the water out of the lower Ninth Ward.\nnatural disaster in U.S. history. Aggravating the\nsituation, Hurricane Rita, following closely behind\nHurricane Katrina, prompted the evacuation of\nalmost three million people. Four divisions of the\nCorps - South Atlantic, Mississippi River, Great Lakes\nand Ohio River, and Southwestern Divisions - were\ndirectly affected by these hurricanes, and every Corps\norganization contributed to the post-Katrina recovery\neffort. More than 3,000 Corps employees were directly\nassigned to the relief effort.\n\nIn addition to the contribution the Corps makes to\ndomestic emergency management efforts, it also\nplays a major role on the international stage through\nits participation in the civil military emergency\npreparedness program. In support of DoD, the Corps U.S. Army Corps of Engineers New Orleans District Project Manager Stuart Waits watches\n as workers hook up cables to an Army National Guard CH-47 Chinook helicopter to lift 5,000\nshares emergency management knowledge and pound sandbags for transport to the Industrial Canal in New Orleans.\nexpertise with U.S. Allies and partners in the former\nSoviet republics and Eastern Europe. This valuable\nprogram brings together key leaders and builds\nrelationships between nations in direct support of the\nNational Defense Strategy.\n\nIn FY 2005, this emergency management program\nreceived new budget authority of $5 million,\naccounting for less than one percent of civil works\xe2\x80\x99 new\nappropriation authority.\n\n\nHydropower\nThe Corps\xe2\x80\x99 multi-purpose authorities afford\nhydroelectric power as an additional bene\xef\xac\x81t of projects\nbuilt for navigation and \xef\xac\x82ood control. The Corps is Penstocks feeding Columbia River water to hydropower generating units at the Chief Joseph\n Dam, Washington.\nthe largest owner/operator of hydroelectric power\n\n\n\n 231\n\x0cplants in the United States and one of the largest Water Supply\nin the world. The Corps operates 345 generating\n Careful management of the nation\xe2\x80\x99s water supply\nunits at 75 multipurpose reservoirs, mostly in the\n is critical to limiting water shortages and lessening\nPaci\xef\xac\x81c Northwest, accounting for about 24 percent of\n the impact of droughts. The Corps has an important\nAmerica\xe2\x80\x99s hydroelectric power and about three percent\n role in ensuring that homes, businesses, and farms\nof the country\xe2\x80\x99s total electric generating capacity.\n nationwide have enough water to meet their needs.\nIts hydroelectric plants produce nearly 100 billion\n The Corps has the authority for water supply as part\nkilowatt-hours each year, suf\xef\xac\x81cient to serve about\n of projects that serve navigation, \xef\xac\x82ood protection, and\n10 million households \xe2\x80\x93 equal to ten cities the size\n hydroelectric purposes. There are over 9.5 million\nof Seattle, Washington. Hydropower is a renewable\n acre-feet of municipal and industrial storage space\nsource of energy and one of the least environmentally\n \xe2\x80\x93 equal to 3.1 trillion gallons of water \xe2\x80\x93 in 177 Corps\ndisruptive sources of electric power, producing none\n reservoirs in 24 states and Puerto Rico. At a rate of 750\nof the airborne emissions that contribute to acid rain or\n gallons per day, this is enough water to ful\xef\xac\x81ll every\nthe greenhouse effect. Hydroelectricity is distributed\n American\xe2\x80\x99s water needs for 17 days.\nby federal power marketing agencies. Currently, the\nBonneville Power Administration directly \xef\xac\x81nances the In FY 2005, this $2 million water supply program\noperation and maintenance costs at Corps hydroelectric accounted for less than one percent of civil works\nprojects in the Paci\xef\xac\x81c Northwest. The Corps is working appropriations.\nwith the Southeastern, Southwestern, and Western\nPower Administrations on a legislative proposal to\nauthorize a similar direct \xef\xac\x81nancing arrangement for Recreation\nCorps hydropower facilities in those regions as well. The Corps is an important provider of outdoor\n recreation as an ancillary bene\xef\xac\x81t of \xef\xac\x82ood prevention\nAt the end of every \xef\xac\x81scal year, the Corps is required and navigation projects. The Corps manages recreation\nto develop a statement of its hydropower expenses areas on 12 million acres, representing two percent\nbroken down into plant, district, and region. These of federal lands. An additional 600 state parks, 600\nexpenses are monitored through regional alliance local government parks, and 420 quasi-public areas\nmeetings where Corps customers and stakeholders, on Corps land are managed by other organizations.\nincluding the power marketing administrators The Corps operates more than 4,300 recreation sites\n(PMAs), are represented. Once completed, the at 463 projects, mostly lakes, and hosts more than\nexpense statement is audited by an outside contractor 370 million visits a year at its facilities. The Corps\nand passed on to the PMAs. The PMAs in turn use currently collects about $34 million in recreation user\nthis information to update and adjust their power fees annually. This program has signi\xef\xac\x81cant economic\nrepayment study, which analyzes rates and revenues impact in that its recreation projects provide 500,000\nfor current and future years. The PMAs collect power full- or part-time jobs, generating $15 billion annually\nreceipts (revenues) throughout the year and return in visitor spending. In an average year, visitors to\nthe receipts to the U.S. Treasury. The actual summary Corps\xe2\x80\x99 lakes spend just over $6 billion in the local\ntotal of receipts deposited to the treasury in any given communities for gas, food, and lodging.\nyear is reported back to the Corps for inclusion in the\n This $281 million recreation program accounted for six\nannual \xef\xac\x81nancial report.\n percent of the civil works\xe2\x80\x99 budget in FY 2005. More\nIn FY 2005, this $285 million hydropower program than ten percent of the U.S. population visits at least\naccounted for just over six percent of civil works one Corps project each year to swim, \xef\xac\x81sh, boat, hike, or\nappropriations. camp out.\n\n\n\n\n232 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cOrganizational Structure\nThe Workforce\nThe civil works program employs more than 34,000\npeople, including 650 military of\xef\xac\x81cers and 24,800\ncivilians, who perform civil works duties. It is\nfunded through the energy and water development\nappropriation and executes programs through eight\nregional divisions and 38 of the 45 districts of the Corps\nof Engineers \xe2\x80\x93 the remaining seven districts have only\nmilitary related missions.\n\nFigure 20 shows the division boundaries. Rather\nthan being demarcated by state boundaries, these are\nde\xef\xac\x81ned by watersheds and drainage basins, re\xef\xac\x82ecting\nthe water resources nature of the civil works mission.\n\nThe distribution of civil works employees similarly\nhighlights the customer focus of the program: 95\npercent of employees work at the district level,\nre\xef\xac\x82ecting the fact that project management is\nperformed at the district level.\n\nThe civil works program contracts out to civilian\ncompanies all of its construction and approximately 50\npercent of its design work. As many as 150,000 people\nare indirectly employed in support of civil works\nprojects. These contractual arrangements have served\n Corps of Engineers contractors install a blue roof on a house in eastern Jefferson Parish,\nthe nation well in times of emergency. Louisiana in support of Hurricane Katrina recovery efforts.\n\n\n\nFigure 20. Civil Works Boundaries\n\n North\n Great Lakes Atlantic\n Seattle\n & Ohio River\n Alaska New\n St. England\n Portland Walla\n Walla\n Northwestern Paul Buffalo\n Detroit\n Rock Pittsburgh New York\n Island\n Omaha Chicago Philadelphia\n Sacramento Cincinnati Baltimore\nSan Kansas City St. Louis Hungtington\n Norfolk\nFrancisco South Pacific Louisville\n Nashville\n Little\n Tulsa Rock Memphis Wilmington\n Los Legend:\n Angeles Southwestern Charleston Div./Regional HQ location\n Albuquerque Atlanta\n Ft. Worth Savannah District HQ location\n Mobile Division boundary\n Vicksburg Jacksonville\n Dallas District boundary\n Honolulu State boundary\n Galveston New\n Pacific Ocean Orleans South Key\n Atlantic Follows Watershed Boundaries\n Mississippi Valley\n\n\n\n 233\n\x0cThe Leadership perform all the day-to-day activities that get the job\n done. They are the program\xe2\x80\x99s face to the nation.\nOversight of civil works is provided through four\nlevels of authority. As shown in Figure 21, the Figure 21. Civil Works Levels of Authority\nAssistant Secretary of the Army for Civil Works (ASA\n(CW)) is appointed by the President and is responsible\nfor civil works policy. The military Chief of Engineers,\nwho reports to the ASA (CW) and is responsible ASA (CW)\nfor mission accomplishment, delegates most of his Provides policy guidance\nresponsibilities for managing the various programs to\nthe Director of Civil Works. The Chief of Engineers,\nthrough the Director of Civil Works, is responsible\nfor the leadership and management of the civil works Chief of Engineers\n Applies policy guidance\nprogram and for ensuring that policies established\nby the ASA (CW) are applied to all phases of the civil\nworks mission.\n Director of CW\nThe divisions, commanded by division engineers, are Acts on behalf of the Chief of Engineers\nregional of\xef\xac\x81ces responsible for the supervision and\nmanagement of their subordinate districts, including\nthe monitoring and quality assurance of district work.\n 8 Divisions\n Supervise and manage districts\nThe districts are the foundation of the civil works Perform quality assurance on districts\nmission, managing water resource development\nover a project\xe2\x80\x99s life cycle. They conduct planning\nstudies, perform project design, oversee construction Plan Operate\nby contractors, and manage completed facilities. The Design 38 Districts Maintain\n Construction\ndistricts also develop decision documents, prepare Management\nreports and cost estimates, negotiate agreements, and\n\n\n\n\n234 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cCivil Works Fund Performance Results performance measures that are to be used for the goals\nCivil works directly impacts America\xe2\x80\x99s prosperity, and objectives. Many of these measures are not yet\ncompetitiveness, quality of life, and environmental fully in place, but will be reported in future annual\nstability. In March 2004 the civil works leaders reports as they are implemented and performance\npublished a strategic plan to identify and answer the data are collected. The performance data included in\nnation\xe2\x80\x99s water resource needs, recognizing authorities this report relate to measures that are supportive of\nand funding. Research \xef\xac\x81ndings and input from the the Corps\xe2\x80\x99 strategic goals and that were in place prior\npublic, gained through listening sessions, have led the to the publication of the current plan. They allow for\nCorps to identify the following \xef\xac\x81ve issues as the main comparison over multiple years.\nwater resource challenges facing the nation:\n Strategic Goals\n Balancing demands for water resource\n development in terms of access to and use of those Strategic Goal 1: Provide Sustainable Development\n resources and of the preservation of environmental and Integrated Management of the Nation\xe2\x80\x99s Water\n quality; Resources\n Repairing damage to the nation\xe2\x80\x99s environment\n from past development; The Corps will facilitate and collaborate in a systems\n Addressing the performance and safety approach to integrated water resources management\n implications of an aging water resources for the nation. The Corps will work in concert with\n infrastructure; Native American tribes; federal, state, and local entities;\n nongovernmental organizations; and the private sector\n Ensuring the capability to respond to natural\n to design shared visions of water solutions that better\n disasters; and\n balance economic, environmental, and social objectives.\n Minimizing the impact of institutional inhibitors The Corps will lead the response to valid navigation,\n on decision-making and management of water \xef\xac\x82ood damage reduction, and environmental demands\n resources. when it has the responsibility to do so, and will aim to\n foster and implement more integrated and sustainable\nTo address these challenges, the Corps developed solutions. The Corps\xe2\x80\x99 staff will seek to create a\nthe following \xef\xac\x81ve strategic goals. Speci\xef\xac\x81c objectives portfolio of projects that achieve integrated solutions in\nassociated with each goal enable the measurement of a watershed or geographic region, including navigation\nannual performance toward achievement of the goal: and \xef\xac\x82ood damage reduction projects. Regardless\n of whether or not the Corps is the lead agency in\n Provide sustainable development and integrated\n implementing water solutions, Corps personnel will be\n management of the nation\xe2\x80\x99s water resources;\n cognizant of the impacts projects have on the objectives\n Repair past environmental degradation and of others in the region and will work to \xef\xac\x81nd mutually\n prevent future environmental losses; acceptable outcomes. The Corps will recommend\n Ensure that projects perform to meet authorized funding those projects that offer the greatest economic\n purposes and evolving conditions; and environmental bene\xef\xac\x81ts.\n\n Reduce vulnerabilities and losses to the nation and Performance Measure 1: For investments in\n the Army from natural and man-made disasters, navigation projects, the bene\xef\xac\x81t-to-cost ratio at the\n including terrorism; and completion of project construction should at least equal\n Obtain recognition as a world-class public the bene\xef\xac\x81t-to-cost ratio at the time of initial project\n engineering organization. funding. The performance target for FY 2005 was to\n achieve a bene\xef\xac\x81t-to-cost ratio at completion that is\nThe Corps is in the process of implementing the within 10 percent of the initial bene\xef\xac\x81t-to-cost ratio.\nCivil Works Strategic Plan and has developed the\n\n\n\n\n 235\n\x0cPerformance Result 1: In FY 2005, one navigation enhancement projects. It is working to ensure that\nproject was budgeted for completion, the deepening there is no further net loss of wetlands due to unwise\nof the Los Angeles, California, harbor\xe2\x80\x99s main channel. development.\nThe project was completed with a bene\xef\xac\x81t-to-cost\nratio of 4.4, which was within 10 percent of the initial The environmental program also includes a signi\xef\xac\x81cant\nbene\xef\xac\x81t-to-cost estimate of 4.7 used to justify initial environmental stewardship focus at Corps-operated\nproject construction funding. projects. Strategic goal three focuses on ensuring\n projects perform to meet authorized purposes and\nPerformance Measure 2: For investments in \xef\xac\x82ood and evolving conditions. One important aspect of ensuring\ncoastal storm damage reduction projects, the bene\xef\xac\x81t- that projects perform includes assuring that the Corps\nto-cost ratio at the completion of project construction is a good environmental steward. Accordingly, an\nshould at least equal the estimated bene\xef\xac\x81t-to-cost ratio environmental program objective under the third\nat the time of initial project funding. The performance strategic goal is to \xe2\x80\x9censure healthy and sustainable\ntarget for FY 2005 was to achieve a bene\xef\xac\x81t-to-cost ratio lands and waters and associated natural resources on\nat completion within 10 percent of the initial bene\xef\xac\x81t-to- Corps lands held in public trust to support multiple\ncost ratio. purposes.\xe2\x80\x9d\n\nPerformance Result 2: In FY 2005, \xef\xac\x81ve \xef\xac\x82ood and In addition, the Corps has been given responsibility\ncoastal storm projects were budgeted for completion. to execute an environmental clean-up program of\nThree of the \xef\xac\x81ve projects met the performance target contaminated sites under the Formerly Utilized Sites\nwith a bene\xef\xac\x81t-to-cost ratio equaling or exceeding Remedial Action Program. Accomplishment of the\nthe bene\xef\xac\x81t-to-cost estimate used to justify initial clean-up program will result in the elimination of\nproject construction funding. The other two projects potential risks to health and the environment at these\nfailed to meet the 10 percent performance target; but high-priority sites.\nnonetheless were completed with a positive bene\xef\xac\x81t-\nto-cost ratio, thereby still validating the initial project Success in pursuit of this strategic goal is demonstrated\ninvestment decision. through the performance measures that have been\n developed for the environmental and regulatory\n programs.\nStrategic Goal 2: Repair Past Environmental\nDegradation and Prevent Future Environmental Losses\n Environmental Restoration and Management\n This program emphasizes environmental stewardship,\nTo accomplish the second strategic goal, civil works\n ecosystem restoration, mitigation, environmental\nmust anticipate, identify, and address the nation\xe2\x80\x99s\n compliance, and research and development, which\nneeds for environmental restoration and water\n is re\xef\xac\x82ected in the inter-related program objectives in\nresource enhancement. Civil works will work with its\npartners, including other federal and state agencies, the March 2004 Civil Works Strategic Plan. The work\nnongovernmental organizations, and Native American undertaken within this program takes many forms,\ntribes, to develop creative solutions that are both re\xef\xac\x82ecting the growing national demand for restoration,\neffective and ef\xef\xac\x81cient. stewardship, remediation, and protection.\n\nCivil works is pursuing the restoration of The performance data in this section measure the\nenvironmental damages and losses that resulted from restoration, stewardship, and remediation program\npast actions. It will exercise its authority to the fullest objectives of the strategic plan. The next section will\nextent in support of the ecosystem restoration portion cover protecting the environment under the regulatory\nof the civil works program. In addition, it will support program. To support restoration the Corps will invest\nthe national commitment to wetlands \xe2\x80\x93 embodied in in mitigation and restoration projects or features that\nthe Clean Water Action Plan \xe2\x80\x93 by adding to the nation\xe2\x80\x99s make a positive, cost-effective contribution to the\nenvironmental resource base through restoration and\n\n\n\n236 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cnation\xe2\x80\x99s environmental resources. The Corps will Table 28. Recovery Plan Projects\nmeet its stewardship objectives by ensuring the health\n FY 2002 FY 2003 FY 2004\nand sustainability of lands, waters, and associated\n Number of opportunities to participate 509 515 543\nnatural resources that it holds in public trust. When in recovery of federally listed species\nauthorized or requested by others, the Corps will assist Number of opportunities taken 496 504 533\nin the cleanup of contaminated, hazardous, toxic, and\n Percentage of opportunities taken to 97% 98% 98%\nradioactive waste sites to meet its remediation program assist in the recovery of federally listed\n species\nobjectives.\n Note: FY 2005 data were not available at time of printing.\n\nPerformance Measure 1: Program-administered Performance Measure 3: The Corps\xe2\x80\x99 goal is to correct\nmitigation land complying with the requirements of 100 percent of all signi\xef\xac\x81cant \xef\xac\x81ndings and 70 percent\napplicable legislation and Corps decision documents of all major \xef\xac\x81ndings annually at Corps\xe2\x80\x99 projects. A\nshould meet or exceed the annual target, which for signi\xef\xac\x81cant \xef\xac\x81nding is a determination that the Corps is\nFY 2005 was 85 percent. This measure is calculated as not meeting an environmental requirement and that\na percentage of all designated program-administered the condition poses, or has a high likelihood of posing,\nmitigation lands that meet mitigation requirements. a direct and immediate threat to human health, safety,\n the environment, or the civil works mission. A major\nPerformance Result 1: Table 27 shows mitigation \xef\xac\x81nding is a determination that the Corps is not meeting\nrequirements were met for 92 percent of civil works an environmental requirement and that the condition\nadministered mitigation land in FY 2004. Performance may pose a direct and immediate threat to human\nresults for FY 2005 were not available at the time of health, safety, the environment, or the civil works\npublication. mission. The success rate of correcting signi\xef\xac\x81cant and\n major \xef\xac\x81ndings is calculated annually.\nTable 27. Civil Works-Administered Mitigation Land\n Performance Result 3: Although the performance\n FY 2002 FY 2003 FY 2004\n target was not met for signi\xef\xac\x81cant or major \xef\xac\x81ndings in\n Total acreage designated as civil 713,909 625,291 626,373\n works-administered mitigation land FY 2004, the Corps corrected 9 of 10, or 90 percent (see\n Mitigation land for which requirements 564,025 566,016 578,076\n Table 29), of signi\xef\xac\x81cant \xef\xac\x81ndings. In FY 2005, the Corps\n were met (acres) corrected the one signi\xef\xac\x81cant \xef\xac\x81nding remaining at the\n Percentage of civil works-administered 79% 91% 92% end of FY 2004. Performance results for FY 2005 were\n mitigation lands for which mitigation not available at the time of publication. The Corps\n requirements were met\n continues to place a high priority on achieving both\n Note: FY 2005 data were not available at time of printing.\n performance goals in FY 2006.\nPerformance Measure 2: This is the percentage in\nwhich civil works stewardship should be engaged Table 29. Correction of Signi\xef\xac\x81cant and Major Environmental\n Findings\nin opportunities to participate in recovery plan\nefforts for federally listed species. The performance FY 2002 FY 2003 FY 2004\ntarget of 95 percent was continued in FY 2005 based\n Number of signi\xef\xac\x81cant \xef\xac\x81ndings 10 5 10\nupon experience gained with baseline performance\n Percentage corrected 70% 60% 90%\nmeasurement and the level of funding.\n Number of major \xef\xac\x81ndings 502 471 795\nPerformance Result 2: Table 28 shows that during Percentage corrected 57% 72% 57%\nFY 2004, the Corps participated in 533 separate Note: FY 2005 data were not available at time of printing.\n\nopportunities, out of 543 presented, to help in the\nrecovery of federally listed species or their habitat. Environmental Protection (Regulatory)\nThis signi\xef\xac\x81es a performance result of 98 percent. The Corps operates a comprehensive regulatory\nPerformance results for FY 2005 were not available at program to protect the aquatic environment from\nthe time of publication. overdevelopment and to protect the navigability of\n\n\n\n\n 237\n\x0cwaterways. Management of this program has a related Table 31. Permit Actions Completed within 60 Days\nobjective of minimizing the time taken to process\n FY 2002 FY 2003 FY 2004\ndecisions on requests for permits to work in the waters\n Number of permit actions completed 71,652 75,771 82,114\nof the United States. within 60 days\n Percentage of actions completed within 88% 88% 88%\nPerformance Measure 1: This measures the Corps\xe2\x80\x99 60 days\nobjective to administer the regulatory program in a Note: FY 2005 data were not available at time of printing.\n\nmanner that protects the aquatic environment. The\nperformance target of the civil works program is to Performance Measure 3: This measures the number\nrealize no net loss of wetlands. of standard permit decisions completed within 120\n days, expressed as a percentage of all standard permit\nPerformance Result 1: Table 30 shows that during decisions. Standard permits are those for larger projects\nFY 2004, 47,243 acres of wetlands were restored, that require extensive review. The performance target\ncreated, enhanced, or preserved, offsetting the 22,102 is to complete 70 to 80 percent of decisions on standard\nacres that were lost to permitted development. permits within 120 days.\nTable 30. Development and Mitigation of Wetlands Performance Result 3: During FY 2004, 57 percent\n of all standard permit actions were completed in less\n FY 2002 FY 2003 FY 2004\n than 120 days, comparable to the FY 2003 rate. Permit\n Wetland acres permitted for 24,651 21,330 22,102\n development applications are signi\xef\xac\x81cantly more complex than\n Wetland acres mitigated 57,821 43,379 47,243\n in past years and, as a result, they involve lengthy\n Note: FY 2005 data were not available at time of printing.\n analysis to assess their potential environmental\n impacts. Issues related to endangered species, historic\n properties, water quality, and coastal resources also\nPerformance measures two and three address the\n add to permit delays.\nCorps\xe2\x80\x99 objective of enabling ef\xef\xac\x81cient decision making\nby rendering fair and ef\xef\xac\x81cient decisions in a timely Table 32. Standard Permit Actions Completed Within 120 Days\nmanner. The ability to respond to permit requests in\na timely manner is indicative of an ef\xef\xac\x81cient decision FY 2002 FY 2003 FY 2004\n\nmaking process, which is another of the Corps\xe2\x80\x99 Number of standard permit actions 2,536 2,446 2,325\n completed within 120 days\nobjectives.\n Percentage of actions completed within 61% 56% 57%\n 120 days\nPerformance Measure 2: The number of permit Note: FY 2005 data were not available at time of printing.\ndecisions completed within 60 days, expressed as a\npercentage of all permit decisions, is an indicator of the\ntimeliness of the process. The target is to complete 85 Strategic Goal 3: Ensure that Projects Perform to Meet\nto 95 percent of all actions within 60 days. Authorized Purposes and Evolving Conditions\n\nPerformance Result 2: Table 31 shows that during FY Civil works customers, partners, and stakeholders\n2004, 82,114 permit actions, or 88 percent of all permit expect delivery of the level of service that is designed\nactions, were completed in 60 days or less. While this into a project and expect the high quality of service to\n\xef\xac\x81gure exceeds the performance target of 85 percent, it continue even with changing demands on the project.\nremained unchanged from the FY 2003 performance. This third strategic goal was developed to ensure\nThe districts have concentrated on getting nationwide that civil works programs continue to meet customer\nand general permits authorized, which has helped to expectations. This requires that civil works personnel\nstabilize overall processing times, but has resulted in pay particular attention to the quality and performance\na downward trend in enforcement and compliance of Corps projects, recognize and analyze problems as\nefforts since FY 2001. soon as they occur, and identify cost-effective ways to\n\n\n\n\n238 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cprevent, lessen, or correct any de\xef\xac\x81ciencies. unit costs decreased by 11.5 percent (see Table 34).\n Performance data for FY 2005 were not available at the\nIn addition, civil works personnel recognize that they time of printing.\nmust provide facilities that meet the needs of diverse\nand changing user groups. For projects to deliver the Table 34. Volume and Cost of Material Dredged\nrequisite performance and service levels, they must\n FY 2002 FY 2003 FY 2004\nserve the needs of their users. Projects typically are\n Cubic yards removed 204 1911 229\ndesigned to accomplish a particular purpose for a (millions)\nspeci\xef\xac\x81ed lifespan. Cost per cubic yard1 $2.73 $3.131 $2.77\n Note 1: Values reported are for maintenance dredging only. Dredging data related to project\nThe performance of several programs re\xef\xac\x82ects construction activity are not covered.\nthe overall success of the civil works mission in Note: FY 2005 data were not available at the time of printing.\nachieving this strategic goal. These programs and\nthe performance of each are outlined in the following Flood and Coastal Storm Damage Reduction\nsections. There are primarily two ways to reduce \xef\xac\x82ood damage.\n The \xef\xac\x81rst calls for the use of large-scale engineering\nNavigation projects to prevent \xef\xac\x82oodwaters from inundating\nPerformance Indicator 1: Monitor the volume of property, and the second for the modi\xef\xac\x81cation of\ncommerce and the operational cost of the fuel-taxed property susceptible to \xef\xac\x82ooding, to minimize the\nwaterways component of the navigation system. risk of damage. Civil works projects usually use\n a combination of both approaches. The program\nPerformance Result 1: The volume of commerce objective is to operate and maintain existing federal\nand the operational cost of the fuel-taxed waterways, infrastructure to ensure that designed levels of\nshown in Table 33, remained essentially constant from protection are realized. A single measure is used to\ncalendar year (CY) 2002 through CY 2004 with less than gauge performance in this respect.\none percent movement from year-to-year. At the time\nof printing, the calendar year had not ended, so volume Performance Indicator: The performance of civil\nand cost data for CY 2005 are not available. works facilities in reducing damage where \xef\xac\x82ooding\n otherwise would have been experienced.\nTable 33. Volume of Commerce and Operational Cost\n Performance Result: Table 35 shows that during\n CY 2002 CY 2003 CY 2004 FY 2004, the Corps prevented $22.9 billion in \xef\xac\x82ood\n Ton-miles of commerce 266.9 250 233.2 damages. This can be compared to $21.7 billion, the\n carried (billions)1\n 10-year moving average that is used to smooth out the\n Cost per ton-mile $0.00206 $0.00195 $0.00220 signi\xef\xac\x81cant \xef\xac\x82uctuations in year-to-year \xef\xac\x82ood damages\n Note 1 Ton-mile data are reported on a calendar basis. Costs are reported on a \xef\xac\x81scal-year basis.\n prevented that are associated with variations in\n Note: CY 2005 data were not available at the time of printing.\n meteorological events.\nPerformance Indicator 2: The need for dredging of\n Table 35. Flood Damages Prevented\nharbors and channels is largely dependent upon acts\nof nature and factors beyond the control of man. No (Dollars in billions) FY 2002 FY 2003 FY 2004\nperformance target for the volume of material to be Flood damage prevented $23.1 $15.7 $22.9\ndredged therefore has been established. The depth\n 10-year rolling average $21.7 $19.6 $21.7\nof material to be dredged and the disposal of that\nmaterial are the two main factors in\xef\xac\x82uencing the cost of\ndredging. Hydropower\n The civil works program operates 345 hydroelectric\nPerformance Result 2: Preliminary information power-generating units at 75 multipurpose reservoirs,\nindicates that in FY 2004 the amount of maintenance providing nearly a quarter of the nation\xe2\x80\x99s total\ndredging increased by 19.9 percent and dredging hydropower needs; enough energy to serve about\n\n\n\n 239\n\x0cten million households. Hydropower units can start dependent upon hydrologic conditions that cannot be\nquickly and adjust rapidly allowing them to serve a managed.\nprimary role in meeting peak energy demands and\nenergy reserve needs to protect the national power Performance Result: During FY 2005, preliminary data\nsystem\xe2\x80\x99s reliability and stability. The electricity indicate that Corps hydropower facilities produced\nproduced is distributed by federal power marketing almost 65 billion kilowatt-hours of energy through\nagencies. To ensure that the Corps continues to serve August 2005 at a cost of $0.0027 per kilowatt-hour as\nthis role, it has established an overall program objective shown in Table 37. Energy produced from existing\nto maintain reliable hydroelectric generation reliability Corps facilities continues to be one of the least\nat its multi-purpose reservoir projects. expensive sources of electric power.\n Table 37. Kilowatt Hours Generated\nPerformance Measure: Maintain high reliability\nof hydroelectric power generated at multipurpose\n FY 2002 FY 2003 FY 2004 FY 20051\nreservoir projects. The program goal is to keep the\n Kilowatt-hours 69.4 70.0 67.1 64.6\nforced (unplanned) outage rate at less than 2.3 percent generated (billions)\nin keeping with industry standards. A lower forced Cost per kilowatt-hour $0.0033 $0.0035 $0.0027 $0.0027\noutage rate implies more reliable and less expensive Note 1: Preliminary performance data available through August 2005.\nelectricity service being provided to hydropower\ncustomers.\n Recreation\nPerformance Result: Preliminary data through August Most federal lakes were built with a single primary\n2005 indicate that the Corps experienced a forced purpose. Public needs and values have changed;\noutage rate of 4.6 percent for FY 2005. This is a slight therefore, the program has sought to serve the evolving\nincrease from the outage rates shown for the prior public interest by adapting reservoirs for multiple\ntwo \xef\xac\x81scal years and greater than the target rate of 2.3 uses, provided there is suf\xef\xac\x81cient legislative authority\npercent. Aging equipment and funding levels are two to do so. The program\xe2\x80\x99s objective is to provide outdoor\nfactors that will impact the degree of hydropower recreation opportunities in an effective and ef\xef\xac\x81cient\nreliability in the future. Data by \xef\xac\x81scal year is provided manner to meet the needs of present and future\nin Table 36. generations.\nTable 36. Hydroelectric Power Reliability\n Performance Indicator: This indicator measures the\n cost per visitor-day of providing outdoor recreation\n FY 2002 FY 2003 FY 2004 FY 20051\n facilities. The cost per visitor-day is determined by\n Performance Target 4.5 2.3 2.3 2.3\n (% outage) a number of variables. While civil works is able to\n manage the cost of providing recreation facilities, the\n Actual reliability 3.7 4.7 3.5 4.6\n (% outage) number of visitors who use these facilities is governed\n Note 1: Preliminary performance data available through August 2005. in large part by external factors, such as the weather\n and prevailing economic conditions. Historically, no\nValue to the Nation Performance Indicators: In management performance target has therefore been\naddition to measuring system reliability, the speci\xef\xac\x81ed.\nprogram also tracks operation system indicators that\nprovide valuable information and trends on system Performance Result: The FY 2005 performance data in\nperformance. The following indicators are monitored: Table 38 re\xef\xac\x82ect a continued upward trend in visitor-\n(1) kilowatt-hours generated to measure total power day usage. The cost per visitor-day rose in FY 2005,\ngeneration and (2) cost per kilowatt-hour to measure but remained within a six-year range of between $1.19\ngenerating ef\xef\xac\x81ciency. Annual goals are not set for and $1.37. (FY 2000 and FY 2001 were each $1.24 per\nthese indicators because power production is largely visitor-day.)\n\n\n\n\n240 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cTable 38. Recreation Usage personnel must pay attention to people, processes,\n \xef\xac\x81scal responsibility, ef\xef\xac\x81ciencies, and technology. The\n FY 2002 FY 2003 FY 2004 FY 2005 President\xe2\x80\x99s management agenda helps the Corps\n Visitor-days (millions) 210 212 216 220 focus on major organizational effectiveness aspects\n Cost per visitor-day $1.37 $1.20 $1.19 $1.28 central to being a world-class organization: human\n talent, \xef\xac\x81nancial integrity, sound business practices,\n and the advantages that technology offers, especially\nStrategic Goal 4: Reduce Vulnerabilities and Losses to in bringing government closer to citizens. The Corps\xe2\x80\x99\nthe Nation and the Army from Natural and Man-Made leadership has set three objectives to accomplish\nDisasters, Including Terrorism this goal: be a world-class technical leader, improve\n budgeting and \xef\xac\x81nancial performance, and become\n a more ef\xef\xac\x81cient and effective organization through\nThe purpose of this goal is to manage the risks technology. The Corps will draw upon the ongoing\nassociated with all types of hazards and to increase plans its staff has drafted in support of the President\xe2\x80\x99s\nthe responsiveness to disasters of the civil works management initiatives to make headway toward these\nemergency management program within the Corps\xe2\x80\x99 objectives. Data to measure the Corps\xe2\x80\x99 performance\nOf\xef\xac\x81ce of Homeland Security in support of federal, toward meeting these objectives is not yet fully\nstate, and local emergency management efforts. compiled.\nDisaster preparedness and response capabilities are\nnot limited to water-related disasters, but draw on Management Integrity\nthe engineering skills and management capabilities\n One management control weakness was identi\xef\xac\x81ed as\nof the Corps to encompass a broad range of natural\n a new weakness in FY 2004 and three management\ndisasters and national emergencies. Emergency\n control weaknesses that were identi\xef\xac\x81ed prior to\nreadiness contributes to national security. The current\n FY 2004 remain weaknesses going forward to FY 2006.\nobjectives for this goal are to prepare and provide\n The following is a summary of the Corps\xe2\x80\x99 material\nfor rapid, ef\xef\xac\x81cient, and effective all-hazards response\n weaknesses:\nand recovery, and to improve the safety and security\nof critical water resources infrastructure. Data to Open material weaknesses as of September 30, 2004 4\nmeasure the Corps\xe2\x80\x99 performance toward meeting these\nobjectives has not yet been fully compiled. Plus: New material weaknesses identi\xef\xac\x81ed in FY 2005 0\n Less: Material weaknesses corrected in FY 2005 0\n\nStrategic Goal 5: Be a World-Class Public Engineering Open material weaknesses as of September 30, 2005 4\nOrganization\n Previously Reported Weaknesses\nThe focus of this goal is to ensure that the civil works Three of the weaknesses reported last year\nmission is performed in a technically skilled manner were expected to close during FY 2005. Various\nso as to build respect and con\xef\xac\x81dence in the products circumstances prevented this from happening. The\nand services the Corps delivers today and into the fourth weakness that remained open at the end of\nfuture. Building trust will come from the integrity of FY 2005 was not expected to close until FY 2006 per last\nthe Corps\xe2\x80\x99 engineering and scienti\xef\xac\x81c evaluations and year\xe2\x80\x99s report. The following sections provide a brief\nrecommendations, the soundness of its management description of each weakness and the revised target\ndecisions, the transparency of its decision-making date for correction.\nprocess, the reliability and effectiveness of its business\nprocesses, and the contributions it makes within and\nacross its core technical disciplines. Information Systems Security\xe2\x80\x94Computer System\n Controls\nIf the Corps is to achieve its goal to obtain recognition In October 2000, the Government Accountability\nas a world-class public engineering organization, its Of\xef\xac\x81ce (GAO) identi\xef\xac\x81ed a number of systems control\n\n\n\n\n 241\n\x0cweaknesses at the Corps\xe2\x80\x99 data processing centers. Information Management, require that federal agencies\nThese weaknesses could allow either hackers or institutionalize a Corps IT capital planning and\nauthorized users to improperly modify, disclose, investment decision process. This process integrates\nor destroy \xef\xac\x81nancial data. Corrective actions to the programming and budgeting for IT investments\nsupport the assurance of data security, including the through policies, guidance, and committees that\nreorganization of the Corps and funding increases, monitor and track these investments through the\nhave been taken to correct these de\xef\xac\x81ciencies. The Corps\xe2\x80\x99 IT investment portfolio. Currently, the process\ntargeted correction date in last year\xe2\x80\x99s statement of is fragmented, and senior-level approval continues\nassurance was the fourth quarter, FY 2005. The follow- to be given to high-visibility projects that have not\nup to a GAO audit and other review and validation been through the process. This weakness impacts\nactions by the DoD Inspector General (DoDIG) were corporate decisions on the ranking and prioritization\ndelayed, and the targeted correction date was not met.\n of IT investments and their contribution to the Corps\nThe revised target date for successful correction of this mission. A number of corrective actions have been\nweakness is the fourth quarter, FY 2006. completed or partially met while others have been\n delayed due to ongoing staf\xef\xac\x81ng problems.\n\nSubcontracting Plans for Small Business The target date for successful correction of this\nProcedures for evaluating and negotiating weakness is the \xef\xac\x81rst quarter, FY 2006.\nsubcontracting plans and for evaluating subcontractor\nperformance are not wholly in compliance with the CFO Property, Plant, and Equipment Issues\nlaw as it pertains to small business subcontracting. In\n Construction in Progress (CIP): During FY 2002 and\nAugust 2002, the civil works program accepted a web-\n FY 2003 audit work, the DoDIG projected that the\nbased pilot system to track outlays to small businesses\n beginning balance for FY 2003 was overstated by $7.8\nunder approved subcontracting plans and to track\n billion due to erroneous capitalization of expense-\nthe actual execution of those plans. The system, as\n type events, including bank stabilization work, beach\ndesigned, would have enabled subcontractors to\n nourishment, dredging, \xef\xac\x81sh mitigation work, and\nenter payments received from their prime contractors\n reimbursements to sponsors; untimely transfers\nmonthly and enable independent validation by the\n to completed projects; erroneous capitalization of\ngovernment. Because the system was web-based, any\n nonfederal cost-share projects; CIP costs that could\ncivil works of\xef\xac\x81ce could have reviewed or generated\n not be reconciled to source data; and $41 million in\nreports on compliance. The system was tested in\n negative CIP balances. An updated CIP information\nFY 2003, but full compliance was delayed due to a\n paper was provided to the \xef\xac\x81eld in June 2005 to\nlack of funds. During May 2005, plans to complete the\n clarify certain audit issues. During FY 2005, the\nautomated system were withdrawn due to the inability\n Corps continued to analyze the CIP accounts to\nto secure funding for testing and implementation.\n remove expense-type events, cost share projects. and\nThe internal review to validate \xef\xac\x81eld corrective actions\n completed projects, and to track down all supporting\nwas not completed before the end of FY 2005, as was\n documentation for CIP balances.\nrequested.\n Real Property: During FY 2002 and FY 2003 audit\nThe revised target date for successful correction of this\n work, the DoDIG identi\xef\xac\x81ed seven major issues:\nweakness is 1st quarter, FY 2006.\n placed in service dates; useful life; physical existence,\n impairment and usefulness of assets; bank stabilization;\nInformation Technology Capital Planning and nonfederal lease classi\xef\xac\x81cations for building and\nInvestment Decision Process other structures; supporting documentation; and\nWeaknesses in this process were identi\xef\xac\x81ed for the classi\xef\xac\x81cation of assets. During FY 2005, the Corps\nselection, control, and evaluation of Corps information continued to work through corrective actions relating\ntechnology (IT) investments in FY 2001. The Clinger- to these issues.\nCohen Act of 1996 and Army Regulation 25-1, Army\n\n\n\n\n242 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cThe target date for correction of this weakness is the since 1986, with $1.7 billion invested to date and an\n\xef\xac\x81rst quarter, FY 2006. additional $3.4 billion programmed for construction.\n This, however, is insuf\xef\xac\x81cient to support optimum\n construction schedules; completion dates for these\nFuture Effects of Existing Conditions\n projects have been set back by between one and \xef\xac\x81ve\nThe Marine Transportation System years, considerably increasing costs.\nThe MTS consists of 1,000 harbor channels; 25,000 miles These increasing costs come at a time when investment\nof inland, intracoastal, and coastal waterways; and in water resources is in sharp decline. In 1960,\n235 lock chambers. Work done to improve the inland investment in all public infrastructure was four percent\nwaterways is estimated to yield $5.5 billion in cost of the federal budget. Today, that \xef\xac\x81gure is 2.6 percent.\nsavings per year, and improvements to the deep-draft Furthermore, in 1960 water resources received slightly\nnavigation system are estimated to save a further $1.5 more than one percent of all public infrastructure\nbillion in transportation costs annually. investment; today, they receive less than 0.5 percent.\n This failure to invest adequately in water infrastructure\nThe MTS is nearing capacity, however, and projections\n could pose a serious constraint to America\xe2\x80\x99s\nare for a doubling of cargo by 2020, to more than four\n economic development and competitive advantage in\nbillion tons annually. This will put great pressure on\n international trade.\nthe system. It also should be noted that few American\nports provide the 45-50 feet of depth needed by the\nlatest containerships. Many international ports, Responding to Terrorist Threats\nincluding Halifax and Vancouver, Canada and The events of September 11, 2001, changed the thinking\nFreeport, Bahamas, already can accommodate such about threat management. Everything from drinking\nships, and it is essential that America match them. In water sources to reservoirs and dams is now viewed\npreparing the necessary deep-draft channels, civil as a potential target for terrorists. Since the attacks on\nworks has dredged an average of 275 million cubic New York and Washington, D.C., civil works remains\nyards of material per year over the past decade. This at a heightened state of alert in an effort to protect\nwork creates the additional challenge of how to the nation\xe2\x80\x99s critical resources of water, waterborne\ndispose of the dredged material in an economically and commerce, and electric power generation.\nenvironmentally acceptable manner.\n Ensuring the security of these resources will require\n investment in warning and alert systems, systems to\nAging Infrastructure detect and respond to chemical and biological agents,\nMore than 44 percent of America\xe2\x80\x99s locks and dams intelligence-gathering and counter-terrorism measures,\nare at least 50 years old, and many locks are now too and emergency management systems. Investment in\nsmall to accommodate modern commercial barges both technology and people is necessary, and current\ncomfortably. These locks are already carrying more estimates are that these measures will cost $267 million\ntonnage than they were designed to handle, and traf\xef\xac\x81c for immediate improvements in the \xef\xac\x81rst year and $65\nis forecast to increase 30 percent by 2020. Delays million annually thereafter.\nattributable to aged locks already amount to 550,000\nhours annually, representing $385 million in increased\noperating costs. This is eroding America\xe2\x80\x99s share of Advancing the President\xe2\x80\x99s\ninternational markets; American farmers already have Management Agenda\nlost 30 percent of their share of the European market\nfor soybeans to Brazil and Argentina, both of which Strategic Management of Human Capital\nhave invested heavily in inland waterways to reduce The Corps recognizes that its people are its\ncosts. greatest asset, and it has developed a Corps-wide\n comprehensive human capital strategy that is aligned\nA lock modernization program has been underway with both its mission and broad corporate goals. It\n\n\n\n\n 243\n\x0chas sought to \xef\xac\x81ll all mission-essential occupations Competitive Sourcing\nwith quali\xef\xac\x81ed employees, both through sustainment\n In 2002 the Corps identi\xef\xac\x81ed 7,500 positions to be\nand training of its current workforce and through opened to competition over a \xef\xac\x81ve-year period. Of\nrecruitment activities. these, 5,700, or 76 percent, are funded by civil works.\n In FYs 2004-2005, more than 1,100 civil works-funded\nThe direction for human capital planning is set out in\n positions in the information management and\nthe Corps Strategic Campaign Plan published in June\n information technology, public works, and \xef\xac\x81nance\n2005. The Corps\xe2\x80\x99 continuing human capital initiatives center functions were announced for competition.\nfocus on enhancement of the Corps as a learning By the end of this year, plans are to announce the\norganization, leadership development, attracting and competition of an additional 2,000 civil works-funded\nretaining a world-class workforce, and knowledge positions performing the operation and maintenance of\nmanagement. The initiatives are sponsored by diverse navigation locks and dams function, bringing the total\norganizational and functional teams, and include number of competed civil works positions to more than\nworking with stakeholders and other agencies, such as 3,000.\nthe U.S. Of\xef\xac\x81ce of Personnel Management.\n\nAs a result of this strategy, the Corps has become more Improved Financial Performance\ncitizen-centered and has reduced layers within the A recognized leader within the Department of Army\norganization. Since 1989 the number of supervisors (DA), the Corps has committed an extensive amount\nhas been reduced by over 50 percent, the entire Corps of resources toward obtaining a favorable opinion for\nworkforce reduced by 38 percent, and the blue-collar the civil works \xef\xac\x81nancial statements. At the inception\nworkforce reduced by 26.5 percent. Ninety-\xef\xac\x81ve percent of the President\xe2\x80\x99s management agenda, the Corps\nof the workforce is now in direct customer service \xef\xac\x81eld had just completed deployment of the Corps of\npositions. Concurrently, the occupational mix has Engineers Financial Management System (CEFMS) and\nchanged to re\xef\xac\x82ect the changing missions of the Corps. consolidation of all \xef\xac\x81nance and accounting operations\n to the Corps Finance Center in Millington, TN. These\nAdditionally, the performance of Corps employees two important initiatives are the cornerstones of the\nhas become more strongly linked to its missions and Corps\xe2\x80\x99 ability to provide timely and reliable \xef\xac\x81nancial\nstrategic goals through the use of the automated management information at reduced costs to the\ntraining management program. This program taxpayer. The Corps, working with the DoDIG, and\nautomates the linkage between mission requirements, the comptroller of\xef\xac\x81ces from the DoD and the DA, are\nperformance objectives, and individual development not only progressing toward their goal of obtaining the\n Army\xe2\x80\x99s \xef\xac\x81rst favorable opinion, but also are paving the\nplans; for the \xef\xac\x81rst time, it enables management to\n way for other DoD and DA agencies. Lessons learned\nmeasure and prioritize training and development\n from previous DoDIG audits have been put to use in\nsystems, providing a good foundation for\n preparation for future audits. Although the Corps was\nimplementation of the National Security Personnel\n not able to move forward with a FY 2005 civil works\nSystem.\n \xef\xac\x81nancial statement audit, the Corps is hopeful that a\n FY 2006 audit and favorable opinion are within reach.\nThe Corps responded to surges in deployment\nto Afghanistan and Iraq, while at the same time Through the CEFMS, the Corps has made progress\nsupporting an unprecedented hurricane season in toward ensuring timely and reliable \xef\xac\x81nancial\n2005. More than 1,550 Corps employees voluntarily information, thereby assisting its leadership and\ndeployed in FY 2005, with many deploying more stakeholders in making critical business decisions.\nthan once. As of September 30, 2005, more than 3,000 The CEFMS was designed and built by the Corps with\nCorps employees had volunteered to perform Federal the aid of external contractors, and it delivers a broad\nEmergency Management Agency and Corps missions range of functionality. It is a single-entry, real-time\nassociated with Hurricanes Katrina and Rita. system, so \xef\xac\x81nancial information is instantaneous.\n\n\n\n\n244 Civil Works Fund | FY 2005 Army Annual Financial Statement\n\x0cThe CEFMS integrates \xef\xac\x81nancial management to Industry Acquisition Business and FedBizOpps web\nbusiness processes with internal program and sites. Civil works is the DoD\xe2\x80\x99s executive agent for the\nproject management processes while also providing architect-engineer contractor administrative support\nautomated linkages to the DA, the DoD, and the Of\xef\xac\x81ce system and the construction contractor appraisal\nof Management and Budget. The Corps continues to support system.\nupgrade the CEFMS and other related tools in order to\nassist the \xef\xac\x81eld with identi\xef\xac\x81ed audit de\xef\xac\x81ciencies and to The sharing of information among federal, state, local,\nimprove the system. and tribal governments and the full integration of that\n information will contribute to better government for all\nThe Corps invested approximately $76 million in Americans.\ndevelopment of the CEFMS, and the system has gained\nacceptance and has proven successful. The system now\nserves as a measuring stick for future DoD \xef\xac\x81nancial Budget and Performance Integration\nmanagement systems. The Corps\xe2\x80\x99 separate accountability for performance\n and budget integration is limited to the civil works\n mission. The following information pertains only to\nExpand Electronic Government the civil works budget.\nExpanded electronic government is a Corps-wide\ninitiative that aims to make it easier for the public The civil works budget and performance integration\nto access information about civil works services and initiative focuses on developing formal linkages\nprograms, and to improve civil works internal and between program performance planning and\nexternal communications. Due to the adoption of budget decision-making. In order to accomplish\na wide array of web-based services, civil works has this, the Corps is pursuing two actions: developing\nbecome an active proponent of the government\xe2\x80\x99s drive and continually re\xef\xac\x81ning clear results-oriented\nto reach out to the public via the internet through program objectives through the civil works strategic\ninteragency initiatives such as Recreation One-Stop and planning process, and developing and measuring the\nGeospatial Information One-Stop. Access to the rules accomplishment of program performance targets as\ngoverning use of civil works lands and waterways has part of budget development.\nbeen simpli\xef\xac\x81ed through elimination of all hard-copy\ndirectives and publications by placing the information Performance-based budgeting improves the quality\nonline in formats suitable for viewing, downloading, of budget decisions and enables the Corps to perform\nand printing. more effectively its civil works mission with the\n funds available. Performance-based budgeting will\nCivil works also is working to make it easier to do deliver more program results for dollars expended in\nbusiness with the federal government. Civil works future years, a fact that is especially important when\nis a full participant in the web-based Tri-Service funding is constrained and dif\xef\xac\x81cult choices must be\nSolicitation Network and sponsors the electronic made. The Corps continues to work on improving the\ncontract solicitations system, a web-based process performance-based budget screening criteria for future\nfor advertising and distributing contract solicitation civil works budget development.\ndocuments that has linkages to the Army Single Face\n\n\n\n\n Photo Credits\n Civil Works Fund Opening Photo\n Port Mayaca Lock and Spillway, Florida.\n\n\n\n\n 245\n\x0c Principal Financial Statements, Notes, and Supplementary Information\n\n\n\n\n246 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cLIMITATIONS\nLIMITATIONS OF THE FINANCIAL STATEMENTS\n\nThe \xef\xac\x81nancial statements have been prepared to report the \xef\xac\x81nancial position and results\nof operations for the entity, pursuant to the requirements of Title 31, United States Code,\nsection 3515(b).\n\nWhile the statements have been prepared from the books and records of the entity, in\naccordance with the formats prescribed by the Of\xef\xac\x81ce of Management and Budget, the\nstatements are in addition to the \xef\xac\x81nancial reports used to monitor and control budgetary\nresources which are prepared from the same books and records.\n\nTo the extent possible, the \xef\xac\x81nancial statements have been prepared in accordance with\nfederal accounting standards. At times, the department is unable to implement all elements\nof the standards due to \xef\xac\x81nancial management systems limitations. The department\ncontinues to implement system improvements to address these limitations. There are other\ninstances when the department\xe2\x80\x99s application of the accounting standards is different from\nthe auditor\xe2\x80\x99s application of the standards. In those situations, the department has reviewed\nthe intent of the standard and applied it in a manner that management believes ful\xef\xac\x81lls that\nintent.\n\nThe statements should be read with the realization that they are for a component of the\nUnited States Government, a sovereign entity. One implication of this is that the liabilities\ncannot be liquidated without legislation that provides resources to do so.\n\n\n\n\n FY 2005 Army Annual Financial Statement 247\n\x0c248 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - US Army Corps of Engineers\nCONSOLIDATED BALANCE SHEET\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\n\xc2\xac\xc2\xac\xc2\xacASSETS\xc2\xac(Note\xc2\xac2)\n Intragovernmental:\n Fund Balance with Treasury (Note 3)\n Entity $ 3,138,201 $ 2,378,442\n Non-Entity Seized Iraqi Cash 0 0\n Non-Entity-Other 7,849 8,245\n Investments (Note 4) 3,127,832 2,741,917\n Accounts Receivable (Note 5) 613,904 520,123\n Other Assets (Note 6) 0 0\n Total Intragovernmental Assets $ 6,887,786 $ 5,648,727\n\n Cash and Other Monetary Assets (Note 7) $ 1,147 $ 1,039\n Accounts Receivable (Note 5) 1,750,925 1,906,435\n Loans Receivable (Note 8) 0 0\n Inventory and Related Property (Note 9) 117,384 61,815\n General Property, Plant and Equipment (Note 10) 26,780,102 28,448,517\n Investments (Note 4) 0 0\n Other Assets (Note 6) 0 0\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacASSETS $ 35,537,344 $ 36,066,533\n\n\xc2\xac\xc2\xac\xc2\xacLIABILITIES\xc2\xac(Note\xc2\xac11)\n Intragovernmental:\n Accounts Payable (Note 12) $ 87,230 $ 103,498\n Debt (Note 13) 14,600 15,367\n Other Liabilities (Note 15 & Note 16) 1,956,895 2,058,627\n Total Intragovernmental Liabilities $ 2,058,725 $ 2,177,492\n\n Accounts Payable (Note 12) $ 535,882 $ 570,255\n Military Retirement Benefits and Other Employment-Related 0 0\n Actuarial Liabilities (Note 17)\n Environmental Liabilities (Note 14) 529,617 0\n Loan Guarantee Liability (Note 8) 0 0\n Other Liabilities (Note 15 and Note 16) 600,880 646,125\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES $ 3,725,104 $ 3,393,872\n\n\xc2\xac\xc2\xac\xc2\xacNET\xc2\xacPOSITION\n Unexpended Appropriations $ 1,005,843 $ 396,362\n Cumulative Results of Operations 30,806,397 32,276,299\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacNET\xc2\xacPOSITION $ 31,812,240 $ 32,672,661\n\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES\xc2\xacAND\xc2\xacNET\xc2\xacPOSITION $ 35,537,344 $ 36,066,533\n\n\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 249\n\x0cDepartment of Defense - US Army Corps of Engineers\nCONSOLIDATED STATEMENT OF NET COST\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\n\xc2\xac\xc2\xac\xc2\xacProgram\xc2\xacCosts\n Intragovernmental Gross Costs $ 1,378,785 $ 1,020,767\n (Less: Intragovernmental Earned Revenue) (2,152,799) (1,234,805)\n Intragovernmental Net Costs $ (774,014) $ (214,038)\n Gross Costs With the Public $ 8,882,498 $ 8,658,737\n (Less: Earned Revenue From the Public) (428,778) (367,963)\n Net Costs With the Public $ 8,453,720 $ 8,290,774\n Total Net Cost $ 7,679,706 $ 8,076,736\n\xc2\xac\xc2\xac\xc2\xacCost\xc2\xacNot\xc2\xacAssigned\xc2\xacto\xc2\xacPrograms 0 0\n\xc2\xac\xc2\xac\xc2\xac(Less:Earned\xc2\xacRevenue\xc2\xacNot\xc2\xacAttributable\xc2\xacto\xc2\xacPrograms) 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ 7,679,706 $ 8,076,736\n\n\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n250 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - US Army Corps of Engineers\nCONSOLIDATED STATEMENT OF CHANGES IN NET POSITION\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Consolidated 2004 Consolidated\nCUMULATIVE\xc2\xacRESULTS\xc2\xacOF\xc2\xacOPERATIONS\n Beginning\xc2\xacBalances $ 32,276,299 $ 34,289,488\n Prior Period Adjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n Beginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 32,276,299 $ 34,289,488\n Budgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0\n Appropriations transferred-in/out (+/-) 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0\n Appropriations used 4,009,707 4,079,023\n Nonexchange revenue 1,632,662 1,434,495\n Donations and forfeitures of cash and cash equivalents 0 0\n Transfers-in/out without reimbursement (+/-) 326,390 315,045\n Other budgetary financing sources (+/-) 274 (3,945)\n Other\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 1,490 435\n Transfers-in/out without reimbursement (+/-) (3,048) (1,632)\n Imputed financing from costs absorbed by others 241,581 239,548\n Other (+/-) 748 578\n Total\xc2\xacFinancing\xc2\xacSources $ 6,209,804 $ 6,063,547\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 7,679,706 8,076,736\n Net\xc2\xacChange $ (1,469,902) $ (2,013,189)\n Ending\xc2\xacBalance $ 30,806,397 $ 32,276,299\n\nUNEXPENDED\xc2\xacAPPROPRIATIONS\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances $ 396,362 $ 636,846\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacPrior\xc2\xacperiod\xc2\xacadjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 396,362 $ 636,846\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBudgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 4,629,502 3,854,081\n Appropriations transferred-in/out (+/-) 27,602 18,394\n Other adjustments (rescissions, etc) (+/-) (37,916) (33,936)\n Appropriations used (4,009,707) (4,079,023)\n Nonexchange revenue 0 0\n Donations and forfeitures of cash and cash equivalents 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Other budgetary financing sources (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacOther\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Imputed financing from costs absorbed by others 0 0\n Other (+/-) 0 0\n Total\xc2\xacFinancing\xc2\xacSources $ 609,481 $ (240,484)\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-)\n Net\xc2\xacChange 609,481 (240,484)\n Ending\xc2\xacBalance $ 1,005,843 $ 396,362\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 251\n\x0cDepartment of Defense - US Army Corps of Engineers\nCOMBINED STATEMENT OF BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n\n Budgetary Financing Accounts Non-Budgetary Financing Accounts\n 2005 Combined 2004 Combined 2005 Combined 2004 Combined\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 5,987,913 $ 5,141,166 $ 0 $ 0\n Borrowing authority 0 135 0 0\n Contract authority 0 0 0 0\n Net transfers (+/-) 264,998 206,924 0 0\n Other 0 0 0 0\n Unobligated balance:\n Beginning of period 1,693,278 1,850,226 0 0\n Net transfers, actual (+/-) (7,606) 28,495 0 0\n Anticipated Transfers Balances 0 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0 0\n Collected 6,471,705 5,212,085 0 0\n Receivable from Federal sources 11,130 64,104 0 0\n Change in unfilled customer orders 0 0 0 0\n Advance received (34,324) 29,660 0 0\n Without advance from Federal sources 3,306,341 272,555 0 0\n Anticipated for the rest of year, without advances 0 0 0 0\n Previously unavailable 0 0 0 0\n Transfers for trust funds 0 0 0 0\n Subtotal 9,754,852 5,578,404 0 0\n Recoveries of prior year obligations $ 0 $ 0 $ 0 $ 0\n Temporarily not available pursuant to Public Law (10,000) (10,000) 0 0\n Permanently not available (38,390) (29,076) 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 17,645,045 $ 12,766,274 $ 0 $ 0\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 5,739,464 $ 5,615,179 $ 0 $ 0\n Reimbursable 6,902,397 5,457,815 0 0\n Subtotal $ 12,641,861 $ 11,072,994 $ 0 $ 0\n Unobligated balance:\n Apportioned 4,421,128 1,234,139 0 0\n Exempt from apportionment 581,999 459,076 0 0\n Other available (1) (1) 0 0\n Unobligated Balances Not Available 58 66 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 17,645,045 $ 12,766,274 $ 0 $ 0\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net - beginning of period $ 1,038,676 $ 1,007,621 $ 0 $ 0\n Obligated Balance transferred, net (+/-) 0 0 0 0\n Obligated Balance, Net - end of period:\n Accounts receivable (235,835) (224,704) 0 0\n Unfilled customer order from Federal sources (5,214,150) (1,907,809) 0 0\n Undelivered orders 2,862,371 2,022,902 0 0\n Accounts payable 1,083,001 1,148,287 0 0\n Outlays:\n Disbursements 11,867,676 10,705,281 0 0\n Collections (6,437,381) (5,241,746) 0 0\n Subtotal $ 5,430,295 $ 5,463,535 $ 0 $ 0\n Less: Offsetting receipts (1,744,668) (1,592,297) 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ 3,685,627 $ 3,871,238 $ 0 $ 0\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n252 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of Defense - US Army Corps of Engineers\nCONSOLIDATED STATEMENT OF FINANCING\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n 2005 Combined 2004 Combined\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacActivities:\nBudgetary Resources Obligated\n Obligations incurred $ 12,641,861 $ 11,072,994\n Less: Spending authority from offsetting collections (9,754,852) (5,578,404)\n and recoveries (-)\n Obligations net of offsetting collections and recoveries $ 2,887,009 $ 5,494,590\n Less: Offsetting receipts (-) (1,744,668) (1,592,297)\n Net obligations $ 1,142,341 $ 3,902,293\nOther Resources\n Donations and forfeitures of property 1,490 435\n Transfers in/out without reimbursement (+/-) (3,048) (1,632)\n Imputed financing from costs absorbed by others 241,581 239,548\n Other (+/-) 748 579\n Net other resources used to finance activities $ 240,771 $ 238,930\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacactivities $ 1,383,112 $ 4,141,223\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacItems\xc2\xacnot\xc2\xacPart of\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\n Change in budgetary resources obligated for goods,\n services and benefits ordered but not yet provided\n Undelivered Orders (-) $ (839,097) $ (400,175)\n Unfilled Customer Orders 3,272,017 302,216\n Resources that fund expenses recognized in prior periods (25,840) (55,278)\n Budgetary offsetting collections and receipts that do not affect net cost of operations 1,744,668 1,592,297\n Resources that finance the acquisition of assets (13,136) (1,684,000)\n Other resources or adjustments to net obligated resources\n that do not affect net cost of operations\n Less: Trust or Special Fund Receipts Related to Exchange in the Entity's Budget (-) (10,000) (10,000)\n Other (+/-) 1,560 1,636\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacitems\xc2\xacnot part\xc2\xacof\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations $ 4,130,172 $ (253,304)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof operations $ 5,513,284 $ 3,887,919\n\nComponents\xc2\xacof\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xacthat\xc2\xacwill\nnot\xc2\xacRequire\xc2\xacor\xc2\xacGenerate\xc2\xacResources\xc2\xacin\xc2\xacthe\xc2\xacCurrent\xc2\xacPeriod:\nComponents Requiring or Generating Resources in Future Period\n Increase in annual leave liability $ 0 $ 0\n Increase in environmental and disposal liability 0 0\n Upward/Downward reestimates of credit subsidy expense (+/-) 0 0\n Increase in exchange revenue receivable from the the public (-) (34) 0\n Other (+/-) 540,581 50,966\n Total components of Net Cost of Operations that $ 540,547 $ 50,966\n will require or generate resources in future periods\nComponents not Requiring or Generating Resources:\n Depreciation and amortization 1,195,609 2,373,460\n Revaluation of assets or liabilities (+/-) 1,046,654 (822,198)\n Other (+/-)\n Trust Fund Exchange Revenue 0 0\n Cost of Goods Sold 2,764 0\n Operating Material & Supplies Used 0 0\n Other (619,152) 2,586,589\n Total components of Net Cost of Operations that will not require or generate resources $ 1,625,875 $ 4,137,851\nTotal\xc2\xaccomponents\xc2\xacof\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations\xc2\xacthat\nwill\xc2\xacnot\xc2\xacrequire\xc2\xacor\xc2\xacgenerate\xc2\xacresources\xc2\xacin\xc2\xacthe\xc2\xaccurrent period $ 2,166,422 $ 4,188,817\nNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ 7,679,706 $ 8,076,736\n\n\n The accompanying notes are an integral part of these \xef\xac\x81nancial statements.\n\n\n FY 2005 Army Annual Financial Statement 253\n\x0cNote 1. Signi\xef\xac\x81cant Accounting Policies\n1.A. Basis of Presentation\nThese \xef\xac\x81nancial statements have been prepared to report the \xef\xac\x81nancial position and results of operations of the U.S.\nArmy Corps of Engineers (USACE) Civil Works, as required by the \xe2\x80\x9cChief Financial Of\xef\xac\x81cers (CFO) Act of 1990,\xe2\x80\x9d\nexpanded by the \xe2\x80\x9cGovernment Management Reform Act (GMRA) of 1994,\xe2\x80\x9d and other appropriate legislation.\nThe \xef\xac\x81nancial statements have been prepared from the books and records of the USACE in accordance with the\n\xe2\x80\x9cDepartment of Defense Financial Management Regulation (DoDFMR),\xe2\x80\x9d the Of\xef\xac\x81ce of Management and Budget\n(OMB) Bulletin No. 01-09, \xe2\x80\x9cForm and Content of Agency Financial Statements\xe2\x80\x9d and, to the extent possible, generally\naccepted accounting principles (Federal GAAP). The USACE\xe2\x80\x99s \xef\xac\x81nancial statements are in addition to the \xef\xac\x81nancial\nreports also prepared by the USACE pursuant to OMB directives that are used to monitor and control the USACE\xe2\x80\x99s\nuse of budgetary resources.\n\nThe USACE \xef\xac\x81nancial statements are prepared from the consolidation of general ledger \xef\xac\x81nancial data reported from\nthe Corps of Engineers Financial System (CEFMS) to the Corps of Engineers Enterprise Management Information\nSystem (CEEMIS).\n\nA more detailed explanation of these \xef\xac\x81nancial statements elements is provided in the applicable footnote.\n\n\n1.B. Mission of the Reporting Entity\nSome of the missions of the USACE include maintaining navigation channels, reducing \xef\xac\x82ooding, assisting during\nnatural disasters and other emergencies, and making waterways passable. The \xef\xac\x81nancial statements are presented on\nthe accrual basis of accounting as required by federal \xef\xac\x81nancial accounting standards.\n\nThe asset accounts used to prepare the principal \xef\xac\x81nancial statements are categorized as entity/non-entity. Entity\naccounts consist of resources that the agency has the authority to use, or where management is legally obligated to\nuse funds to meet entity obligations. Non-entity accounts are assets that are held by an entity but are not available\nfor use in the operations of the entity.\n\n\nEntity Accounts:\nGeneral Funds\n96X3112 Flood Control, Mississippi River and Tributaries\n96X3121 General Investigations\n96 3121 General Investigations (\xef\xac\x81scal year)\n96X3122 Construction, General\n96X3123 Operation and Maintenance, General\n96X3124 General Expenses\n96X3125 Flood Control and Coastal Emergencies\n96X3126 Regulatory Program\n96X3128 Washington Aqueduct Capital Improvements\n96 3129 Payment to the South Dakota Terrestrial Wildlife Habitat Restoration Trust Fund (\xef\xac\x81scal year)\n96X3130 FUSRAP\n96 3132 Of\xef\xac\x81ce of Assistant Secretary of the Army (Civil Works)\n96X6094 Advances from the District of Columbia\n\nRevolving Funds\n96X4902 Revolving Fund\n\nSpecial Funds\n96X5007 Special Recreation Use Fees\n96X5066 Hydraulic Mining in California, Debris\n\n\n254 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c96X5090 Payments to States, Flood Control Act of 1954\n96X5125 Maintenance and Operation of Dams and Other Improvements of Navigable Waters\n96X5493 Fund for Non-Federal Use of Disposal Facilities\n\nTrust Funds\n96X8217 South Dakota Terrestrial Wildlife habitat Restoration Trust Fund\n96X8333 Coastal Wetlands Restoration Trust Fund\n96 20X8861 Inland Waterways Trust Fund\n96X8862 Rivers and Harbors Contributed and Advance Funds\n96 20X8863 Harbor Maintenance Trust Fund\n\nTransfer Funds\n96 12X1105 State and Private Forestry, Forest Service\n96 13X2050 Economic Development Administration\n96 14X1039 Construction National Park Service\n96 14X5035 Land Acquisition and State Assistance, National Park Service\n96 21X2020 OMA, American Samoa Projects\n96 69X8083 Federal Aid Highways\n96 89X4045 Bonneville Power Administration\n96 72 99/00 1021 Development Assistance, Agency for International Development\n\n\nNon-Entity:\nDeposit Funds\n96X6500 Advances without Orders from Non-Federal Sources\n96X6501 Small Escrow Amounts\n\nClearing Accounts\n96F3875 Budget Clearing Account\n96F3880 Unavailable Check Cancellations and Overpayments\n96F3885 Undistributed Intergovernmental Payments\n\nReceipt Accounts\n96 0891 Miscellaneous fees for regulatory and judicial services, not otherwise classi\xef\xac\x81ed\n96 1060 Forfeitures of Unclaimed Money and Property\n96 1099 Fines, Penalties, and Forfeitures Not Otherwise Classi\xef\xac\x81ed\n96 1299 Gifts to the United States, Not Otherwise Classi\xef\xac\x81ed\n96 1435 General Fund Proprietary Interest, Not Otherwise Classi\xef\xac\x81ed\n96 3220 General Fund Proprietary Receipts, Not Otherwise Classi\xef\xac\x81ed, All Other\n96 5005 Land and Water Conservation Fund\n96 5007 Special Recreation Use Fees\n96 5066 Hydraulic Mining in California\n96 5090 Receipts from leases of lands acquired for \xef\xac\x82ood control, navigation, and allied purposes\n96 5125 Licenses under Federal Power Act, Improvements of navigable water, maintenance and operation of\n dams, etc., (50%)\n96 5493 User Fees, Fund for Non-Federal Use of Disposal Facilities\n\n\nObsolete Accounts:\n96 13X1450 96 67X0204 96X6134 96F3879 96 1210\n96 14X2301 96 89X0224 96X6145 96F3886 96 1499\n96 19 00 1082 96 20X8145 96X6275 96 0199 96 2413\n96 46X0200 96X3930 96X6302 96 0869 96 2814\n\n\n FY 2005 Army Annual Financial Statement 255\n\x0c96 47X4542 96X6050 96X6999 96 1030 96 3102\n96 72 00/01 1021 96X6075 96X8868 96 1040 96 3124\n\n\n1.C. Appropriations and Funds\nThe UFACE Civil Works Program receives Federal funding through annual Energy and Water Development\nAppropriations Acts. Program funding also comes from non-Federal project sponsors who share in project costs\naccording to formulas established by project authorization acts. A third source of funding comes through the\nSupports for Others Program, which is conducted under reimbursable agreements with Federal agencies.\n\nThe USACE Civil Works appropriations and funds are divided into the general, revolving, trust, special, and deposit\nfunds. These appropriations and funds are used to fund and report how the resources have been used in the course\nof executing the USACE missions.\n\nGeneral Funds are used for \xef\xac\x81nancial transactions arising under congressional appropriations, including personnel,\noperation and maintenance, research and development, procurement, and construction accounts.\n\nRevolving Funds receive their initial working capital through an appropriation or a transfer of resources from\nexisting appropriations or funds and use those capital resources to \xef\xac\x81nance the initial cost of products and services.\nFinancial resources to replenish the initial working capital and to permit continuing operations are generated by the\nacceptance of customer orders. The activities provide goods and services on a reimbursable basis. Receipts derived\nfrom operations generally are available in their entirety for use without further congressional action.\n\nTrust Funds represent the receipt and expenditure of funds held in trust by the government for use in carrying out\nspeci\xef\xac\x81c purposes or programs in accordance with the terms of the donor, trust agreement, or statute.\n\nSpecial Funds account for receipts of the government that are earmarked for a speci\xef\xac\x81c purpose.\n\nDeposit Funds generally are used to (1) hold assets for which the USACE is acting as an agent, custodian, or whose\ndistribution awaits legal determination, or (2) account for unidenti\xef\xac\x81ed remittances.\n\nIn 1997, the USACE received borrowing authority from the Department of the Treasury for the three years 1997\nthrough 1999 to \xef\xac\x81nance capital improvements to the Washington Aqueduct. Appropriation 96X3128 was established\nto record \xef\xac\x81nancial transactions for these capital improvements.\n\n\n1.D. Basis of Accounting\nThe USACE\xe2\x80\x99s transactions are generally recorded on an accrual accounting basis and a budgetary basis as is required\nby Federal GAAP. Under the accrual method, revenues are recognized when earned and expenses are recognized\nwhen a liability is incurred without regard to receipt or payment of cash. Budgetary accounting is accomplished\nthrough unique general ledger accounts to facilitate compliance with legal and internal control requirements\nassociated with the use of federal funds.\n\nA policy change was effective March 2005 to report transfer appropriation Funds Balance with Treasury (FBWT) as\nnon-entity funds. These funds had previously been reported as appropriated entity funds. Special Funds have also\nbeen distinguished from appropriated funds effective in December 2004.\n\nCEFMS is used at all divisions, districts, centers, laboratories, and \xef\xac\x81eld of\xef\xac\x81ces. CEFMS is a fully integrated,\nautomated, and comprehensive \xef\xac\x81nancial management system that simpli\xef\xac\x81es the management of all aspects of the\nUSACE\xe2\x80\x99s business, including civil, military, revolving funds, and reimbursable activity. The general ledger chart of\naccounts in CEFMS is substantially compliant with the U.S. Government Standard General Ledger. In addition, the\nUSACE identi\xef\xac\x81es programs based upon the major appropriation groups provided by Congress.\n\n\n\n\n256 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c1.E. Revenues and Other Financing Sources\nFinancing sources for General Funds are provided primarily through congressional appropriations that are received\non both an annual and a multiyear basis. When authorized, these appropriations are supplemented by revenues\ngenerated by sales of goods or services through a reimbursable order process. The USACE recognizes revenue\nas a result of costs incurred or services performed on behalf of other federal agencies and the public. Revenue is\nrecognized when earned under the reimbursable order process.\n\n\n1.F. Recognition of Expenses\nFor \xef\xac\x81nancial reporting purposes, the DoD policy requires the recognition of operating expenses in the period\nincurred. Expenditures for capital and other long-term assets are not recognized as expenses in the USACE\noperations until depreciated in the case of property, plant, and equipment (PP&E) or consumed in the case of\noperating materials and supplies (OM&S). Net increases or decreases in unexpended appropriations are recognized\nas a change in the net position.\n\nCertain expenses, such as annual and military leave earned but not taken, are \xef\xac\x81nanced in the period when earned.\n\n\n1.G. Accounting for Intragovernmental Activities\nThe USACE, as an agency of the federal government, interacts with and is dependent upon the \xef\xac\x81nancial activities\nof the federal government as a whole. Therefore, these \xef\xac\x81nancial statements do not re\xef\xac\x82ect the results of all \xef\xac\x81nancial\ndecisions applicable to the USACE as though the agency were a stand alone entity.\n\nThe USACE\xe2\x80\x99s proportionate share of public debt and related expenses of the federal government are not included.\nDebt issued by the federal government and the related costs are not apportioned to federal agencies. The USACE\xe2\x80\x99s\n\xef\xac\x81nancial statements, therefore, do not report any portion of the public debt or interest thereon, nor do the statements\nreport the source of public \xef\xac\x81nancing whether from issuance of debt or tax revenues.\n\nFinancing for the construction of DoD facilities is obtained through budget appropriations. To the extent this\n\xef\xac\x81nancing ultimately may have been obtained through the issuance of public debt, interest costs have not been\ncapitalized since the Department of the Treasury does not allocate such interest costs to the bene\xef\xac\x81ting agencies.\n\nThe USACE civilian employees participate in the Civil Service Retirement System (CSRS) and the Federal Employees\nRetirement Systems (FERS), while military personnel are covered by the Military Retirement System (MRS).\nAdditionally, employees and personnel covered by FERS and MRS also have varying coverage under Social Security.\nThe USACE funds a portion of the civilian and military pensions. Reporting civilian pension under CSRS and FERS\nretirement systems is the responsibility of the Of\xef\xac\x81ce of Personnel Management (OPM). The USACE recognizes an\nimputed expense for the portion of civilian employee pensions and other retirement bene\xef\xac\x81ts funded by the OPM in\nthe Statement of Net Cost and recognizes corresponding imputed revenue from the civilian employee pensions and\nother retirement bene\xef\xac\x81ts in the Statement of Changes in Net Position.\n\nThe Department of Defense reports the assets, funded actuarial liability, and unfunded actuarial liability for the\nmilitary personnel in the Military Retirement Fund (MRF) \xef\xac\x81nancial statements. The Department recognizes the\nactuarial liability for the military retirement health bene\xef\xac\x81ts in the Other Defense Organization General Fund column\nof the DoD Agency wide consolidating/combining statements.\n\nTo prepare reliable \xef\xac\x81nancial statements, transactions occurring between entities within the Department or between\ntwo or more federal agencies must be eliminated. The USACE is responsible for eliminating transactions between\ncomponents and activities.\n\nThe Department of the Treasury, Financial Management Service (FMS), is responsible for eliminating transactions\nbetween the Department and other federal agencies. In September 2000, the Department of the Treasury, FMS,\nissued the \xe2\x80\x9cFederal Intragovernmental Transactions Accounting Policies and Procedures Guide.\xe2\x80\x9d The USACE\n\n\n FY 2005 Army Annual Financial Statement 257\n\x0cimplemented the policies and procedures in this guide related to reconciling intragovernmental assets, liabilities,\nrevenues, and expenses for non-\xef\xac\x81duciary transactions. In addition, the USACE implemented the policies and\nprocedures contained in the \xe2\x80\x9cIntragovernmental Fiduciary Transactions Accounting Guide,\xe2\x80\x9d as updated by\nthe \xe2\x80\x9cFederal Intragovernmental Transactions Accounting Policies and Procedures Guide,\xe2\x80\x9d issued October\n2002 for reconciling intragovernmental transactions. These transactions pertain to investments in Federal\nsecurities, borrowings from the Department of the Treasury and the Federal Financing Bank, Federal Employees\xe2\x80\x99\nCompensation Act transactions with the Department of Labor (DoL), and bene\xef\xac\x81t program transactions with the\nOPM.\n\n\n1.H. Transactions with Foreign Governments and International Organizations\nEach year, the DoD Components sell defense articles and services to foreign governments and international\norganizations, primarily under the provision of the \xe2\x80\x9cArms Export Control Act of 1976.\xe2\x80\x9d Under the provision of\nthe Act, the Department has authority to sell defense articles and services to foreign countries and international\norganizations, generally at no pro\xef\xac\x81t or loss to the U.S. Government. Customers may be required to make payments\nin advance.\n\n\n1.I. Funds with the U.S. Treasury\nThe USACE\xe2\x80\x99s \xef\xac\x81nancial resources are maintained in the Department of the Treasury accounts. The majority of cash\ncollections, disbursements, and adjustments are processed worldwide at the Defense Finance and Accounting\nService (DFAS), Military Services, the USACE Finance Center (UFC) disbursing station, as well as the Department of\nState \xef\xac\x81nancial service centers. Each disbursing station prepares monthly reports which provide information to the\nDepartment of the Treasury on check issues, electronic transfers, interagency transfers, and deposits.\n\nIn addition, the DFAS centers and the UFC submit reports to the Department of the Treasury, by appropriation\non interagency transfers, collections received, and disbursements issued. The Department of the Treasury then\nrecords this information to the applicable FBWT account maintained in the Department of the Treasury\xe2\x80\x99s system.\nDifferences between the USACE\xe2\x80\x99s recorded balance in the FBWT accounts and the Department of the Treasury\xe2\x80\x99s\nFBWT accounts sometimes result and are subsequently reconciled. Material disclosures are provided at Note 3.\nDifferences between accounting of\xef\xac\x81ces\xe2\x80\x99 detail-level records and the Department of the Treasury\xe2\x80\x99s FBWT accounts\nare disclosed at Note 3, speci\xef\xac\x81cally, differences caused by in-transit disbursements and unmatched disbursements\n(which are not recorded in the accounting of\xef\xac\x81ces\xe2\x80\x99 detail-level records).\n\n\n1.J. Foreign Currency\nThe USACE conducts operations overseas. Foreign Currency \xef\xac\x82uctuations require adjustment to the original\nobligation amount at the time of payment. These currency \xef\xac\x82uctuations are not separately identi\xef\xac\x81ed.\n\n\n1.K. Accounts Receivable\nAs presented in the Balance Sheet statement, accounts receivable includes accounts, claims, and refunds receivable\nfrom other federal entities or from the public. Allowances for uncollectible accounts due from the public are based\nupon analysis of collection experience by fund type. The Department does not recognize an allowance for estimated\nuncollectible amounts from other federal agencies. Claims against other federal agencies are to be resolved between\nthe agencies. Material disclosures are provided at Note 5.\n\n\n1.L. Loans Receivable\nNot applicable.\n\n\n\n\n258 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c1.M. Inventories and Related Property\nInventories are reported at approximate historical cost based on a moving weighted average that is based on actual\ncost divided by quantity. A perpetual record of inventory is maintained in CEFMS to allow for recomputation of the\naverage unit cost as new receipts are recorded.\n\nThe related property portion of the amount reported on the Inventory and Related Property line includes operating\nmaterials and supplies (OM&S). The OM&S are valued at standard purchase price. For the most part, the\nDepartment is using the consumption method of accounting for OM&S, as de\xef\xac\x81ned in the SFFAS No. 3, \xe2\x80\x9cAccounting\nfor Inventory and Related Property\xe2\x80\x9d, as material that has not been issued to the end user. Once OM&S is issued, the\nmaterial is expensed. Material disclosures related to inventory and related property is provided at Note 9.\n\n\n1.N. Investments in U.S. Treasury Securities\nInvestments in the Department of the Treasury securities are reported at cost, net of unamortized premiums\nor discounts. Premiums or discounts are amortized into interest income over the term of the investment using\nthe effective interest rate method or other method if similar results are obtained. The USACE\xe2\x80\x99s intent is to hold\ninvestments to maturity, unless they are needed to \xef\xac\x81nance claims or otherwise sustain operations. Consequently,\na provision is not made for unrealized gains or losses on these securities, because in the majority of cases, they\nare held to maturity. Amounts reported re\xef\xac\x82ect the value of investments in the South Dakota Terrestrial Wildlife\nHabitat Restoration, Inland Waterways, and Harbor Maintenance Trust Fund accounts, which are managed by the\nDepartment of the Treasury. Material disclosures are provided at Note 4.\n\n\n1.O. General Property, Plant and Equipment\nGeneral property, plant, and equipment (PP&E) assets are capitalized at historical acquisition cost plus capitalized\nimprovements when an asset has a useful life of two or more years, and when the acquisition cost is greater than\n$25,000, with the exception of all buildings and structures related to hydro-power purpose which are capitalized (to\ninclude joint cost) regardless of cost. Starting in FY 2004, all Civil Works Buildings and Structures under $25,000 are\nexpensed except for hydro-power assets.\n\nAll General PP&E, other than land, is depreciated on a straight-line basis. Land is not depreciated.\n\nIn FY 2004, the USACE, Of\xef\xac\x81ce of the Secretary of Defense Comptroller, and Department of Defense Inspector\nGeneral (DoDIG) reached an agreement on supporting documentation for land values to include administrative\ncosts. The USACE is in the process of gathering the necessary supporting documentation in accordance with the\nMemorandum of Agreement signed on June 9, 2004.\n\nWhen it is in the best interest of the government, the USACE provides to contractors government property necessary\nto complete contract work. Such property is either owned or leased by the USACE, or purchased directly by the\ncontractor for the government based on contract terms. When the value of contractor procured General PP&E\nexceeds the DoD capitalization threshold, such PP&E is required to be included in the value of General PP&E\nreported on the USACE Balance Sheet. The Department of Defense completed a study that indicates that the value\nof General PP&E above the DoD capitalization threshold and not older than the DoD Standard Recovery Periods\nfor depreciation, and that is presently in the possession of contractors, is not material to the Department\xe2\x80\x99s \xef\xac\x81nancial\nstatements. Regardless, the Department is developing new policies and a contractor reporting process that will\nprovide appropriate General PP&E information for future \xef\xac\x81nancial statement reporting purposes. Accordingly,\nthe USACE currently reports only government property in the possession of contractors that is maintained in the\nUSACE property systems.\n\nTo bring the USACE into compliance with federal accounting standards, the Department has issued new property\naccountability and reporting regulations that require the DoD Components to maintain, in DoD Component\nproperty systems, information on all property furnished to contractors. This action and other DoD proposed actions\n\n\n FY 2005 Army Annual Financial Statement 259\n\x0care structured to capture and report the information necessary for compliance with federal accounting standards.\n\nMaterial disclosures are provided at Note 10.\n\n\n1.P. Advances and Prepayments\nPayments in advance of the receipt of goods and services are recorded as advances or prepayments and reported as\nan asset on the Balance Sheet. Advances and prepayments are recognized as expenditures and expenses when the\nrelated goods and services are received.\n\n\n1.Q. Leases\nGenerally, lease payments are for the rental of equipment, space, and operating facilities and are classi\xef\xac\x81ed as\neither capital or operating leases. When a lease is essentially equivalent to an installment purchase of property (a\ncapital lease), the USACE records the applicable asset and liability if the value equals or exceeds the current DoD\ncapitalization threshold. The capitalization threshold for civil works assets is $25,000. The USACE records the\namounts as the lesser of the present value of the rental and other lease payments during the lease term (excluding\nthat portion of the payments representing executory costs paid to the lessor) or the asset\xe2\x80\x99s fair market value. Leases\nthat do not transfer substantially all of the bene\xef\xac\x81ts or risks of ownership are classi\xef\xac\x81ed as operating leases and\nrecorded as expenses as payments are made over the lease term.\n\n\n1.R. Other Assets\nThe USACE conducts business with commercial contractors under two primary types of contracts\xe2\x80\x94\xef\xac\x81xed price and\ncost reimbursable. To alleviate the potential \xef\xac\x81nancial burden on the contractor that long-term contracts can cause,\nthe USACE provides \xef\xac\x81nancing payments. One type of \xef\xac\x81nancing payment that the USACE makes, for real property,\nis based upon a percentage of completion. In accordance with the SFFAS No. 1, \xe2\x80\x9cAccounting for Selected Assets and\nLiabilities,\xe2\x80\x9d such payments are treated as construction-in-process and are reported on the General PP&E line and at\nNote 10, General PP&E, Net.\n\nIn addition, based on the provision of the Federal Acquisition Regulation (FAR), the USACE makes \xef\xac\x81nancing\npayments under \xef\xac\x81xed price contracts that are not based on a percentage of completion. The USACE reports these\n\xef\xac\x81nancing payments as advances or prepayments in the \xe2\x80\x9cOther Assets\xe2\x80\x9d line item. The USACE treats these payments\nas advances or prepayments because the USACE becomes liable only after the contractor delivers the goods in\nconformance with the contract terms. If the contractor does not deliver a satisfactory product, the USACE is not\nobligated to reimburse the contractor for its costs and the contractor is liable to repay the USACE for the full amount\nof the advance.\n\nDoD has completed a review of all applicable federal accounting standards; applicable public laws on contract\n\xef\xac\x81nancing; FAR Parts 32, 49, and 52; and the OMB guidance in 5 Code of Federal Regulations Part 1315, \xe2\x80\x9cPrompt\nPayment.\xe2\x80\x9d DoD concluded that SFFAS No. 1 does not fully or adequately address the subject of progress payment\naccounting and is considering what further action is appropriate.\n\n\n1.S. Contingencies and Other Liabilities\nThe SFFAS No. 5, \xe2\x80\x9cAccounting for Liabilities of the Federal Government,\xe2\x80\x9d de\xef\xac\x81nes a contingency as an existing\ncondition, situation, or set of circumstances that involves an uncertainty as to possible gain or loss to the USACE.\nThe uncertainty will be resolved when one or more future events occur or fail to occur. A contingency is recognized\nas a liability when a past event or exchange transaction has occurred, a future loss is probable, and the amount of\nloss can be reasonably estimated.\n\nFinancial statement reporting is limited to disclosure when conditions for liability recognition do not exist but there\nis at least a reasonable possibility that a loss or additional loss will be incurred. Examples of loss contingencies\n\n\n260 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cinclude the collectibility of receivables, pending or threatened litigation, possible claims and assessments. The\nUSACE\xe2\x80\x99s loss contingencies arising as a result of pending or threatened litigation or claims and assessments occur\ndue to events such as ship and vehicle accidents, property or environmental damages, and contract disputes.\n\n\n1.T. Accrued Leave\nCivilian annual leave and military leave that have been accrued and not used as of the balance sheet date are\nreported as liabilities. The liability reported at the end of the \xef\xac\x81scal year re\xef\xac\x82ects current pay rates.\n\n\n1.U. Net Position\nNet Position consists of unexpended appropriations and cumulative results of operations. Unexpended\nappropriations represent amounts of authority which are unobligated and have not been rescinded or withdrawn,\nand amounts obligated but for which legal liabilities for payments have not been incurred.\n\nCumulative results of operations represent the difference, since inception of an activity, between expenses and losses\nand \xef\xac\x81nancing sources (including appropriations, revenue, and gains). Beginning with FY 1998, this included the\ncumulative amount of donations and transfers of assets in and out without reimbursement.\n\n\n1.V. Treaties for Use of Foreign Bases\nThe USACE has no existing treaties for use of foreign bases\n\n\n1.W. Comparative Data\nThe Financial Statements and accompanying Notes to the Financial Statements report the \xef\xac\x81nancial position and\nresults of operations for FY 2005. Financial statement \xef\xac\x82uctuations greater than 2 percent of total assets on the\nBalance Sheet and/or greater than 10 percent between FY 2004 and FY 2005 are explained within the Notes to the\nFinancial Statements.\n\n\n1.X. Unexpended Obligations\nThe USACE records obligations for goods and services that have been ordered but not yet received. No liability for\npayment has been established in the \xef\xac\x81nancial statements because goods/services have yet to be delivered.\n\n\n1.Y. Undistributed Disbursements and Collections\nUndistributed disbursements and collections represent the difference between disbursements and collections\nmatched at the transaction level to a speci\xef\xac\x81c obligation, payable, or receivable in the activity \xef\xac\x81eld records as opposed\nto those reported by the Department of the Treasury. These amounts should agree with the undistributed amounts\nreported on the departmental accounting reports.\n\nThe Department of Defense policy is to allocate supported undistributed disbursements and collections between\nfederal and nonfederal categories based on the percentage of Federal and nonfederal accounts payable and\naccounts receivable. Unsupported undistributed disbursements are recorded in accounts payable. Unsupported\nundistributed collections are recorded in other liabilities. The USACE does not follow this procedure.\n\nAll unposted disbursements and collections for the USACE are unrecorded Intragovernmental Payment and\nCollection (IPAC) transactions. These transactions are all Federal.\n\n\n\n\n FY 2005 Army Annual Financial Statement 261\n\x0cNote 2. Nonentity Assets\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Intragovernmental Assets\n A. Fund Balance with Treasury $ 7,849 $ 8,245\n B. Investments 0 0\n C. Accounts Receivable 0 0\n D. Other Assets 0 0\n E. Total Intragovernmental Assets $ 7,849 $ 8,245\n 2. Nonfederal Assets\n A. Cash and Other Monetary Assets $ 1,147 $ 1,039\n B. Accounts Receivable 1,722,336 1,843,102\n C. Loans Receivable 0 0\n D. Inventory & Related Property 0 0\n E. General PP&E 0 0\n F. Investments 0 0\n G. Other Assets 0 0\n H. Total Nonfederal Assets $ 1,723,483 $ 1,844,141\n 3. Total Nonentity Assets $ 1,731,332 $ 1,852,386\n 4. Total Entity Assets $ 33,806,012 $ 34,214,147\n 5. Total Assets $ 35,537,344 $ 36,066,533\n\n\nAsset accounts are categorized either as entity or nonentity. Entity accounts consist of resources that the agency has\nauthority to use, or when management is legally obligated to use funds to meet entity obligations. Nonentity assets\nare assets that are held by an entity, but are not available for use in the operations of the entity.\n\n\nComposition of Other Nonentity Assets\nIntragovernmental Nonentity Fund Balance with Treasury consists of amounts collected into deposit and suspense\naccounts.\n\nCash and Other Monetary Assets is comprised of $4 thousand in change funds for recreation cashiers, $552 thousand\nin Disbursing Of\xef\xac\x81cer\xe2\x80\x99s cash, and $591 thousand in foreign currency, as listed at Note 7.\n\nNon-federal nonentity accounts receivable represents all current and non-current receivables due from non-\nfederal sources. Nonentity receivables include $835.9 million in long-term receivables due from state and local\nmunicipalities for water storage contracts, $33.9 million in current receivables due from state and local municipalities\nfor water storage, $852.8 million in accrued interest receivable, $2.3 million in penalties, \xef\xac\x81nes and administrative\nfees receivable, $1.3 million in long-term receivables for hydraulic mining, and $1.5 million for other miscellaneous\nreceivables. An additional $476.2 thousand represents the amount due from the leasing of land acquired for \xef\xac\x82ood\ncontrol purposes. Nonentity receivables are recorded in unavailable receipt accounts and funds will be returned to\nthe U.S. Treasury when collected. The allowance for doubtful accounts totals $5.8 million for nonentity receivables.\n\n\nFluctuations\nLine 2A. Cash and Other Monetary Assets increased by approximately $107.8 thousand (10 percent) due to an\nincrease of foreign currency maintained for disbursements and exchange transactions at the Japan, Europe and Far\nEast Districts. There was an increase in the balance in Japanese yen, Euro dollars and Korean won used to pay local\nvendors and contractors.\n\n\n\n\n262 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote Reference\nFor Additional Line Item discussion, see:\nNote 3, Funds Balance with Treasury\nNote 4, Investments\nNote 5, Accounts Receivable\nNote 7, Cash and Other Monetary Assets\nNote 9, Inventory and Related Property\nNote 10, General PP&E, Net\n\nNote 3. Fund Balance with Treasury\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Fund Balances\n A. Appropriated Funds $ 1,600,628 $ 970,538\n B. Revolving Funds 965,552 902,212\n C. Trust Funds 86,885 72,121\n D. Special Funds 1,920 0\n E. Other Fund Types 491,065 441,816\n F. Total Fund Balances $ 3,146,050 $ 2,386,687\n 2. Fund Balances Per Treasury Versus Agency\n A. Fund Balance per Treasury $ 3,180,160 $ 2,906,916\n B. Fund Balance per USACE 3,146,050 2,386,687\n 3. Reconciling Amount $ 34,110 $ 520,229\n\n\nThe Reconciling Amount for Fund Balances per the U. S. Army Corps of Engineers (USACE) includes $83.8 million\nin cash reported by the Department of the Treasury for Inland Waterways and Harbor Maintenance Trust Funds, for\nwhich the USACE is identi\xef\xac\x81ed as the lead agency for reporting. Fund Balance per USACE does not include $117.9\nmillion in receipt accounts. The USACE closed receipt accounts according to the Treasury Financial Management\nTransmittal Letter, transaction code F124, but they were included on the Financial Management Service (FMS) 6655:\nReceipt Account Trial Balance at September 30, 2005. These collections were processed in October 2005.\n\n\nOther Information Related to Fund Balance with Treasury\nFund Balance per Treasury and Fund Balance per USACE include $13.7 million in transfer appropriations. Transfers\nare from the Department of Energy, the Department of Transportation, and the Department of Commerce.\nAccording to the Treasury Financial Manual, Part 2, Chapter 4000, Federal Agencies\xe2\x80\x99 Centralized Trial-Balance System,\nparagraph 4030.60, if an appropriation transfer is material to the receiving agency\xe2\x80\x99s \xef\xac\x81nancial statements, the\nreceiving agency should report the activity relating to the appropriation transfers in its \xef\xac\x81nancial statements.\n\nAppropriated Funds includes net disbursements for undistributed IPAC transactions of ($12.2) million. These were\ndistributed to the appropriate funds during October 2005.\n\nOther Fund Types (nonentity) consist of $7.8 million in deposit, suspense, and clearing accounts that are not\navailable to \xef\xac\x81nance the USACE activities. Other Fund Types (entity) consists of $2 thousand in borrowing\nauthority, $467.2 million in contributed funds, and $16 million in the suspense account established to \xef\xac\x81nance\nWashington Aqueduct operations and are available to \xef\xac\x81nance the USACE activities.\n\nEntity accounts consist of resources that the agency has the authority to use, or when management is legally\nobligated to use funds to meet entity obligations. Nonentity accounts are assets that are held by an entity, but are\nnot available for use in the operation of the entity.\n\n\n\n FY 2005 Army Annual Financial Statement 263\n\x0cThere are no restrictions for future use of unobligated balances.\n\nThe Fund Balance with Treasury (FBWT) line does not include any amounts for which the Department of the\nTreasury is willing to accept corrections to cancelled appropriation accounts, in accordance with the Statement of\nFederal Financial Accounting Standards (SFFAS) No. 1, \xe2\x80\x9cAccounting for Selected Assets and Liabilities.\xe2\x80\x9d\n\n\nFluctuations\nAppropriated Funds. Appropriated Funds increased by $630.1 million (65 percent). Due to an unprecedented\nhurricane season in the fall of 2004 and during 2005, the USACE has received over $548 million in appropriated\nfunds to perform numerous missions to support those affected by the hurricanes. The USACE is the Federal\nEmergency Management Agency\xe2\x80\x99s (FEMA) Emergency Support Function for Engineering.\n\nTrust Funds. Trust Funds increased by $14.8 million (20 percent). The increase is from the Bureau of Public Debt\xe2\x80\x99s\n\xef\xac\x81nancial statements for the Harbor Maintenance and Inland Waterways Trust Funds. The USACE incorporates the\nBureau of Public Debt\xe2\x80\x99s \xef\xac\x81nancial statement into its \xef\xac\x81nancial statements. The USACE is the lead agency for reporting\nthese Trust Funds. The Bureau of Public Debt performs the investment activity for these Trust Funds. They had not\ninvested all available cash as of the end of 4th Quarter, FY 2005.\n\nSpecial Funds. Special Funds increased by $1.9 million (100 percent). This category is new in FY 2005. Special\nFunds were previously reported as Appropriated Funds.\n\nOther Fund Types. Other Fund Types increased by $49.2 million (11 percent). The increase is due to cost share\nprojects at the USACE Jacksonville District.\n\nReconciling Amount. The Reconciling Amount decreased $486.1 million (93 percent). The decrease is a result of\nthe exclusion of receipts for Contributed Funds which are rolled to the expenditure fund by the Department of the\nTreasury. In FY 2004, the USACE included these receipts in Line 1.A. Funds Balance per Treasury, which resulted in\nduplication.\n\n\nNote Reference\nNote Disclosure 1.I. Signi\xef\xac\x81cant Accounting Policies for additional discussion on \xef\xac\x81nancial reporting requirements\nand DoD policies governing Funds with the Department of the Treasury.\n\nNote 2 for Entity/Nonentity Accounts\n\n\nStatus of Fund Balance with Treasury\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Unobligated Balance\n A. Available $ 5,003,127 $ 1,693,215\n B. Unavailable 58 66\n 2. Obligated Balance not yet Disbursed $ 6,622,332 $ 5,493,293\n 3. Non-Budgetary FBWT $ (3,734) $ 8,245\n 4. Non-FBWT Budgetary Accounts $ (8,475,925) $ (4,830,335)\n 5. Total $ 3,145,858 $ 2,364,484\n\n\nStatus of Funds Balance uses the formula of the Treasury FMS 2108: Yearend Closing Statement. The unobligated\nand obligated not yet disbursed amounts in the budgetary accounts should agree to the balance at the Department of\nthe Treasury.\n\n\n\n264 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cThe Bureau of Public Debt Financial Statements for the Inland Waterways, Harbor Maintenance and South Dakota\nTerrestrial Wildlife Habitat Restoration Trust Funds are incorporated into the USACE\xe2\x80\x99s \xef\xac\x81nancial statements. The\nDepartment of the Treasury does not recognize budgetary resources for premium and amortization of premium on\nU. S. Treasury Securities for $83.8 million.\n\nAccording to the Statement of Federal Financial Accounting Standards No. 1, an entity\xe2\x80\x99s Fund Balance with Treasury\ndoes not include contract obligation authority or unused authority to borrow. Contract authority is a statutory\nauthority under which contracts or other obligations may be entered into prior to receiving an appropriation or\ncash transfer for the payment of obligations. The later enacted appropriation provides cash to liquidate obligations.\nThus, contract authority merely permits a federal entity to incur certain obligations but does not, in itself, add\nfunds to the agency\xe2\x80\x99s accounts with the Department of the Treasury. The USACE\xe2\x80\x99s available balance includes $45.9\nmillion in contract obligation authority for transfer appropriations from the Department of Transportation and the\nDepartment of Energy.\n\n\nFluctuations\nUnobligated Balance Available. The Unobligated Balance Available increased $3.3 billion (196 percent). Due to an\nunprecedented hurricane season in the fall of 2004 and during 2005, the USACE received an increase in appropriated\nfunds and customer orders to perform numerous missions to support those affected by the hurricanes. The USACE\nis the Federal Emergency Management Agency\xe2\x80\x99s (FEMA) Emergency Support Function for Engineering.\n\nUnobligated Balance Unavailable. The Unobligated Balance Unavailable decreased $7.6 thousand (12 percent). The\ndecrease is due to the return of Transfer Funds to the Agency for International Development.\n\nObligated Balance not yet Disbursed. The Obligated Balance not yet Disbursed increased $1.1 billion (21 percent).\nDue to an unprecedented hurricane season in the fall of 2004 and during 2005, the USACE received an increase in\nappropriated funds and customer orders to perform numerous missions to support those affected by the hurricanes.\nThe USACE is the Federal Emergency Management Agency\xe2\x80\x99s (FEMA) Emergency Support Function for Engineering.\nThe \xef\xac\x82uctuation is also due to an increase in interest on investments and taxes on imports and foreign trade for Trust\nFunds.\n\nNon-Budgetary FBWT. The Non-Budgetary FBWT decreased $11.9 million (145 percent). The decrease is a result of\ntransfers of funds in the Suspense and Budget Clearing Accounts to the appropriate funds.\n\nNon-FBWT Budgetary Accounts. The Non-FBWT Budgetary Accounts increased $3.7 billion (77 percent). Due to an\nunprecedented hurricane season in the fall of 2004 and during 2005, the USACE received an increase in appropriated\nfunds and customer orders to perform numerous missions to support those affected by the hurricanes. The USACE\nis the Federal Emergency Management Agency\xe2\x80\x99s (FEMA) Emergency Support Function for Engineering. The\n\xef\xac\x82uctuation is also due to an increase in interest on investments and taxes on imports and foreign trade for Trust\nFunds.\n\n\nDisclosures Related to Suspense/Budget Clearing Accounts\n (Decrease)/\n As of September 30 2003 2004 2005 Increase from FY2004 - 2005\n (Amounts in thousands)\nAccount\n F3875 $ 850 $ 113 $ 632 $ 519\n F3880 0 (0) 0 0\n F3882 0 0 0 0\n F3885 0 0 (12,215) (12,215)\n F3886 0 0 0 0\nTotal $ 850 $ 113 $ (11,583) $ (11,696)\n\n\n\n\n FY 2005 Army Annual Financial Statement 265\n\x0cDuring FY 2004 balances in Budget Clearing Account 96F3875 and 96F3885 were closed into the Suspense Account\n96X6500 according to Defense Finance Accounting Service guidance. That guidance has been rescinded. The\nBudget Clearing Accounts were reestablished at the beginning of FY 2005. Since there is no requirement from the\nDepartment of the Treasury to close budget clearing accounts, the guidance was rescinded for yearend FY 2005.\n\n\nDisclosures Related to Problem Disbursements and In-Transit Disbursements\nNot applicable.\n\nNote 4. Investments and Related Interest\n 2005 2004\n Unamortized Market\n Par Amortization (Premium/ Investments, Value Investments,\n As of September 30 Value/Cost Method Discount) Net Disclosure Net\n (Amounts in thousands)\n 1. Intragovernmental Securities\n Level Yield\n A. Non-Marketable, Market-Based $ 3,032,895\n Calculation\n $ 78,829 $ 3,111,724 $ 3,105,672 $ 2,728,131\n B. Accrued Interest 16,108 16,108 16,108 13,786\n C. Total Intragovernmental Securities $ 3,049,003 $ 78,829 $ 3,127,832 $ 3,121,780 $ 2,741,917\n 2. Other Investments $ 0 0 $ 0 N/A $ 0\n\n\nInvestments for the Inland Waterways, Harbor Maintenance, and South Dakota Terrestrial Wildlife Habitat\nRestoration Trust Funds are reported by the Department of the Treasury and are included in the U.S. Army Corps\nof Engineers\xe2\x80\x99 \xef\xac\x81nancial statements. Investments include $262.5 million in one-day certi\xef\xac\x81cates and $2.8 billion in\nbonds and notes. Total investment amounts include $347.1 million in Inland Waterways, $2.7 billion in Harbor\nMaintenance, and $76.1 million in the South Dakota Terrestrial Wildlife Habitat Restoration account.\n\nInvestments are held until maturity. As funds are needed to sustain operations, withdrawals are made from the\none-day certi\xef\xac\x81cate investment account for Inland Waterways and Harbor Maintenance Trust Funds. The investment\npolicy changed for South Dakota Trust Funds in February 2005. Funds are no longer invested in one-day certi\xef\xac\x81cates,\nbut are invested in notes and bonds. Provisions are not made for unrealized gains or losses on these securities. The\nTrust Funds use the same method that conforms to the prevailing practice in the \xef\xac\x81nancial community to determine\nthe amortized book value of investments currently held and the related effective interest yield on investments.\nThese calculated yields agree with yields published in the security tables of the Department of the Treasury\nsecurities. These types of investments are recorded at cost, net of unamortized premiums or discounts. Premiums\nor discounts are amortized into interest income over the term of the investment. Investment decisions for these\nfunds are made by the managing entity, in this case, the Department of the Treasury.\n\nThe Department of the Treasury also provides the investment market value based on the bid price provided by the\nFederal Reserve Bank of New York on September 30, 2005.\n\n\nNote Reference\nSee Note Disclosure 1.N., Investments in the Department of the Treasury for additional DoD policies governing\nInvestments in U.S. Treasury Securities.\n\n\nFluctuations\nLine 1A. Non-Marketable, Market Based Securities: The overall increase of $384 million (14 percent) in Non-\nMarketable, Market Based Securities is due to several factors. There is an increase in tax revenues in Harbor\nMaintenance and Inland Waterways Trust Funds and an increase in interest on investments (cash) for Harbor\n\n\n266 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cMaintenance, Inland Waterways and South Dakota Trust Funds. Tax revenues are from imports, exports, domestics,\nexcise, foreign trade and passengers. The tax revenues are invested by the Department of the Treasury and reported\non Bureau of Public Debt\xe2\x80\x99s \xef\xac\x81nancial statements for Harbor Maintenance and Inland Waterways Trust Funds.\nHarbor Maintenance reports an increase in investments of $400 million compared to the 4th Quarter, FY2004. The\nincrease in investments is due to an increase in volume for taxes on imports and foreign trade. South Dakota is\nreporting an $11.9 million increase in investments for the 4th Quarter, FY 2005, compared to the 4th Quarter, FY\n2004. The increase is due to the Department of the Treasury investing the funds collected in notes and bonds instead\nof one-day certi\xef\xac\x81cates. Inland Waterways reports a decrease in investments of $27.9 million for the 4th Quarter,\nFY 2005. The decrease is caused by budget authority transferred by the Department of the Treasury to the Inland\nWaterways expenditure account. The funds are transferred from invested balances and are based upon weekly\nestimates needed to cover expenditures. As funds are withdrawn, investment accounts decrease.\n\nLine 1B. Accrued Interest: The increase of $2.3 million (17 percent) in accrued interest on investments is due to an\nincrease in investments through tax collections on imports and foreign trade from the Harbor Maintenance Trust\nFunds. Harbor Maintenance has an increase of $2.4 million and South Dakota is reporting an increase of $478\nthousand. The increase in the South Dakota account is due to a policy change where the Department of the Treasury\ninvests its funds in notes and bonds instead of one-day certi\xef\xac\x81cates. Inland Waterways is reporting a decrease of $571\nthousand in their interest income receivable. Funds are withdrawn to transfer budget authority in order to cover\nexpenditures. Withdrawals result in fewer investments available to accrue interest in the Inland Waterways Trust\nFund.\n\nLine 1C. Total Intragovernmental Securities: Total Intragovernmental Securities has a net increase of $386 million\n(14 percent) in investments and interest, as of September 30, 2005, compared to September of 2004. The increase is a\nresult of tax revenues collected and invested until funds are needed for support of operations.\n\nNote 5. Accounts Receivable\n 2005 2004\n Allowance For\n Gross Amount Estimated Accounts Accounts\n As of September 30 Due Uncollectibles Receivable, Net Receivable, Net\n (Amounts in thousands)\n 1. Intragovernmental Receivables $ 613,904 N/A $ 613,904 $ 520,123\n 2. Nonfederal Receivables (From the Public) $ 1,756,698 $ (5,773) $ 1,750,925 $ 1,906,435\n 3. Total Accounts Receivable $ 2,370,602 $ (5,773) $ 2,364,829 $ 2,426,558\n\n\nAllowance method:\nThe method of calculating the allowance for estimated uncollectibles is based on the cumulative balance of\ndelinquent public receivables aged in accordance with current USACE policy. The calculation is performed\nautomatically in the Corps of Engineers Financial Management System.\n\nThe Code of Federal Regulations (4CFR 101) prohibits the write-off of receivables from another federal agency. As\nsuch, no allowance for estimated uncollectible amounts is recognized for these receivables.\n\nElimination Adjustments\nThe USACE was able to compare its accounts receivable balances with the accounts payable balances of its\nintragovernmental trading partners. No material differences were identi\xef\xac\x81ed.\n\nReceivables with Other Federal Agencies (Non-Defense)\nReceivables with Department of Homeland Security increased by $53.8 million as a result of reimbursable work\nperformed for Federal Emergency Management Agency (FEMA), primarily attributable to hurricane relief efforts.\nSome activities previously identi\xef\xac\x81ed under other agencies are now reported under Department of Homeland\n\n\n FY 2005 Army Annual Financial Statement 267\n\x0cSecurity. Receivables for amounts to be transferred from the Aquatic Resources Trust Fund (Department of Interior)\nfor currently invested balances to the USACE Coastal Wetlands Trust Fund is $16.3 million more than at this time\nlast year. This is for coastal wetland projects in the New Orleans District. Additionally, receivables for Inland\nWaterways are $7.9 million more than this time last year because of amounts to be transferred to the USACE from\nthe Inland Waterways Trust Fund for inland waterway navigation projects.\n\nIntragovernmental Receivables Over 180 Days\nThe amount of intragovernmental receivables over 180 days old is $37.6 million versus $9.6 million this time last\nyear, with $36.5 million belonging to FEMA.\n\nPublic Receivables Over 180 Days\nThe amount of public receivables over 180 days old is $78.6 million. Receivables with the public include $56.8\nmillion in accrued interest on receivables over 180 days old associated with long-term water storage contracts. Of\nthe total receivables over 180 days old, $41.1 million is owed by the Commonwealth of Puerto Rico on a 50 year\ncontract for the Cerrillos Dam water storage.\n\nNonfederal Refunds Receivable\nThe amount of public receivables includes $1.2 million in refunds receivable, (95 percent) of which are current\nrefunds receivable largely attributed to refunds due for liquidated damages, refunds due from U.S Bank on credit\ncards and condemnation cases.\n\nOther Disclosures\nPublic receivables include $33.9 million in current and $835.9 million in long-term accounts receivable (principal)\nassociated with water storage contracts, $852.8 million in accrued interest receivable, and $2.4 million in penalties,\n\xef\xac\x81nes, and administrative fees receivable. Public receivables also include $1.3 million in long-term receivables for\nhydraulic mining and $426.2 thousand due from the leasing of land acquired for \xef\xac\x82ood control purposes, and $24.0\nmillion due from the D.C. Public Schools and Department of Housing. The remainder is for various other accounts\nreceivables.\n\nThe amount of Public Receivables on the Treasury Report on Receivables Due from the Public is $5.7 million greater\nthan the balance of public receivables reported on the balance sheet. The difference is attributed to the amount of\nwork-in-progress for $53.3 thousand less the allowance for estimated uncollectibles of $5.8 million not reported on\nthe Treasury Report on Receivables.\n\nTotal trust fund receivables for currently invested balances are $386.7 million. The breakdown between funds\nfollows. Trust fund receivables for currently invested balances include $368.8 million for the Coastal Wetlands\nRestoration Trust Fund, and $17.9 million for the Inland Waterways Trust Fund. To accommodate cash\nmanagement practices, funds will remain invested until needed for disbursement. The budget authority is realized\nand obligations may be incurred before the actual transfer of funds.\n\n\nFluctuations\nIntragovernmental Receivables. The increase in intragovernmental receivables is attributed to the increase of $53.8\nmillion in reimbursable work performed for FEMA in support of hurricane relief efforts in Florida. Receivables for\namounts to be transferred from the Aquatic Resources Trust Fund (Department of Interior) for currently invested\nbalances to the USACE are $16.3 million more than at this time last year. This is for coastal wetland projects in\nthe New Orleans District. Additionally, receivables for Inland Waterways are $7.9 million more than at this time\nlast year because of amounts to be transferred to the USACE from the Inland Waterways Trust Fund for inland\nwaterway navigation projects. Receivables for amounts to be transferred to the USACE from the Department of\nEnergy are $10.2 million more than at this time last year.\n\n\n\n\n268 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 6. Other Assets\nNot applicable.\n\nNote 7. Cash and Other Monetary Assets\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Cash $ 556 $ 571\n 2. Foreign Currency (non-purchased) 591 468\n 3. Total Cash, Foreign Currency, & Other Monetary Assets $ 1,147 $ 1,039\n\n\nDe\xef\xac\x81nitions\nCash \xe2\x80\x93 The total of cash resources under the control of the USACE, which includes coin, paper currency, purchased\nforeign currency, negotiable instruments, and amounts on deposit in banks and other \xef\xac\x81nancial institutions. Cash\navailable for agency use should include petty cash funds and cash held in revolving funds which will not be\ntransferred into the U.S. Government General Fund.\n\nForeign Currency \xe2\x80\x93 consists of the total U.S. dollar equivalent of purchased foreign currencies held in foreign\ncurrency fund accounts. Non-purchased foreign currency is limited to the Treasury Index 97X7000 fund account\n(formerly called FT accounts).\n\nOther Monetary Assets - includes gold, special drawing rights, and U.S. Reserves in the International Monetary\nFund. This category is principally for use by the Department of the Treasury.\n\nOther USACE Disclosures\nCash consists of $552 thousand in Disbursing Of\xef\xac\x81cer\xe2\x80\x99s Cash and $4 thousand in change funds for recreation cashiers.\n\nThe USACE translates foreign currency to U.S. dollars utilizing the Department of the Treasury Prevailing Rate of\nExchange. This rate is the most favorable rate that would legally be available to the U. S. Government\xe2\x80\x99s acquisition\nof foreign currency for its of\xef\xac\x81cial disbursements and accommodation of exchange transactions. The USACE\nmaintains a balance of Japanese yen, Euro dollars, and Korean won for disbursements made at Japan, Europe, and\nFar-East Districts.\n\n\nFluctuations\nThe increase in foreign currency is from the balances maintained in Japanese yen, Euro dollars, and Korean won,\nwhich are used to pay local vendors and contractors. The increase, expressed in US dollars, is $29.6 thousand in\nJapanese yen, $24 thousand in Euro dollars, and $69 thousand in Korean won. The \xef\xac\x82uctuation is due to increased\nvolume of work. The balance \xef\xac\x82uctuates daily as new funds are obtained and disbursements are made.\n\n\nNote Reference\nSee Note Disclosure 1. J.- Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting\nrequirements and DoD policies governing Foreign Currency.\n\nNote 8. Direct Loan and/or Loan Guarantee Programs\nNot applicable\n\n\n\n\n FY 2005 Army Annual Financial Statement 269\n\x0cNote 9. Inventory and Related Property\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Inventory, Net $ 117,237 $ 61,671\n 2. Operating Materials & Supplies, Net 147 144\n 3. Stockpile Materials, Net 0 0\n 4. Total $ 117,384 $ 61,815\n\n\nInventory, Net\n 2005 2004\n Inventory, Revaluation Valuation\n As of September 30 Gross Value Allowance Inventory, Net Inventory, Net Method\n (Amounts in thousands)\n 1. Inventory Categories\n A. Available and Purchased for Resale $ 95,011 $ (15) 94,996 $ 41,718 O\n B. Held for Repair 0 0 0 0 O\n C. Excess, Obsolete, and Unserviceable 0 0 0 0 O\n D. Raw Materials 0 0 0 0 O\n E. Work in Process 22,241 0 22,241 19,953 O\n F. Total $ 117,252 $ (15) 117,237 $ 61,671\n\n\nLegend for Valuation Methods:\nAdjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses\nNRV = Net Realizable Value\nSP = Standard Price\nO = Other\nAC = Actual Cost\nMAC = Moving Average Cost\n\nInventory may be sold to foreign, state and local governments, private parties, and contractors in accordance with\ncurrent policies and guidance or at the direction of the U.S. President.\n\n\nDe\xef\xac\x81nitions\nInventory Available and Purchased for Resale includes consumable spare and repair parts and repairable items\nowned and managed by the Department. Material available and purchased for resale includes material held due to\na managerial determination that it should be retained to support military or national contingencies.\n\nInventory Held for Repair is damaged inventory that requires repair to make suitable for sale. Many of the inventory\nitems are more economical to repair than to procure. In addition, because the Department often relies on weapon\nsystems and machinery no longer in production, the Department supports a process that encourages the repair and\nrebuilding of certain items. This repair cycle is essential to maintaining a ready, mobile, and armed military force.\n\nExcess, Obsolete, and Unserviceable inventory consists of scrap materials or items that cannot be economically\nrepaired and are awaiting disposal. Potentially reusable material, presented in previous years as \xe2\x80\x9cExcess, Obsolete\nand Unserviceable,\xe2\x80\x9d is included in \xe2\x80\x9cHeld for Use\xe2\x80\x9d or \xe2\x80\x9cHeld for Repair\xe2\x80\x9d categories according to its condition.\n\nWork-in-Process (WIP) balances include costs related to the production or servicing of items, including direct\nmaterial, direct labor, applied overhead, and other direct costs. WIP also includes the value of \xef\xac\x81nished products\nor completed services pending the submission of bills to the customer. The WIP designation may also be used to\n\n\n\n270 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0caccumulate the amount paid to a contractor under cost reimbursable contracts, including the amount withheld from\npayment to ensure performance, and the amount paid to other Government plants for accrued costs of end-items of\nmaterial ordered, but not delivered.\n\n\nGeneral Composition of Inventory\nInventory is tangible personal property that is (1) held for sale, (2) in the process of production for sale, or (3) to be\nconsumed in the production of goods for sale or in the provision of services for a fee. \xe2\x80\x9cInventory held for Current\nSale\xe2\x80\x9d is that expected to be sold in the normal course of operations. \xe2\x80\x9cExcess Inventory\xe2\x80\x9d is that which exceeds the\ndemand expected in the normal course of operations and which does not meet management\xe2\x80\x99s criteria to be held in\nreserve for future sale. \xe2\x80\x9cObsolete Inventory\xe2\x80\x9d is that which no longer is needed due to changes in technology, laws,\ncustoms or operations. \xe2\x80\x9cUnserviceable Inventory\xe2\x80\x9d is damaged inventory that is more economical to dispose of than\nto repair. WIP includes associated labor, applied overhead and supplies used in the delivery of services.\n\nThe inventory data reported on the \xef\xac\x81nancial statements is derived from the Corps of Engineers Financial\nManagement System (CEFMS). CEFMS is a comprehensive system that is designed to capture and maintain\nhistorical cost data necessary to fully comply with the Statement of Federal Financial Accounting Standards No. 3,\n\xe2\x80\x9cAccounting for Inventory and Related Property.\xe2\x80\x9d\n\nThe inventory valuation method is based on a moving weighted average based on actual cost divided by quantity.\nA perpetual record of inventory is maintained to allow for recomputation of the average unit cost as new receipts are\nrecorded.\n\nFor regulatory discussion on Inventory, Net, see Department of Defense Federal Management Regulation, Volume\n6B, Chapter 10, paragraph 1011.\n\n\nFluctuations\nAvailable and Purchased for Resale. Available and Purchased for Resale increased $53.3 million (127.7 percent).\nThe increase is attributed to corrections made to the value of the Warehouse Stock Found on Works account in the\namount of $47.1 million. As a result of CEFMS incorrect general ledger correlations, this account had previously\nbeen understated. The Inventory Allowance account was incorrect because Found on works items were increasing\nthe Inventory account and at the same time begin offset in the Allowance account. This resulted in no increase to\nthe overall inventory. Found on Works items are now recorded as a gain, which results in an increase to the overall\ninventory. The system correction was made in 2nd Quarter FY 2005. The increase is also attributed to a $6.2 million\ntransfer of materials for river bank stabilization revetment projects on the Mississippi River by Memphis District\nfrom WIP to Available and Purchased for Resale.\n\nWork-in-Process. Work-in-Process increased $2.3 million (11 percent). The net increase is due to an increase of $8.5\nmillion at Vicksburg District for casting concrete mattresses and a decrease of $6.2 million at Memphis District that\nwas transferred to Available and Purchased for Resale.\n\n\nNote Reference\nSee Note Disclosure 1. M. - Signi\xef\xac\x81cant Accounting Policies for additional discussion on \xef\xac\x81nancial reporting\nrequirements and Department of Defense (DoD) policies governing Inventory and Related Property.\n\n\n\n\n FY 2005 Army Annual Financial Statement 271\n\x0cOperating Materials and Supplies, Net\n 2005 2004\n OM&S Revaluation Valuation\n As of September 30 Gross Value Allowance OM&S, Net OM&S, Net Method\n (Amounts in thousands)\n 1. OM&S Categories\n A. Held for Use $ 147 $ 0 $ 147 $ 144 O\n B. Held for Repair 0 0 0 0 O\n C. Excess, Obsolete, and Unserviceable 0 0 0 0 O\n D. Total $ 147 $ 0 $ 147 $ 144\n\n\nLegend for Valuation Methods:\nAdjusted LAC = Latest Acquisition Cost, adjusted for holding gains and losses\nNRV = Net Realizable Value\nSP = Standard Price\nO = Other\nAC = Actual Cost\n\nThere are no restrictions on operating materials and supplies (OM&S). The valuation method is based on a moving\nweighted average based on actual cost divided by quantity.\n\nFor regulatory discussion on OM&S, see Department of Defense Financial Management Regulation, Volume 6B,\nChapter 10, paragraph 101108.\n\n\nFluctuations\nNone.\n\n\nNote Reference\nSee Note Disclosure 1. M. - Signi\xef\xac\x81cant Accounting Policies for additional discussion on \xef\xac\x81nancial reporting\nrequirements and DoD policies governing Inventory and Related Property.\n\n\nStockpile Materials, Net\nNot applicable.\n\n\n\n\n272 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote 10. General PP&E, Net\n 2005 2004\n Depreciation/ (Accumulated\n Amortization Service Acquisition Depreciation/ Net Book Prior FY Net\n As of September 30 Method Life Value Amortization) Value Book Value\n (Amounts in thousands)\n 1. Major Asset Classes\n A. Land N/A N/A $ 8,900,815 N/A $ 8,900,815 $ 8,583,779\n B. Buildings, Structures, and Facilities S/L 20 - 100 27,124,179 $ (12,608,026) 14,516,153 16,128,806\n C. Leasehold Improvements S/L lease term 26,719 (14,158) 12,561 14,800\n D. Software S/L 2-5 82,711 (45,848) 36,863 26,466\n E. General Equipment S/L 5 - 100 1,263,312 (619,736) 643,576 632,840\n F. Military Equipment S/L Various 0 0 0 0\n G. Assets Under Capital Lease S/L lease term 0 0 0 0\n H. Construction-in- Progress N/A N/A 2,642,702 N/A 2,642,702 3,018,921\n I. Other 27,432 (0) 27,432 42,905\n 2. Total General PP&E $ 40,067,870 $ (13,287,768) $ 26,780,102 $ 28,448,517\n1\n Note 15 for additional information on Capital Leases\n\n\nLegend for Valuation Methods:\nS/L = Straight Line\nN/A = Not Applicable\n\n\nGeneral PP&E \xe2\x80\x93 Signi\xef\xac\x81cant Amount of Assets\nA cumulative total of $2.6 billion of intangible assets has been reclassi\xef\xac\x81ed as land. These costs increased by\n$315 million in FY 2005. These assets are comprised of historical costs associated with the acquisition of land in\nconjunction with power projects. Costs were originally classi\xef\xac\x81ed as intangible assets in order to comply with\nFederal Energy Regulatory Commission (FERC) guidelines on cost recovery. However, the decision was made that\nthese costs were improperly classi\xef\xac\x81ed in accordance with the Statement of Federal Financial Accounting Standards\n(SFFAS) No. 6, \xe2\x80\x9cAccounting for Property, Plant and Equipment,\xe2\x80\x9d as they were part of the initial acquisitions cost of\nthe land and should have been classi\xef\xac\x81ed as such. We have also made a reversing entry for current year amortization\nin our statements to properly re\xef\xac\x82ect the effect of the transfer into land (category 00) where accumulated depreciation\nis inappropriate. Supporting documentation for $17.3 billion of the $26.8 billion recorded in the Property, Plant,\nand Equipment (PP&E) line is being supported by alternate methods as agreed upon by the Inspector General,\nDepartment of Defense and the U.S. Army Corps of Engineers (USACE) in a June 9, 2004 Memorandum of\nAgreement.\n\nThe service life for the USACE\xe2\x80\x99s multiple purpose project assets is derived from guidance provided by the FERC\nbased on industry standards. The Power Marketing Administration (PMA) related assets make up $7.6 billion of the\nbook value of the USACE\xe2\x80\x99s PP&E.\n\nThe USACE currently operates and maintains 75 hydroelectric power plants, generating about 24 percent of\nAmerica\xe2\x80\x99s hydroelectric power. All power generated by these 75 hydroelectric power plants is transmitted to PMA\nfor distribution to customers across the region. Each \xef\xac\x81scal year, the USACE prepares a \xe2\x80\x9cStatement of Expenses\xe2\x80\x9d\nbroken down by plant, district, and region and provides this information to the PMAs to assist in their Power\nRepayment Study. The PMAs then collect power receipts (revenues) from customers and return the receipts to the\nDepartment of the Treasury.\n\nThe USACE\xe2\x80\x99s policy requires all capital improvements to real property, occupied but not owned by the USACE,\nwith a useful life of two or more years and cost of $25 thousand to be capitalized as leasehold improvements.\n\nIn the USACE\xe2\x80\x99s FY 2005 Construction-in-Progress (CIP) account, $151 million of the $2.6 billion (5 percent) is\nattributable to a dormant project formally known as the \xe2\x80\x9cElk Creek Lake Project\xe2\x80\x9d located at the U. S. Army Corps\nof Engineers Portland District. The project, which was authorized by the 1962 Flood Control Act, was originally\n\n FY 2005 Army Annual Financial Statement 273\n\x0cauthorized to perform the purpose of Flood Control. In 1971, construction began on the project but after completing\nonly 33 percent of its design height, the project was shut down due to a court-ordered injunction. Additional\nanalysis under National Environmental Policy Act (NEPA) is required to remove the injunction. To date, the\nenvironmental concerns have not been resolved and the project is sitting in a hold status until such time these issues\nare resolved. Therefore, the USACE will continue to carry the construction costs of the \xe2\x80\x9cElk Creek Lake Project\xe2\x80\x9d in\nthe CIP account until a \xef\xac\x81nal decision is made concerning the outcome of the project.\n\nDue to the USACE\xe2\x80\x99s signi\xef\xac\x81cant involvement in debris removal, \xef\xac\x82ood control and repair work on the breached\nlevees in the Hurricane Katrina affected areas, effort has not been focused at this time on identifying the potential\nlosses to the USACE assets or liabilities associated with environmental damages. Many areas where the potentially\naffected assets exist are still inaccessible due to \xef\xac\x82ooding. The USACE plans to perform a full assessment of potential\ndamages and liabilities in FY 2006.\n\nFor regulatory discussion on General PP&E, Net, see Department of Defense Financial Management Regulation,\nVolume 6B, Chapter 10, paragraph 1012.\n\n\nFluctuations\nLine1A \xe2\x80\x93 The USACE recorded an increase of $315 million in intangible assets reclassi\xef\xac\x81ed to land associated with the\npower projects in FY 2005 which accounts for most of the $317 million (3 percent) variance.\n\nLine 1B \xe2\x80\x93 The decrease of $1.6 billion (10 percent) in Buildings and Structure is partly due to the result of ongoing\ncorrective actions by the USACE. A large portion of river bank stabilization assets should have been expensed and\nthe USACE has taken appropriate actions to remove these assets. Bank stabilization expenses totaled $59 million for\nFY 2005. Other major factors include the retirement of channels, canals, and various assets at Vicksburg District for\n$635 million and various assets transferred to retirements at Wilmington District for $94 million; Memphis District\nfor $80 million; New York District for $58 million; Seattle District for $37 million; Louisville District for $47 million;\nNashville District for $44 million; Mobile District for $45 million; Savannah District for $43 million; and Ft. Worth\nDistrict for $57 million.\n\nLine 1C \xe2\x80\x93 The decrease of $2.2 million (15 percent) in net book value of Leasehold Improvements is due to\ndepreciation expense for Government Accountability Of\xef\xac\x81ce (GAO) Building Construction at Humphrey\xe2\x80\x99s\nEngineering Center Support Activity (HECSA).\n\nLine 1D \xe2\x80\x93 The majority of the increase of $10.4 million (39 percent) in net book value of software is due to the\nacquisition of P2 Project Management System for $15.7 million at Headquarters USACE (HQUSACE) and the normal\ndepreciation expense of $5 million for software at HECSA and HQUSACE.\n\nLine 1H - The decrease of $376 million (12 percent) in CIP is due to a change in accounting policy in FY 2004\nrequiring the write-off of non-federal cost share projects as costs are incurred. The HQUSACE issued policy to\nre\xef\xac\x82ect the proper accounting treatment of non-Federal CIP for cost shared projects. The proper accounting treatment\nis to remove the non-Federal portion from the CIP, based on SFFAS No 8, Supplementary Stewardship Reporting.\n\nIn the past, costs for non-federal cost share projects were capitalized and then transferred to the public at completion\nby recording a loss.\n\nLine 1I - Other: Other assets consist of assets awaiting disposal. The decrease of $15 million (36 percent) is due to\nthe disposal of retired assets at various districts.\n\n\nNote Reference\nSee Note Disclosure 1.O. - Signi\xef\xac\x81cant Accounting Policies, for additional discussion on \xef\xac\x81nancial reporting\nrequirements and DoD policies governing General Property, Plant and Equipment.\n\n\n\n274 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cAssets Under Capital Lease\nNot applicable.\n\nNote 11. Liabilities Not Covered by Budgetary Resources\n As of September 30 2005 2004\n (Amounts in thousands)\n 1. Intragovernmental Liabilities\n A. Accounts Payable $ 0 $ 0\n B. Debt 14,251 15,000\n C. Other 1,930,884 262,233\n D. Total Intragovernmental Liabilities $ 1,945,135 $ 277,233\n 2. Nonfederal Liabilities\n A. Accounts Payable $ 0 $ 0\n B. Military Retirement Benefits and\n 0 0\n Other Employment-Related Actuarial Liabilities\n C. Environmental Liabilities 529,617 0\n D. Loan Guarantee Liability 0 0\n E. Other Liabilities 26,055 50,353\n F. Total Nonfederal Liabilities $ 555,672 $ 50,353\n 3. Total Liabilities Not Covered by Budgetary Resources $ 2,500,807 $ 327,586\n 4. Total Liabilities Covered by Budgetary Resources $ 1,224,297 $ 3,066,286\n 5. Total Liabilities $ 3,725,104 $ 3,393,872\n\n\nDe\xef\xac\x81nitions\nLiabilities Not Covered by Budgetary Resources\nLiabilities that are not considered covered by realized budgetary resources as of the Balance Sheet date. Budgetary\nresources encompass the following:\n\n New budget authority.\n Spending authority from offsetting collections (credited to an appropriation or fund account).\n Recoveries of unexpired budget authority through downward adjustments of prior-year obligations.\n Unobligated balances of budgetary resources at the beginning of the year or net transfers of prior-year balances\n during the year.\n Borrowing authority or permanent inde\xef\xac\x81nite appropriations, which have been enacted and signed into law as\n of the Balance Sheet date, provided that the resources may be apportioned by the Of\xef\xac\x81ce of Management and\n Budget without further action by the Congress or without a contingency \xef\xac\x81rst having to be met.\n\nIntragovernmental Liabilities \xe2\x80\x93 Other includes Workmen\xe2\x80\x99s Compensation liabilities under the Federal Employees\nCompensation Act (FECA) totaling $46.9 million, offsetting custodial liability to accounts receivable totaling $1.7\nbillion, and Judgment Fund liabilities-Contract Disputes Act (CDA) totaling $162.6 million. The custodial liability\nis for amounts that will be deposited in the General Fund of the Department of the Treasury when collected and are\nprimarily related to water storage contracts.\n\nThe Actuarial Liability for FECA is not included. The Department of Labor is unable to furnish a \xef\xac\x81gure for FECA\nactuarial liability speci\xef\xac\x81c to the United States Army Corps of Engineers (USACE) Civil Works.\n\nNon-federal Liabilities \xe2\x80\x93 Other includes $26 million for contracts with continuation clauses.\n\nTotal Liabilities Covered by Budgetary Resources: Intragovernmental - Accounts Payable, $91.2 million; and Other\n\n\n FY 2005 Army Annual Financial Statement 275\n\x0c(FECA, Unearned Revenue-Advances, Deposit Fund and Clearing Accounts), $26 million. Non-federal \xe2\x80\x93 Accounts\nPayable, $532 million; and Other (Contract Holdbacks, FECA, Unearned Revenue-Advances, Deposit Fund, Clearing\nAccount and Contingent Liabilities resulting from casualty losses), $574.8 million.\n\n\nFluctuations\nIntragovernmental Liabilities - Other: This amount increased $1.7 billion (636 percent). Uncollected Custodial\nLiability increased $1.6 billion because it is reported with Liabilities Not Covered by Budgetary Resources in the\n4th Quarter, FY 2005. It was reported with Liabilities Covered by Budgetary Resources in the 4th Quarter, FY 2004.\nPrior to the 1st Quarter, FY 2005, the USACE could not use US Standard General Ledger (USSGL) 2980 and recorded\nthe offsetting custodial liability to accounts receivable in USSGL 2990. DFAS-Arlington provided guidance to the\nUSACE to use USSGL 2980 instead of USSGL 2990 for the 1st Quarter, FY 2005 reporting period, which results in the\nliability being properly reported as Not Covered by Budgetary Resources. Also, there was an increase of $9.3 million\nin Unfunded Judgment Fund liability under the Contract Disputes Act and an increase of $3.1 million in Unfunded\nFECA liability.\n\nNon-federal Liabilities \xe2\x80\x93 Environmental Liabilities: The increase of $529.6 million (100 percent) is attributed to the\nrecognition of future contingent liabilities for the Formerly Utilized Sites Remedial Action Program. The liability\namounts were not known prior to the 4th Quarter, FY 2005.\n\nNon-federal Liabilities \xe2\x80\x93 Other Liabilities: The decrease of $24.3 million (48 percent) is attributed to unfunded\nliabilities for contracts with continuation clauses. The amount for the unfunded liability is recorded in the general\nledger when a receiving report is entered in the Corps of Engineers Financial Management System (CEFMS),\nbut the obligation is not recorded at this time. When funds become available, the actual receiving report and\nobligation are entered in the CEFMS and the initial receiving report with no obligation is reversed. More contracts\nwith continuation clauses were recorded in the 4th Quarter, FY 2004 than the 4th Quarter, FY 2005. The USACE\nimplemented a policy change this year requiring approval from Headquarters before awarding a contract with\ncontinuation clauses which resulted in a decrease in these contracts and related liability of $24.3 million.\n\n\nNote Reference\nFor additional line item discussion, see:\nNote 8, Direct Loans and/or Loan Guarantee Programs\nNote 12, Accounts Payable\nNote 13, Debt\nNote 14, Environmental Liabilities and Disposal Liabilities\nNote 15, Other Liabilities\nNote 16, Commitments and Contingencies\nNote 17, Military Retirement Bene\xef\xac\x81ts and Other Employment-Related Actuarial Liabilities\n\nNote 12. Accounts Payable\n 2005 2004\n Accounts Interest, Penalties, and\n As of September 30 Payable Administrative Fees Total Total\n (Amounts in thousands)\n 1. Intragovernmental Payables $ 87,230 $ N/A $ 87,230 $ 103,498\n 2. Non-Federal Payables (to the Public) 535,882 0 535,882 570,255\n 3. Total $ 623,112 $ 0 $ 623,112 $ 673,753\n\n\nOther Information\n\n\n276 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cIntragovernmental Accounts Payable consists of amounts owed to other federal agencies for goods or services\nordered and received, but not yet paid. Interest, penalties and administrative fees are not applicable to\nintragovernmental payables.\n\nThe United States Army Corps of Engineers (USACE) has no known delinquent accounts payable; therefore, no\namount is reported for interest, penalties and administrative fees. For the period ending September 30, 2005, the\nUSACE paid $855.8 thousand in interest from Civil Works appropriations on payments subject to the Prompt\nPayment Act.\n\nThe USACE was able to compare its accounts payable balance with the accounts receivable balances of its intra-\ndepartmental (Department of Defense) trading partners. No material reconciling differences were identi\xef\xac\x81ed.\n\n\nFluctuations\nIntragovernmental Payables: This amount decreased $16.3 million (16 percent). Payables with the General Services\nAdministration (GSA) decreased $13.4 million as a result of more ef\xef\xac\x81cient billing by the GSA. Payables with the\nDepartment of Commerce National Marine Fisheries decreased $5.5 million primarily due to a decrease in the\nUSACE work in the conservation of \xef\xac\x81sheries and waters.\n\n\nNote Reference:\nSee Note Disclosure 1.G. - Signi\xef\xac\x81cant Accounting Policies for additional discussion on \xef\xac\x81nancial reporting\nrequirements and DoD policies governing accounting for Intragovernmental Activities.\n\nNote 13. Debt\n As of September 30 2005 2004\n Beginning Net Ending Ending\n (Amounts in thousands)\n Balance Borrowings Balance Balance\n 1. Agency Debt\n A. Debt to the Treasury $ 15,367 $ (767) $ 14,600 $ 15,367\n B. Debt to the Federal Financing Bank 0 0 0 0\n C. Total Agency Debt $ 15,367 $ ( 767) $ 14,600 $ 15,367\n 2. Total Debt $ 15,367 $ ( 767) $ 14,600 $ 15,367\n\n\nDuring \xef\xac\x81scal years 1997, 1998, and 1999, the USACE executed three promissory notes totaling $75 million with the\nDepartment of the Treasury. Funds provided were used for capital improvements to the Washington Aqueduct.\nArlington County, the city of Falls Church, Virginia, and the District of Columbia provide funding to repay the\ndebt. The District of Columbia repaid the remaining portion of their debt in FY 2004. Cumulative actual drawdown\nof the funds has been made from the Department of the Treasury in the amount of $74.9 million. There were no\ndrawdowns of funds from the Department of the Treasury for the 4th Quarter, FY 2005.\n\n Accrued Interest Payable\n as of September 30, 2005 + Principle Repayments FY05 = Net Borrowings FY05\n $19 thousand $748 thousand $767 thousand\n\nTotal cumulative principal repayments as of September 30, 2005, are $61.8 million.\n\nThe difference between the FY 2004 and FY 2005 ending balance represents FY 2005\xe2\x80\x99s principle repayment plus the\naccrued interest payable amount as of September 30, 2005.\n\n\n\n\n FY 2005 Army Annual Financial Statement 277\n\x0cNote Reference\nSee Note Disclosure 1.G., \xe2\x80\x93 Signi\xef\xac\x81cant Accounting Policies for additional discussion on \xef\xac\x81nancial reporting\nrequirements and DoD policies governing Accounting for Intragovernmental Activities, Public Debt.\n\nSee Note 20 for further discussion on the Washington Aqueduct project.\n\nNote 14. Environmental Liabilities and Disposal Liabilities\n 2005 2004\n As of September 30 Current Liability Noncurrent Liability Total Total\n (Amounts in thousands)\n 1. Environmental Liabilities \xe2\x80\x93 Non Federal\n A. Accrued Environmental Restoration (DERP funded) Costs:\n 1. Active Installations--Environmental Restoration (ER) $ 0 $ 0 $ 0 $ 0\n 2. Active Installations--ER for Closed Ranges 0 0 0 0\n 3. Formerly Used Defense Sites (FUDS) -- ER 0 0 0 0\n 4. FUDS--ER for Transferred Ranges 0 0 0 0\n B. Other Accrued Environmental Costs (Non-DERP funds)\n 1. Active Installations--Environmental Corrective Action 0 0 0 0\n 2. Active Installations--Environmental Closure Requirements 0 0 0 0\n 3. Active Installations--Environ.Response at Active Ranges 0 0 0 0\n 4. Other 0 529,617 529,617 0\n C. Base Realignment and Closure (BRAC)\n 1. BRAC Installations--Environmental Restoration (ER) 0 0 0 0\n 2. BRAC Installations--ER for Transferring Ranges 0 0 0 0\n 3. BRAC Installations--Environmental Corrective Action 0 0 0 0\n 4. Other 0 0 0 0\n D. Environmental Disposal for Weapons Systems Programs\n 1. Nuclear Powered Aircraft Carriers 0 0 0 0\n 2. Nuclear Powered Submarines 0 0 0 0\n 3. Other Nuclear Powered Ships 0 0 0 0\n 4. Other National Defense Weapons Systems 0 0 0 0\n 5. Chemical Weapons Disposal Program 0 0 0 0\n 6. Other 0 0 0 0\n 2. Total Environmental Liabilities: $ 0 $ 529,617 $ 529,617 $ 0\n\n\n\nThe USACE is responsible for the Formerly Utilized Sites Remedial Action Program (FUSRAP), which was\nestablished to respond to radiological contamination from early U.S. atomic energy and weapons program. This\nprogram is funded through Civil Works appropriations.\n\nFuture liabilities for the FUSRAP Program are $529.6 million, where studies and \xef\xac\x81nal Records of Decision\ndocumenting the cleanup requirements have been completed at the following sites: St. Louis Downtown Site\nAccessible Soils, St. Louis Airport Site, Latty Avenue Site, St. Louis Airport Vicinity Properties Site, Maywood Site\nSoils, Middlesex Sampling Plant Soils, Shpack Land\xef\xac\x81ll Site, W. R. Grace Building 23 Site, Luckey Site, and the Linde\nAir Products Site.\n\nThe USACE recognizes future liabilities related to this program but the liability amounts are currently unknown.\n\nThe project sites are: St. Louis Downtown Site Inaccessible Soils, Iowa Army Ammunition Plant FUSRAP site,\nColonie Site, Maywood Site Groundwater, Middlesex Sampling Plant Site Groundwater, Combustion Engineering\nSite, DuPont Chambers Works Site, W. R. Grace Radioactive Waste Disposal Area Site, Seaway Industrial Park\nSite, Niagara Falls Storage Site, Shallow Land Disposal Area Site, Former Harshaw Chemical Company Site, Guterl\nSpecialty Steel Site, and Painesville Site.\n\nDue to the USACE\xe2\x80\x99s signi\xef\xac\x81cant involvement in debris removal, \xef\xac\x82ood control and repair work on the breached\nlevees in the Hurricane Katrina affected areas, effort has not been focused at this time on identifying the potential\nlosses to the USACE assets or liabilities associated with environmental damages. Many areas where the potentially\n\n\n278 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0caffected assets exist are still inaccessible due to \xef\xac\x82ooding. The USACE plans to perform a full assessment of potential\ndamages and liabilities in FY 2006.\n\n\nFluctuations\nLine 1B4. Other Accrued Environmental Costs (Non-DERP funds) increased by $529.6 million (100 percent) due to\nthe fact that the amount of liability for future contingent liabilities for the Formerly Utilized Sites Remedial Action\nProgram was unknown until 4th quarter, FY 2005.\n\nNote 15. Other Liabilities\n 2005 2004\n Current Noncurrent\n As of September 30 Liability Liability Total Total\n (Amounts in thousands)\n 1. Intragovernmental\n A. Advances from Others $ 11,247 $ 0 $ 11,247 $ 10,853\n B. Deposit Funds and Suspense Account Liabilities 594 0 594 472\n C. Disbursing Officer Cash 552 0 552 567\n D. Judgment Fund Liabilities 162,645 0 162,645 153,309\n E. FECA Reimbursement to the Department of Labor 20,172 26,679 46,851 43,745\n F. Other Liabilities 133,570 1,601,436 1,735,006 1,849,681\n G. Total Intragovernmental Other Liabilities $ 328,780 $ 1,628,115 $ 1,956,895 $ 2,058,627\n (Amounts in thousands)\n 2. Nonfederal\n A. Accrued Funded Payroll and Benefits $ 376,600 $ 0 $ 376,600 $ 358,538\n B. Advances from Others 104,775 0 104,775 139,121\n C. Deferred Credits 0 0 0 0\n D. Deposit Funds and Suspense Accounts (2,742) 0 (2,742) 9,272\n E. Temporary Early Retirement Authority 0 0 0 0\n F. Nonenvironmental Disposal Liabilities\n (1) Military Equipment (Nonnuclear) 0 0 0 0\n (2) Excess/Obsolete Structures 0 0 0 0\n (3) Conventional Munitions Disposal 0 0 0 0\n (4) Other 0 0 0 0\n G. Accrued Unfunded Annual Leave 0 0 0 0\n H. Capital Lease Liability 0 0 0 0\n I. Other Liabilities 122,247 0 122,247 139,194\n J. Total Nonfederal Other Liabilities $ 600,880 $ 0 $ 600,880 $ 646,125\n 3. Total Other Liabilities $ 929,660 $ 1,628,115 $ 2,557,775 $ 2,704,752\n\n\nLine 1.D. The Corps of Engineers Civil Works Directorate has recognized 36 unfunded liabilities arising from\nJudgment Fund Contract Disputes Act settlements in accordance with the Interpretation of Federal Financial\nAccounting Standards No. 2, Accounting for Treasury Judgment Fund Transactions. Claims totaling $71.4 million\ndate back to FY 2001 to FY 1992. Claims totaling $32.3 million were incurred from FY 1995 through FY 1997.\nThe remaining claims for $58.9 million were incurred during FY 2000 and thereafter. The USACE cannot fund\nthe Judgment Fund Contract Disputes Act claims since it is funded by project and funding does not include an\nallowance for this type of claim. Therefore, the USACE sought a supplemental appropriation in FY 2000 which was\nnot approved. The USACE has again requested funds in the FY 2006 Civil Works budget to pay the outstanding\nclaims. If the entire amount is not approved, the USACE plans to pay the oldest claims \xef\xac\x81rst and work forward until\nall claims are paid.\n\n\n\n\n FY 2005 Army Annual Financial Statement 279\n\x0cLine 1.E. Federal Employees\xe2\x80\x99 Workman\xe2\x80\x99s Compensation costs re\xef\xac\x82ect cost incurred for income lost and medical\ncosts for federal civilian employees injured on the job, employees who have incurred a work-related occupational\ndisease, and bene\xef\xac\x81ciaries of employees whose death is attributable to a job-related injury or occupational disease.\nThe costs are paid as authorized in the Federal Employees\xe2\x80\x99 Compensation Act (FECA) by the Department of\nLabor. The USACE reimburses the Department of Labor for the costs. The USACE records a liability until the\nreimbursement to the Department of Labor is accomplished. Fiscal year 2006 and beyond costs of $26.7 million are\nre\xef\xac\x82ected as a noncurrent liability.\n\n\nOther Liabilities\nIntragovernmental\nLine 1.F. Intragovernmental other liabilities (current) includes $13.6 million for employer contributions and\npayroll taxes and $120 million to offset interest and accounts receivables which, when collected, will be returned to\nTreasury. Intragovernmental other liabilities (noncurrent) represent future revenue of $1.6 billion from long-term\nwater storage contracts and $1.3 million from hydraulic mining contracts.\n\nNon-federal\nLine 2.I. Non-federal other liabilities include $39.6 million to fund contingent liabilities arising from casualty\nlosses. The amount also includes $56.6 million in contract holdbacks on construction-in-progress payments and $26\nmillion for unfunded liabilities for contracts with continuation clauses. The continuation clause allows contractors\nto continue work without funds being obligated. The amount of the unfunded payable is recorded in the general\nledger when a receiving report is entered in the Corps of Engineers Financial Management System (CEFMS), but\nno obligation is recorded at this time. When funds become available, the actual receiving report and obligation are\nentered in CEFMS and the initial receiving report with no obligation is reversed.\n\nIntragovernmental Reconciliations for Fiduciary Transactions\nWith respect to the major \xef\xac\x81duciary balances with the Of\xef\xac\x81ce of Personnel Management (OPM) and the Department of\nLabor (DOL), the USACE was able to reconcile with the OPM and the DOL. There were no variances.\n\n\nFluctuations\nLine 1.B. Deposit Funds and Suspense Accounts increased this year by $122 thousand (26 percent) due to an\nincrease in foreign currency.\n\nLine 2.B. Non-federal Advances from Others decreased by $34.3 million (25 percent) due to completion of work on\nprojects related to the advances and, in some cases, the return of funds to the customer generally due to a change in\nthe original project plans. Signi\xef\xac\x81cant reductions in advances occurred in the Kansas City, Sacramento and Honolulu\nDistricts as work was completed on projects. The New York and Honolulu Districts returned $12.1 million to\ncustomers.\n\nLine 2.D. Deposit Funds and Suspense Accounts decreased by $12 million (130 percent) due to the reporting of\nunposted intergovernmental collections and disbursements (net) of ($12.2) million in a budget clearing suspense\naccount in FY 2005. The balance of unposted intragovernmental disbursements and collections (net) of ($25.6)\nmillion was reported as Disbursements in Transit in FY 2004. Unposted disbursements exceeded collections\nresulting in an abnormal balance for this budget clearing suspense account in FY 2005.\n\nLine 2.I. Other Non-federal liabilities decreased by $16.9 million (12 percent) due to two factors. There was a\ndecrease of $24.3 million in the liability recorded for contracts with continuation clauses. The USACE implemented\na policy change this year requiring approval from Headquarters before awarding a contract with continuation\nclauses which resulted in a decrease in these contracts and related liability. There was also an increase of $7.8\nmillion in contract holdbacks in the Flood Control and Coastal Emergencies appropriation, the Construction General\nappropriation, and the Rivers and Harbors Contributed and Advance Funds.\n\n\n\n\n280 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNote Reference\nSee Note Disclosure 1.S.-Signi\xef\xac\x81cant Accounting Policies for additional discussion on \xef\xac\x81nancial reporting\nrequirements and DoD policies governing Contingencies and Other Liabilities.\n\n\nCapital Lease Liability\nNot applicable.\n\nNote 16. Commitments and Contingencies\n\nDisclosures Related to Commitments and Contingencies:\nProprietary contingencies are commonly referred to as contingent liabilities. The USACE has 81 cases pending\nlitigation, 66 claims pending in contract claims and appeals, and 341 tort claims in which the relief requested is $2.7\nmillion or more. The USACE Legal Counsel is of the opinion that it is \xe2\x80\x9cremote\xe2\x80\x9d that the outcome of the litigation\nwill result in a loss.\n\nSince these cases fail to satisfy the criteria to record a contingent liability in accordance with the Statement of Federal\nFinancial Accounting Standard No. 5, Accounting for Liabilities of the Federal Government, no amount is included\nin our \xef\xac\x81nancial statements.\n\n\nNote Reference\nSee Note Disclosure 1.S. - Signi\xef\xac\x81cant Accounting Policies for additional discussion on \xef\xac\x81nancial reporting\nrequirements and DoD policies governing Contingencies and Other Liabilities.\n\nNote 17. Military Retirement Bene\xef\xac\x81ts and Other Employment Related Actuarial\n Liabilities\nNot applicable.\n\nNote 18. Disclosures Related to the Statement of Net Cost\n\nConsolidated Statement of Net Cost\nThe Consolidated Statement of Net Cost (SoNC) in the federal government is unique because its principles are\ndriven on understanding the net cost of programs and/or organizations that the federal government supports\nthrough appropriations or other means. This statement provides gross and net cost information that can be related\nto the amount of output or outcome for a given program and/or organization administered by a responsible\nreporting entity.\n\nThe amounts presented in the SoNC are based on obligations, disbursements, and accruals. The United States Army\nCorps of Engineers (USACE) records transactions on an accrual basis as required by generally accepted accounting\nprinciples.\n\n\nFluctuations\nIntragovernmental Gross Costs: The increase of $358 million (35 percent) includes $288.5 million in activity with\nthe Department of the Army. The activity was primarily in the USACE Gulf Region Division for the Iraqi relief and\nreconstruction effort in the Persian Gulf area. The remaining variance includes increases in judgment fund claims,\nemployee bene\xef\xac\x81t expense and imputed costs for health bene\xef\xac\x81ts, life insurance and retirement.\n\n\n\n\n FY 2005 Army Annual Financial Statement 281\n\x0cIntragovernmental Earned Revenue: This amount increased $918 million (74 percent). Reimbursable work\nperformed for the Federal Emergency Management Agency (FEMA) on the hurricane relief effort in Florida totaled\n$740.7 million. The USACE received $848.0 million in funding authority from FEMA to perform numerous missions\nto support those affected by the four hurricanes that struck Florida in the fall of 2004. Work continues on that effort.\nThere was an increase of $241.7 million for reimbursable labor cost for work performed in Iraq for the Department of\nthe Army.\n\nEarned Revenue From the Public: This amount increased $60.8 million (17 percent). An increase of $92.4 million\nis due to programming changes made in the Corps of Engineers Financial Management System (CEFMS) general\nledger correlations for the Revolving Fund. Public revenue was understated in the 4th Quarter, FY 2004 because\nthe CEFMS did not properly update all relevant general ledger accounts. There was a decrease of $34.2 million\nattributed to the decrease in reimbursable activity for the District of Columbia (DC) Public Schools.\n\nNote 19. Disclosures Related to the Statement of Changes in Net Position\n 2005 2005 2004 2004\n Cumulative Cumulative\n Results of Unexpended Results of Unexpended\n As of September 30 Operations Appropriations Operations Appropriations\n (Amounts in thousands)\n 1. Prior Period Adjustments Increases (Decreases)\n to Net Position\n A. Changes in Accounting Standards $ 0 $ 0 $ 0 $ 0\n B. Errors and Omissions in Prior Year Accounting 0 0 0 0\n Reports\n C. Other Prior Period Adjustments 0 0 0 0\n D. Total Prior Period Adjustments $ 0 $ 0 $ 0 $ 0\n 2. Imputed Financing\n A. Civilian CSRS/FERS Retirement $ 97,212 $ 0 $ 102,108 $ 0\n B. Civilian Health 134,320 0 125,990 0\n C. Civilian Life Insurance 397 0 392 0\n D. Judgment Fund 9,652 0 11,058 0\n E. Intra-Entity 0 0 0 0\n F. Total Imputed Financing $ 241,581 $ 0 $ 239,548 $ 0\n\n\nOther USACE Disclosures\nTaxes and Other Nonexchange Revenue include $1.1 billion in tax collections and $84.7 million in interest income\ndeposited into the trust fund accounts. Excise taxes totaling $91.3 million have been deposited into the Inland\nWaterways Trust Fund. Taxes totaling $1 billion have been collected and deposited into the Harbor Maintenance\nTrust Fund. These taxes are derived from:\n\nTax on Exports $18.2 thousand\nTax on Foreign Trade $138 million\nTax on Imports $842 million\nTax on Passengers $8.4 million\nTax on Domestics $60 million\n\nTransfers-in include: $10 million transferred into the South Dakota Terrestrial Wildlife Habitat Restoration Trust\nFund; $687.2 million in budget authority transferred into the Harbor Maintenance Trust Fund from the Department\nof the Treasury; $58 million in budget authority transferred into the Coastal Wetlands Restoration Trust Fund from\nthe Aquatic Resource Trust Fund; and $136.3 million in budget authority transferred into the Inland Waterways\nTrust Fund from the Department of the Treasury.\n\n\n282 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cTransfers-out to other governmental agencies total $19 million. This includes $15.7 million transferred to the Saint\nLawrence Seaway Development Corporation from the Harbor Maintenance Trust Fund. Additional transfers\nfrom the General Fund were transferred as follows: $20 thousand was transferred to the U.S. Department of\nInterior, Bureau of Indian Affairs; $3.2 million was transferred to the U.S. Fish and Wildlife; and $7.7 thousand was\ntransferred to the U.S. Geological Survey.\n\nTransfers-out to Non-USACE total $34.2 thousand, which is a transfer to the 425th Engineering Detachment.\n\n\nFluctuations\nFootnotes:\n\nLine 2D. Imputed Financing \xe2\x80\x93 Judgment Fund: The amount of Judgment Fund claims, paid by the Department of\nthe Treasury, decreased by $1.4 million (13 percent) for the 4th Quarter, FY 2005.\n\n\nStatement of Changes in Net Position\nCumulative Results of Operations:\nLine 4E. Budgetary Financing Sources \xe2\x80\x93 Nonexchange revenue: The overall $198.2 million (14 percent) increase\nin Budgetary Financing Sources \xe2\x80\x93 nonexchange revenue is due to \xef\xac\x82uctuation in taxes for Harbor Maintenance and\nInland Waterways Trust Funds and interest for Harbor Maintenance, Inland Waterways, and South Dakota Trust\nFunds. The USACE is the lead agency for reporting Inland Waterways, Harbor Maintenance, and South Dakota\nTrust Funds. Interest on investments (cash) increased 4th Quarter, FY 2005, by a total of $24.4 million, for all three\ntrust funds. Tax revenue collected from Harbor Maintenance and Inland Waterways Trust Funds has increased by\n$178.6 million. South Dakota does not have tax revenue.\n\nLine 4H. Budgetary Financing Sources \xe2\x80\x93 Other budgetary \xef\xac\x81nancing sources: The decrease of $4.2 million (107\npercent) in other budgetary \xef\xac\x81nancing sources is due to a change in reporting procedures for General, Revolving, and\nTransfer Funds. General and Revolving Funds now record USSGL accounts 7190 and 7290, Other Gains and Losses,\non the Statement of Financing instead of the Statement of Changes in Net Position. Also, transfer appropriations are\nno longer treated as appropriations received. They are treated as transfers.\n\nLine 5A. Other Financing Sources \xe2\x80\x93 Donations and forfeitures of property: There is an overall $1.1 million (243\npercent) increase in donations and forfeitures of property for the 4th Quarter, FY 2005. General Funds has the\nlargest increase, with the Wilmington District reporting a $664 thousand increase in donated land tracts and a $259\nthousand increase in donated property with the Omaha District. The increase was caused by tracts of land which\nwere acquired in prior years by the donation method and re\xef\xac\x82ected nominal or zero costs. The USACE obtained fair\nmarket value for the donated land tracts and updated its \xef\xac\x81nancial records for the 4th Quarter, 2005.\n\nLine 5B. Other Financing Sources \xe2\x80\x93 Transfers-in/out without reimbursement: Transfers-in/out without\nreimbursement has a $1.4 million (87 percent) difference between the 4th Quarter, FY 2005, and the 4th Quarter,\nFY 2004. This is due primarily to the fact that there have been no material transfers-in this \xef\xac\x81scal year. Last year\nthe USACE received a transfer-in of $2.1 million from the Western Area Power Administration which offset the\ntransfers-out. Therefore, transfers-in have decreased by $1.9 million.\n\nLine 5D. Other Financing Sources \xe2\x80\x93 Other: The overall $169 thousand (30 percent) increase to Other Financing\nSources \xe2\x80\x93 Other, has been caused by several factors. General Funds is now recording USSGL accounts 5900 and 5909\nto distributed offsetting receipts, which updates line 4 on the Net Position, instead of line 5. In the 4th Quarter, FY\n2004, the net amount of other revenue was $1.4 million. The amount is zero for the 4th Quarter, 2005, in General\nFunds. There is a $1.2 million decrease in Borrowing Authority due to the District of Columbia, Water and Sewer\nAuthority electing to prepay their debt. Therefore, all their remaining Treasury borrowing was repaid in the 2nd\nQuarter, FY 2004. This created a larger than normal principal repayment.\n\n\n\n\n FY 2005 Army Annual Financial Statement 283\n\x0cUnexpended Appropriations:\nLines 1, 2B & 3. Beginning Balances and Prior period adjustments: The overall $240.5 million (38 percent) decrease\nin the beginning balance is due to General and Transfer Funds reporting some funds transferred-in as \xef\xac\x81nances from\nother sources rather than appropriated funds. This change began in 4th Quarter, FY 2004. Finances from other\nsources do not update the USSGL 3100 series, Unexpended Appropriations.\n\nLine 4A. Budgetary Financing Sources \xe2\x80\x93 Appropriations received: The $775.4 million (20 percent) increase in\nAppropriations Received is due to an increase in funding from the Energy and Water Development Appropriations\nAct. General Funds has an increase of $750.4 million and Formerly Utilized Sites Remedial Action Program\n(FUSRAP) has an increase of $25 million.\n\nLine 4B. Budgetary Financing Sources \xe2\x80\x93 Appropriations transferred-in/out: Appropriations transferred-in/out has\na net $9.2 million (50 percent) increase. Transfer Funds has received $9.7 million more in transfers-in/out from the\nDepartment of Interior for the 4th Quarter, FY 2005, compared to the 4th Quarter, FY 2004. The Jacksonville District\nreceived the increased funding for construction from the Department of Interior, National Park Service.\n\nLine 4C. Budgetary Financing Sources \xe2\x80\x93 Other adjustments (rescissions, etc): The $4 million (12 percent) increase\nto Budgetary Financing Sources - Other adjustments is due to several factors. General Funds and Formerly Utilized\nSites Remedial Action Program (FUSRAP) are reporting increases in rescission amounts for the 4th Quarter, 2005.\nGeneral Funds has an increase of $11 million and FUSRAP has an increase of $494 thousand. There is a decrease of\n$7.1 million in Transfer funds for the 4th Quarter, FY 2005. In the 4th Quarter, 2004, USSGL account 3106 was used\nto adjust the beginning balance in Transfer Funds of appropriations receiving \xe2\x80\x9cfunding from other sources\xe2\x80\x9d.\n\n\nNote Reference\nFor regulatory disclosure related to the Statement of Changes in Net Position, see the Department of Defense\nFinancial Management Regulation, Volume 6B, Chapter 10, paragraph 1022.\n\nNote 20. Disclosures Related to the Statement of Budgetary Resources\n As of September 30 2005 2004\n (Amounts in thousands)\n\n 1. Net Amount of Budgetary Resources Obligated for Undelivered\n Orders at the End of the Period $ 2,419,101 $ 1,628,052\n 2. Available Borrowing and Contract Authority at the End of the Period 0 30,445\n\n\nOther Information:\nIntraentity Transactions\nThe Statement of Budgetary Resources (SBR) does not include intraentity transactions because the statements are\npresented as combined and combining.\n\nApportionment Categories\nThe amount of direct and reimbursable obligations incurred against amounts apportioned under Category A in the\nSBR includes: $5.7 billion for direct; $29 million for direct obligations exempt from apportionment; $6.9 billion for\nreimbursable obligations; and $1 million for reimbursable obligations exempt from apportionment. The U.S. Army\nCorps of Engineers (USACE) has no apportionments under Category B.\n\nUndelivered Orders\nUndelivered Orders presented in the SBR include Undelivered Orders-Unpaid for both direct and reimbursable\nfunds.\n\n\n\n\n284 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cBorrowing Authority\nBorrowing authority is for capital improvements to the Washington Aqueduct. Funding to repay the debt is\nprovided by Arlington County, Virginia, and Falls Church, Virginia.\n\n\nFluctuations\nNote 20, Line 1 \xe2\x80\x93 The vast majority of the $791 million (48 percent) variance is due to $744 million of undelivered\norders in General Funds, of which $587 million is in the Flood Control and Coastal Emergencies appropriation.\nRevolving Fund has $31 million in undelivered orders and Transfers Funds has $12 million.\n\nNote 20, Line 2 \xe2\x80\x93 The $30 million (100 percent) variance is due to receipt in full of borrowing authority.\n\n\nSBR Fluctuations\nAppropriations received - The majority of the increase of $846.7 million (16 percent) is due to General Funds\nreceiving $717 million more in appropriated funds in FY 2005 than FY 2004. The Flood Control and Coastal\nEmergencies appropriation alone received an increase of $343 million for hurricane relief efforts on the Gulf Coast.\nThere was also an increase of $74 million in the Department of the Treasury\xe2\x80\x99s receipts unavailable for obligation\nin FY 2005. The USACE records the Department of the Treasury\xe2\x80\x99s portion of funds in the Defense Departmental\nReporting System (DDRS). There was an increase of $25 million to the USACE Pollution Control & Abatement\nappropriation and a $1 million increase in Special Funds.\n\nBorrowing authority - Re\xef\xac\x82ects a variance of $135 thousand (100 percent) due to receipt in full of borrowing\nauthority.\n\nNet transfers \xe2\x80\x93 The variance of $58 million (28 percent) is due to a change in the recording of nonexpenditure\ntransfers (SF ll51\xe2\x80\x99s) in General Funds. In FY 2004, $41 million was recorded in the U.S. Standard General Ledger\n(USSGL) 4119 vice 4175 for transfers-in from Special Funds. Also in FY 2005, Transfer Funds received $19 million\nmore than in FY 2004 and Special Funds $2 million less.\n\nUnobligated balance: Net transfers, actual (+/-) \xe2\x80\x93 The decrease of $36 million (126 percent) is due to transactions\nrecorded in the Transfer Funds. Receivables valued at $35.6 million were recorded at year-end FY 2004 from the\nDepartment of Transportation (DOT) and the Department of Energy (DOE). At the beginning of FY 2005, DOT and\nDOE reapportioned excess prior year money and recorded as new authority. In FY 2005, the USACE transferred out\nthe receivable of prior year budget authority and recorded as current year budget authority to reconcile with DOT\nand DOE.\n\nSpending authority from offsetting collections \xe2\x80\x93 The increase in collections of $1.3 million (24 percent) and\ndecrease in receivable of $53 million (82 percent) is due to collections and receivables in the Flood Control and\nCoastal Emergencies appropriation for hurricane relief efforts and operations in the Gulf Region Division in Iraq.\nCollections increased $846 million in General Funds and $416 million in Revolving Fund. Receivables decreased $71\nmillion in General Funds and increased $18.6 million in Revolving fund.\n\nChange in un\xef\xac\x81lled customer orders \xe2\x80\x93 Un\xef\xac\x81lled customer orders with advance decreased by $63.9 million (215\npercent) in FY 2005 due to an increase in General Funds of $64.3 million and an increase in Revolving Fund of $11.3\nmillion. Un\xef\xac\x81lled customer orders without advance from Federal sources increased by $3 billion (1,113 percent) in\nGeneral Funds primarily in the Flood Control and Coastal Emergencies appropriation due to the hurricane relief\nwork.\n\nPermanently not available \xe2\x80\x93 The variance of $9.2 million (32 percent) is due to an increase of budget authority\nrescission of $10 million in General Funds and $500 thousand in Formerly Utilized Sites Remedial Action Program\n(FUSRAP) appropriation. Also, repayment of debt in Borrowing Authority decreased by $1.2 million.\n\nObligations incurred, Reimbursable \xe2\x80\x93 The increase of $1.4 billion (26 percent) is primarily in General and Revolving\n\n\n FY 2005 Army Annual Financial Statement 285\n\x0cFunds. The increase in General Funds of $1.1 billion is due to the activity in the South Atlantic region for hurricane\nrelief efforts. The increase in Revolving Fund of $319 million is associated with the Gulf Region Division in Iraq.\n\nUnobligated balance apportioned \xe2\x80\x93 The variance of $3.2 billion (258 percent) is an increase in the unobligated\nbalance in the Flood Control and Coastal Emergencies appropriation.\n\nUnobligated balance exempt from apportionment \xe2\x80\x93 The variance of $123 thousand (27 percent) is due to an increase\nin the Civil Work, Operation and Maintenance appropriation for $45 million from Bonneville Power Administration;\nRevolving Fund for $34 million; and Trust Funds for $34 million.\n\nUnobligated balances not available \xe2\x80\x93 The decrease of $8 thousand (12 percent) is the result of the return of expired\nfunds to the Agency for International Development.\n\nObligated balance, net\xe2\x80\x93end of period - The increase of $3.3 billion (173 percent) in un\xef\xac\x81lled customer orders from\nFederal sources and the increase of $839 thousand (41 percent) in undelivered orders is in the Flood Control and\nCoastal Emergencies appropriation. This increase is due to recovery work performed in the New Orleans and\nVicksburg Districts in support of the hurricane relief effort.\n\nOutlays \xe2\x80\x93 The increase in disbursements of $1.2 billion (11 percent) and the increase in collections of $1.2 billion\n(23 percent) is due to an increase of disbursements in General Funds of $839 million and in Revolving Fund of $263\nmillion; and an increase of collections in General Fund of $784 million and Revolving Fund of $414 million. The\nincrease in activity is due to the hurricane relief effort in the Gulf Coast and operations in the Gulf Region Division\nin Iraq.\n\nNote 21. Disclosures Related to the Statement of Financing\nIntra-entity transactions have not been eliminated because the Statement of Financing is presented as combined and\ncombining.\n\n\nResources Used to Finance Activities:\nObligations incurred: Obligations incurred increased by $1.6 billion (14 percent). The increase in obligations\noccurred in the General and Revolving Funds. The increase in the General Fund is due to an increase in obligations\nin the Flood Control and Coastal Emergencies appropriation for hurricanes in the Louisiana, Mississippi and Texas\nGulf Coast in 2005. The increase in the Revolving Fund is associated with the Gulf Region Division in Iraq.\n\nLess: Spending authority from offsetting collections: This amount increased by $4.2 billion (75 percent) due\nprimarily to an increase in collections and receivables in the Flood Control and Coastal Emergencies appropriation.\nAgain, this increase is related to recovery work for hurricane damage in 2004 and the most recent hurricanes in 2005.\nCustomer orders increased by $3.2 billion for work related to the hurricanes. Collections increased by $915.7 million\nrelated to 2004 hurricane recovery work.\n\n\nOther Resources\nDonations and forfeitures of property: Donations and forfeitures of property increased by $1 million (243 percent)\ndue primarily to corrections to the fair market value of land tracts donated in prior years. The land tracts were\ninitially recorded with no or nominal value rather than fair market value. The Wilmington and Omaha Districts\nmade corrections for $664 thousand and $258.9 thousand respectively.\n\nTransfers in/out without reimbursement: Net transfers in and out increased by $1.4 million (87 percent) due\nprimarily to a decrease in the amount of transfers-in. Transfers- in decreased by $1.9 million. Last year the\nU.S. Army Corps of Engineers (USACE) received a transfer-in of $2.1 million from the Western Area Power\nAdministration. There were no material transfers-in this \xef\xac\x81scal year.\n\n\n286 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cOther: Other resources increased by $169 thousand (29 percent). Undistributed offsetting receipts net of the contra\naccount, collections for others, were previously reported as other resources on the Statement of Financing but are\nnow only reported on the Statement of Changes in Net Position. In addition, there was a decrease of $1.2 million in\nthe amount of collections for repayment of the debt for repairs to the Washington Aqueduct.\n\n\nResources Used to Finance Items not Part of the Cost of Operations:\nUndelivered Orders: The change in undelivered orders increased by $438.4 million (110 percent) due to three\nfactors. There was an increase in undelivered orders in the Flood Control and Coastal Emergencies appropriation\ndue to recovery work for hurricane damage to the Louisiana, Mississippi, and Texas Gulf Coast in 2005.\nUndelivered orders also increased in the Construction General appropriation due to a variety of projects. There\nwas also a change in undelivered orders in the Coastal Wetlands Restoration Trust Fund related to environmental\nprojects in the New Orleans District.\n\nUn\xef\xac\x81lled Customer Orders: The change in un\xef\xac\x81lled customer orders increased by $3 billion (983 percent) due to an\nincrease in un\xef\xac\x81lled customer orders in the Flood Control and Coastal Emergencies appropriation for hurricane\ndamage that occurred to the Louisiana, Mississippi, and Texas Gulf Coast in 2005.\n\nResources that fund expenses recognized in prior periods: Resources that fund expenses recognized in prior\nperiod decreased by $29.4 million (53 percent) and is mostly attributed to the decrease in future funded expense for\ncontracts with continuation clauses. The amount of future funded expense associated with the liability for contracts\nwith continuation clauses decreased by $24.3 million in FY 2005. The USACE implemented a policy change this\nyear requiring approval from Headquarters before awarding contracts with continuation clauses which resulted in\na decrease in these contracts and related liabilities. The change also re\xef\xac\x82ects the payment of judgment fund claims in\nFY 2005 for $1.8 million.\n\nResources that \xef\xac\x81nance the acquisition of assets: Resources that \xef\xac\x81nance the acquisition of assets decreased by\n$1.7 billion (99 percent) due to a change in the methodology by the USACE to record current year purchases of\ncapitalized assets to comply with the Of\xef\xac\x81ce of Management and Budget Bulletin 01-09, Form and Content and\nTreasury\xe2\x80\x99s Cost Capitalization Offset, policy and procedures. The major change for reporting on this line this\n\xef\xac\x81scal year is to exclude costs associated with construction-in-process (CIP) accounts as current year purchases of\ncapitalized assets. These costs are now recognized as part of the Cost Capitalization Offset account.\n\n\nComponents of the Net Cost of Operations that will not Require or Generate Resources in the Current Period:\nComponents Requiring or Generating Resources in Future Period:\nIncrease in exchange revenue receivable from the public: The exchange revenue receivable from the public changed\nby $34 thousand (100 percent). This amount was identi\xef\xac\x81ed and reported due to programming changes in the\nRevolving Fund in FY 2005. This amount was not reported in the past.\n\nOther: Other components requiring resources in future periods increased by $489.9 million (961 percent) due to\nthe recognition of future contingent liabilities for the Formerly Utilized Sites Remedial Action Program for $529.6\nmillion. This amount was offset by a reduction in the amount of future funded expense associated with the liability\nfor contracts with continuation clauses. The amount of the liability for contracts with continuation clauses reported\nfor FY 2004 was $50.3 million but decreased by $24.3 million in FY 2005 to $26 million. The USACE implemented a\npolicy change this year requiring approval from Headquarters before awarding contracts with continuation clauses\nwhich resulted in a decrease in these contracts and related liabilities. The USACE also recorded new judgment fund\nclaims for $11.1 million in FY 2005.\n\nComponents not Requiring or Generating Resources:\nDepreciation and amortization: Depreciation expense decreased by $1.2 billion (50 percent). Depreciation expense\ndecreased by $1.7 billion in the Flood Control, Mississippi River Tributaries appropriation, but was offset by an\nincrease in depreciation expense of $512.5 million in the Construction, General, and Operation and Maintenance\nappropriations. The New Orleans, Vicksburg and St. Louis Districts adjusted depreciation expense to fully\ndepreciate all revetments already placed in service by the end of FY 2004 in the Flood Control, Mississippi River\n\n\n FY 2005 Army Annual Financial Statement 287\n\x0cTributaries appropriation. The increase in depreciation expense for the Construction, General, and Operations and\nMaintenance appropriations is due primarily to depreciation adjustments. Adjustments were made to change the\nservice life years of real property assets, to change the placed-in-service dates for some assets and to adjust for errors\nin depreciation for Additions and Betterments.\n\nRevaluation of assets or liabilities: The revaluation of assets increased by $1.9 billion (227 percent) due to several\nfactors. Losses on the disposition of assets and capital investments increased by approximately $969 million in\nFY 2005. The USACE made large adjustments to write-off bank stabilization projects and revetments that were\nimproperly capitalized. Losses in the Vicksburg District alone increased by $530.4 million due to the write-off of\nthe bank stabilization projects and revetments. The USACE also recognized losses for land, buildings and other\nstructures that were leased for non-monetary or nominal amounts to non-Federal entities for public parks, recreation\nareas and \xef\xac\x81sh and wildlife management areas. The USACE treated the leases as \xe2\x80\x9coperating leases\xe2\x80\x9d and maintained\nthe assets on its \xef\xac\x81nancial records. Because the lease periods equaled or exceeded the useful lives of the assets, the\nassets are now considered donations and were written-off. These losses were offset by a gain of $47.1 million for a\nfound-on-works inventory adjustment made in FY 2005. Found-on-works inventory was previously recorded as an\ninventory allowance account in error. A reversing entry was made for $981.7 million in FY 2004 for the write-off\nof non-federal cost share projects recognized in FY 2003. In the past, non-federal cost share projects were recorded\nas construction-in-process. When the projects were completed, they were transferred to the public and a loss was\nrecorded. Due to a policy change implemented in FY 2004, costs associated with non-federal cost share projects are\nreported as expenses rather than losses.\n\nOther \xe2\x80\x93 Costs of Goods Sold: Costs of goods sold increased by $2.8 million (100 percent) and is associated with the\nsale of assets in the revolving fund. This was not reported in the prior \xef\xac\x81scal year.\n\nOther: Other components not requiring or generating resources decreased by $3.2 billion (124 percent). The\ndecrease is due primarily to other expenses not requiring budgetary resources. In FY 2004 the USACE recognized\nexpenses not requiring budgetary resources to write-off non-federal cost share projects for $909.8 million. In\naddition, current year expenses for construction-in-process accounts for $1.7 billion were reclassi\xef\xac\x81ed to other\nexpenses not requiring budgetary resources. In FY 2005 other expenses not requiring budgetary resources decreased\ndue to the reversal of the prior year entry of $909.8 million for the write-off of non-federal cost share projects. This\nexpense was recognized in the Defense Departmental Reporting System but not in the Corps of Engineers Financial\nManagement System (CEFMS) in FY 2004. The expense has since been recorded in CEFMS as an operating expense\nor to the Cost Capitalization Offset account. The USACE expensed an additional $97 million in FY 2005 to write-off\nnon-federal cost share projects. Other expenses not requiring budgetary resources has an abnormal balance due\nto the reversal of the prior year expense of $909.8 million. Current year net expenses related to construction-in-\nprocess (CIP) accounts decreased signi\xef\xac\x81cantly from $1.7 billion to $169.7 million. The accounting treatment also\nchanged in FY 2005 to record costs associated with the CIP accounts to the Cost Capitalization Offset account. The\nCost Capitalization Offset account has an abnormal balance due to the large amount of costs moved from CIP to this\naccount.\n\nNote 22. Disclosures Related to the Statement of Custodial Activity\nNot applicable.\n\nNote 23. Other Disclosures\nNot applicable.\n\nDuring FY 2005, the USACE received $72.9 million in direct appropriations from the Power Marketing\nAdministration.\n\n\n\n\n288 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cFY 2005 Army Annual Financial Statement 289\n\x0cDepartment of Defense - US Army Corps of Engineers\nCONSOLIDATING BALANCE SHEET\nAs of September 30, 2005 and 2004 ($ in Thousands)\n Borrowing\n Special Funds Trust Funds Transfer Funds Authority\n\xc2\xac\xc2\xac\xc2\xacASSETS\xc2\xac(Note\xc2\xac2)\n Intragovernmental:\n Fund Balance with Treasury (Note 3)\n Entity $ 1,920 $ 86,885 $ 38,123 $ 2\n Non-Entity Seized Iraqi Cash 0 0 0 0\n Non-Entity-Other 0 0 0 0\n Investments (Note 4) 0 3,127,832 0 0\n Accounts Receivable (Note 5) 0 386,683 45,919 0\n Other Assets (Note 6) 0 0 0 0\n Total Intragovernmental Assets $ 1,920 $ 3,601,400 $ 84,042 $ 2\n Cash and Other Monetary Assets (Note 7) $ 0 $ 0 $ 0 $ 0\n Accounts Receivable (Note 5) 1,870 0 0 0\n Loans Receivable (Note 8) 0 0 0 0\n Inventory and Related Property (Note 9) 0 0 352 0\n General Property, Plant and Equipment (Note 10) 1,465 754,862 329,931 0\n Investments (Note 4) 0 0 0 0\n Other Assets (Note 6) 0 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacASSETS $ 5,255 $ 4,356,262 $ 414,325 $ 2\n\n\xc2\xac\xc2\xac\xc2\xacLIABILITIES\xc2\xac(Note\xc2\xac11)\n Intragovernmental:\n Accounts Payable (Note 12) $ 2 $ 18,136 $ 939 $ 0\n Debt (Note 13) 0 0 0 14,600\n Other Liabilities (Note 15 & Note 16) 1,870 6,000 0 0\n Total Intragovernmental Liabilities $ 1,872 $ 24,136 $ 939 $ 14,600\n Accounts Payable (Note 12) $ 1,112 $ 6,671 $ 12,354 $ 0\n Military Retirement Benefits and\n Other Employment-Related 0 0 0 0\n Actuarial Liabilities (Note 17)\n Environmental Liabilities (Note 14) 0 0 0 0\n Loan Guarantee Liability (Note 8) 0 0 0 0\n Other Liabilities (Note 15 and Note 16) 26 574 3,154 0\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES $ 3,010 $ 31,381 $ 16,447 $ 14,600\n\n\xc2\xac\xc2\xac\xc2\xacNET\xc2\xacPOSITION\n Unexpended Appropriations $ 0 $ 0 $ 23,142 $ 0\n Cumulative Results of Operations 2,245 4,324,881 374,736 (14,598)\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacNET\xc2\xacPOSITION $ 2,245 $ 4,324,881 $ 397,878 $ (14,598)\n\n\xc2\xac\xc2\xac\xc2\xacTOTAL\xc2\xacLIABILITIES\xc2\xacAND\xc2\xacNET\xc2\xacPOSITION $ 5,255 $ 4,356,262 $ 414,325 $ 2\n\n\n\n\n290 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Revolving Contributed General Combined 2005 2004\n Funds Funds Funds FUSRAP Total Eliminations Consolidated Consolidated\n\n\n\n\n$ 965,552 $ 467,176 $ 1,536,365 $ 42,178 $ 3,138,201 $ 0 $ 3,138,201 $ 2,378,442\n 0 0 0 0 0 0 0 0\n 0 0 7,849 0 7,849 0 7,849 8,245\n 0 0 0 0 3,127,832 0 3,127,832 2,741,917\n 18,080 0 163,676 0 614,358 454 613,904 520,123\n 0 0 0 0 0 0 0 0\n$ 983,632 $ 467,176 $ 1,707,890 $ 42,178 $ 6,888,240 $ 454 $ 6,887,786 $ 5,648,727\n$ 0 $ 0 $ 1,147 $ 0 $ 1,147 $ 0 $ 1,147 $ 1,039\n 1,348 22 1,747,683 2 1,750,925 0 1,750,925 1,906,435\n 0 0 0 0 0 0 0 0\n 87,808 0 29,224 0 117,384 0 117,384 61,815\n 837,296 13,176 24,843,372 0 26,780,102 0 26,780,102 28,448,517\n 0 0 0 0 0 0 0 0\n 0 0 0 0 0 0 0 0\n$ 1,910,084 $ 480,374 $ 28,329,316 $ 42,180 $ 35,537,798 $ 454 $ 35,537,344 $ 36,066,533\n\n\n\n\n$ 38,337 $ 184 $ 29,937 $ 149 $ 87,684 $ 454 $ 87,230 $ 103,498\n 0 0 0 0 14,600 0 14,600 15,367\n 13,821 3,886 1,931,318 0 1,956,895 0 1,956,895 2,058,627\n$ 52,158 $ 4,070 $ 1,961,255 $ 149 $ 2,059,179 $ 454 $ 2,058,725 $ 2,177,492\n$ 74,043 $ 15,753 $ 394,223 $ 31,726 $ 535,882 $ 0 $ 535,882 $ 570,255\n\n 0 0 0 0 0 0 0 0\n\n 0 0 0 529,617 529,617 0 529,617 0\n 0 0 0 0 0 0 0 0\n 455,175 6,133 135,788 30 600,880 0 600,880 646,125\n$ 581,376 $ 25,956 $ 2,491,266 $ 561,522 $ 3,725,558 $ 454 $ 3,725,104 $ 3,393,872\n\n\n\n$ 0 $ 0 $ 972,428 $ 10,273 $ 1,005,843 $ 0 $ 1,005,843 $ 396,362\n 1,328,708 454,418 24,865,622 (529,615) 30,806,397 0 30,806,397 32,276,299\n$ 1,328,708 $ 454,418 $ 25,838,050 $ (519,342) $ 31,812,240 $ 0 $ 31,812,240 $ 32,672,661\n\n$ 1,910,084 $ 480,374 $ 28,329,316 $ 42,180 $ 35,537,798 $ 454 $ 35,537,344 $ 36,066,533\n\n\n\n\n FY 2005 Army Annual Financial Statement 291\n\x0cDepartment of Defense - US Army Corps of Engineers\nCONSOLIDATING STATEMENT OF NET COST\nAs of September 30, 2005 and 2004 ($ in Thousands)\n Combined 2005 2004\n Total Eliminations Consolidated Consolidated\n\xc2\xac\xc2\xac\xc2\xacProgram\xc2\xacCosts\nA.\xc2\xacBorrowing\xc2\xacAuthority\n Intragovernmental Gross Costs $ 467 $ 0 $ 467 $ 241\n (Less: Intragovernmental Earned Revenue) 0 0 0 0\n Intragovernmental Net Costs $ 467 $ 0 $ 467 $ 241\n Gross Costs With the Public $ 725 $ 0 $ 725 $ 2,110\n (Less: Earned Revenue From the Public) (1,187) 0 (1,187) (2,261)\n Net Costs With the Public $ (462) $ 0 $ (462) $ (151)\n Total Net Cost $ 5 $ 0 $ 5 $ 90\nB.\xc2\xacContributed\xc2\xacFunds\n Intragovernmental Gross Costs $ 34,625 $ 25,460 $ 9,165 $ 10,983\n (Less: Intragovernmental Earned Revenue) 0 0 0 0\n Intragovernmental Net Costs $ 34,625 $ 25,460 $ 9,165 $ 10,983\n Gross Costs With the Public $ 306,977 $ 0 $ 306,977 $ 336,036\n (Less: Earned Revenue From the Public) 0 0 0 (1)\n Net Costs With the Public $ 306,977 $ 0 $ 306,977 $ 336,035\n Total Net Cost $ 341,602 $ 25,460 $ 316,142 $ 347,018\nC.\xc2\xacFUSRAP\n Intragovernmental Gross Costs $ 16,558 $ 14,049 $ 2,509 $ 2,510\n (Less: Intragovernmental Earned Revenue) 0 0 0 0\n Intragovernmental Net Costs $ 16,558 $ 14,049 $ 2,509 $ 2,510\n Gross Costs With the Public $ 670,837 $ 0 $ 670,837 $ 122,458\n (Less: Earned Revenue From the Public) 0 0 0 0\n Net Costs With the Public $ 670,837 $ 0 $ 670,837 $ 122,458\n Total Net Cost $ 687,395 $ 14,049 $ 673,346 $ 124,968\nD.\xc2\xacGeneral\xc2\xacFunds\n Intragovernmental Gross Costs $ 1,294,689 $ 997,330 $ 297,359 $ 297,547\n (Less: Intragovernmental Earned Revenue) (1,331,070) (27,752) (1,303,318) (609,393)\n Intragovernmental Net Costs $ (36,381) $ 969,578 $ (1,005,959) $ (311,846)\n Gross Costs With the Public $ 5,917,921 $ 0 $ 5,917,921 $ 6,063,017\n (Less: Earned Revenue From the Public) (226,448) 0 (226,448) (281,571)\n Net Costs With the Public $ 5,691,473 $ 0 $ 5,691,473 $ 5,781,446\n Total Net Cost $ 5,655,092 $ 969,578 $ 4,685,514 $ 5,469,600\nE.\xc2\xacRevolving\xc2\xacFunds\n Intragovernmental Gross Costs $ 1,027,687 $ 500 $ 1,027,187 $ 680,145\n (Less: Intragovernmental Earned Revenue) (1,903,491) (1,054,010) (849,481) (625,412)\n Intragovernmental Net Costs $ (875,804) $ (1,053,510) $ 177,706 $ 54,733\n Gross Costs With the Public $ 1,175,470 $ 0 $ 1,175,470 $ 1,392,422\n (Less: Earned Revenue From the Public) (193,475) 0 (193,475) (78,520)\n Net Costs With the Public $ 981,995 $ 0 $ 981,995 $ 1,313,902\n Total Net Cost $ 106,191 $ (1,053,510) $ 1,159,701 $ 1,368,635\n\n\n\n\n292 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Combined 2005 2004\n Total Eliminations Consolidated Consolidated\nF.\xc2\xacSpecial\xc2\xacFunds\n Intragovernmental Gross Costs $ 2,529 $ 2,004 $ 525 $ 314\n (Less: Intragovernmental Earned Revenue) 0 0 0 0\n Intragovernmental Net Costs $ 2,529 $ 2,004 $ 525 $ 314\n Gross Costs With the Public $ 13,714 $ 0 $ 13,714 $ 12,850\n (Less: Earned Revenue From the Public) 0 0 0 0\n Net Costs With the Public $ 13,714 $ 0 $ 13,714 $ 12,850\n Total Net Cost $ 16,243 $ 2,004 $ 14,239 $ 13,164\nG.\xc2\xacTransfer\xc2\xacFunds\n Intragovernmental Gross Costs $ 43,471 $ 35,386 $ 8,085 $ 5,971\n (Less: Intragovernmental Earned Revenue) 0 0 0 0\n Intragovernmental Net Costs $ 43,471 $ 35,386 $ 8,085 $ 5,971\n Gross Costs With the Public $ 75,534 $ 0 $ 75,534 $ 35,596\n (Less: Earned Revenue From the Public) (5,972) 0 (5,972) (5,610)\n Net Costs With the Public $ 69,562 $ 0 $ 69,562 $ 29,986\n Total Net Cost $ 113,033 $ 35,386 $ 77,647 $ 35,957\nH.\xc2\xacTrust\xc2\xacFunds\n Intragovernmental Gross Costs $ 40,520 $ 7,032 $ 33,488 $ 23,056\n (Less: Intragovernmental Earned Revenue) 0 0 0 0\n Intragovernmental Net Costs $ 40,520 $ 7,032 $ 33,488 $ 23,056\n Gross Costs With the Public $ 721,320 $ 0 $ 721,320 $ 694,248\n (Less: Earned Revenue From the Public) (1,696) 0 (1,696) 0\n Net Costs With the Public $ 719,624 $ 0 $ 719,624 $ 694,248\n Total Net Cost $ 760,144 $ 7,032 $ 753,112 $ 717,304\nI.\xc2\xacTotal\xc2\xacProgram\xc2\xacCosts\n Intragovernmental Gross Costs $ 2,460,546 $ 1,081,761 $ 1,378,785 $ 1,020,767\n (Less: Intragovernmental Earned Revenue) (3,234,561) (1,081,762) (2,152,799) (1,234,805)\n Intragovernmental Net Costs $ (774,015) $ (1) $ (774,014) $ (214,038)\n Gross Costs With the Public $ 8,882,498 $ 0 $ 8,882,498 $ 8,658,737\n (Less: Earned Revenue From the Public) (428,778) 0 (428,778) (367,963)\n Net Costs With the Public $ 8,453,720 $ 0 $ 8,453,720 $ 8,290,774\n Total Net Cost $ 7,679,705 $ (1) $ 7,679,706 $ 8,076,736\n\xc2\xac\xc2\xac\xc2\xacCost\xc2\xacNot\xc2\xacAssigned\xc2\xacto\xc2\xacPrograms $ 0 $ 0 $ 0 $ 0\n (Less:Earned\xc2\xacRevenue\xc2\xacNot\xc2\xacAttributable\n 0 0 0 0\n to\xc2\xacPrograms)\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations $ 7,679,705 $ (1) $ 7,679,706 $ 8,076,736\n\n\n\n\n FY 2005 Army Annual Financial Statement 293\n\x0cDepartment of Defense - US Army Corps of Engineers\n CONSOLIDATING STATEMENT OF CHANGES IN NET POSITION\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Special Funds Trust Funds Transfer Funds\nCUMULATIVE\xc2\xacRESULTS\xc2\xacOF\xc2\xacOPERATIONS\n Beginning\xc2\xacBalances $ 4,277 $ 3,823,601 $ 310,673\n Prior Period Adjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0 0\n Correction of Errors (+/-) 0 0 0\n Beginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 4,277 $ 3,823,601 $ 310,673\n Budgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0 0\n Appropriations transferred-in/out (+/-) 0 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0 0\n Appropriations used 0 0 28,468\n Nonexchange revenue 0 1,223,892 0\n Donations and forfeitures of cash and cash 0 0 0\n Transfers-in/out without reimbursement (+/-) 14,787 49,347 156,888\n Other budgetary financing sources (+/-) 0 0 0\n Other\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0 0\n Transfers-in/out without reimbursement (+/-) (575) (11,815) (8,260)\n Imputed financing from costs absorbed by others 0 0 0\n Other (+/-) 0 0 0\n Total\xc2\xacFinancing\xc2\xacSources $ 14,212 $ 1,261,424 $ 177,096\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 16,243 760,144 113,033\n Net\xc2\xacChange $ (2,031) $ 501,280 $ 64,063\n Ending\xc2\xacBalance $ 2,246 $ 4,324,881 $ 374,736\n\nUNEXPENDED\xc2\xacAPPROPRIATIONS\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances $ 0 $ 0 $ 23,515\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacPrior\xc2\xacperiod\xc2\xacadjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0 0\n Correction of Errors (+/-) 0 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 0 $ 0 $ 23,515\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBudgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0 0\n Appropriations transferred-in/out (+/-) 0 0 28,095\n Other adjustments (rescissions, etc) (+/-) 0 0 0\n Appropriations used 0 0 (28,468)\n Nonexchange revenue 0 0 0\n Donations and forfeitures of cash and cash 0 0 0\n Transfers-in/out without reimbursement (+/-) 0 0 0\n Other budgetary financing sources (+/-) 0 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacOther\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0 0\n Transfers-in/out without reimbursement (+/-) 0 0 0\n Imputed financing from costs absorbed by others 0 0 0\n Other (+/-) 0 0 0\n Total\xc2\xacFinancing\xc2\xacSources $ 0 $ 0 $ (373)\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 0 0 0\n Net\xc2\xacChange $ 0 $ 0 $ (373)\n Ending\xc2\xacBalance $ 0 $ 0 $ 23,142\n\n\n\n\n294 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Borrowing Authority Revolving Funds Contributed Funds General Funds FUSRAP\n\n\n$ (7,708) 1,201,096 $ 396,789 $ 26,547,571 $ 0\n\n 0 0 0 0 0\n 0 0 0 0 0\n$ (7,708) $ 1,201,096 $ 396,789 $ 26,547,571 $ 0\n\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 3,823,459 157,780\n 0 0 409,490 (720) 0\n 0 0 0 0 0\n 1 0 0 105,367 0\n 0 0 0 274 0\n\n 0 0 0 1,490 0\n (7,634) 1,874 (10,259) 33,621 0\n 0 231,929 0 9,652 0\n 748 0 0 0 0\n$ (6,885) $ 233,803 $ 399,231 $ 3,973,143 $ 157,780\n 5 106,191 341,602 5,655,092 687,395\n$ (6,890) $ 127,612 $ 57,629 $ (1,681,949) $ (529,615)\n$ (14,598) $ 1,328,708 $ 454,418 $ 24,865,622 $ (529,615)\n\n\n$ 0 0 $ 0 $ 368,474 $ 4,373\n\n 0 0 0 0 0\n 0 0 0 0 0\n$ 0 $ 0 $ 0 $ 368,474 $ 4,373\n\n 0 0 0 4,464,502 165,000\n 0 0 0 (493) 0\n 0 0 0 (36,596) (1,320)\n 0 0 0 (3,823,459) (157,780)\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n 0 0 0 0 0\n$ 0 $ 0 $ 0 $ 603,954 $ 5,900\n 0 0 0 0 0\n$ 0 $ 0 $ 0 $ 603,954 $ 5,900\n$ 0 $ 0 $ 0 $ 972,428 $ 10,273\n\n\n\n\n FY 2005 Army Annual Financial Statement 295\n\x0cDepartment of Defense - US Army Corps of Engineers\n CONSOLIDATING STATEMENT OF CHANGES IN NET POSITION\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\n Combined Total Eliminations\nCUMULATIVE\xc2\xacRESULTS\xc2\xacOF\xc2\xacOPERATIONS\n Beginning\xc2\xacBalances $ 32,276,299 $ 0\n Prior Period Adjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n Beginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 32,276,299 $ 0\n Budgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 0 0\n Appropriations transferred-in/out (+/-) 0 0\n Other adjustments (rescissions, etc) (+/-) 0 0\n Appropriations used 4,009,707 0\n Nonexchange revenue 1,632,662 0\n Donations and forfeitures of cash and cash 0 0\n Transfers-in/out without reimbursement (+/-) 326,390 0\n Other budgetary financing sources (+/-) 274 0\n Other\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 1,490 0\n Transfers-in/out without reimbursement (+/-) (3,048) 0\n Imputed financing from costs absorbed by others 241,581 0\n Other (+/-) 748 0\n Total\xc2\xacFinancing\xc2\xacSources $ 6,209,804 $ 0\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 7,679,705 (1)\n Net\xc2\xacChange $ (1,469,901) $ 1\n Ending\xc2\xacBalance $ 30,806,398 $ 1\n\nUNEXPENDED\xc2\xacAPPROPRIATIONS\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances $ 396,362 $ 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacPrior\xc2\xacperiod\xc2\xacadjustments\xc2\xac(+/-)\n Changes in Accounting Principles (+/-) 0 0\n Correction of Errors (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBeginning\xc2\xacBalances,\xc2\xacas\xc2\xacadjusted $ 396,362 $ 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacBudgetary\xc2\xacFinancing\xc2\xacSources:\n Appropriations received 4,629,502 0\n Appropriations transferred-in/out (+/-) 27,602 0\n Other adjustments (rescissions, etc) (+/-) (37,916) 0\n Appropriations used (4,009,707) 0\n Nonexchange revenue 0 0\n Donations and forfeitures of cash and cash 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Other budgetary financing sources (+/-) 0 0\n\xc2\xac\xc2\xac\xc2\xac\xc2\xacOther\xc2\xacFinancing\xc2\xacSources:\n Donations and forfeitures of property 0 0\n Transfers-in/out without reimbursement (+/-) 0 0\n Imputed financing from costs absorbed by others 0 0\n Other (+/-) 0 0\n Total\xc2\xacFinancing\xc2\xacSources $ 609,481 $ 0\n Net\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xac(+/-) 0 0\n Net\xc2\xacChange $ 609,481 $ 0\n Ending\xc2\xacBalance $ 1,005,843 $ 0\n\n\n\n\n296 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c 2005 Consolidated 2004 Consolidated\n\n\n$ 32,276,299 $ 34,289,488\n\n 0 0\n 0 0\n$ 32,276,299 $ 34,289,488\n\n 0 0\n 0 0\n 0 0\n 4,009,707 4,079,023\n 1,632,662 1,434,495\n 0 0\n 326,390 315,045\n 274 (3,945)\n\n 1,490 435\n (3,048) (1,632)\n 241,581 239,548\n 748 578\n$ 6,209,804 $ 6,063,547\n 7,679,706 8,076,736\n$ (1,469,902) $ (2,013,189)\n$ 30,806,397 $ 32,276,299\n\n\n$ 396,362 $ 636,846\n\n 0 0\n 0 0\n$ 396,362 $ 636,846\n\n 4,629,502 3,854,081\n 27,602 18,394\n (37,916) (33,936)\n (4,009,707) (4,079,023)\n 0 0\n 0 0\n 0 0\n 0 0\n\n 0 0\n 0 0\n 0 0\n 0 0\n$ 609,481 $ (240,484)\n 0 0\n$ 609,481 $ (240,484)\n$ 1,005,843 $ 396,362\n\n\n\n\n FY 2005 Army Annual Financial Statement 297\n\x0cDepartment of Defense - US Army Corps of Engineers\nCOMBINING STATEMENT OF BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n Borrowing\n Special Funds Trust Funds Transfer Funds Authority\nBudgetary Financing Accounts\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 57,253 $ 891,624 $ 0 $ 0\n Borrowing authority 0 0 0 0\n Contract authority 0 0 0 0\n Net transfers (+/-) (42,466) 0 192,590 0\n Other 0 0 0 0\n Unobligated balance:\n Beginning of period 62 89,344 47,488 (343)\n Net transfers, actual (+/-) 0 0 (7,606) 0\n Anticipated Transfers Balances 0 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0 0\n Collected 9 0 12 1,187\n Receivable from Federal sources 0 0 0 0\n Change in unfilled customer orders 0 0 0 0\n Advance received 0 0 0 (1)\n Without advance from Federal sources 0 0 (11) 0\n Anticipated for the rest of year, without advances 0 0 0 0\n Previously unavailable 0 0 0 0\n Transfers for trust funds 0 0 0 0\n Subtotal $ 9 $ 0 $ 1 $ 1,186\n Recoveries of prior year obligations 0 0 0 0\n Temporarily not available pursuant to Public Law 0 (10,000) 0 0\n Permanently not available 0 0 0 (748)\n\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 14,858 $ 970,968 $ 232,473 $ 95\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 14,170 $ 847,176 $ 191,798 $ 3\n Reimbursable 9 0 12 438\n Subtotal $ 14,179 $ 847,176 $ 191,810 $ 441\n Unobligated balance:\n Apportioned 679 0 10,480 0\n Exempt from apportionment 0 123,792 30,183 (346)\n Other available 0 0 0 0\n Unobligated Balances Not Available 0 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 14,858 $ 970,968 $ 232,473 $ 95\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net - beginning of period $ 2,911 $ 275,064 $ 33,228 $ 369\n Obligated Balance transferred, net (+/-) 0 0 0 0\n Obligated Balance, Net - end of period:\n Accounts receivable 0 0 0 0\n Unfilled customer order from Federal sources 0 0 0 0\n Undelivered orders 101 258,436 26,932 0\n Accounts payable 1,140 7,527 16,447 348\n Outlays:\n Disbursements 15,848 856,276 181,670 462\n Collections (9) 0 (12) (1,186)\n Subtotal $ 15,839 $ 856,276 $ 181,658 $ (724)\n Less: Offsetting receipts (52,817) (1,223,892) 0 0\n\xc2\xac\xc2\xac Net\xc2\xacOutlays $ (36,978) $ (367,616) $ 181,658 $ (724)\n\n\n\n298 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Revolving Funds Contributed Funds General Funds FUSRAP 2005 Combined 2004 Combined\n\n\n\n\n$ 0 $ 409,534 $ 4,464,502 $ 165,000 $ 5,987,913 $ 5,141,166\n 0 0 0 0 0 135\n 0 0 0 0 0 0\n 0 0 114,874 0 264,998 206,924\n 0 0 0 0 0 0\n\n 3,553 259,938 1,290,984 2,252 1,693,278 1,850,226\n 0 0 0 0 (7,606) 28,495\n 0 0 0 0 0 0\n\n 0 0 0 0 0 0\n 4,460,783 82 2,007,481 2,151 6,471,705 5,212,085\n 10,357 0 848 (75) 11,130 64,104\n 0 0 0 0 0 0\n (3,651) 0 (30,672) 0 (34,324) 29,660\n (3,726) (58) 3,311,387 (1,251) 3,306,341 272,555\n 0 0 0 0 0 0\n 0 0 0 0 0 0\n 0 0 0 0 0 0\n$ 4,463,763 $ 24 $ 5,289,044 $ 825 $ 9,754,852 $ 5,578,404\n 0 0 0 0 0 0\n 0 0 0 0 (10,000) (10,000)\n 0 0 (36,322) (1,320) (38,390) (29,076)\n$ 4,467,316 $ 669,496 $ 11,123,082 $ 166,757 $ 17,645,045 $ 12,766,274\n\n\n\n\n$ 0 $ 401,479 $ 4,125,130 $ 159,708 $ 5,739,464 $ 5,615,179\n 4,430,234 82 2,470,795 827 6,902,397 5,457,815\n$ 4,430,234 $ 401,561 $ 6,595,925 $ 160,535 $ 12,641,861 $ 11,072,994\n\n 0 0 4,403,747 6,222 4,421,128 1,234,139\n 37,082 267,935 123,353 0 581,999 459,076\n 0 0 (1) 0 (1) (1)\n 0 0 58 0 58 66\n$ 4,467,316 $ 669,496 $ 11,123,082 $ 166,757 $ 17,645,045 $ 12,766,274\n\n$ 898,660 $ 148,071 $ (348,299) $ 28,672 $ 1,038,676 $ 1,007,621\n 0 0 0 0 0 0\n\n (23,697) 0 (212,137) (1) (235,835) (224,704)\n (33,480) (5) (5,180,374) (291) (5,214,150) (1,907,809)\n 476,525 177,178 1,918,857 4,342 2,862,371 2,022,902\n 509,122 22,067 494,444 31,906 1,083,001 1,148,287\n\n 4,393,793 350,449 5,914,601 154,577 11,867,676 10,705,281\n (4,457,132) (82) (1,976,809) (2,151) (6,437,381) (5,241,746)\n$ (63,339) $ 350,367 $ 3,937,792 $ 152,426 $ 5,430,295 $ 5,463,535\n 0 (409,534) (58,425) 0 (1,744,668) (1,592,297)\n$ (63,339) $ (59,167) $ 3,879,367 $ 152,426 $ 3,685,627 $ 3,871,238\n\n\n\n FY 2005 Army Annual Financial Statement 299\n\x0cDepartment of Defense - US Army Corps of Engineers\nCONSOLIDATING STATEMENT OF FINANCING\nAs of September 30, 2005 and 2004 ($ in Thousands)\n Special Trust Transfer\n Funds Funds Funds\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacActivities:\nBudgetary Resources Obligated\n Obligations incurred $ 14,179 $ 847,176 $ 191,810\n Less: Spending authority from offsetting collections (9) 0 (1)\n and recoveries (-)\n Obligations net of offsetting collections and recoveries $ 14,170 $ 847,176 $ 191,809\n Less: Offsetting receipts (-) (52,817) (1,223,892) 0\n Net obligations $ (38,647) $ (376,716) $ 191,809\nOther Resources\n Donations and forfeitures of property 0 0 0\n Transfers in/out without reimbursement (+/-) (575) (11,815) (8,260)\n Imputed financing from costs absorbed by others 0 0 0\n Other (+/-) 0 0 0\n Net other resources used to finance activities $ (575) $ (11,815) $ (8,260)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacactivities $ (39,222) $ (388,531) $ 183,549\n\nResources\xc2\xacUsed\xc2\xacto\xc2\xacFinance\xc2\xacItems\xc2\xacnot\xc2\xacPart of\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\n Change in budgetary resources obligated for goods,\n services and benefits ordered but not yet provided\n Undelivered Orders (-) $ 2,046 $ 6,449 $ (11,897)\n Unfilled Customer Orders 0 0 (11)\n Resources that fund expenses recognized in prior periods 0 0 0\n Budgetary offsetting collections and receipts that do not affect net cost of operations 52,817 1,223,892 0\n Resources that finance the acquisition of assets 0 0 98\n Other resources or adjustments to net obligated resources\n that do not affect net cost of operations\n Less: Trust or Special Fund Receipts Related to Exchange in the Entity's Budget (-) 0 0 0\n Other (+/-) 575 11,815 8,260\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacitems\xc2\xacnot part\xc2\xacof\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations $ 55,438 $ 1,242,156 $ (3,550)\nTotal\xc2\xacresources\xc2\xacused\xc2\xacto\xc2\xacfinance\xc2\xacthe\xc2\xacnet\xc2\xaccost\xc2\xacof operations $ 16,216 $ 853,625 $ 179,999\n\nComponents\xc2\xacof\xc2\xacthe\xc2\xacNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\xc2\xacthat\xc2\xacwill\nnot\xc2\xacRequire\xc2\xacor\xc2\xacGenerate\xc2\xacResources\xc2\xacin\xc2\xacthe\xc2\xacCurrent\xc2\xacPeriod:\nComponents Requiring or Generating Resources in Future Period:\n Increase in annual leave liability $ 0 $ 0 $ 0\n Increase in environmental and disposal liability 0 0 0\n Upward/Downward reestimates of credit subsidy expense (+/-) 0 0 0\n Increase in exchange revenue receivable from the the public (-) 0 0 0\n Other (+/-) 0 0 0\n Total components of Net Cost of Operations that $ 0 $ 0 $ 0\n will require or generate resources in future periods\nComponents not Requiring or Generating Resources:\n Depreciation and amortization 15 3,643 6,653\n Revaluation of assets or liabilities (+/-) 0 (1,650) (5,800)\n Other (+/-)\n Trust Fund Exchange Revenue 0 0 0\n Cost of Goods Sold 0 0 0\n Operating Material & Supplies Used 0 0 0\n Other 13 (95,474) (67,818)\n Total components of Net Cost of Operations that will not require or generate resources $ 28 $ (93,481) $ (66,965)\nTotal\xc2\xaccomponents\xc2\xacof\xc2\xacnet\xc2\xaccost\xc2\xacof\xc2\xacoperations\xc2\xacthat $ 28 $ (93,481) $ (66,965)\nwill\xc2\xacnot\xc2\xacrequire\xc2\xacor\xc2\xacgenerate\xc2\xacresources\xc2\xacin\xc2\xacthe\xc2\xaccurrent period $ 16,244 $ 760,144 $ 113,034\nNet\xc2\xacCost\xc2\xacof\xc2\xacOperations\n\n\n\n300 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Borrowing Revolving Contributed 2005 2004\n Authority Funds Funds General Funds FUSRAP Combined Combined\n\n\n\n$ 441 4,430,234 $ 401,561 $ 6,595,925 $ 160,535 $ 12,641,861 $ 11,072,994\n (1,186) (4,463,763) (24) (5,289,044) (825) (9,754,852) (5,578,404)\n\n$ (745) $ (33,529) $ 401,537 $ 1,306,881 $ 159,710 $ 2,887,009 $ 5,494,590\n 0 0 (409,534) (58,425) 0 (1,744,668) (1,592,297)\n$ (745) $ (33,529) $ (7,997) $ 1,248,456 $ 159,710 $ 1,142,341 $ 3,902,293\n\n 0 0 0 1,490 0 1,490 435\n (7,634) 1,874 (10,259) 33,621 0 (3,048) (1,632)\n 0 $ 231,929 0 9,652 0 241,581 239,548\n 748 0 0 0 0 748 579\n$ (6,886) $ 233,803 $ (10,259) $ 44,763 $ 0 $ 240,771 $ 238,930\n$ (7,631) $ 200,274 $ (18,256) $ 1,293,219 $ 159,710 $ 1,383,112 $ 4,141,223\n\n\n\n\n$ 2 $ (32,663) $ (53,695) $ (748,661) $ (678) $ (839,097) $ (400,175)\n (1) (7,377) (58) 3,280,715 (1,251) 3,272,017 302,216\n 0 (25,840) 0 0 0 (25,840) (55,278)\n 0 0 409,534 58,425 0 1,744,668 1,592,297\n 0 (13,043) 0 (191) 0 (13,136) (1,684,000)\n\n\n 0 0 0 (10,000) 0 (10,000) (10,000)\n 7,634 (1,874) 10,260 (35,110) 0 1,560 1,636\n$ 7,635 $ (80,797) $ 366,041 $ 2,545,178 $ (1,929) $ 4,130,172 $ (253,304)\n$ 4 $ 119,477 $ 347,785 $ 3,838,397 $ 157,781 $ 5,513,284 $ 3,887,919\n\n\n\n\n$ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0\n 0 0 0 0 0 0 0\n 0 0 0 0 0 0 0\n 0 (34) 0 0 0 (34) 0\n 0 0 1,250 9,714 529,617 540,581 50,966\n$ 0$ (34) $ 1,250 $ 9,714 $ 529,617 $ 540,547 $ 50,966\n\n\n 0 61,626 1,992 1,121,680 0 1,195,609 2,373,460\n 0 (24,884) 1,382 1,077,606 0 1,046,654 (822,198)\n\n 0 0 0 0 0 0 0\n 0 2,764 0 0 0 2,764 0\n 0 0 0 0 0 0 0\n 0 (52,760) (10,806) (392,305) (2) (619,152) 2,586,589\n$ 0$ (13,254) $ (7,432) $ 1,806,981 $ (2) $ 1,625,875 $ 4,137,851\n$ 0 $ (13,288) $ (6,182) $ 1,816,695 $ 529,615 $ 2,166,422 $ 4,188,817\n$ 4 $ 106,189 $ 341,603 $ 5,655,092 $ 687,396 $ 7,679,706 $ 8,076,736\n\n\n\n\n FY 2005 Army Annual Financial Statement 301\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\n\n FEDERAL MISSION PROPERTY, PLANT and EQUIPMENT\n Yearly Investment in Federal Mission Property, Plant and Equipment\n For Fiscal Year Ended September 30, 2005\n (In Millions of Dollars)\n\n (a) (b) (c) (d) (e) (f)\n Categories FY2001 FY2002 FY2003 FY2004 FY2005\n 1. Bank Stabilization Projects nr nr nr $74 $59\n Total: $74 $59\n\n\nNarrative Statement:\nInvestments in Federal Mission Property, Plant and Equipment refer to those expenses incurred by USACE for the\nprotection of the riverbanks of the Mississippi River and other navigable waterways inside the continental United\nStates. Stabilization and protection of the riverbanks are important to the \xef\xac\x82ood control and navigation plans, serving\nto protect \xef\xac\x82ood control features and to insure the desired alignment of the river\xe2\x80\x99s navigation channel. Stabilizing the\nriverbanks and channels provide an ef\xef\xac\x81cient navigation alignment, increase the \xef\xac\x82ood-carrying capacity of the river,\nand or protection of the levees system to include the tributary basin improvements for major drainage. The process\nby which this is accomplished is by; cutoffs (shortening the river and reducing \xef\xac\x82ood heights), revetment (controlling\nthe river\xe2\x80\x99s meandering), dikes (directing the \xef\xac\x82ow), and improvement dredging (realigning the river/channel).\n\n\nNotes:\n1. For FY 2001 \xe2\x80\x93 2003 USACE does not have historical data as FY04 was our \xef\xac\x81rst reporting of Federal Mission\n Property, Plant and Equipment in the Required Supplementary Stewardship Information section of the \xef\xac\x81nancial\n statements. (nr = Nonreporting)\n2. After major \xef\xac\x82oods in 1882, 1912, 1913 and 1927 the Flood Control Act of 1928 was signed which committed the\n federal government to a de\xef\xac\x81nite program of \xef\xac\x82ood control. This legislation authorized the Mississippi River and\n Tributaries Project, the nation\xe2\x80\x99s \xef\xac\x81rst comprehensive \xef\xac\x82ood control and navigation act.\n3. Investments values included in this report are based on Nonfederal Physical Property outlays (expenditures).\n Outlays are used because current DOD systems are unable to capture and summarize costs in accordance with\n the Federal Accounting Standards requirements.\n\n\n\n\n302 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\n\n HERITAGE ASSETS\n For Fiscal Year Ended September 2005\n\n (a) (b) (c) (d) (e) (f)\n Measurement As of As of\n Quantity 10/01/04 Additions Deletions 9/30/05\n Museums Each 1 1\n Monuments & Memorials Each 1 1\n Cemeteries Sites 0 0\n Archeological Sites Sites 142 142\n Buildings & Structure Each 348 1 349\n Major Collections Each 1 1\n\n\n\nNarrative Statement\nUSACE administers the Lake Superior Marine Museum as part of the Operations and Maintenance Mission of\nthe Detroit District. This museum has gone inadvertently unreported in previous submittals on USACE Heritage\nAssets.\n\nWe have one (1) Major Collection, that being the collection of historical memorabilia, historic artifacts and records\nmanaged by the Headquarters, U.S. Army Corps of Engineers Of\xef\xac\x81ce of History.\n\nOther than multipurpose heritage assets, heritage assets are not material to the mission of the U. S. Army Corps of\nEngineers. Disclosures pertinent to multipurpose heritage assets are contained in the \xef\xac\x81nancial statements.\n\nHeritage assets classi\xef\xac\x81ed as Land are special land plots containing archaeological sites as listed on the National\nRegister of Historic Places or eligible to be listed.\n\nHeritage assets on display are assumed to be in adequate condition for display purposes, consistent with their\norigins, unless otherwise noted. Reported heritage assets are free of material conditions that are counter to\nsafeguarding, adequately protecting, and properly managing those assets; they have not materially degraded while\nunder the care of the U. S. Army Corps of Engineers. The existence of most of the un-categorized heritage assets is\ninformally known to be adequate for display purposes, however, the condition of many un-categorized assets are\nunknown.\n\nCemeteries and Archeological Sites are archeological properties listed on or eligible for, the National Register of\nHistoric Places. These archeological assets cover almost the entire range of human occupation of the Continental\nUnited States beginning with the Kennewick Man Discovery Site in Washington State, dating to approximately\n10,000 years before present, to archeological remains of early European-American settlements such as Fort\nIndependence in Georgia..\n\nBuildings and Structures include a range of historic resources from a covered bridge in Sacramento District to early\nfarming structures in Savannah District. It also includes some non-traditional structures such as a snag boat that\noperated on the Mississippi River. A new building and associated historic district, Conchas Dam and Conchas Dam\nHistoric District, New Mexico was added to USACE inventory.\n\n\n\n\n FY 2005 Army Annual Financial Statement 303\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\n\n NONFEDERAL PHYSICAL PROPERTY\n Yearly Investment in State and Local Governments\n For Fiscal Year Ended September 30, 2005\n (In Millions of Dollars)\n\n (a) (b) (c) (d) (e) (f)\n Categories FY2001 FY2002 FY2003 FY2004 FY2005\n Transferred Assets:\n 1. Federal Mission Related nr nr nr $4,429 $1,324\n Funded Assets:\n 2. Federal Mission Related nr nr nr 0 0\n Total: $4,429 $1,324\n\n\nNarrative Statement:\nInvestments in Nonfederal Property refers to those expenses incurred by USACE for the purchase, construction\nor major renovation of physical property owned by State and Local Governments, including major additions\nand replacements; the purchase of major equipment; and the purchase of improvement of other physical assets.\nThe authority to enter into cost share agreements with nonfederal sponsors is governed under numerous Water\nResources Development Acts starting with the Act of 1992.\n\n\nNotes:\n1. For FY 2001 \xe2\x80\x93 2003 USACE does not have historical data as FY04 was our \xef\xac\x81rst reporting of Nonfederal Physical\n Property in the Required Supplementary Stewardship Information. The variance in the FY04 and FY05 amounts\n is due to FY04 \xef\xac\x81gure being a \xef\xac\x81rst report cumulative number and the FY05 number is for FY05 cost share. (nr =\n Nonreporting)\n2. Under numerous authorities USACE provides design, build and construction services/management for the\n missions of commercial navigation, \xef\xac\x82ood/storm damage reduction, hydropower, regulatory, environmental,\n recreation and water supply.\n3. Investments values included in this report are based on Nonfederal Physical Property outlays (expenditures).\n Outlays are used because current DOD systems are unable to capture and summarize costs in accordance with\n the Federal Accounting Standards requirements.\n\n\n\n\n304 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cDepartment of the Army\nFY 2005 Required Supplementary Stewardship Information (RSSI)\n General Property, Plant and Equipment\n Real Property Deferred Maintenance Amounts\n As of September 30, 2005\n\n (a) (b)\n Property Type/Major Class\n 1. Real Property\n A. Buildings\n B. Structures $1,200,000\n 2. Total $1,200,000\n\nNarrative Statement: Deferred maintenance at Civil Works water resources projects operated and maintained by\nthe U.S. Army Corps of Engineers was determined through the budget development process whereby operations\nmanagers identify the operation and maintenance (O&M) needs at each project in the Civil Works inventory. O&M\nneeds are based on inspections of project Features, engineering analyses and historical experience. \xe2\x80\x9cNon-deferrable\xe2\x80\x9d\nis work that should be accomplished in the budget year to avoid further deterioration or a reduction in project\nbene\xef\xac\x81ts.\n\n\n\n\n FY 2005 Army Annual Financial Statement 305\n\x0cDepartment of Defense - US Army Corps of Engineers\n STATEMENT OF DISAGGREGATED BUDGETARY RESOURCES\nAs of September 30, 2005 and 2004 ($ in Thousands)\n\n\nBudgetary Financing Accounts Civil Works 2005 Combined 2004 Combined\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 5,987,912 $ 5,987,913 $ 5,141,166\n Borrowing authority 0 0 135\n Contract authority 0 0 0\n Net transfers (+/-) 264,998 264,998 206,924\n Other 0 0 0\n Unobligated balance:\n Beginning of period 1,693,281 1,693,278 1,850,226\n Net transfers, actual (+/-) (7,606) (7,606) 28,495\n Anticipated Transfers Balances 0 0 0\n Spending authority from offsetting collections:\n Earned 0 0 0\n Collected 6,471,704 6,471,705 5,212,085\n Receivable from Federal sources 11,131 11,130 64,104\n Change in unfilled customer orders 0 0 0\n Advance received (34,324) (34,324) 29,660\n Without advance from Federal sources 3,306,340 3,306,341 272,555\n Anticipated for the rest of year, without advances 0 0 0\n Transfers from trust funds 0 0 0\n Subtotal $ 0 $ 0 $ 0\n Recoveries of prior year obligations 0 0 0\n Temporarily not available pursuant to Public Law (10,000) (10,000) (10,000)\n Permanently not available (38,390) (38,390) (29,076)\n\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 17,645,046 $ 17,645,045 $ 12,766,274\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred:\n Direct $ 5,739,464 5,739,464 5,615,179\n Reimbursable 6,902,397 6,902,397 5,457,815\n Subtotal 12,641,861 12,641,861 11,072,994\n Unobligated balance:\n Apportioned 4,421,128 4,421,128 1,234,139\n Exempt from apportionment 581,998 581,999 459,076\n Other available 0 (1) (1)\n Unobligated Balances Not Available 58 58 66\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 17,645,045 $ 17,645,045 $ 12,766,274\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net ? beginning of period $ 1,038,675 $ 1,038,676 $ 1,007,621\n Obligated Balance transferred, net (+/-) 0 0 0\n Obligated Balance, Net ? end of period:\n Accounts receivable (235,835) (235,835) (224,704)\n Unfilled customer order from Federal sources (5,214,150) (5,214,150) (1,907,809)\n Undelivered orders 2,862,371 2,862,371 2,022,902\n Accounts payable 1,083,003 1,083,001 1,148,287\n Outlays:\n Disbursements 11,867,677 11,867,676 10,705,281\n Collections (6,437,380) (6,437,381) (5,241,746)\n Subtotal $ 5,430,297 $ 5,430,295 $ 5,463,535\n Less: Offsetting receipts (1,744,667) (1,744,668) (1,592,297)\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ 3,685,630 $ 3,685,627 $ 3,871,238\n\n\n\n\n306 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cNon-Budgetary Financing Accounts Civil Works 2005 Combined 2004 Combined\nBUDGETARY\xc2\xacRESOURCES\n Budget Authority:\n Appropriations received $ 0 $ 0 $ 0\n Borrowing authority 0 0 0\n Contract authority 0 0 0\n Net transfers (+/-) 0 0 0\n Other 0 0 0\n Unobligated balance:\n Beginning of period 0 0 0\n Net transfers, actual (+/-) 0 0 0\n Anticipated Transfers Balances 0 0 0\n Spending authority from offsetting collections\n Earned 0 0 0\n Collected 0 0 0\n Receivable from Federal sources 0 0 0\n Change in unfilled customer orders 0 0 0\n Advance received 0 0 0\n Without advance from Federal sources 0 0 0\n Anticipated for the rest of year, without advances 0 0 0\n Transfers from trust funds 0 0 0\n Subtotal $ 0 $ 0 $ 0\n Recoveries of prior year obligations 0 0 0\n Temporarily not available pursuant to Public Law 0 0 0\n Permanently not available 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal\xc2\xacBudgetary\xc2\xacResources $ 0 $ 0 $ 0\n\nSTATUS\xc2\xacOF\xc2\xacBUDGETARY\xc2\xacRESOURCES\n Obligations incurred: $\n Direct 0 0 0\n Reimbursable 0 0 0\n Subtotal 0 0 0\n Unobligated balance:\n Apportioned 0 0 0\n Exempt from apportionment 0 0 0\n Other available 0 0 0\n Unobligated Balances Not Available 0 0 0\n\xc2\xac\xc2\xac\xc2\xacTotal,\xc2\xacStatus\xc2\xacof\xc2\xacBudgetary\xc2\xacResources $ 0 $ 0 $ 0\nRelationship\xc2\xacof\xc2\xacObligations\xc2\xacto\xc2\xacOutlays:\n Obligated Balance, Net - beginning of period $ 0 $ 0 $ 0\n Obligated Balance transferred, net (+/-) 0 0 0\n Obligated Balance, Net - end of period:\n Accounts receivable 0 0 0\n Unfilled customer order from Federal sources 0 0 0\n Undelivered orders 0 0 0\n Accounts payable 0 0 0\n Outlays:\n Disbursements 0 0 0\n Collections 0 0 0\n Subtotal $ 0 $ 0 $ 0\n Less: Offsetting receipts 0 0 0\n\xc2\xac\xc2\xac\xc2\xacNet\xc2\xacOutlays $ 0 $ 0 $ 0\n\n\n\n\n FY 2005 Army Annual Financial Statement 307\n\x0c Required Supplemental Information - Part A\n\nAT96 - US Army Corps of Engineers\n($ Amounts in Thousands)\nSchedule, Part A DoD Intra-governmental Treasury Fund Balance Accounts Loans\nAsset Balances. Index: with Treasury Receivable Receivable Investments Other\nUnidentifiable Federal Agency Entity\n 0 $539\n(Other than DoD entities)\nThe Judiciary 10 $0\nDepartment of Agriculture 12 $789\nDepartment of Commerce 13 $318\nDepartment of the Interior 14 $371,152\nDepartment of Justice 15 $619\nNavy General Fund 17 $236\nUnited States Postal Service 18 $86\nDepartment of State 19 $847\nDepartment of the Treasury 20 $3,146,050 $72 $3,127,832\nArmy General Fund 21 $15,948\nSocial Security Administration 28 $1\nNuclear Regulatory Commission 31 $35\nJohn F. Kennedy Center 33 $896\nDepartment of Veterans Affairs 36 $1\nGeneral Service Administration 47 $364\nAir Force General Fund 57 $1,035\nRailroad Retirement Board 60 $2\nNational Labor Relations Board 63 $1\nTennessee Valley Authority 64 $28\nEnvironmental Protection Agency 68 $18,768\nDepartment of Transportation 69 $3,240\nHomeland Security 70 $133,787\nAgency for International Development 72 $443\nSmall Business Administration 73 $3\nDepartment of Health and Human Services 75 $161\nNational Aeronautics and Space Administration 80 $139\nDepartment of Housing and Urban Development 86 $33\nDepartment of Energy 89 $46,235\nIndependent Agencies 95 $30\nOther Defense Organizations General Funds 97 $237\nOther Defense Organizations Working Capital Funds 97-4930 $7\nArmy Working Capital Fund 97-4930.001 $0\nThe General Fund of the Treasury 99 $17,853\nArchitect of the Capitol ($1)\nTotals $3,146,050 $613,904 $3,127,832\n\n\n\n\n308 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Required Supplemental Information - Part B\n\nAT96 - US Army Corps of Engineers\n($ Amounts in Thousands)\n Treasury Accounts Debts/Borrowings\nSchedule, Part B DoD Intra-governmental entity liabilities. Index: Payable From Other Agencies Other\nUnidentifiable Federal Agency Entity (Other than DoD entities) 0 $43\nDepartment of Agriculture 12 $912 $558\nDepartment of Commerce 13 $3,343 $1,075\nDepartment of the Interior 14 $16,870 $957\nDepartment of Justice 15 $33 $2\nDepartment of Labor 16 $66 $46,851\nNavy General Fund 17 $1,753\nUnited States Postal Service 18 $27\nDepartment of State 19 $962 $13\nDepartment of the Treasury 20 $603 $14,600 $162,645\nArmy General Fund 21 $2,930\nOffice of Personnel Management 24 $4 $13,618\nLibrary of Congress 3 $12\nDepartment of Veterans Affairs 36 $119\nGovernment Printing Office 4 $83\nGeneral Service Administration 47 $18,343 $40\nNational Science Foundation 49 $29\nAir Force General Fund 57 $102\nTennessee Valley Authority 64 $688\nEnvironmental Protection Agency 68 $42 $28\nDepartment of Transportation 69 $254\nHomeland Security 70 $7,826 $19\nSmall Business Administration 73 $0 $1\nDepartment of Health and Human Services 75 $506 $3,912\nDepartment of Energy 89 $2,152 $4,550\nDepartment of Education 91 $51 $49\nOther Defense Organizations General Funds 97 $1,064\nOther Defense Organizations Working Capital Funds 97-4930 $8,499\nArmy Working Capital Fund 97-4930.001 $1,989\nNavy Working Capital Fund 97-4930.002 $83\nAir Force Working Capital Fund 97-4930.003 $34\nThe General Fund of the Treasury 99 $17,853 $1,722,534\nTotals $87,232 $14,600 $1,956,895\n\n\n\n\n FY 2005 Army Annual Financial Statement 309\n\x0c Required Supplemental Information - Part C\n\nAT96 - US Army Corps of Engineers\n($ Amounts in Thousands)\n Treasury\nSchedule, Part C DoD Intra-governmental revenue and related costs. Index: Earned Revenue\nUnidentifiable Federal Agency Entity (Other than DoD entities) 0 $554\nThe Judiciary 10 $11\nDepartment of Agriculture 12 $8,014\nDepartment of Commerce 13 $7,343\nDepartment of the Interior 14 $41,008\nDepartment of Justice 15 $6,459\nDepartment of Labor 16 $3\nNavy General Fund 17 $4,125\nUnited States Postal Service 18 $188\nDepartment of State 19 $6,711\nDepartment of the Treasury 20 $116\nArmy General Fund 21 $770,336\nOffice of Personnel Management 24 $92\nSocial Security Administration 28 $2\nNuclear Regulatory Commission 31 $464\nJohn F. Kennedy Center 33 $9,130\nDepartment of Veterans Affairs 36 $2,289\nGovernment Printing Office 4 ($1)\nU.S. Equal Employment Opportunity Commission 45 $5\nGeneral Service Administration 47 $4,444\nNational Science Foundation 49 $1,599\nGeneral Accounting Office 5 $483\nAir Force General Fund 57 $46,665\nRailroad Retirement Board 60 $5\nNational Labor Relations Board 63 $1\nTennessee Valley Authority 64 $76\nEnvironmental Protection Agency 68 $86,974\nDepartment of Transportation 69 $10,697\nHomeland Security 70 $1,004,964\nAgency for International Development 72 $30,368\nSmall Business Administration 73 $5\nAmerican Battle Monuments 74 $77\nDepartment of Health and Human Services 75 $6,634\nNational Aeronautics and Space Administration 80 $36,440\nDepartment of Housing and Urban Development 86 $155\nDepartment of Energy 89 $28,055\nDepartment of Education 91 $56\nIndependent Agencies 95 $433\nOther Defense Organizations General Funds 97 $28,571\nOther Defense Organizations Working Capital Funds 97-4930 $359\nArmy Working Capital Fund 97-4930.001 $10\nArchitect of the Capitol $8,876\nTotals $2,152,796\n\n\n\n\n310 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Required Supplemental Information - Part E\n\nAT96 - US Army Corps of Engineers\n($ Amounts in Thousands)\n Treasury Index: Transfers In Transfers Out\nDepartment of the Interior 14 $58,055 $3,218\nArmy General Fund 21 $361 $34\nTennessee Valley Authority 64 $156\nDepartment of Transportation 69 $1,632\nDepartment of Energy 89 $228,157\nThe General Fund of the Treasury 99 $890,822 $852,276\nTotals $1,179,027 $855,684\n\n\n\n\n FY 2005 Army Annual Financial Statement 311\n\x0c INSPECTOR GENERAL\n DEPARTMENT OF DEFENSE\n 400 ARMY NAVY DRIVE\n ARLINGTON, VIRGINIA 22202-4704\n\n\n\n\n November 8, 2005\n\nMEMORANDUM FOR THE COMMANDER, U.S. ARMY CORPS OF ENGINEERS\n\nSUBJECT: Independent Auditor\xe2\x80\x99s Report on the Fiscal Year 2005 U.S. Army Corps of\n Engineers, Civil Works, Financial Statements (Report No. D 2006 020)\n\nThe Chief Financial Of\xef\xac\x81cers Act of 1990, as amended, requires the Department of Defense Inspector General to\naudit the accompanying U.S. Army Corps of Engineers, Civil Works, (USACE) Consolidated Balance Sheet as of\nSeptember 30, 2005 and 2004, the related Consolidated Statement of Net Cost, Consolidated Statement of Changes\nin Net Position, Combined Statement of Budgetary Resources, and Combined Statement of Financing for the\n\xef\xac\x81scal years then ended. The \xef\xac\x81nancial statements are the responsibility of USACE management. USACE is also\nresponsible for implementing effective internal control and for complying with laws and regulations. We are\nunable to give an opinion on the USACE FY 2005 Financial Statements because of limitations on the scope of our\nwork. Thus, the \xef\xac\x81nancial statements may be unreliable. In addition to our disclaimer of opinion on the \xef\xac\x81nancial\nstatements, we are including the required Report on Internal Control and Compliance with Laws and Regulations.\nThe Report on Internal Control and Compliance with Laws and Regulations is an integral part of our disclaimer of\nopinion on the \xef\xac\x81nancial statements and should be considered in assessing the results of the audit.\n\n\nDisclaimer of Opinion on the Financial Statements\nUSACE acknowledged to us that the USACE FY 2005 Financial Statements may not be fairly presented in conformity\nwith generally accepted accounting principles. Because USACE management cannot assert that the \xef\xac\x81nancial\nstatements are free from material error, and based on the de\xef\xac\x81ciencies acknowledged by USACE management, we\ndid not perform auditing procedures to determine whether material amounts on the \xef\xac\x81nancial statements were fairly\npresented. We did not perform these and other auditing procedures because Section 1008(d) of the FY 2002 National\nDefense Authorization Act limits the Department of Defense Inspector General to perform only audit procedures\nrequired by generally accepted government auditing standards that are consistent with the representations made by\nmanagement. USACE has also acknowledged, and prior audits have identi\xef\xac\x81ed, the material weaknesses listed in the\nSummary of Internal Control. These material weaknesses also affect the reliability of certain information contained\nin the annual \xef\xac\x81nancial statements\xe2\x80\x94much of which is taken from the same data sources as the principal \xef\xac\x81nancial\nstatements.1 Therefore, we are unable to express, and we do not express, an opinion on the \xef\xac\x81nancial statements and\nthe accompanying information.\n\n\n\n\n1\n The annual \xef\xac\x81nancial statements include the principal \xef\xac\x81nancial statements, management discussion and analysis, consolidating and combining \xef\xac\x81nancial statements, Required Supplementary Stewardship Information,\nRequired Supplementary Information, and Other Accompanying Information.\n\n\n\n\n312 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cSummary of Internal Control\nIn planning our audit, we considered USACE internal control over \xef\xac\x81nancial reporting and compliance. We did\nthis to determine our procedures for auditing the \xef\xac\x81nancial statements and to comply with Of\xef\xac\x81ce of Management\nand Budget guidance, but our purpose was not to express an opinion on internal control. Accordingly, we do not\nexpress an opinion on internal control over \xef\xac\x81nancial reporting and compliance. However, previously identi\xef\xac\x81ed\nreportable conditions,2 all of which are material, continue to exist in the following areas.\n\n Fund Balance With Treasury and Unexpended Appropriations\n Accounts Receivable\n General Property, Plant, and Equipment\n Accounts Payable\n Financial Statement Compilation\n Financial Management Systems\n\nMaterial weaknesses are reportable conditions in which internal controls do not reduce (to a relatively low level)\nthe risk of misstatements that are material to the \xef\xac\x81nancial statements and that might not be timely detected by\nemployees while performing their normal, assigned functions. Our internal control work would not necessarily\ndisclose all material weaknesses. See the Attachment for additional details on material internal control weaknesses.\n\n\nSummary of Compliance with Laws and Regulations\nOur work to determine compliance with selected provisions of applicable laws and regulations related to \xef\xac\x81nancial\nreporting was limited because USACE management acknowledged, and prior audits con\xef\xac\x81rm, that instances of\nnoncompliance continue to exist. USACE acknowledged that its \xef\xac\x81nancial management systems do not fully comply\nwith Federal \xef\xac\x81nancial management systems requirements, Federal accounting standards, and the U.S. Standard\nGeneral Ledger at the transaction level, as required by the Federal Financial Management Improvement Act of 1996.\n\nThe Department of Defense Inspector General and the Government Accountability Of\xef\xac\x81ce previously disclosed, and\nUSACE acknowledged, instances of noncompliance with the following.\n\n Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982\n Of\xef\xac\x81ce Management and Budget Circulars:\n -A-123, \xe2\x80\x9cManagement Accountability and Control\xe2\x80\x9d\n -A-127, \xe2\x80\x9cFederal Management Systems\xe2\x80\x9d\n -A-130, \xe2\x80\x9cManagement of Federal Information Resources\xe2\x80\x9d 3\n\n\n\n\n2\n Reportable conditions are matters coming to the auditor\xe2\x80\x99s attention that, in his or her judgment, should be communicated to management because they represent signi\xef\xac\x81cant de\xef\xac\x81ciencies in the design or operation of\ninternal control, which could adversely affect the organization\xe2\x80\x99s ability to initiate, record, process, and report \xef\xac\x81nancial data consistent with the assertions of management in \xef\xac\x81nancial statements.\n\n3\n GAO Report No. GAO-02-589, \xe2\x80\x9cCorps of Engineers Making Improvements, But Weaknesses Continue,\xe2\x80\x9d June 2002; GAO Report No. GAO-01-89, \xe2\x80\x9cSigni\xef\xac\x81cant Weaknesses in Corps of Engineers\xe2\x80\x99 Computer Controls,\xe2\x80\x9d\nOctober 2000; and DoD IG Report No. D-2004-115, \xe2\x80\x9cInformation System Security: The Followup on the Government Accountability Of\xef\xac\x81ce and U.S. Army Audit Agency Recommendations for the U.S. Army Corps of\nEngineers (FOUO),\xe2\x80\x9d September 21, 2004.\n\n\n\n\n FY 2005 Army Annual Financial Statement 313\n\x0cTherefore, we did not determine whether USACE was in compliance with all applicable laws and regulations related\nto \xef\xac\x81nancial reporting. See the Attachment for additional details on compliance with laws and regulations.\n\n\nManagement Responsibility\nUSACE management is responsible for:\n\n preparing the \xef\xac\x81nancial statements in conformity with generally accepted accounting principles;\n establishing, maintaining, and assessing internal control to provide reasonable assurance that the\n broad control objectives of the Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982 are met; and\n complying with applicable laws and regulations.\n\nWe provided a draft of this report to USACE. USACE management commented, \xe2\x80\x9cit is important to note that USACE\nhas taken aggressive action to make corrective actions on all material audit \xef\xac\x81ndings.\xe2\x80\x9d USACE management further\ncommented, \xe2\x80\x9cUSACE has shown signi\xef\xac\x81cant progress in this area [Financial Statement Compilation] since the\noriginal reviews in FY 2003 and FY 2004.\xe2\x80\x9d\n\n\n\n\nAttachment:\nAs stated\n\n\n\n\n314 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cReport on Internal Control and Compliance with Laws and Regulations\nInternal Control\nUSACE management is responsible for implementing effective internal control and for providing reasonable\nassurance that accounting data are accumulated, recorded, and reported properly and that assets are safeguarded\nagainst misappropriation and abuse. Our purpose was not to, and we do not, express an opinion on internal control\nover \xef\xac\x81nancial reporting. However, we have identi\xef\xac\x81ed the following material weaknesses and reportable conditions\nthat could adversely affect a favorable opinion on internal control.\n\nMaterial Weaknesses. USACE management acknowledged that previously identi\xef\xac\x81ed reportable conditions, all of\nwhich are material, continue to exist.\n\nFund Balance With Treasury and Unexpended Appropriations. USACE did not comply with generally accepted\naccounting principles. Speci\xef\xac\x81cally, USACE recorded noncompliant funding in the Corps of Engineers Financial\nManagement System for the Fund Balance With Treasury and Unexpended Appropriations accounts. Furthermore,\nUSACE did not establish Fund Balance With Treasury accounts in the Corps of Engineers Financial Management\nSystem for expenditure and receipt accounts required by the United States Code and assigned by Department of\nTreasury, and omitted transactions applicable to the accounts. Finally, USACE commingled appropriation warrants\nand nonexpenditure transfers in the Corps of Engineers Financial Management System subsidiary accounts for Fund\nBalance With Treasury. As a result, USACE did not maintain reliable funding information in the Corps of Engineers\nFinancial Management System for the Fund Balance With Treasury and Unexpended Appropriations accounts.\n\nUSACE also erroneously reported unprocessed interagency transfer collections (that is, USACE reported collections\nthat had not yet occurred) to the Department of Treasury and the Of\xef\xac\x81ce of Management and Budget. In addition,\nthe USACE revolving fund created unreconciled collection and disbursement differences. As a result, USACE\ndid not report reliable Fund Balance With Treasury amounts to the Department of Treasury and the Of\xef\xac\x81ce of\nManagement and Budget.\n\nAccounts Receivable. USACE Districts did not provide adequate source data and needs to improve the\nreconciliation of the general ledger to the subsidiary records for speci\xef\xac\x81c samples reviewed.\n\n\nGeneral Property, Plant, and Equipment\nBuildings, Structures, and Facilities. USACE did not implement corrective actions for the Buildings, Structures,\nand Facilities line item de\xef\xac\x81ciencies involving useful lives, support for asset values, placed-in-service dates, asset\nclassi\xef\xac\x81cation (including bank stabilization), physical existence, and capital lease recording.\n\nA systematic weakness was also identi\xef\xac\x81ed involving adjustments to useful lives in the Corps of Engineers Financial\nManagement System. Speci\xef\xac\x81cally, the Corps of Engineers Financial Management System does not always spread\ndepreciation accurately across the life of buildings and structures, which affects the book value, accumulated\ndepreciation, and ultimately, the balance of the Buildings, Structures, and Facilities line item.\n\nConstruction-in-Progress. USACE did not implement corrective actions for Construction-in-Progress de\xef\xac\x81ciencies\ninvolving the timely transfer of completed assets, the capitalization of expense-type events, non-Federal cost share\nprojects, prior Construction-in-Progress errors, negative Construction-in-Progress, and other variances. In addition,\nmaterial audit issues relating to previously identi\xef\xac\x81ed Construction-in-Progress de\xef\xac\x81ciencies remained unresolved.\n\nEquipment. USACE did not implement corrective actions for de\xef\xac\x81ciencies involving the lack of adequate\ndocumentation to support equipment values.\n\nLand. USACE did not implement corrective actions for de\xef\xac\x81ciencies involving land costs originating in the Corps of\nEngineers Management Information System, land costs originating in the Corps of Engineers Financial Management\nSystem, and classi\xef\xac\x81cation of reservoir costs.\n\n\n FY 2005 Army Annual Financial Statement 315\n\x0cAccounts Payable. USACE Districts did not correct previously identi\xef\xac\x81ed internal control weaknesses involving\nAccounts Payable. USACE activities continued to improperly record payables, did not properly review aged\npayables, did not record payables in the proper accounting period, and were unable to provide supporting\ndocumentation in a timely manner.\n\nFinancial Statement Compilation. The review of the FY 2004 year-end \xef\xac\x81nancial statement compilation process\ndisclosed signi\xef\xac\x81cant de\xef\xac\x81ciencies related to unsupported journal vouchers and undocumented differences in\ntrial balance data. In addition, USACE had not corrected the de\xef\xac\x81ciencies with the Corps of Engineers Financial\nManagement System general ledger correlations.\n\nFinancial Management Systems. USACE acknowledged that its \xef\xac\x81nancial management systems do not fully comply\nwith Federal \xef\xac\x81nancial management systems requirements, applicable Federal accounting standards, and the U.S.\nStandard General Ledger at the transaction level. Until resolved, the possibility exists that USACE general and\napplication computer control vulnerabilities make it dif\xef\xac\x81cult for USACE to ensure the reliability, con\xef\xac\x81dentiality, and\navailability of \xef\xac\x81nancial and sensitive data.\n\nThese \xef\xac\x81nancial management de\xef\xac\x81ciencies* are indications of material weaknesses in internal control that may\nadversely affect any decision by USACE that is based, in whole or in part, on information that is inaccurate because\nof these de\xef\xac\x81ciencies. Financial information reported by USACE also may contain misstatements resulting from these\nde\xef\xac\x81ciencies.\n\n\nCompliance with Laws and Regulations\nUSACE management is responsible for compliance with existing laws and regulations related to \xef\xac\x81nancial reporting.\nOur work to determine compliance with selected provisions of the applicable laws and regulations was limited\nbecause USACE management acknowledged instances of noncompliance, and previously reported instances of\nnoncompliance continue to exist. Therefore, we did not determine whether USACE was in compliance with selected\nprovisions of all applicable laws and regulations related to \xef\xac\x81nancial reporting. Our objective was not to, and we do\nnot, express an opinion on compliance with applicable laws and regulations.\n\nUSACE acknowledged, and the Department of Defense Inspector General and the Government Accountability Of\xef\xac\x81ce\naudits established, that USACE did not fully comply with the following \xef\xac\x81nancial management systems reporting\nrequirements:\n\n The Federal Managers\xe2\x80\x99 Financial Integrity Act of 1982 requires agencies to evaluate the\n systems and to annually report whether those systems are in compliance with applicable\n requirements. When systems are not in compliance, the statement must include a report of\n internal accounting and administrative control material weaknesses with plans and a schedule for\n correcting the material weaknesses.\n Of\xef\xac\x81ce of Management and Budget Circular A-123, revised June 21, 1995, requires agencies and\n individual Federal managers to take systematic and proactive measures to assess the adequacy of\n management controls in Federal programs and operations, identify needed improvements, take\n corresponding corrective actions, and report annually on management controls.\n Of\xef\xac\x81ce of Management and Budget Circular A-127, revised July 23, 1993, requires agencies\n to develop, operate, evaluate, and report on \xef\xac\x81nancial management systems. It also requires\n that \xef\xac\x81nancial management systems provide complete, reliable, consistent, timely, and useful\n information.\n\n\n\n\n*Described in greater detail in previous GAO and DoD IG reports.\n\n\n\n\n316 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0c Of\xef\xac\x81ce of Management and Budget Circular A-130, Appendix III, establishes a minimum set of\n controls to be included in Federal automated information security programs, assigns Federal\n agency responsibilities for the security of automated information, and links agency information\n security programs and agency management control systems established in accordance with\n Of\xef\xac\x81ce of Management and Budget Circular A-123. Agencies should implement and maintain\n their automated security programs to ensure that adequate security is provided for all agency\n information collected, processed, transmitted, stored, or disseminated in general support systems\n and major applications.\n\nUSACE acknowledged that its \xef\xac\x81nancial management systems do not fully comply with Federal \xef\xac\x81nancial\nmanagement systems requirements, applicable Federal accounting standards, and the U.S. Standard General Ledger\nat the transaction level, as required under the Federal Financial Management Improvement Act of 1996. According\nto prior Government Accountability Of\xef\xac\x81ce audit reports, USACE did not fully comply with the Federal Managers\xe2\x80\x99\nFinancial Integrity Act of 1982 and the Of\xef\xac\x81ce of Management and Budget Circulars A-123 and A-130 requirements\nto protect the integrity of its \xef\xac\x81nancial management systems, identify needed improvements, and take corresponding\ncorrective actions. During FY 2004, the Department of Defense Inspector General reviewed previously identi\xef\xac\x81ed\nGovernment Accountability Of\xef\xac\x81ce de\xef\xac\x81ciencies related to general and application controls. The Department of\nDefense Inspector General audit report concluded that USACE had not fully implemented all of the Government\nAccountability Of\xef\xac\x81ce recommendations. During FY 2005, USACE acknowledged that it is still in the process of\ncompleting the prior Government Accountability Of\xef\xac\x81ce recommendations. Until resolved, the possibility exists\nthat the USACE general and application computer control vulnerabilities make it dif\xef\xac\x81cult for USACE to ensure the\nreliability, con\xef\xac\x81dentiality, and availability of \xef\xac\x81nancial and sensitive data, as required by the Of\xef\xac\x81ce of Management\nand Budget Circular A-127.\n\n\nAudit Disclosures\nUSACE acknowledged to us on June 21, 2005, that the USACE \xef\xac\x81nancial management systems cannot provide\nadequate evidence supporting various material amounts on the \xef\xac\x81nancial statements. USACE also stated that\nmaterial internal control weaknesses disclosed in prior Department of Defense Inspector General audit reports may\nor may not materially affect the \xef\xac\x81nancial statements. Therefore, we did not conduct audit work related to previously\nidenti\xef\xac\x81ed de\xef\xac\x81ciencies in the following areas.\n\n Fund Balance With Treasury and Unexpended Appropriations\n Accounts Receivable\n General Property, Plant, and Equipment\n Accounts Payable\n Financial Statement Compilation\n Financial Management Systems\n\nIn addition, we did not perform audit work related to the following selected provisions of laws and regulations.\n\n Antide\xef\xac\x81ciency Act\n Federal Credit Reform Act of 1990\n Pay and Allowance System for Civilian Employees\n Prompt Payment Act\n Provisions Governing Claims of the U.S. Government (including provisions of the Debt Collection\n Improvement Act of 1996)\n\nThis report does not include recommendations to correct the material internal control weaknesses and\nnoncompliance with laws and regulations because previous audit reports contained recommendations for corrective\nactions.\n\n FY 2005 Army Annual Financial Statement 317\n\x0c318 Civil Works Fund | Principal Financial Statements, Notes, and Supplementary Information\n\x0cCall to Duty \xe2\x80\x93 230 Years of Service to Our Nation\n\n\n\n\n FY 2005 Army Annual Financial Statement\n\x0cUnited States Army \xe2\x80\xa2 1500 Army Pentagon \xe2\x80\xa2 Washington, DC, 20310-1500 \xe2\x80\xa2 www.army.mil\n\x0c"