AMERICA’S LOGISTICS COMBAT SUPPORT AGENCY
DEFENSE LOGISTICS AGENCY WORKING CAPITAL FUND Chief Financial Officer Annual Financial Statement Fiscal Year 1998
March 1, 1999 MESSAGE FROM THE DIRECTOR
ince its establishment as the Defense Supply Agency in 1961, DLA has supported every war, every major contingency, and every theater of operations where our sailors, airmen, soldiers and marines have been deployed. We have been instrumental in ensuring victory by America’s Armed Forces by providing required supplies and services, around the clock, around the world. DLA has received two unit citations, which attest to our focus and ethos as America’s Logistics Combat Support Agency.
We are now entering a new century that will provide the most significant period of change in our Armed Forces since World War II. As modern warfare increases in technological sophistication, speed, and complexity, logistics and acquisition organizations must change to keep pace. To remain relevant, DLA will reshape and refocus, applying the same innovation, teamwork, warfighter focus, selfless Director, Defense Logistics Agency service, and professionalism that has made us Lieutenant General Henry T. Glisson so successful during the past 37 years. United States Army
Our refocus and reshaping included revisiting will continue to benefit immensely by our the DLA Strategic Plan during FY 1998. The initiatives – scarce resources can be diverted to Strategic Plan defines our vision, mission, much needed weapons systems values, goals and objectives, and establishes modernization. metrics to measure our progress. It emphasizes our support of the Department of I believe you will find that the DLA financial Defense’s Joint Vision 2010 and its emphasis statements for FY 1998 represent the results of on focused logistics. Most importantly, it solid financial management, focused logistical provides an enhanced framework for linking support to our Armed Forces, and efficient use financial and program performance, which will of taxpayer dollars. I am committed to result in more efficient and effective program continuous improvements in financial decisions as we move into the 21st century. management processes and reporting.
These statements reflect new business practices that DLA has implemented and which have borne many accomplishments. The results reflect DLA’s commitment to increased LTG H. T. Glisson, USA customer satisfaction, obtained through Director, Defense Logistics Agency improved quality and lower costs. Our investments in modern technologies and leveraging our buying power have been instrumental in reducing costs and improving quality. Our customer, the warfighter, has and i (This page intentionally left blank)
ii MESSAGE FROM THE COMPTROLLER
am pleased to present the Fiscal Year 1998 Annual Financial Statements for the Defense Logistics Agency Working Capital Fund, prepared in accordance with the Chief Financial Officers Act of 1990.
The preparation of these statements helps in the evaluation of the effectiveness of our financial systems and operations, and is an integral part of my strategy for improving financial management processes within DLA.
DLA has made significant improvements in financial management and reporting, and we are working hard to implement initiatives to obtain an audit opinion on future statements. We have initiated studies on Property, Plant and Equipment and inventory reporting, and developed plans of actions and milestones to address reporting concerns in these areas. These efforts have not only resulted in improved FY 98 statements, but are helping Comptroller, Defense Logistics Agency DLA to strengthen internal management Linda J. Furiga controls and improve business practices.
DLA has also significantly improved the links DLA has an exemplary record of strong between planning, programming, budgeting, financial management, which has allowed us financial results and performance goals. The to return scarce, tax dollars to the warfighter to agency is committed to improving these support readiness goals. As the Agency’s linkages so that performance is measured in Comptroller and Chief Financial Officer, I am terms of both progress in meeting proud of this achievement and committed to performance goals and the costs associated establishing a strong financial reporting record with improved performance. Linking costs to as well. higher levels of performance will enable our customers to make more informed decisions and enable DLA to provide superior, best value customer support.
Finally, I am pleased to report that the Linda J. Furiga FY 98 Overview to these statements has been Comptroller, Defense Logistics Agency improved as well to provide enhanced information on agency goals, performance measures and accomplishments, all of which are in direct support of the Agency’s strategic plan.
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iv Table of Contents
Message from the Director i
Message from the Comptroller iii
Table of Contents v
Overview of the Principal Financial Statements 1
Introduction to the Defense Logistics Agency...... 3 Performance Supply Management...... 11 Distribution ...... 19 Reutilization and Marketing ...... 25 Information Services...... 31 Automated Printing Service ...... 35 Management’s Discussion and Analysis...... 41
Principal Financial Statements 45
Consolidated Balance Sheet...... 47 Consolidated Statement of Net Cost ...... 49 Consolidating Statement of Net Cost ...... 50 Consolidated Statement of Changes in Net Position ...... 52 Combined Statement of Budgetary Resources ...... 53 Combined Statement of Financing ...... 54
Notes to the Principal Financial Statements 55
Note 1 - Summary of Significant Accounting Policies ...... 57 Note 2 - Fund Balances with the Treasury ...... 61 Note 3 - Accounts Receivable, Net ...... 61 Note 4 - Other Assets ...... 62 Note 5 - Inventory and Related Property ...... 63 Note 6 - General Property, Plant and Equipment, Net ...... 64 Note 7 - Other Liabilities ...... 65 Note 8 - Pensions and Other Actuarial Liabilities ...... 65 Note 9 - Contingencies ...... 66 Note 10 - Disclosures Related to the Statement of Net Cost...... 66 Note 11 - Deferred Maintenance on Property, Plant, and Equipment...... 66 Note 12 - Disclosures Related to the Statement of Changes in Net Position ...... 67 Note 13 - Disclosures Related to the Statement of Budgetary Resources ...... 68 Note 14 - Disclosures Related to the Statement of Financing...... 68 Note 15 - Interagency Eliminations...... 69 Note 16 - Other Disclosures ...... 70
v Table of Contents (Continued)
Required Supplementary Stewardship Information 71
National Defense Property Plant and Equipment ...... 73 Stewardship Land...... 73 Heritage Assets ...... 73 Non-Federal Physical Property ...... 73
Required Supplementary Information 75
Disaggregated Statement of Budgetary Resources ...... 76
Other Accompanying Information 79
Consolidating Balance Sheet...... 80 Consolidating Statement of Changes in Net Position ...... 82 List of Appropriations, Funds, and Accounts Included in the Financial Statements ...... 84
Auditors’ Opinion 85
Inspector General, Department of Defense Opinion Letter ...... 87
vi OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Principal Statements the of Financial Financial Overview Overview Defense Logistics Agency - Defense Working Capital Fund Defense Logistics Agency - OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 2 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Agency Defense the to Logistics Logistics Introduction Introduction OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 4 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 5 DAPS Service Printing Automated OUR ETHOS… OUR VISION… Office Services Information Defense Logistics Chief Information Support Command General Counsel - Supply - Distribution - Reutilization & Marketing - Defense National Stockpile To be America’s logistics combat support agency… logistics combat To be America’s for integrated life cycle the warfighter’s choice teamwork and partnership. solutions through professionals, an integral We are warrior focused team. We know part of the joint warfighting Armed Forces and the that victory by America’s depend on us. They lives of service members to be there, every time, can count on us logistical wherever they are, providing required the clock. support…around the world, around DLA. We We make a difference. We are Team are proud! General Counsel, Corporate Administration, and General Counsel, Corporate Administration, A secondary mission of Chief Information offices. printing DLA is the Department of Defense by the Defense which is accomplished program, Automated Printing Service. The following chart depicts the DLA organization. Director Deputy Director Comptroller Command Management Defense Contract Corporate Administration OVERVIEW OF THE DEFENSE LOGISTICS AGENCY LOGISTICS DEFENSE OF THE OVERVIEW ORGANIZATION DLA accomplishes its mission through two major DLA accomplishes its mission through Logistics commands: the Defense subordinate Defense Support Command (DLSC) and the (DCMC). Staff Contract Management Command by the Defense Automated support is provided the Comptroller, Printing and Support Center and The Defense Logistics Agency is the logistics Logistics Agency The Defense of the Department support agency for combat mission is to provide Defense. The DLA logistics support to acquisition and focused and in peace forces armed America’s the world. DLA the clock, around war—around of consumable centralized management provides surplus disposal programs, supply items, supports services contract administration to and provides the Militaryfederal, state, and Services, as well as military and foreign local governments, Supported by a comprehensive organizations. reengineering strategic plan, DLA is continually business practices to provide and improving solutions and agile, integrated combat logistics life cycle support to the warfighter. OVERVIEW OF THE DEFENSE LOGISTICS AGENCY and integrateshighlysuccessfullogistics requirements,support ofService andidentifies practices, improved information technologyin performance, newtechnologiesandbusiness emphasizes improved logisticsprocess JV-2010. Thetenetoffocusedlogistics one ofthefourcriticaloperationalconcepts and emphasizesthetenetof“focusedlogistics,” Defense’s (DoD)JointVision 2010(JV–2010), strategic planthatsupportstheDepartmentof In FY98,DLAimplementedacomprehensive Supply Management,Distribution,Reutilization statements andreported intheDWCF. Theyare: Five DLAbusinessareas thatincludedinthese statement. therefore, isreported intheDoDGeneralFund DCMC isfundedthrough appropriations and mission, programs, andsizeofDLA.However, purposes ofproviding anoverallviewofthe Fund (DWCF).DCMCisshownaboveforthe Appropriations andtheDefenseWorking Capital of $14.8billion.TheAgencyisfinancedthrough personnel andexecutedatotalbudgetprogram During FY98,DLAemployedjustover43,000 6 Agency Goals Aggressively pursuepartnershipswithindustryandoursuppliers. • Rapidly exploittechnologytoprovideagile,responsive, • Ensure ourworkforceisenabledtodeliverandsustainworldclass • Serve asacatalystfortheRevolutioninBusinessAffairsand • Consistently provideresponsive,bestvaluesuppliesandservicesto • interoperable solutions. performance. acquisition reform. customers. our DLA Strategic Goals Strategic DLA maker toenhancethedecisionmakingprocess. accurate financialinformationtothedecision buying decisionsbyproviding timelyand enables thecustomertomakeeconomical efficiency andproductivity improvements, and measurescosts ofsupport, performance tofoster the DWCFallowsforidentificationoffull the costofoperations.Thefinancialstructure of serviceswhilereducingthe deliveryofsupport and supportorganizations, inorder toimprove relationship betweenthemilitary operatingforces DWCF istocreate acustomer-provider Thepurposeofthe Automated PrintingService. and Marketing,InformationServices, common vision,wecancontinueoursuccesses. business areas toensure that,bysharinga objectives are implementedthroughout theDLA progress. Eachofthegoalsandsupporting the future andestablishesmetricstomeasure our The DLAStrategicPlanoutlinesourroadmap to Strategic Plan. Logistics StrategicPlan,are echoedintheDLA the Quadrennial DefenseReviewandtheDoD initiatives. Theseconcepts,whichare setforth in OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 7 1.21% FY98 Actual Training Investment 1.13% % of Training $ Per Payroll Costs FY98 Goal Strategic Plan: Implementing the Information (IT) Strategic Plan is one of the Technology primary objectives of the strategic goal to agile, rapidly exploit technology to provide solutions. The and interoperable responsive, is leading an IT Chief Information Office cross- Management Team-chartered, that is currently functional working group the implementation objectives. The refining IT Plan will be fully implemented by FY01, with substantial completion by FY99. developing objective and targets, measures implementation plans, establishing data achieve a training investment level of at least a training investment achieve cost, linked to payroll 1.5% of gross development plans, documented individual private industry reflects by FY00. This goal surpassed the interim goal benchmarks. DLA track to meet the FY00 for FY98 and is on in configuration objective. Enhancements being implemented are and tracking systems monitoring accurate tracking and to ensure of training costs. • Implementing our Information Technology The objectives include developing outcome • is to Another objective Investment: Training 83% FY98 Progress % of Employees with IDPs 100% FY99 Goal Individual Development Plans our goal of ensuring that the workforce is our goal of ensuring that the workforce class enabled to deliver and sustain world an performance, we have established plans objective to develop individual training The for all employees by the end of FY99. competencies, Agency is identifying core private sector and government researching training on competency based programs to plans to develop the best approach maximizing resources. Agency Objectives Agency Each strategic goal provides a series of a series goal provides Each strategic success targeted objectives, with supporting FY99 to FY05. The DLA dates ranging from strategies to support have Agency business areas is reported Progress goals and objectives. tied of these strategies are Many quarterly. specific focused business-area to unique, directly later in will be addressed and logistics efforts all objectives involving further detail. However, tracked and coordinated, are business areas Objectives level organizations. by staff reported development and to workforce related well underway. information technology are • achieve Plans: To Individual Development OVERVIEW OF THE DEFENSE LOGISTICS AGENCY testing andsuppliercapabilityinitiatives. items, andadditionalcostsof$38millionfor remediation ofsystems,devices,andfacility DLA estimatesatotalcostof$43millionfor for implementationbyMarch 1999. DLA non-missioncriticalsystemsare scheduled and May 1999. implemented betweenJanuary The remaining 7missioncriticalsystemswillbe systems haveY2Kcertification andare deployed. implemented, whichmeansthatthese26 of 33missioncriticalsystemshavebeen systems in1996.AsofDecember31,1998,26 DLA beganYear 2000(Y2K)remediation ofits 8 DefenseLogisticsSupportCommand • and reported herein are: The DLAbusinessareas includedintheDWCF Year 2000Issues BUSINESS AREAMISSIONS architecture; establishanITcapitalplanning standardsimplement aclient/server based When implemented,theITStrategicPlanwill: measuringandreporting.performance collection procedures, andinstitutionalizing TheDistributionbusinessarea provides • TheSupplyManagementbusinessarea • includes three businessareas: the warfighter. categories ofconsumableitemsusedby transportation forover5million storage, issue,packing,preservation and worldwide. Thisincludesreceipt, retail materielinsupportofcustomers distribution andstorageofwholesale proper pricingofmateriel. support toensure product qualityand and combatsupport,technical consumable itemsforbothpeacetime includes inventory managementof management oflogisticsprocesses. This provides customersupportthrough TheAutomatedPrintingServices business • businessarea TheInformation Services • functions. supporting ourcriticallogisticsandprocurement our missionintheeventofafailure toanysystem Contingency Plansthatcanbeusedtosustain DLA iscurrently testingBusinessContinuityand infrastructure. our systeminterfacesoperateinaY2Kcompliant the riskandtestingsystemstohelpensure that closely withvendorsandsuppliersinassessing required byourcustomers.DLAisworking suppliers tocontinueprovide products An issueofrisktoDLAistheabilityour electronic-based documentsmanagement. focus isonthetransitionfrom hardcopy to document automationforDoD.Thecurrent area provides printing,duplicatingand transactions throughout DoD. provides transmissionandrouting oflogistics Automatic Addressing SystemsCenter, which business area includestheDefense Central DesignActivity. Inaddition,the infrastructure support through asingle maintenance, andtechnology provides software developmentand TheReutilizationandMarketingbusiness • management process. institutionalize acorporatesystemslife-cycle continuous ITeducationandtraining; workforce hasthecurrent IT skillsthrough and investmentcontrol process; ensure our items throughvehicles. salesandcontractual remaining property andhazardous waste area isalsoresponsible fordisposalof other authorizedagencies.Thisbusiness property withinthegovernmentand area supportsreuse ofexcessandsurplus OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 9 Costs to the Information; 6 3, 4 5, 11, 12 2 1, 9 8 7, 10 78 Service Defense Reutilization and Marketing 9 Center Defense Automated Addressing DLA Systems Design Center 1011 Defense Logistics Information Service 12 Defense Automated Printing Service Defense Logistics Agency Some of the key objectives of the DoD Logistics Some of the key objectives of the Point; and Skilled Logistics Workforce. Inventory Control The DLSC Long-Range Business Plan goals, which the DLA Strategic Plan goals, with consistent are these DoD principles. The DLSC Long- re-iterate objectives Range Business Plan contains 24 near-term performance metrics targeted quantifiable with for implementation between FY00 and FY05. will measures performance near-term The current under each DLSC business area. be addressed within DLSC work together business areas Three integrated and focused logistics to provide support: Supply Management, Distribution, and Reutilization and Marketing. Strategic Plan, which are supported by DLA through Strategic Plan, which are Logistics DLSC, include: Customer Satisfaction; Logistics Business Reengineered Response Time; Significantly Reduced Logistics Processes; Competitive Sourcing; Inventory Reduction; Competitive Sourcing; Reduction/Capacity Utilization; Virtual Infrastructure Customer; Modernize Selected Logistics ...Serving the Military Services manages DoD fuel, food, Around the clock, Around the world... support to America’s Armed to America’s support materiel management, distribution, warfighters and other customers. fully integrates the functions of logistics • Achieve maximum logistics productivity. • to support responsive timely and Provide 12 Defense Supply Center Columbus 3 Defense Supply Center Richmond 4 Defense Industrial Supply Center 5 Defense Supply Center Philadelphia 6 Support Center Defense Energy Defense Distribution Center DLA CENTER HEADQUATERS (DWCF BUSINESS AREAS) (DWCF BUSINESS HEADQUATERS DLA CENTER DEFENSE LOGISTICS SUPPORT COMMAND DEFENSE LOGISTICS and disposal. The DLSC mission is to provide focused logistics The Command Forces. medical supplies, and clothing commodities, in addition to 90% of the DoD consumable spare parts. The DLSC mission implements the 2010 by Department of Defense Joint Vision to the warfighter logistics support providing implement designed to processes through focused logistics, which is outlined in the Department of Defense Logistics Strategic Plan. to: key logistics goals are The Department’s A significant portion of the DLA mission is achieved A significant portion of the DLA mission Support the Defense Logistics through major DLA’s Command (DLSC), which is one of commands. The newly formed subordinate DLSC information, OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 10 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Management DLA Performance – Supply – DLA Performance OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 12 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 13 with the Distribution business area) for with the Distribution business area) and in both normal quick response situations emergency proper quality and guarantees product pricing of materiel DoD gets the best value in procuring supplies managed by DLA distribute logistics data and information to develop business relationships to advantageous to the customer integrated the training needed to provide solutions for world class support will be leveraged to improve relationships our buying power. • management (shared Transportation •management, which Technical • management, ensuring Procurement • and Obtain, manage and integrate, • and partnerships will be used Teamwork • will continue to receive Our workforce • supplier and efficient Effective commodities generated FY98 annual revenues of annual revenues generated FY98 commodities of which represented nearly 98% $13.0 billion, sales to the Military Services. Approximately support the Supply 9,800 personnel area. Management business operates business area The Supply Management in; Defense Supply Centers located four through in and two VA; Columbus, OH; Richmond, Energy and the Defense Philadelphia, PA; VA. Support Belvoir, Center in Ft. peacetime and combat support leveraged to provide efficient integrated leveraged to provide logistics support to increase or reengineered improved efficiency • Inventory management for both • will be Information technology • Business practices will be continually Overview Mission Goals The Supply Management business area provides business area Management The Supply and peacetime and services to support materiel and combat preparedness, combat operations, This includes integrated humanitarian aid. and of 4 million spare materiel management supporting weapon over 1400 parts repair Management also provides systems. Supply support items including troop management of and textiles, medical subsistence, clothing over 100 and sale of purchase supplies, and the these Together of fuel annually. million barrels The mission of Supply Management is to provide The mission of Supply Management management of through customer support that logistics to ensure logistics processes, to the Military Services support is provided right place, worldwide at the right time, to the in peacetime, and consistently at the best value scenarios. Our mission and wartime emergency, our approach is dynamic as we continue to shift to evolving changes in national in response of the Military Services, priorities, requirements marketplace. and the commercial technology, The primary logistics functions include: The long-term goals of the Supply Management consistent with the goals are business area contained in the DLA Strategic Plan. These a series of goals will be achieved through supporting strategies: OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 14 DefenseSupplyCenterPhiladelphia - DefenseSupplyCenterPhiladelphiainitiated - DefenseEnergy SupportCenterdeveloped - DefenseIndustrialSupplyCenterinitiatedthe - FY98 Accomplishments expanded the emergency scenarios. andwartime readinessServices’ andsustainabilityin feeding plan.Thisplanwillenhancethe wartime to support Services theMilitary visibility overtheWar itemsneeded Reserve commercial marketinformationtomaintain allows theCentertodevelopandaccess the (VMI) Pr the infrastructure costs. overall maintenancesupplysupport stocksandresultsinventory inreduced prices. Itreduces therequirement for the customersneedquicklyandatlower response. Theprogram allowsDLAtomeet commercial prices,andprovide rapid through large contractsatdiscounted goal istoleverageourbuyingpower integrated supplychaincontractors.The Operations (MRO)offacilitiesdirectly from Prime V services for fuel support. With limitedmilitary services forfuelsupport.With contractors toprovide infrastructure and environmental restoration byusing maintenance, construction,and will result insignificantsavings supplies related to maintenance whichenablesprocurement of requirements. base canadequatelysupportexpanded deployment, untilthecommercial industrial supplies duringcontingencymobilizationor materiel, whichensures adequatetroop program alsoprovides wartime sustainment materiel availabilitytodeployingunits.This andensurespharmaceuticals on-time withguaranteedaccesstoover 600 Services Ser V ir tual W vice StationInitiative.Thisprogram endor Pr ogram, whichprovides theMilitary ar V time V endor ManagedInventor ogram forfacility Maintenance, Repair isibility (VWV),which , and y Vice President AlGore’s NationalPartnership - - with HammerAwards inFY98.Theseare: in SupplyManagementbusinesspractices recognized twosuccessfulreinvention efforts for ReinventingGovernment(NPR) compliance withenvironmental laws.The maintaining militaryfacilitiesandensuring to reduce infrastructure costsassociatedwith emphasis onoutsourcing, thisprogram aims construction fundsandtheincreased pilot program beganinFY98atFort Bragg,NC. TheDefenseIndustrialSupplyCenterwas - - for costeffective fuelcontracts. result ismore informed decisionmaking and reports atmuchgreater speed.The economically; andprocess calculations patterns more efficiently and allow ittodeterminefueldistribution advances ininformationtechnologythat Energy Centertoincorporate Support radically reengineered bytheDefense worth ofannualfuelcontracts.Itwas lowest costformore than$3billion system isusedtodeterminetheoverall Bid EvaluationModel.Thisautomated Reser The DefenseOzoneDepletingSubstances Quality Award among 11finalistsforthePresidential returns ofozonedepletingsubstances. requirements tocustomersontheir environment, andreduces procedural ozone depletingsubstances,protects the substances. Thiseffort conserves reuse of reclaim andissueClassIozone-depleting with thecapabilitytocentrallyreceive, providesRichmond, theReserve DoD Center andDefenseDistributionDepot ve. LocatedattheDefenseSupply OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 15 2.1 FY98 Actual Response Time 2 Some orders, where requisitioned where Some orders, FY98 Goal Combined Response Time in Days Reduce DLSC Combined Logistics Logistics Response Time (LRT) for Total Pipeline (Immediate and Delayed Issues): stock material is not immediately available from called delayed are and must be backordered, includes support from both the inventory control from support includes depots, this metric the distribution points and to provide the number of days required reflects of the Supply Management the integrated support DLSC has business areas. and Distribution time goal of 2 days for established a response inventory stocks, from material issued immediately an average response and actually experienced the DLA The goal represents time of 2.1 days. Point at the Inventorytime anticipated Control package requisition, the and Depot to process or to on-base delivery the items, and provide that nearby sites. It is important to understand time experienced by the the total response user places an the time the customer—from the the user receives until the time that order items. The item—is 18 days for immediate issue the average amount additional 16 days represents takes to process of time that the user organization to DLA and the time and deliver the requisition consumed for deliverythe actual of the item to end-user after DLA ships it. This measure 80.7% FY98 Actual The LRT performance % of Satisfied Customers 65% FY98 Goal Increase Customer Satisfaction Performance Measures Performance Logistics Response Time (LRT) for Immediate Issues: the DLA Strategic Plan goal of support measures best value responsive, consistently providing supplies and services to our customers. Because integrated logistics support for consumable items The following performance measures are in direct are measures performance The following the Plan goals and of the DLA Strategic support and concepts. These program logistics Department’s those that best are measures financial performance activity goals and near-term support the business our customers’ perspective. objectives from Index: Customer Satisfaction DLA objective of achieving the supports directly the reflect The results 90% customer satisfaction. that responded of customers who percentage either “very or “satisfied” with satisfied” they were the Defense Logistics Support Command of and services. FY98 performance products FY98 goal of 80.7% substantially exceeded the based on 65%. The FY98 goal was established of 60%. The FY99 and the FY 1995 results to reflect subsequent goals have been adjusted and effort FY98 performance, and increased increases incremental to make required resources as performance nears 90%. OVERVIEW OF THE DEFENSE LOGISTICS AGENCY different thantheotherLRTmeasures, inthatthe delivery. measure Thisperformance issomewhat commercial supplier, withinanegotiatedtimefor activity toorder materialdirectly from the Often, thesearrangementsallowtherequiring to supplyitemsdirectly totheMilitary customers. contractual agreements withcommercial sources from inventory. Assuch,DLSChasestablished requisitions from commercial stocks ratherthan toourcustomers,DLSCsatisfiesmany services providing responsive, bestvaluesuppliesand Commercial Practices: Response TimesforIntegratedLogistics/ allow formore rapidresponse forallitems. more whichcan primevendorarrangements, contracts, direct vendordelivery, andestablishing is focusingonimplementationofmore long-term and afocusoneachsegmentofthepipeline.DLA emphasis onimproved ICPanddepotprocessing, by 8days.Thisimprovement isattributedtoan goal. DuringFY98,totalresponse timeimproved issues. DLSCisontarget tomeettheDoDFY00 pipeline, whichincludesimmediateanddelayed target response timeof18daysforthetotal FY97 baselineof36days.ThisequatestoaFY00 issues (totalpipelineLRT) measured againstthe for thecombinedimmediateissuesanddelayed has targeted a50%reduction intheresponse times longer response timethanimmediateissues.DoD issues. Delayedissuesrepresent asignificantly 16 Reduce Total Combined Logistics Jan 98 Actual Combined Response Time in Days 37 Response Time Sep 98 Actual Consistentwith 29 goal of95%. result exceeding90%.InFY98,DLAmetthe has consistentlyachievedaproduct conformance electronics, industrialandgeneralsupplies.DLA Currently thisindicatorappliestoconstruction, divided bythenumberoftotalNSNstested. critical andmajordefectsorcharacteristics, Numbers (NSNs)thatpassedrandomtestingfor measure reflects thenumberofNationalStock supplies andservicestoourcustomers.This consistently provide responsive, bestvalue supports theDLAStrategicPlangoalto Product Conformance: times: experienced delivery contractrequirements,delivery ortheactual times represent thetypicalnegotiateddirect costs.Thefollowing investment andinventory DLA experienceloweroverallcosts,infrastructure customerand DLA inventories,boththemilitary and candelivermore rapidlythandeliveriesfrom the provider meetsthenegotiatedresponse time, for whichthere isnospecificnumericmetric.If goal istomeetorexceedcustomerexpectations, adaeadRpi at:23days 21days Hardware andRepairParts: 2 days Clothing andOtherTextiles: Subsistence (Food)andMedicalItems: Energy (Fuel): FY98 Goal Percent of Conforming Products Production Conformance 95% 100% on-demandavailability This measure directly FY98 Actual 95% OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 17 86.6% 2.24% FY98 Actual FY98 Actual 2% 85% Percent of Supply Availability FY98 Goal FY98 Goal Percent of Decrease in Cost of Information Reduce Cost of Logistics Information Increase Weapon System Supply Availability Reduce Cost of Logistics Information: supports the DLA Strategic directly This measure total costs to our Plan objective of reducing in the reduction customers. This metric reflects Information the price that the Defense Logistics for logistics services and Service charges in which ultimately results information products, Examples of a lower price for consumable items. supply chain-related are information products catalog training, extracts, and database and updates. This measure This 87.6% FY98 Actual 85% Percent of Supply Availability FY98 Goal Increase Overall Supply Availability directly supports Plan goal to the DLA Strategic directly value best responsive, provide consistently and servicessupplies This to our customers. of requisitions the percentage reflects measure hand, stock on filled immediately from that are DLA exceeded the FY98 without interruption. goal of 85% by 2.6%. Overall Supply Availability: Overall measure directly supports the DLA Strategic Plan supports directly measure best responsive, goal to consistently provide value supplies and services our customers. In to goal of 85% FY98, DLA exceeded the composite set by DLA for weapon system supply availability. not meet 85% for the availability did However, each Military Service. Low stocks of critical aviation supplies, for which DLA assumed and the DLA focus management only recently, items, on investing in fast-moving, lower-priced supply in the Navy and Air Force resulted availability averaging slightly below the 85% aviation goal. DLA is focusing on replenishing in FY99 supply levels. Anticipated increases funding authority will be used to improve aviation system supply performance for our Navy customers. Overall, supply and Air Force in a over FY97, resulting availability increased items. of backordered decrease Weapon Systems Supply Availability: OVERVIEW OF THE DEFENSE LOGISTICS AGENCY other supportcosts. value ofmaterialinadditiontooverheadand The non-Energy costrepresents theacquisition were substantiallylowerthaninitiallyplanned. $20.27 than theFY98goalduetoproduct costs,which overhead. TheFY98actualunitcostwaslower transportation,and costs forfuelservices, $25.87 $.9594 acquisition costofabarrel offuelinadditionto The CostperBarrel ofFuelincludesthe $.9600 Non-Energy CostperDollarofSales Cost perBarrel ofFuel Financial Per commodities: (fuel) commodityandthecompositenon-energy Management unitcostresults fortheEnergy measures. ThefollowingtabledepictstheSupply and executionwithunitcostperformance measures theeffectiveness ofprogram budgeting addition toprogram performance measures, DLA Financial PerformanceMeasures: 18 for mance Measur es FY98 Goal In FY98 Actual OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Distribution – Performance Performance DLA OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 20 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 21 Defense Distribution System and FedEx DLA and Federal Powership Plus Interface: formed a partnership to build an Express transmit shipment interface to electronically information for domestic small package from shipments. The depot benefits express time savings and the ability to processing print one label containing both military shipping labels and FedEx information/ barcodes. as necessary, to ensure efficiency, to ensure as necessary, for our effectiveness, and best value costing customers eliminating unnecessary capacity storage business area executed 25.9 million transactions 25.9 million executed area business of million cubic feet nearly 266 and managed space. occupied storage reduced business area In FY98, the Distribution of the control overhead regional by consolidating in a single distribution activity distribution depots The DDC Distribution Center. called the Defense distribution depots manages 21 subordinate Continental United States and the throughout generated business area In FY98, this Europe. and includes of nearly $1.4 billion revenues 12,140 personnel. - consistently at the best value in peacetime, scenarios. The and wartime emergency, of providing Distribution mission integral part warfighters. integrated logistical support to the • implement changes Review our activities, and • by infrastructure Reduce under-utilized ess ess (OCONUS Expr vice): DLA, in partnership vice): ide Expr cial Ser orld W W Commer with the Air Mobility Command, established contract, which this multi-theater commercial cost- reliable, will serve as a means to provide Delivery of Express effective International door small packages while also providing customs clearance and pickup and delivery, in-transit visibility. our customers by continually improving or our customers by continually improving our business practices reengineering FY98 Accomplishments Mission Overview Goals - The mission of the Distribution business area is to area The mission of the Distribution business that consumable items under its control ensure to the Military Services worldwide at provided are and the right time, to the right place, The Distribution business area is responsible for is responsible area business The Distribution issue, packing, and storage, the receipt, consumable items, as well as of preservation to on- its warehouses delivery from of materials sites such as ships, base or nearby customer facilities. DLA also contracts posts, and repair to transport sources commercial with a variety of warehouses own DLA’s vendors or items from worldwide. The function to customers direct of items managed by DLA includes distribution by the Military Services,and items managed associated in unique complexities which results items owned with maintaining accountability for the Distribution by several components. In FY98, The goals of the Distribution business area are area The goals of the Distribution business in the DLA consistent with the goals contained achieved through Strategic Plan. These goals are a series of supporting strategies: • and value to response, our reliability, Increase OVERVIEW OF THE DEFENSE LOGISTICS AGENCY - - 22 goal ofconsistentlyproviding responsive, best measure directly theDLAStrategicPlan supports Depot LogisticsResponseTime: near-term objectivesare: that bestsupportthebusinessactivitygoalsand program andfinancialperformancemeasures support oftheDLAStrategicPlangoals.The The followingperformance measures are indirect Performance Measures Reduce Depot Logistics Response Time Pr Deliver Overseas Destinations—Commer this service. and received 11,233return receipts using During 1998,weshipped174,180issues hours whenexpediteddeliveryisnecessary. hours, andanywhere intheworld48 TN toanywhere intheUnitedStates24- items from acentralwarehouse inMemphis, Express flylowvolumebutreadiness-critical items directly totheoverseascustomer. commercial contractorstoshiphigh-priority agreement ofTRANSCOM,DLAusesthree intermodal transportationnodes.Withthe overseas customer, andavoiddelaysat ships directly from theDefenseDepotsto emium Ser FY98 Goal Depot Response Time in Days y: Thiscommercial express service 1 Immediate Issues vice: hasFederal Thisservice FY98 Actual 0.8 cial Dir This ect Vice President AlGore’s NationalPartnership - system were 81.0%and93.4%.Thesampling meaningful manner. Theresults from each not possibletocombinethestatisticalresults ina accuracyinFY98andtherefore,inventory itis System (DSS),twosystemswere used tomeasure than thedepotsusingDistributionStandard Navy depotshaddifferent samplingcapabilities is measured semi-annually. Becausetheformer depots. Randomsamplesare takenandaccuracy physical countsmatchrecorded balancesatthe using statisticalsamplingtodeterminewhether measure reflects theaccuracyofinventoryrecords supplies andservicestoourcustomers.This consistently providing responsive, bestvalue directly theDLAStrategicPlangoalof supports Sample InventoryAccuracy: combined highpriorityandroutine issues. weighted actualresponse timeof.8daysfor time of.6daysforhighpriorityissuesanda FY98, thebusinessarea achievedaresponse the depottodatematerialisshipped.In requisition, from thetimeorder isreceived at of daystoprocess acustomerorder or from stock.Thismeasures theaveragenumber high-priority immediateissuesandroutine issues goal oflessthanorequaltoonedayforboth The DistributionBusinessarea hasestablisheda value suppliesandservicestoourcustomers. Standar recognized thesuccessof for ReinventingGovernment(NPR) accuracy andworkloadplanning. process improvements, suchasinventory Standard Systembringsmanybusiness needs atthelowestcost.TheDistribution modified andenhancedtobestmeetDoD systems andselectedonewhichcouldbe a newsystem,DLAreviewed existingDoD difficult andexpensive. Insteadofdeveloping and improvements todepotoperations using different systems,whichmadechanges Servicesoperatedsupplydepots the Military depots. Previously, theAgencyandeachof distribution systematallDoD DLA developedandimplementedasingle d System withaHammerAward.d System Distribution This measure OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 23 In FY98 Actual 68% The Distribution FY98 Actual FY98 Goal es Utilization Rates 66% mance Measur % of Space Capacity Utilized for FY98 Goal Financial Per Bin ReceiptsMedium Bulk Receipt Bulk ReceiptsHazardous/Heavy Bin Issues On Base BaseBin Issues Off $ 56.30Medium Bulk Issues On Base $ 36.15 BaseMedium Bulk Issues Off $ 56.56 Haz/Heave Bulk Issues On Base $ 21.84 $ 27.86 BaseHaz/Heave Bulk Issues Off $ 34.94 $ 12.95 $ 36.12 $ 52.49 $ 21.87 $ 16.63 $ 26.19 $101.56 $ 12.59 $ 38.62 $ 49.60 $ 17.71 $109.07 Financial Performance Measures: Financial Performance Measures: Infrastructure Reduction: Infrastructure infrastructure reduce to in an effort area, business capacity and occupancy storage costs, measures utilization rates in space improvements to identify and eliminate unnecessary space. The goal of to the DLA directly space utilization ties increasing to serve as a catalyst in Strategic Plan goal the and reform, and acquisition business affairs In overall infrastructure. objective to reduce space utilization rate of 66% FY98, the planned 2%. was exceeded by DLA performance measures, addition to program budgeting of program the effectiveness measures and execution with unit cost performance table depicts the The following measures. for each of their Distribution unit cost results and issue categories: receipt 8 93.4% FY98 Actual FY98 Actual Inventory Accuracy 8 95% Reduce Denial Incidents This measure also directly supports the also directly This measure FY98 Goal FY98 Goal % Accuracy of Inventory to Records Number of Denials per 1,000 Requests Denials: providing DLA Strategic Plan goal of consistently best value supplies and services to responsive, denial our customers. This metric measures for issues. A denial incidents per 1000 requests on the incident occurs when an item recorded is not on-hand or cannot be inventory records to a located and made available for issue customer. plan used at formerplan used had discrete Navy depots item category we capabilities. In FY99 sampling the into features similar plan to incorporate permits System, which Standard Distribution better inventory management. OVERVIEW OF THE DEFENSE LOGISTICS AGENCY ntCs oa 2.4$25.78 $5.23 cost thatexceededthegoalby$0.84. $6.31 $24.94 expected. Thesefactorsresulted inatotalunit $4.61 the workloadforalloutputswaslowerthan $7.89 transshipments were higherthanprojected, and In FY98,costsforoff-baseissuesand Unit Cost–Covered Storage Unit Cost–Total Transshipments Financial Per 24 for mance Measur es FY98 Goal FY98 Actual OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Service Reutilization – Marketing Marketing & Performance Performance DLA OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 26 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 27 ol Point (RCP): Under this ol Point (RCP): Recycling Contr proceeds will be returned to DRMS and 20% will be returned proceeds This partnership with to the contractor. sales private industryincrease is expected to this of costs. The results and reduce revenue will be analyzed to venture first commercial of additional contracts for award determine other types of commodities. initiative, disposal property is “received” into a is “received” initiative, disposal property Point account via an Recycling Control - needed for national defense. The goal is to needed for national defense. The on the initial maximize the financial return both equipment investment, and protect and the environment. valuable natural resources organization in Battle Creek, MI. The mission is MI. The Creek, in Battle organization and Reutilization Defense through accomplished on military (DRMOs) located Marketing Offices the world. DRMOs installations throughout account demilitarize, segregate, classify, receive, lot excess materiel for screening, for and report sale. The FY and categorization, merchandising, performed with just under 1998 mission was of and generated revenues 3,300 personnel portion of the FY 1998 $590M. A significant a $351 million Service from resulted revenues losses prior year to recoup Level Billing effected in DRMS. e: In 1998, the Defense In 1998, e: entur cial V Commer Reutilization and Marketing Service awarded contract, which venture its first commercial the contractor with exclusive rights provides consisting of machine property to purchase tools, bearings, service trade equipment, equipment, electronics, warehouse and construction marine, railroad hardware, the equipment. The contractor purchases it using private sector and can resell property 80% of Upon resale, sales processes. FY 1998 Accomplishments Mission Goals Overview - The Defense Reutilization and Marketing ServiceThe Defense Reutilization and Marketing and donation transfer, manages the reutilization, as well as sale of military personal property, waste items no longer disposal of hazardous and The long-term goals of the Reutilization consistent with the are Marketing business area Plan. These goals contained in the DLA Strategic a series of supporting achieved through goals are to improve objectives and initiatives designed business practices to ensure and reengineer and best value costing. effectiveness, efficiency, The Defense Reutilization and Marketing Service Reutilization The Defense excess and of the reuse (DRMS) coordinates of Defense the Department for surplus property agencies. Items that are and other authorized for screened within DoD are not reutilized to other Federal agencies, or for possible transfer property Surplus governments. donation to local for sale to the is offered that cannot be reutilized basis. DRMS also public on a competitive and property of remaining oversees the disposal sales and waste items through hazardous contractual vehicles. of the DRMS mission is Command and control the headquarters accomplished from OVERVIEW OF THE DEFENSE LOGISTICS AGENCY - 28 declined from $.27perpoundto.22 identification. InFY98,theaveragedisposalcost hazardous wastemanagementand techniques, improved automationandimproved disposal area, usinginnovativecontracting reduced customercostsinthehazardous waste value. Forthefifthyearinarow, DRMShas a costof$.013onthedollaracquisition Federal, andStatecustomers,isachievedat This $5billionrepresents costavoidancetoDoD, billion initems,basedonlatestacquisitionvalue. In FY98,DRMStransferred, ordonatedover$5 costs. benefit toDoDthatisthree timesgreater than Reutilization andMarketingServiceprovides a current ratioof1:3.07meansthattheDefense cost toprovide Forexample,the theservices. resulting costavoidance,ascompared tothe in termsofreutilization, transfers,sales,andthe providedthe totalvalueofservices byDRMS our customers.TheTotal Value ratioidentifies responsive, to bestvaluesuppliesandservices DLA StrategicPlangoalofconsistentlyproviding Total Value: accordingly. FY99 andreported intheStatements performance measures willbeineffect during of theDLAStrategicPlan.Thoseadditional performance measures thatare indirect support DRMS begantodevelopadditionalprogram presented forDRMSFY98.DuringFY98, There are measures limitedperformance Performance Measures Reutilization and Marketing Service createdReutilization andMarketingService a For movements, andimproves accountability. through reduced physicalhandlingand ultimate customer. Thisdecreases costs only whendirected byDRMSforshipmentto Web Siteandproperty movesfrom thedepot process World viatheDRMSInternet Wide shelves. RCPautomatesthescreening andsales remaining inplaceontheDefenseDepot electronic transactionwiththeactualproperty eign Militar Thismeasure directly supports the y Sales –TheDefense y Sales reimbursements are madein atimelymanner. developed andimplementedtoensure thatall was eliminatedandnewprocedures were $18 millionbacklogincustomerreimbursements pound. AdditionallyinFY98,alongstanding sold inlieuofultimatedisposal.) for HMreutilization, transferred, donatedor acquisition value,plusacostavoidancecredit minus reutilization calculatedat2.5%of requests, acostsavingscredit fordispositions acquisition valueofserviceablereutilization sales, FMSprecious metals,acredit forfull projected revenue from scrapsales,usable (NOTE: Total valueisderivedbyadding: Employee oftheYear awards fortheseefforts. Outstanding DefenseLogisticsAgency program managerreceived oneoften are alsoavailableforsomeitems.The location toobtaindescriptivedata.Photos name, weaponsystem,andgeographical byNationalStockNumber,inventory item database. FMScustomerscansearch the allows accesstoasearchable andsortable foreign sales(FMS)Web military sitethat Ratio of Value added to Total Cost FY98 Goal Increase Total Value 1 FY98 Actual 3.07 OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 29 FY98 Actual In $293.72 $241.53 FY98 Goal es mance Measur for Financial Per Value Cost/Dollar of Acquisition - Reutilization/Transfer/DonationCost/Dollar of Sales Proceeds $0.01496DisposalCost/Pound - Ultimate Cost/Line - Abandonment and Destruction $0.01296 $1.0551 on Beginning in FY98, DRMS was measured $0.195 two in FY97. four unit cost goals, as opposed to $1.0125 and Abandonment & The Sales Proceeds $0.185 established, and Destruction goals were as Ultimate Disposal was renamed Hazardous was changed Disposal and the output measure lines to pounds. FY 1998 performance for from significantly Abandonment & Destruction was a new goal in below the unit cost goal. This was lower than FY 1998 and actual workload was the most planned. This goal represents performedexpensive effort by DRMS, but also the least amount of workload (less represents goal than 2%). This makes the workload in minimal impact but results to project, difficult on total costs. Financial Performance Measures: Performance Financial performance measures, to program addition program of effectiveness the DLA measures with unit cost and execution budgeting table The following performance measures. Reutilization and Marketing depicts the Defense support for each of their Service unit cost results categories: OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 30 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Services DLA Performance – Information – DLA Performance OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 32 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 33 97% FY98 Actual On-Time Deliveries (within 5% of estimate) 90% % of Deliveries Made On-Time FY98 Goal provided through three major program areas: major program three through provided and Maintenance; Development Software and; the Support, and Infrastructure Technology System Center Defense Automatic Addressing and Laboratory Operations. headquartered in Columbus, OH and supported OH and in Columbus, headquartered sites. satellite geographically dispersed by eight Services business area In FY98 the Information 1,100 employees with consisted of approximately Non-DLA customers of $104.8 million. revenues of the FY98 revenue. accounted for 23% Another, extremely critical goal for the extremely Another, is to ensure Information Services business area Systems are that all DSDC-supported Information 2000. DSDC has developed a compliant for Year to number of important objectives in this area of DSDC include: complete remediation transition supported business systems, complete and full to the OS/390 operating environment integration testing of all Y2K supported software. This measure relates This measure Performance Measures Goals Mission Overview On-Time Delivery Rate: to the DLA Strategic Plan goal of directly best value supplies and responsive, providing services to our customers. It also has a direct to customer satisfaction. This relationship that of time the percentage reflects measure to the customer within 5% delivered are projects of the originally scheduled or re-baselined estimated time for completion. It is used by ability to management to determine DSDC’s efforts. project forecast The success of the Information ServicesThe success of the Information business determined by the satisfaction of its is largely area primary goal is to provide customers. DSDC’s best value supplies and consistently responsive, of this services to its customers. Accomplishment productivity, improved goal is achieved through DSDC seeks to deliver 95% and delivery. quality, on time and within budget. of products The mission of the Information Services Information The mission of the business information integrated is to provide area and products management support by delivering cost, quality and decreasing services of increasing support is on time and within budget. This The Information Services business area serves as a ServicesThe Information area business information of integrated provider primary This support is provided management support. System Addressing by the Defense Automatic in Dayton, OH and Tracy, Center (DAASC) located System Design Center (DSDC) CA, and the DLA OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 34 operational innature. be classifiedasapplication-based,andnot received bytheHotlinedesk.Thedefectsmust is thenumberofactualsystemdefectcalls implemented asoperationalsystems.Themetric the qualityofDSDCsoftware products thatare satisfaction andproduct reliability. Itidentifies DLA StrategicPlanobjectivesforcustomer Hot LineCalls: Thismeasure directly relates to DSDC’s abilitytoforecast project andtaskcosts. management tomeasure theeffectivenessof or re-baselined costprojections. Itisuseby the customerwithin5%oforiginallyestimated percentage oftimethatprojects are delivered to reducing totalcosts.Thismeasure reflects the meeting orbeatingourpricecommitmentsand also relates toDLAStrategicPlanobjectiveof Within BudgetDeliveryRate: Received FY98 Goal Budget (within 5% of estimate) 176 Within Budget Deliveries % of Deliveries Made Within 90% Hot Line Status FY98 Actions Completed 152 FY98 Actual Cancelled 97% Thismeasure 24 Center (DSDC): goal andactualfortheDLASystemsDesign following tabledepictstheFY98unitcost Financial PerformanceMeasures: ntCs ae$72 $62.72 fully achieved. support billableproductive hours,whichwasnot $57.24 administrative andindirect assetsinFY98to included aninitiativetoleveragegeneraland was notmet.Theproductive hourplan because thegoalforbillableproductive hours DSDC exceededtheirunitcostgoalinFY98 Unit CostRate Financial Per for mance Measur e FY98 Goal FY98 Actual The OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Service Printing Printing DLA Performance – Automated – DLA Performance OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 36 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 37 organization. This includes meeting or This includes organization. exceeding customer delivery requirements and the customer satisfaction metric, as well informas effectively all customers of DAPS and services. products automation services to our customers. This digital includes marketing plans to promote Line, and services, Product the Department the technical expert image of DAPS. improving meeting the DLA Strategic Plan goal of establishing Individual Development Plans for all DAPS employees by the end of FY99, and costs payroll investing at least 1.5% of gross in training. • of document the full portfolio Promote • 2000 Skills. This objective includes Build Team DAPS manages a worldwide printing, duplicating, a worldwide DAPS manages and production automation and document network. The DAPS Corporate procurement Virginia is located at Ft Belvoir, Support Team locations and 238 smaller with 80 major field facilities located in 12 document automation 1,900 civilian countries. Approximately the DAPS mission. DAPS had personnel support primary of $377.8 million. DAPS’s FY98 revenue Army Navy (31.1%), Air (21.8%), customers are (22.7%), and (16.2%), Defense agencies Force non-DoD customers (8.2 %). DAPS is the recognized leader in document DAPS is the recognized provider automation and the customer-preferred hardcopy of best value automated digital and and services. DAPS is information products to dedicated to the transition form paper is document management, and electronic-based of Defense an integral part of the Department electronic plan to transition into the age of documents and business practices. personnel and infrastructure to effectively personnel and infrastructure execute it mission. This includes determining and Organization the DAPS Most Efficient costs, as well developing a plan for reducing and services as benchmarking our products against the best in private industry. commitment as a customer driven Goals Mission Overview The long-term goals of the Automated Printing The long-term goals of the Automated consistent with the are Service business area goals contained in the DLA Strategic Plan. These a series of goals will be achieved through supporting objectives. Some of the primary objectives planned for implementation by FY00 are: • with the minimum Design the organization • Maintain a constant focus on our The Defense Automated Printing ServiceThe Defense Automated Printing printing services automated provides Armed of America’s world-wide in support conversion, encompassing electronic Forces, and distribution of digital output, retrieval, information. DAPS provides and hardcopy and services that are quality products on time competitively priced and delivered to their customers. The Defense Automated Printing Service Automated The Defense (DAPS) is for the Department(DoD) of Defense responsible and document automation printing program conversion, electronic encompassing value-added and the distribution of hard storage and output information. All DoD printing copy and digital or in-house whether produced requirements, Government Printing the through procured to DAPS to ensure forwarded Office (GPO), are the Federal and DoD Directives compliance with Joint The Congressional Printing Program. oversight of all Committee on Printing exercises in-house federal printing including the DAPS printing capability. OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Vice President AlGore’s NationalPartnership - DLAsigneda - Implementationofthe - • Partner with government toimprove Partnerwithgovernment synergistic • 38 out theDAPSexpertiseindigitalconversion. served asacatalystforDAPScustomerstoseek including severalDefenseReformInitiativeDecisions, because initiativesemphasizingautomation, another. DAPSexceededthegoalinFY98,largely output todigital,andfrom oneformofdigitalto contract, andincludehardcopy todigital,system pages maybeaccomplishedin-houseorby document automationtechnology. Conversionof measure focusesonaccelerating theuseof pages (inmillions)convertedtodigitalformat.This acquisition reform. DAPSmeasures thenumberof catalyst fortherevolution inbusinessaffairs and tied totheDLAStrategicPlangoalserveasa Conversion toDigitalFormat: FY98 Accomplishments Performance Measures automation servicestoGSAandotherfederal system witha Government BillsofLadingtoanautomated labor-intensive process forrecording recognized theDAPSeffort forchanginga for ReinventingGovernment(NPR) Agr Government Standard GeneralLedger. and thefirsttofullyimplementU.S. accounting system the-shelf DoDmigratory completed. DWAS isthefirstcommercial off- Capital AccountingSystem (DWAS) was reduced requirements forpaper. visibility oftransportationpayments,and reduced latepaymentpenalties,increased data retrieval where theinvoices were paid, of obligationdata:electronic storageand resulted inincreased accuracyandtimeliness customers receive thebestvalue. roles andrelationships, andensure thatDoD PrintingOfficethe Government tooutline relationships. with Thisincludespartnering eement forDAPStoprovide document DoD/GSA Partnering Hammer A Defense W war d. Thiseffortd. Thisgoalis orking Developandimplementa“DAPSAtThe • DAPSiscontinuingtoacceleratethe - UsinganextendedGSAcontractwithmajor - Network Strategy. TechnologyDAPS Information planand DAPS sites.Thisincludesimplementingthe Desktop Strategy”toconnectcustomers $70-92 pertransaction. worth $48million,withsavingsestimatedat transactions numberover130thousand, products andserviceswiththecard. DAPS significantly increased accessibilityofits intra-government sales,whichhas acceptance oftheuniversalI.M.P.A.C. for between 5to35percent tothecustomers. Program (MFDs)willresult insavings Program andthenewGroup Connection Successful partneringintheCost-Per-Copy following functions:print,copy, scan,andfax. can simultaneouslydeliveratleasttwoofthe the equipment manufacturers, DAPSisnowoffering savings tothefederalgovernment. estimated toresult in$4.3millionannual centers were transferred toDAPS,whichis agencies. GSA’s tenremaining duplicating Conversion to Digital Format Multi-Functional Device(MFD),which 98 Goal Pages (in Millions) Converted 15.5 98 Actual 24.1 OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 39 FY98 Actual In 0.18% 98 Actual FY98 Goal es In-House Rework mance Measur 0.50% 98 Goal for % of Revenue Lost Due to Rework Requirement Financial Per Unit Press Cost per Offset ImpressionCost per Electronic (Cost per Running Feet)Reproduction $0.3346 $0.0299 $0.0402 $0.2880 $0.0324 $0.0363 addition to program performance measures, DLA measures, performance addition to program of program the effectiveness measures cost budgeting and execution with unit The following table performance measures. depicts the Automated Printing Service unit cost categories: for each of their support results Financial Performance Measures: Financial Performance Measures: In-House Re-work Percentage: This metric ties This metric Re-work Percentage: In-House Plan goal of the DLA Strategic to directly value best responsive, providing consistently customers. This and services to our supplies It is the cost of re-work. metric helps determine orders loss from revenue calculated by dividing the customer by the total in- not accepted by revenue. house production This metric 100% 98 Actual This metric ties to the This metric Production Efficiency 98.9% 98 Goal % of Units Produced per Employee Hour Customer Satisfaction: Customer DLA Strategic Plan goal of consistently providing Plan goal of DLA Strategic to supplies and services best value responsive, a survey of a statistical DAPS uses our customers. to determine an overall sampling of customers rating. Satisfied customers customer satisfaction of customers percentage by the measured are acceptable from ranking DAPS performance survey The was last quality. high through FY96 and another surveyconducted during is with a goal of 90% overall planned for FY99 customer satisfaction. Production Efficiency Factor: of consistently ties to the DLA Strategic Plan goal and best value supplies responsive, providing standards services to our customers. Production and process established for each production are per hour. stated in terms of units produced are hours converted to standard The units are by cost earned. Employee time is captured hours center as hours available. The employee to divided into the hours earned available are factor shown efficiency the production produce under slightly DAPS performed as a percentage. due to lower than the FY98 goal, largely expected sales. OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 40 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY Statements Financial Financial the of Management’s Discussion and Discussion Management’s Analysis Analysis OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 42 (This pageintentionallyleftblank) OVERVIEW OF THE DEFENSE LOGISTICS AGENCY 43 capitalized over $700 million in inventory at capitalized over $700 million in inventory in an cost. The transfer resulted standard balances for the Defense-wide in cash increase Capital Fund cash account, as DLA Working material that was initially sold the transferred adjust for Services. Military by the To purchased cash this impact, DLA made non-expenditure transfers of $569.1 million to the appropriate Military Services during FY98. The transfer of consumable items ends in FY99. In FY98, 28 Defense Reutilization and Marketing in the continental United States were Offices size the disposal to properly closed in order workload current to match infrastructure volume and dispersion. DRMS negotiated mutually satisfactory arrangements with disposal customers for providing affected FY98 also marked services after the closures. completion of the second phase of a 25% in DRMS headquarters overhead reduction positions. A total of 101 positions were eliminated within the headquarters overhead The statements should be read with the with read should be The statements U.S. an Agency of the for are that they realization Intra- entity. Government, a sovereign those with governmental are assets and liabilities Fund For example, DLA’s other Federal Agencies. Department, the U.S. Treasury Balance is held by DLA has no authority to agency. another Federal budgetary by its covered pay liabilities not of such liabilities requires limitations. Liquidation Because the U.S. appropriation. enactment of an certain entity, sovereign Government is a that for contracts, can be liabilities, other than by new legislation. abrogated developed in The FY98 financial statements were of conformance with the Federal hierarchy DLA used accounting guidance. In that regard, published Statements of Federal Financial and Content OMB Form Accounting Standards, Defense Guidance, and the Department of Financial Management Regulation. Introduction, Purpose and Limitations of Financial Statements of Financial and Limitations Purpose Introduction, Discussion and Analysis of Fiscal Year Operations and Financial Condition Discussion and Analysis The DLA DWCF business areas ended FY98 with The DLA DWCF business areas costs of $14.0 billion, and total adjusted program of $14.3 billion, for a net cost earned revenues positive net of operations of $267 million. The part to the was due in large operating result in the Supply lower than expected price of fuel of a Service Level and the effect business area, prior year losses in DRMS. The Billing to recover segment of the Supply Management non-energy as well as the Distribution, business area, ServicesInformation and Automated Printing experienced losses in Services areas, business in budgeted for recovery FY98. These losses are FY99 and FY00. Some significant management initiatives were planning for FY98 into the financial factored The the financial results. and ultimately affected which is the DoD Consumable Item Transfer, transfer of management of consumable directed the Military Services to the Defense items from continued in FY98. During Logistics Agency, over 23,000 items and DLA received the year, These financial statements have been prepared to have been prepared statements These financial of and results the financial position report pursuant to the entity, operations for the Chief Financial Officers Act of of the requirements Management Reform 1990 and the Government U.S.C. 3515(b). Act of 1994. 31 include all of the DLA These financial statements Fund activities and associated Capital Working These statements have been budget authority. of the the books and records from prepared the with in accordance Agency, Defense Logistics by the Office of Management formats prescribed and Content Budget (OMB) Bulletin 97-01,”Form These of Agency Financial Statements.” to the budgetary reconciled statements are the same books from prepared are which reports basis of but on a different and records, President’s accounting, – the same basis as the with the budget, rather than in accordance (GAAP). Generally Accepted Accounting Principals OVERVIEW OF THE DEFENSE LOGISTICS AGENCY an evaluationofthemanagementcontrol Integrity Act(FMFIA)of1982,DLAhasconducted As required bytheFederalManagers’Financial the endofCalendarYear 1999. Based CostingtoallDLSCsupportactivitiesby PlansareMarketing Services. toexpandActivity Susquehanna, andDefenseReutilization DefenseDistributionDepot Information Service, Supply CenterColumbus,DefenseLogistics have beensuccessfullycompletedatDefense eliminate activityfragmentation.Pilotprograms regarding streamlining ofoperations,aswell can assistmanagementinmakingdecisions (ABC). ABCprovides detailedcostvisibility, which emphasis ontheuseofActivityBasedCosting the DepartmentofDefensehasincreased the additional visibilityofcostandpricingstructures, concern foranumberofyears.To gain Cost visibilityacross theDepartment hasbeena be competedbytheendofFY00. additional depotsand58DRMOswill to complete,anditisanticipatedthat13 competitions willtakeapproximately twoyears functions are contractedout.Theinitial least 10%lowerthanthegovernmentcost, services. Iftheprivatecontractorproposal isat against privatesectorbidstoperformthesame Efficient Organization costoflogisticsprocesses process compares thegovernment’s Most Marketing Offices(DRMOs)respectively. This depots andtenDefenseReutilization process ofcompetitivesourcing three distribution and MarketingServicebusinessareas beganthe In FY98,boththeDistributionandReutilization by FY00. to saveatotalof$34millioninoperationscosts will save$16millioninFY99andare projected full timeequivalentpersonnel.Thesereductions Center inFY98resulted inareduction of355 overhead operationsattheDefenseDistribution infrastructure costs.Thestreamlining of of distributiondepots,resulting inreduced The Agencycontinuedthedirected consolidation and reengineering efforts. structure through consolidation,realignment, 44 Representation Letter. footnotes and/ortheManagement in theseStatements,itisannotatedthe impactstheaccountsreportednonconformance where anidentifiedmaterialweaknessor Annual Statementofassurance.Inanycase, arenonconformances alsoreported intheDLA compliance withGAOguidelines.Thosematerial certification thatthesystemisinsubstantial more majornonconformancewhichpreclude remaining sixaccountingsystemscontainoneor standards, andrelated requirements. The compliance withtheGAOaccountingprinciples, seven systemsconsidered substantiallyin operating accountingsystems,withoneofthe Finance andAccountingService.DLAhasseven (GAO), andwasperformedbytheDefense as definedbytheGeneralAccountingOffice encompassed theoperatingaccountingsystems, are currently beingimplemented. Thisreview corrective actionplanshavebeendevelopedand FY98 AnnualStatementofAssurance,and weaknesses were identifiedandreported inDLA’s FY98 are operatingeffectively. Material administrative control systemsineffectduring that theDLAinternalaccountingand over theassets.Theresults ofthereview indicate statistical reports andtomaintainaccountability preparation ofaccountsandreliable financial and recorded andaccountedfortopermitthe applicable toagencyoperationsare properly assurance thattherevenues andexpenditures internal accountingistoprovide reasonable systems. Oneoftheobjectivessystem PRINCIPAL FINANCIAL STATEMENTS Financial Statements Principal Principal Defense Logistics Agency - Defense Working Capital Fund Defense Logistics Agency - PRINCIPAL FINANCIAL STATEMENTS PRINCIPAL
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46 The accompanying notes are an integral part of these financial statements. PRINCIPAL FINANCIAL STATEMENTS 47 1,759,256 12,749,105 10,989,849 12,749,105 statements. financial these of part integral an are notes accompanying The Accounts Payable (Note 16)Other (Note 7 and 9) $ 440,873 204,465 Fund Balance With Treasury (Note 2) Treasury Fund Balance With Net (Note 3)Accounts Receivable, $ 572,810 770,451 Cumulative Results of Operations 10,989,849 Military Retirement Benefits and Other Employment Benefits Military Retirement Related Actuarial Liabilities (Note 8) by Budgetary Resources Liabilities not Covered Total 209,487 209,487 Other (Note 4) Non-Entity AssetsTotal Intragovernmental Liabilities IntragovernmentalTotal Accounts Payable (Note 16)Other (Note 7 and 9) by Budgetary Resources Liabilities Covered Total 83,307 83,307 1,549,769 645,338 778,534 125,897 Intragovernmental IntragovernmentalTotal Net (Note 3)Accounts Receivable, Net (Note 5)Inventory and Related Property, Net (Note 6) Plant and Equipment, General Property, Other (Note 4) Entity AssetsTotal 753,167 9,756,123 92,825 1,343,261 12,665,798 720,422 Total Liabilities Total Net Position Total Liabilities not Covered by Budgetary Resources Liabilities not Covered Non-Entity Assets AssetsTotal by Budgetary Resources Liabilities Covered Liabilities and Net PositionTotal $ $ Entity Assets LIABILITIES Department of Defense Department Fund Capital Working – Defense Logistics Agency Defense Sheet Balance Consolidated 1998 30, As of September to Thousands) (Dollars Rounded ASSETS NET POSITION PRINCIPAL FINANCIAL STATEMENTS PRINCIPAL
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48 The accompanying notes are an integral part of these financial statements. PRINCIPAL FINANCIAL STATEMENTS 49 (267,474) statements. financial these of part integral an are notes accompanying The IntragovernmentalWith the Public Cost Program Total Less: Earned Revenues CostsNet Program $ 4,674,561 (14,296,889) 14,029,415 9,354,854 (267,474) Additional information included in Note 10. Deferred Maintenance (Note 11)Deferred Net Cost Of Operations $ – Program Costs Program Department of Defense Department Fund Capital Working – Defense Logistics Agency Defense of Net Cost Statement Consolidated 30, 1998 September period ending For the to Thousands) (Dollars Rounded Department of Defense Defense Logistics Agency – Defense Working Capital Fund Consolidating Statement of Net Cost For the period ending September 30, 1998 (Dollars Rounded to Thousands)
Reutilization Supply and Marketing
PRINCIPAL FINANCIAL STATEMENTS PRINCIPAL Management Distribution Service Program Costs Intragovernmental $ 4,380,650 $ 657,429 $ 229,916 With the Public 8,287,723 840,237 123,800 Total Program Cost 12,668,373 1,497,666 353,716 Less: Earned Revenues (13,026,799) (1,395,438) (589,676) Net Program Costs (358,426) 102,228 (235,960)
Deferred Maintenance (Note 11) – – –
Net Cost Of Operations $ (358,426) $ 102,228 $ (235,960)
Additional information included in Note 10.
50 The accompanying notes are an integral part of these financial statements. PRINCIPAL FINANCIAL STATEMENTS 51 statements. financial these of part integral an are notes accompanying The Automated Eliminations ––––– 6,944 8,962 (476,252) 208,778 (267,474) 77,433 7,400 9,336,593 18,261 9,354,854 111,753 386,735 15,018,243 (988,828) 14,029,415 Service Service Combined Adjustments Consolidated (104,809) (377,773) (15,494,495) 1,197,606 (14,296,889) $ 6,944 $ 8,962 $ (476,252) $ 208,778 $ (267,474) $ 34,320 $ 379,335 $ 5,681,650 $ (1,007,089) $ 4,674,561 Information Printing and Department of Defense Defense Logistics Agency – Defense Working Capital Fund Consolidated Statement of Changes in Net Position For the period ending September 30, 1998 (Dollars Rounded to Thousands)
Net Cost of Operations $ (267,474) PRINCIPAL FINANCIAL STATEMENTS PRINCIPAL Financing Sources (Other than Exchange Revenues) Imputed Financing 190,517 Transfers-In 1,565,121 Transfers-Out (1,386,436)
Net Results of Operations 636,676
Prior Period Adjustments (Note 12) 267,434
Net Change in Cumulative Results of Operations 904,110
Increase in Unexpended Appropriations 15,332
Change in Net Position 919,442
Net Position-Beginning of the Period 10,070,407
Net Position-End of Period $ 10,989,849
Additional information included in Note 12.
52 The accompanying notes are an integral part of these financial statements. PRINCIPAL FINANCIAL STATEMENTS 53 statements. financial these of part integral an are notes accompanying The Collections and Adjustments (15,050,734) Budgetary Authority – Beginning of PeriodUnobligated Balances Balance, Actual (+/-) Prior-Year Net Transfers Collections Offsetting from Spending Authority Adjustments Budgetary ResourcesTotal Obligations IncurredUnobligated Balances – Available Status of Budgetary ResourcesTotal (393,170) 15,049,695 Obligations Incurred 1,501 Less: Offsetting Spending Authority from $of PeriodObligated Balance, Net – Beginning 14,665 NetObligated Balance Transferred, Less: Obligated Balance, Net – End of Period OutlaysTotal 13,374,039 (1,298,652) 13,374,039 (72,366) 13,446,405 4,764,732 (4,572,350) 13,446,405 (1,501) $ (1,413,448) STATUS OF BUDGETARY RESOURCES OF BUDGETARY STATUS OUTLAYS Additional information included in Note 13. BUDGETARY RESOURCES BUDGETARY Department of Defense Department Fund Capital Working – Defense Logistics Agency Defense of Budgetary Statement Combined Resources 30, 1998 September period ending For the to Thousands) (Dollars Rounded Department of Defense Defense Logistics Agency – Defense Working Capital Fund Combined Statement of Financing For the period ending September 30, 1998 (Dollars Rounded to Thousands)
OBLIGATIONS AND NONBUDGETARY RESOURCES PRINCIPAL FINANCIAL STATEMENTS PRINCIPAL Obligations Incurred $ 13,446,405 Less: Spending Authority for Offsetting Collections and Adjustments (15,050,733) Financing Imputed for Cost Subsidies 190,517 Net Transfers-In 178,685 Total Obligations as Adjusted and Nonbudgetary Resources (1,235,126)
RESOURCES THAT DO NOT FUND NET COST OF OPERATIONS Change in Amount of Goods, Services, and Benefits Ordered but not Yet Received or Provided 284,078 Costs Capitalized on the Balance Sheet 163,530 Financing Sources That Fund Costs of Prior Periods 307,989 Other (185,349) Total Resources That Do not Fund Net Costs of Operations 570,248
COSTS THAT DO NOT REQUIRE RESOURCES Depreciation and Amortization 114,950 Other (10,528) Total Costs That Do Not Require Resources 104,422
Financing Sources Yet to Be Provided 292,982
Net Costs of Operations $ (267,474)
Additional Information included in Note 14.
54 The accompanying notes are an integral part of these financial statements. NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS Principal Statements the to Financial Financial Notes Defense Logistics Agency - Defense Working Capital Fund Defense Logistics Agency - NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS NOTES TO THE PRINCIPAL
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56 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS 57 ea ea (DAPS) ea ea (Supply) helps (Supply) ea ea provides ea vice Business Ar ea (Distribution) receives, vice Business Ar vices Business Ar mation Ser Reutilization and Marketing Ser Infor Automated Printing Ser Supply Management Business Ar Business Supply Management Ar Distribution Business stores and distributes commodities, principal end and distributes commodities, stores for the Military reparables items, and depot level other DoD components, Federal Departments and governments. The foreign agencies, and selective symbol is 97X4930.005B. appropriation The carry out this mission by procuring, managing and carry by procuring, out this mission billion consumable items to supplying over three Military Departments, other DoD components, governments. selected foreign Federal agencies and symbol is 97X4930.005C. The appropriation The The services which include reutilization (DRMS) provides demilitarizing, classifying, segregating, receiving, excess materiel for accounting for and reporting and sale. They also lotting, merchandising, screening, disposal and property have the mission of hazardous excess metals from of precious the economic recovery metal-bearing materiel. The and surplus precious symbol is 97X4930.005N. appropriation The information management support. The appropriation symbol is 97X4930.005F5. The for document automation and printing is responsible within the Department of Defense, encompassing output and conversion, retrieval, electronic The distribution of digital and hardcopy. symbol is 97X4930.005G. appropriation statements The accompanying audited financial account for all funds for which DLA is responsible to classified assets, except that information relative has been excluded from and operations programs, and reported the statement or otherwise aggregated in such a manner that is no longer classified. The on the presented audited financial statements are by DoD basis of accounting as required accrual accounting policies. Budgets and Budgetary Accounting The Department of Defense expanded the use of business-like financial management practices through the establishment of the Defense Business Operations Fund (DBOF) on October 1, 1991. On December 11, Capital 1996, the DBOF became the Defense Working Fund (DWCF). The DWCF operates with financial Summary of Significant Accounting Policies Accounting of Significant Summary Note 1. Basis of Presentation Basis of to have been prepared These financial statements of operations position and results the financial report by Agency (DLA), as required of the Defense Logistics (CFO) Act of 1990 Officers the Chief Financial Management Reform expanded by the Government legislation. and other appropriate Act (GMRA) of 1994, to provide has also been prepared The report agency managers, information with which Congress, parties can assess interested the public, and other They have stewardship. management performance of DLA in records the accounting from been prepared with the Federal Accounting Standards accordance DoD Financial Management (FASAB), Advisory Board 6B, as adopted Regulations (FMR), including Volume Management and Budget (OMB) of the Office from of Agency Bulletin No.97-01, “Form and Content the extent that guidance is Financial Statements.” To DLA accounts these standards, by one of not provided with guidance for transactions in accordance by the General Accounting Office (GAO), promulgated and Generally Accepted of Treasury Department statements differ Accounting Principles (GAAP). These to monitor prepared the DLA financial reports from Amounts the use of budgetary resources. and control thousand unless to the nearest rounded are presented otherwise noted. Reporting Entity is a combat The Defense Logistics Agency (DLA) for worldwide logistics agency responsible support the Department of Defense throughout support logistics (DoD). The primary DLA is to provide focus of In addition, DLA provides to the warfighter. support during times of national efforts to relief support the first year Fiscal year 1998 represents emergency. Defense Working and provide that DLA will prepare Capital Fund stand-alone financial statements as by the CFO Act and the GMRA. required the statements are The accounts used to prepare Entity accounts consist classified as entity/nonentity. that the agency has the authority to of resources management is legally decide how to use, where obligated to use funds to meet entity obligations. held by an assets that are Non-entity accounts are not available for use in operations. The entity but are sub- has five active entity DLA organization the Defense Working funded through organizations are Capital Fund (DWCF). These sub-organizations as follows: and are as business areas to herein refered principles that provide improved cost visibility and Accounting for Intragovernmental Activities accountability to enhance business management and improve the decision making process. The DWCF is DLA, as an agency of the Federal government, interacts built on revolving fund principles previously used for with, and is dependent upon, other financial activities industrial and commercial-type activities. The of the government as a whole. As a result, these Department of Defense’s Working Capital Fund financial statements do not reflect the results of all includes industrial and commercial type transactions. financial decisions applicable to DLA as though the These activities provide supplies and inventories to agency were a stand-alone entity. Department organizations on a commercial basis. Receipts derived from resale operations are normally 1. DLA’s proportionate share of the public debt and available in their entirety for use without further related expenses of the Federal Government are congressional action. not included in these financial statements because debt and related interest costs are not apportioned NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS NOTES TO THE PRINCIPAL Each Business Area receives an Annual Operating to Federal agencies. The DLA’s financial statements Budget (AOB) in unit cost terms. Unit Cost therefore do not report any portion of the public Resourcing provides the operating expense authority/ debt or interest thereon, nor do the statements cost authority for such items as salaries, non-labor report the source of public financing whether expenses, and materiel within each activity. Cost from issuance of debt or tax revenues. authority or the amount “earned” depends on the actual workload times the unit cost goals. Each 2. Financing for the construction of DoD facilities is Business Area can also receive reimbursable authority obtained through budget appropriations from for outputs/goods and services that are not Congress. To the extent that this financing may contained in the unit cost goals. Host support for a have been ultimately obtained through the issuance tenant is an example. of public debt, interest costs have not been capitalized because the Treasury Department does Business Areas may also receive a capital budget that not allocate interest costs to the benefiting agencies. provides the obligation authority for the purchase of equipment, minor construction, information technology 3. DLA’s civilian employees participate in the Civil and telecommunications, and software development. Service Retirement System (CSRS) and Federal Employees Retirement System (FERS), while Basis of Accounting military personnel are covered by the Military Retirement System (MRS). Additionally, employees Transactions are recorded on an accrual basis and on and personnel covered by FERS and MRS also a budgetary basis. Under the accrual method of have varying coverage under Social Security. DLA accounting, revenues are recognized when earned funds a portion of the civilian and military and expenses are recognized when incurred, without pensions. Reporting civilian pension benefits regard to receipt or payment of cash. Budgetary under CSRS and FERS retirement systems is the accounting facilitates compliance with legal and responsibility of the Office of Personnel internal constraints and controls over the use of Management. DLA recognizes an imputed Federal funds. All known DLA intrafund balances expense for civilian employee pensions and other have been eliminated. All other intrafund balances retirement benefits in the Statement of Net Cost; attributable to Other Federal entities have been and recognizes imputed revenue for the civilian identified in Note 15. employee pensions and other retirement benefits in the Statement of Changes in Net Position. DLA Revenues and Other Financing Sources reports the assets, funded actuarial liability, and unfunded actuarial liability for the military Exchange revenue is recognized at the point the personnel in the Military Retirement Trust Fund rendered service is completed and billed, or at the CFO report. DLA recognizes the actuarial liability point inventory items are sold. Certain Distribution for the military retirement health benefits in the activity group revenues are recognized based on the DoD Agency-wide statements. actual workload for the period. These revenues may be billed up to two months after work is performed. 4. Most legal actions, other than contract claims, to These financial statements include an adjustment to which DLA may be a named party are covered by accrue for these billings. the provisions of the Federal Tort Claims Act and the provisions of Title 10, United States Code, Chapter 163, governing military claims. Either
58 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS 59 which obligations are increased or decreased to reflect or decreased increased are which obligations no foreign are There fluctuations. currency foreign adjustments. translation currency Receivable Accounts statement, in the Balance Sheet As presented accounts, claims and includes accounts receivable entities. DLA has not other from receivable refunds for uncollectible accounts established an allowance of the result are of its revenues because the majority which, due to the entities from sales to other federal virtually are of the federal government, there nature DLA has generally not no bad debts. Additionally, uncollectible accounts with its experienced significant of the federal government. customers outside Inventories historical valued at (1) approximate Inventories are with Statement of Federal Financial cost in accordance Number 3, “Accounting for Accounting Standards and (2) Latest Property,” Inventory and related accounting by DoD Acquisition Cost as required provides policies. The latest acquisition cost method invoice price shall be that the last representative units acquired applied to all like units held, including exchange, and donation, non-monetary through the Generally, end use or reutilization. from return subtracting the latest acquisition cost is determined by cost to the standard from surcharges appropriate paid for a carried item. arrive at the price most recently made In addition to latest acquisition cost adjustments DLA makes other to the valuation of inventory, to physical gains inventory valuation adjustments due etc. These or losses, accounting gains or losses, to as holding gains or valuation adjustments, referred when the price variance or realized losses, are on the valuation adjustment occurs and is reported Balance Sheet in a contra-inventory allowance recognized account. These inventory adjustments are in the Statement of Net Cost upon the sale or disposal of materiel. Prior to FY98, the holding gains or losses variances or valuation price from that resulted immediately changes for inventory items were in the Statement of Net Cost and reported recognized and included in the calculation of the cost of goods unable accounting systems are DLA’s sold. Currently, to comply with the accounting guidance regarding these holding gains and inventory valuation, therefore on the Balance Sheet and recorded realized losses are in the Statement of Net Cost using an and recognized estimate. The net change in inventory for this new method of valuation is $58.0 million. because payments under these statutes are under these because payments of the threshold amounts well below limited to, DLA’s from for claims payable materiality will be from because payments or appropriations “Claims, indefinite appropriation the permanent, Acts” (the Judgment Judgments, and Relief actions should not materially Fund), these legal operations or financial condition. DLA’s affect Funds with the U.S. Treasury and Cash Funds with the maintained in U.S. are fund resources The DLA’s with Treasury accounts. Fund Balances Treasury of an entity’s amount the aggregate represent is for which the entity accounts with Treasury and pay liabilities. expenditures authorized to make collections account for cash DWCF Activity Groups not are and disbursements. Beginning balances only the As a result, allocated to the Activity Groups. and transfers net of cash collections, disbursements, Balance Sheet. on the presented are as stated by the cash balances reports DLA currently exists between A cumulative difference U.S. Treasury. by the the disbursements and collections reported disbursements and collections and the U.S. Treasury to and is referred accounting records in DLA’s reported exists as undistributed. This cumulative difference collections, and because of in-transit disbursements, by the to and recorded funding adjustments reported by DLA. to and recorded yet reported but not Treasury these For the Materiel Portion of Supply Management, balance in accounts maintained in the trial amounts are called undistributed collections and disbursements. consolidated level The cash balance is maintained at the for Supply Management. The Fund Balance of reporting calculated by taking the amount is with Treasury as cash. and posting that Treasury by the U.S. reported Because of these adjustments, the Fund Balance with Accounts Receivable, and Accounts Payable do Treasury, accounting with the amounts shown in DLA’s not agree disclosed as “undistributed” are These differences records. amounts in Note 3 for Accounts Receivable and Note by the supported 16 for Accounts Payable and are undistributed accounts on the trial balance. with guidance Beginning in FY 99, in accordance issued on October 6, 1998 by OUSD(C), DLA will in its financial statements, cash begin to report in its accounting records. balances as reported Foreign Currency transactions currency foreign Gains and losses from in the Statement of Net Cost. not recognized are absorbed by budgetary transactions in They are Potential reutilization inventory (previously called unavailable, at fair market value. Documentation to potential excess inventory) is inventory in excess of support the recorded acquisition cost of many older approved force acquisition objectives and approved properties is unavailable, and DoD believes it is not force retention stock objectives. Beginning in FY98, cost effective to obtain fair market value appraisals for procedures accounting for potential excess inventory many of these properties. These older properties changed. These inventory items are written down to would in all likelihood be fully depreciated, resulting in their net realizable value (3.4%) according to DoD no impact to these financial statements. guidance. The remaining portion is expensed and included in the calculation of unrealized holding The cost of Stewardship Assets (National Defense period gains and losses. Property, Plant and Equipment, Heritage Assets and Stewardship Land) shall not be reported on the Disposal property is classified and reported as “Other balance sheet beginning in FY 98. Any such Entity Assets” in accordance with DoD reporting previously reported costs shall be charged to the Net NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS NOTES TO THE PRINCIPAL guidance. This property is not “primarily” held for Position of the Entity, and the adjustment shall be sale, and therefore does not meet the definition of shown as a “prior period adjustment.” Other inventory for classification purposes. information on Stewardship Assets shall be reported in Supplemental Stewardship Reports. Multi-use DAPS inventories include operating materials and Heritage Assets are treated as General PP&E for supplies and non-consumable items. These inventories reporting and accounting purposes. Therefore, the are valued using the weighted-average method. acquisition costs of Multi-use Heritage Assets, and any capitalized renovations or improvements, shall be Property, Plant and Equipment reported on the balance sheet and depreciated. Multi-use Heritage Assets are Heritage Assets that are General Property, Plant and Equipment (PP&E) is predominantly for government operations. valued at historical acquisition cost. All General PP&E, other than land, is depreciated in accordance with the Prepaid and Deferred Charges Under Secretary of Defense (Comptroller) (USD(C)) policy memorandum dated March 26, 1998. General Payments before the receipt of goods and services are PP&E is reported at historical acquisition cost less any recorded as advances at the time of prepayment and accumulated depreciation. The historical acquisition reported as an asset on the Statement of Financial cost includes all the costs necessary to put the asset in Position. Expenses are recognized when the related place and into the form in which it will be used. The goods and services are received. capital assets for DLA include such items as ADP equipment, materiel handling equipment, and Leases software. Routine maintenance and repair costs are expensed when incurred. Depreciation for property DLA Working Capital Fund does not have operating and equipment is recorded on a straight-line basis. or capital leases. However, DLA is committed to rental agreements. Generally, agreements are for the rental General PP&E with an acquisition cost, book value, or of equipment, space and operating facilities. Payments when applicable, an estimated fair market value of under these rental agreements are expensed as incurred. $100 thousand and an estimated useful life of two years or more were capitalized. Prior to FY 96, Contingencies General PP&E with an acquisition cost, book value, or when applicable, an estimated fair market value of At any given time, DLA may be party to various legal $15 thousand, $25 thousand, and $50 thousand for and administrative claims and actions brought against it. FY93, FY94, and FY95, respectively, and an estimated In management’s opinion, the resolution of these actions useful life of two years or more was capitalized. will not materially affect DLA operations or financial position. Therefore, no contingent liabilities have The General Accounting Office (GAO) has determined been recognized in the Balance Sheet. that real property used by any DWCF activity, but under the jurisdiction of the Military Departments, Accrued Leave represents an asset of the DWCF activity and such property should be reported on the financial Civilian annual leave is accrued as earned, and statements as an Entity asset to show the full costs of accrued amounts are reduced as leave is taken. all resources and assets used in operations. These Unused annual leave is reported as a funded expense amounts should be recorded at acquisition cost, or if and the liability is reduced as leave is taken. The 60 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS 61 Accounts Receivable, Net Estimated Allowance for Uncollectibles Comparative Data Comparative year has not been data for the prior Comparative first year for which FY98 is the because presented 97-01 using the OMB prepared are financial statements data years, comparative format. In future prescribed an understanding to provide in order will be presented financial position and operations of of changes in the activities. reporting the DLA’s Undelivered Orders goods and services, which have DLA is obligated for (undelivered but not yet, received been ordered 30, 1998. as of September orders) accounting records and it is referred to as and it is referred accounting records undistributed cash. Undistributed cash includes cash that has not yet been collected by the U.S. Treasury September 30, At accounting records. posted in DLA’s in more $166,734 reported 1998 the U.S. Treasury collections than DLA posted in its accounting records. in its Balance Sheet the accounts DLA reports accounting records amount in DLA’s receivable adjusted by the amount of undistributed collections as Accounts receivable, by the U.S. Treasury. reported to is reconciled accounting records, in DLA’s reported in the following table: records Treasury’s Fund level, Notes 2 is not applicable. The amount Fund level, Notes 2 is not applicable. the net on the Balance Sheet represents reflected and amount of FY98 collections, disbursements, cash transfers. Accounts Receivable, Gross Accounts Receivable, Net Accounts Receivable, IntragovernmentalWith the Public $ 770,451 92,825 N/A $ 770,451 0 92,825 Note 2. with Treasury Fund Balances Note 3. The Defense Logistics Agency (DLA), as the cash The Defense Logistics Agency (DLA), manager for the Defense Agencies sub-numbered account has not Capital Funds cash Defense Working cash allocated budgetary cash. Because budgetary Capital has not been allocated to the DLA Working balances for annual civilian leave at the end of the leave at the end of for annual civilian balances leave that is pay rates for the current reflect fiscal year non- and other types of not taken. Sick earned but the year, as taken. Each expensed are vested leave is leave account the accrued annual balance in the extent pay rates. To current adjusted to reflect annual leave not available to fund are appropriations from not taken, funding will be obtained but earned financing sources. future Equity capital, capitalization of Equity consists of invested future of operations, results assets, cumulative and other equity balances. funding requirements, of operations for working capital Cumulative results over expenses the excess of revenues funds represents to customers and since fund inception, less refunds U.S. Treasury. to the returns Entity Receivables Allowance method Used DLA has not established an allowance for uncollectible accounts because the majority of its of sales to other federal entities the result are revenues of federal government, which, due to the nature from has DLA virtually no bad debts. Additionally, are there generally not experienced significant uncollectible accounts with its customers outside of the federal government. Other Information a variance exists between the cash reported Currently, in DLA’s and the cash reported by the U.S. Treasury (Dollars Rounded to Thousands) Accounts Receivable, Gross Undistributed Accounts (in DLA’s records) Collections Receivable, Gross Entity Receivables
Intragovernmental $ 888,511 $ (118,060) $ 770,451 Governmental 141,499 (48,674) 92,825 $ 1,030,010 $ (166,734) $ 863,276
Note 4. Other Assets
NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS NOTES TO THE PRINCIPAL (Dollars Rounded to Thousands)
Other Entity Assets
Payments to Contractors $ 188,927 recalled or is currently in transit to DoD. Reparable Travel Advances 1,548 Inventory represents the acquisition value of industrial Equipment not in use 328,808 plant equipment that is currently warehoused by DoD Items on Loan to other and is either currently being repaired or available for government agencies 9,008 issue to the Military Services. Property Disposal Items Due in to Storage 421 Inventory represents the net realizable value of Reparable Inventory 19,881 inventory items that await disposal or reutilization . Property Disposal Inventory 171,829 This inventory contains usable items, scrap items and $ 720,422 retail scrap items valued at $156,545, $15,276, and $8, respectively.
Information related to Other entity assets Other Non-entity Assets Payments to contractors include amounts paid in advance to contractors and suppliers to finance Active Items in Hands of Contractors $ 69,280 production already accomplished or pursuant to Suspense Account Asset 14,027 production orders. These payments are recorded as $ 83,307 progress payments at the time of prepayment and expensed when the goods or services are received. Travel advances are payments made to civilian Information related to Other non-entity employees for the purpose of business travel before assets the actual travel expense is incurred. Equipment Not in Use represents the net book value of equipment A suspense account is maintained by the Defense that would normally be classified as Property, Plant Reutilization and Marketing Service (DRMS) and and Equipment if it was currently being utilized. represents cash received for the sales of property Items on Loan to Other Government Agencies disposal; the proceeds of which are pending represents the acquisition value of property owned by disposition to the originator. Active Items in the Hands DoD which has been provided to, acquired by, or of Contractors represents the acquisition value of fabricated by other federal agencies. The majority of property owned by DoD which has been provided to, this property is metal working machinery on loan to acquired by, or fabricated by contractor organizations the Department of Energy (DOE) and the National to facilitate completion of a contract requirement to Aeronautics and Space Administration (NASA). Items DoD. Such property is either consumed in the Due into Storage represents the acquisition value of performance of the contract or will be available for property owned by DoD which has been provided to, return to DoD at contract completion. acquired by, or fabricated by other federal agencies and deemed as excess and has been currently
62 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS 63 Method Valuation 9,744,229 Inventory, Net (23,558) $ inventories unrelated to SAMMS/DSS incompatibilities inventories unrelated in have been performed which resulted of all adjustment transactions. The net result accuracy in improved these transactions reflects SAMMS inventory quantities and dollar values. overvalued when standard Logistic transfer items are value. This situation used as the recorded prices are the from of NSN transfers to DLA is the result unavailable Services for which either buy histories are buys have occurred. or on which no recent include items that are not expected to survive include items that are after a technical evaluation is performed at repair items that a maintenance activity and damaged The value of all excess, not economical to repair. are obsolete and unserviceable is written inventory value (3.4%) according down to its net realizable is portion to DoD guidance. The remaining of expensed and included in the calculation holding period gains and losses. unrealized Inventory Held For Repair includes the value of not in an issuable inventory items that are and repair, condition, but not beyond economical eligible for sale. they are before awaiting repair are in all inventory Significant adjustments occurred gain and loss accounts during the fiscal related primarily the result These adjustments were year. logic designed program and improved of revised SAMMS inventory-location balances to reconcile System (DSS) with the Distribution Standard physical inventory-location balances. Additionally, (Gains) losses Other Inventory Adjustments Amount Inventory Allowance for $ 9,720,671 $ Inventory and Related Property and Related Inventory Inventory Held for Sale includes the value of most supply system materiel that is in an issuable condition. It also includes the value of inventory that is in transit between storage locations or used suppliers. General ledger accounts are from the initial acceptance of inventory items to record when title has passed but the items have not and accepted into inventory. been received Excess, Obsolete and Unserviceable inventory classifications of inventory. includes the value of three determined Excess inventory of items that are consists to be beyond economic and contingency retention as potential reported are stock levels and, as a result, or disposal materiel. Obsolete inventory reutilization deemed obsolete and no includes items that are laws, longer needed due to changes in technology, customs or operations. Unserviceable inventory Held for Current SaleHeld for Current SaleHeld in Reserve for Future UnserviceableExcess, Obsolete, and Held for Repair 1,385,233 34,419 $ 8,282,472 $ (23,558) 0 0 $ 8,306,030 18,547 1,385,233 34,419 LAC LAC 0 NRV 18,547 LAC Note 5. Restrictions on Inventory Use, Sale, or Restrictions on Inventory Use, Disposition Sale includes Inventory Held in Reserve for Future and war or reclassification inventory held for research or materiel. Inventory held for research reserve is held until its final disposition and is reclassification materiel reserve not available for immediate sale. War use in case of is inventory that is held for future materiel reserve need. War conflict or other emergent at September includes fuel and subsistence items and, held materiel 30, 1998, the value of the war reserve amounted to $1,063,985. in reserve Other Information Inventory Classifications Legend: Valuation Method LACNRV Cost Latest Acquisition Net Realizable Value (DollarsThousands) Rounded to Property and Other Related Inventory Operating Materials and Supplies (OM & S)
Allowance for Valuation OM&S Amount (Gains) Losses OM&S, Net Method
Held for Use $ 11,894 0 $ 11,894 Other $ 11,894 0 $ 11,894
Restriction on Operating Materials and Recap of Inventory and Other Related Supplies Property Amount
NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS NOTES TO THE PRINCIPAL There are currently no restrictions on the use, sale, or disposition of operating materials and supplies. Inventory, Net $ 9,744,229 Operating Materials and Other Information Supplies, Net 11,894 $ 9,756,123 Operating materials and supplies held for sale are valued using the weighted-average method.
Note. 6 General Property, Plant and Equipment, Net (Dollars Rounded to Thousands) Depreciation Service Acquisition Accumulated Net Book Method Life Value Depreciation Value
Land N/A N/A $ 0 $ 0 $ 0 Structures, Facilities, L/H Improv. SL 20 1,501,098 996,831 504,267 ADP Software SL 5 92,132 74,141 17,991 Equipment SL 10 499,984 383,451 116,533 Assets Under Capital Lease SL 10 21 21 0 Construction in Progress N/A N/A 114,304 0 114,304 Other SL 5-10 77 5 72 $ 2,207,616 $ 1,454,449 $ 753,167
Legend: Depreciation Method SL Straight Line
Other Information Additionally, DLA has identified that a portion of the capital assets reported as construction in progress as Certain assets were not capitalized as of September of September 30, 1998 are misclassified. Analysis is 30, 1998. They include the DLA Headquarter’s currently being conducted by DFAS and the DLA Complex Building and other miscellaneous corporate Primary Field Level Activity (PLFA) Command sites to assets. If all these assets were capitalized as of identify corrections needed. These changes will be September 30, 1998 the total acquisition value of made in fiscal year 1999. In addition, DLA has General Property, Plant and Equipment would have identified that certain assets classified as Assets Under increased by $151,686 to $2,359,303; total Capital Lease at September 30, 1998 should have accumulated depreciation would have increased by been classified as equipment. However, the affect to $15,238 to $1,469,688; the total net book value of the PP&E net book value was zero because these General Property, Plant and Equipment would have assets were fully depreciated. In FY 99, these assets increased by $136,448 to $889,614. are reclassified as equipment.
64 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS Liability 65 Actuarial Unfunded Total Assets Available to Pay Benefits 14,027 14,027 Current Liabilities Interest Rate (%) Assumed $107,581 in accrued annual leave. Other liabilities $107,581 in accrued annual leave. are the value of liabilities that with the public represent proper temporarily classified as such until the distribution or liquidation is determined. by Budgetary Other Liabilities Not Covered Resources by budgetary only liabilities not covered DLA’s pensions and other actuarial liabilities. are resources See note 8 for a description of these liabilities. Closure (BRAC) cleanup activities, are budgeted with budgeted activities, are (BRAC) cleanup Closure or restoration funds. Any environmental appropriated operations of the from cleanup liabilities resulting in the captured Support Center are Defense Energy payable. as accounts and presented year of occurrence liabilities $ 13,202 $ 191,263$ $ 204,465 0 $ 125,897 $ 125,897 Non-Current Value Actuarial of Projected $ 209,487 $ 0 $ 209,487 Present Plan Benefits Liabilities Pensions and Other Actuarial Liabilities Other Liabilities Accrued Funded Payroll and BenefitsAccrued Funded Payroll OthersAdvances from Other Liabilities $ 0 $ 122,749 0 $ 122,749 0 1,020 2,128 1,020 2,128 Advances from othersAdvances from Suspense Account LiabilitiesDeposit Funds and Other Liabilities 0 $ 0 13,202 $ 133,691 $ 43,545 133,691 56,747 With the Public Intragovernmental Note 8. Note 7. Workers’ Compensation BenefitsWorkers’ $ 209,487 5.60% $ 0 $ 209,487 (Dollars Rounded to Thousands) Other (Dollars Rounded to Thousands) (Dollars Rounded Cleanup Environmental Cleanup Liabilities for DLA no Environmental are There Fund. Accrued Environmental Capital Working including Base Realignment and Restoration liabilities, Other Information the amount of cash others represents Advances from civilian agencies or Military by participating transferred Services for materiel and services in support of their with a specific or in accordance assigned program account suspense The intragovernmental agreement. pertaining the value of bid deposits to contracts represents with a life of several years. Other intragovernmental the value of unearned revenue. liabilities represent with the public is comprised funded payroll Accrued of $15,168 thousand accrued salaries and wages and Other Information a method that utilizes historical benefit payment patterns related to a specific incurred period to predict the The actuarial liability estimate for future Workers’ ultimate payments related to that period. Consistent Compensation Benefits is provided by the Department with past practice, these projected annual benefit of Labor. The liability for future workers’ compensation payments have been discounted to present value (FWC) benefits includes the expected liability for death, using the Office of Management and Budget’s economic disability, medical, and miscellaneous costs for approved assumptions for 10-year Treasury notes and bonds. compensation cases. The liability is determined using
Note 9. Contingencies
At any given time, DLA may be party to various legal actions will not materially affect DLA operations or NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS NOTES TO THE PRINCIPAL and administrative claims and actions brought against financial position. Therefore, no contingent liabilities it. In management’s opinion, the resolution of these have been recognized in the Balance Sheet.
Note 10. Disclosures related to the Statement of Net Cost (Dollars Rounded to Thousands) Gross Cost and Earned Revenue by Budget Functional Classification
Budget Function Gross Earned Net Code Cost Revenue Cost
Department of Defense Military 051 $ 14,029,415 $ 14,296,889 $ (267,474) $ 14,029,415 $ 14,296,889 $ (267,474)
Other Information
DLA has recognized an $190,517 imputed expense Civil Service Retirement for the FY 1998 service cost of civilian employee System (CSRS) $ 96,137 pensions and other retirement benefits in the Federal Employees Retirement Statement of Net Cost and has recognized an equal System (FERS) 206 amount of imputed financing in the Statement of Federal Employees Health Benefits Changes in Net Position. The imputed expense for Program (FEHBP) 93,846 the FY 1998 service cost of civilian employee pensions Federal Employees Group Life and other retirement benefits is computed as follows: Insurance (FEGLI) 328 $ 190,517
Note 11. Deferred Maintenance on Property, Plant and Equipment (Dollars Rounded to Thousands)
Summary of Deferred Maintenance by General Property, Plant and Equipment Category of Property, Plant and Equipment Deferred Maintenance as of as of September 30,1998: September 30, 1998:
PP&E Category Property Type/ Major Class General Property, Plant Personal Property $ 0 and Equipment $ 80,200 Real Property $ 80,200 Buildings 61,200 Structures 19,000 $ 80,200
66 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS 67 (Note 2) Acceptable Condition (Note 1) Asset Cost to Return Assets to Condition related to overaged or erroneous government to overaged or erroneous related As a bills of lading attributable to prior periods. net position increased of this correction, result by $128,900. of As a result reversed. in prior periods were by $89,050. net position increased this correction, net of this correction, As a result reversed. were by $6,150. position decreased in FY 97 were omitted Lading, that were net of this correction, As a result recognized. by $4,429. position decreased System (DSS) that is attributable to prior Standard of this As a result fiscal years was recognized. by $47,533. net position decreased correction, • overstated expenses that were Certain operating • overstated in FY 95 that were Certain revenues • to Government Bills of Certain expenses, related • to the Distribution expense related Depreciation evaluation of facility conditions. The requirements, of facility conditions. evaluation plans outlined in and annual work statements, funding by DLA in establishing used 420-6 are Pamphlet Maintenance executing Real Property levels and minimum and include These standards Agreements. descriptions for facilities, suggested desirable condition costs for maintenance actions, standard maintenance schedules, been have not There condition codes. and standardized years. in recent in the standards any material changes on deferred information presents The following chart plant categories of property, maintenance on major material amounts of and equipment experiencing maintenance: deferred $ 267,434 Method Disclosures related to the Statement of Changes in Net Position Disclosures related to the Conditional Rating Scales; Excellent, Good, Fair, Poor, or Very Poor or Very Poor, Conditional Rating Scales; Excellent, Good, Fair, Acceptable condition is “fair” were written-off. These accounts payable were written-off. were Year AccountingYear 159,839 Note 12. Other Information Changes in Accounting Standards an inventory During FY 98, DLA changed from gains and valuation method, which recognized losses in the income statement when inventory was a method that or deemed as excess, to revalued the balance sheet. these gains and losses on realized of this change, DLA's net position As a result by $107,522. In addition, DLA changed increased its accounting method for the collection of refunds. of this change, DLA's net position As a result by $73. increased Error or Omissions or various errors During FY 98 DLA corrected detailed omissions attributable to prior years and are as follows. • accounts payable or erroneous Certain over-aged Note 1: Note 2: (Dollars Rounded to Thousands) Prior Period Adjustments Changes in Accounting Standards and Omission in Prior Error $ 107,595 BuildingsStructures Survey Conditional Assessment Conditional Assessment Survey Fair Fair $ $ 61,200 19,000 Other Information distribution facilities a number of DLA operates the fiscal year ending the world. During throughout expense was 30, 1998 maintenance September maintenance However, incurred. as recognized over the the FY98 was insufficient completed during maintenance. in deferred resulted past several years and on maintenance is based on deferred Information of these facilities. DLA has adopted periodic inspections and policies as outlined in the standards the military Army Pamphlet 420-6, Facilities Department of the Management System, in the Engineering Resources Note 13. Disclosures Related to the Statement of Budgetary Resources (Dollars Rounded to Thousands)
Net amount of Budgetary Resources Obligated for Undelivered Orders at the End of Period $ 5,163,857
Available Borrowing and Contract Authority at the End of Period $ 2,877,047
Note 14. Disclosures related to the Statement of Financing
Change in Amount of Goods, Services and been recorded in the DLA accounting records. The NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS NOTES TO THE PRINCIPAL Benefits Defense Business Management System (DBMS) serves as the accounting system for the Information Services The change in amount of goods, services, and benefits Activity Group. Unlike most accounting systems, ordered but not yet received or provided represents the DBMS obligates depreciation and amortization change in undelivered orders from the prior fiscal year to simultaneous with expense recognition. To comply this fiscal year. Due to the nature of undelivered orders, net with the Financial Management Regulation, Volume decreases are added to obligations and net increases are 6B, Chapter 8, depreciation and amortization expense subtracted from obligations to arrive at net cost of operations. has been separately reported on the Statement of Financing. However, due to this amount being Depreciation and Amortization recorded in the accounting records as an obligation as well as an expense, the reverse sign of this same This amount represents the sum of depreciation and amount is included in the “Financing Sources Yet to amortization expense for the current year as it has be Provided” line of this statement.
68 NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS 69 Unearned Unearned $3 Revenue Revenue Revenue Revenue 243,351 $ $243,351 $ 3 Arrayed by customer by Arrayed 3,927 15,687 0 90,803 90,803 Accounts Accounts Receivable $
Transactions with other Federal entities Transactions with $ Receivable 00 7,941 38,723 0 Index Treasury Appropriation (see note 1) Interagency Eliminations Interagency Not required to complete CFO Statements Not required Note 15. Note Note 1: Miscellaneous Identifiable Federal Miscellaneous Identifiable Federal Agencies Defense Logistics Agency, WCFDefense Logistics Agency, Agencies Sales to Other Federal Federal Government-wide, 97X4930.005xx $ 90,803Executive Office of the President, Defense Security Assistance Agency $ 243,351 of AgricultureDepartment of CommerceDepartment 11Department of the InteriorDepartment of Justice $Department of LaborDepartment of State 3 $ of the TreasuryDepartment 12Office of Personnel Management 13 4Nuclear Regulatory Commission 14 Affairs of Veterans Department General Service Administration $ 15National Science Foundation 24 27,028 72 20 16 Management AgencyFederal Emergency 31 Agency Protection Environmental 19 413 2,253 58 36 of TransportationDepartment 29,954 $Agency for International Development 47Small Business Administration 8,814 49 of Health and Human ServicesDepartment 68 1,792 3,838 0 3,106 10 72 372 and Space AdministrationNational Aeronautics 75 1,141 80 1,325 69 2,207 1 17,922 3,707 0 8,820 73 1,727 187 4 524 1,964 0 0 50 5,374 67 39 27,301 6,962 0 0 3,583 0 1,985 0 82,332 2 27 0 (92) 0 0 0 0 0 0 0 0 3 0 0 0 (Dollars Rounded to Thousands) (Dollars Rounded Seller Activity Government-Wide, Federal of EnergyDepartment Department of EducationUnidentifiable Federal Agency Entity 00 89 91 (5,774) 569 25,344 74 2,758 90 0 0 0 Note 16. Other (Dollars Rounded to Thousands)
Accounts Payable Treasury reported $898,431 more in disbursements than DLA posted in its accounting records. DLA Currently, a variance exists between the reports in its Balance Sheet, the accounts payable disbursements reported by the U.S. Treasury and amount in DLA’s accounting records adjusted by the the disbursements reported in DLA’s accounting amount of undistributed disbursements. Accounts records and it is referred to as undistributed. payable, as reported in DLA’s accounting records with Undistributed includes disbursements by the U.S. undistributed disbursements is shown in the Treasury that has not yet been posted in DLA’s following table: accounting records. At September 30, the U.S. NOTES TO THE PRINCIPAL FINANCIAL STATEMENTS NOTES TO THE PRINCIPAL
Accounts Payables (in Undistributed Accounts DLA’s records) Disbursements Payable Entity Accounts Payables
Intragovernmental $ 646,967 $ (206,094) $ 440,873 With the Public 1,470,871 (692,337) 778,534 $ 2,117,838 $ (898,431) $ 1,219,407
Disclaimer of DAPS financial position
Because of financial information system problems and Chief Financial Officer Annual Financial Statement. At financial statement compilation problems, DLA September 30, 1998, DAPS assets represented less believes that the Defense Automated Printing Service than 1% of the total DLA combined assets, DAPS (DAPS) financial statements are not completely revenues represented approximately 2.4% of total DLA representative of the DAPS financial position. DLA combined revenues and DAPS expenses represented management does not believe that this will materially approximately 2.6% of total DLA combined expenses. affect the fiscal year 1998 DLA Working Capital Fund
70 REQUIRED SUPPLEMENTAL STEWARDSHIP INFORMATION Information Required Supplemental Required Stewardship Stewardship Defense Logistics Agency - Defense Working Capital Fund Agency - Defense Working Defense Logistics REQUIRED SUPPLEMENTAL STEWARDSHIP INFORMATION STEWARDSHIP REQUIRED SUPPLEMENTAL
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72 REQUIRED SUPPLEMENTAL STEWARDSHIP INFORMATION 73 architectural significance. DLA does not own any significance. DLA does architectural assets. assets that would be classified as heritage of other physical or improvement and the purchase not operations are assets. Grants for maintenance and investments. DLA does not own any considered Non–Federal that would be classified as property Physical Property. was donated to the federal government. DLA is not was donated to the does permitted by law to own land, therefore that would be classified as not own any land Land. stewardship of militaryown any PP&E DLA does not missions. defense property, be classified as national that would plant and equipment. Stewardship Land Stewardship Non–Federal Physical Property Non–Federal Physical Heritage Assets National Defense Property, Plant and Equipment Plant and Property, Defense National Stewardship land is land other than that acquired land is land other than Stewardship plant, with general property, for or in the connection may include land that was and equipment. It as public domain land or land that identified previously Heritage assets are property, plant, and equipment of property, Heritage assets are artistic or historical, natural, cultural, educational, to those expenses refers Non–federal physical property by the Department for the of Defense incurred the construction, or the major renovation purchase, owned by state and local of physical property alterations governments, including major additions, of major equipment; the purchase and replacements; National defense property, plant and equipment is plant and property, National defense and equipment (PP&E) plant, the property, systems and support PP&E components of weapons used by the military in the performance departments REQUIRED SUPPLEMENTAL STEWARDSHIP INFORMATION STEWARDSHIP REQUIRED SUPPLEMENTAL
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74 REQUIRED SUPPLEMENTAL INFORMATION Information Required Supplemental Required Defense Logistics Agency - Defense Working Capital Fund Defense Logistics Agency - Department of Defense Defense Logistics Agency – Defense Working Capital Fund Disaggregated Statement of Budgetary Resources For the period ending September 30, 1998 (Dollars Rounded to Thousands)
Reutilization Supply and Marketing
REQUIRED SUPPLEMENTAL INFORMATION REQUIRED SUPPLEMENTAL Management Distribution Service BUDGETARY RESOURCES Budgetary Authority $ 0 $ 0 $ 0
Unobligated Balances – Beginning of Period (601,323) 165,550 0
Net Transfers Prior Year Balance, Actual (+/–) 0 0 0
Spending Authority from Offsetting Collections 12,550,016 1,370,698 577,891
Adjustments (1,088,083) (6,948) (203,621)
Total Budgetary Resources $ 10,860,610 $ 1,529,300 $ 374,270
STATUS OF BUDGETARY RESOURCES Obligations Incurred 10,851,076 1,489,434 361,035
Unobligated Balances – Available 9,534 39,866 13,235
Total, Status of Budgetary Resources $ 10,860,610 $ 1,529,300 $ 374,270
OUTLAYS Obligations Incurred 10,851,076 1,489,434 361,035
Less: Spending Authority from Offsetting Collections and Adjustments (12,551,055) (1,370,698) (577,891)
Obligated Balance, Net – Beginning of Period 4,522,835 200,349 103,445
Obligated Balance Transferred, Net 0 0 0
Less: Obligated Balance, Net – End of Period (4,150,653) (134,611) (123,934)
Total Outlays $ (1,327,797) $ 184,474 $ (237,345)
76 REQUIRED SUPPLEMENTAL INFORMATION 77 0 (1,501) (1,501) 0 0 (1,298,652) 0 1,501 1,501 32,235 (195,387) (4,572,350) 39,386 (174,387) (72,366) 42,603 0 (393,170) (44,273) (17,624) 4,764,732 111,269 633,591 13,446,405 108,052111,269 443,038 15,049,695 633,591 13,446,405 Services Printing Service Combined (108,052) (443,038) (15,050,734) Information Automated $ (8,821) $ (23,959) $ (1,413,448) $ 150,655 $ 459,204 $ 13,374,039 $ 0 $ 14,665 $ 14,665 $ 150,655 $ 459,204 $ 13,374,039 REQUIRED SUPPLEMENTAL INFORMATION REQUIRED SUPPLEMENTAL
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78 OTHER ACCOMPANYING INFORMATION Information Other Accompanying Other Defense Logistics Agency - Defense Working Capital Fund Agency - Defense Working Defense Logistics Department of Defense Defense Logistics Agency – Defense Working Capital Fund Consolidating Balance Sheet As of September 30, 1998 (Dollars Rounded to Thousands)
Reutilization Supply and Marketing Management Distribution Service OTHER ACCOMPANYING INFORMATION OTHER ACCOMPANYING ASSETS Entity Assets Intragovernmental Fund Balance With Treasury (Note 2) $ 504,783 $ (184,475) $ 237,345 Accounts Receivable, Net (Note 3) 535,900 462,185 37,079 Total Intragovernmental 1,040,683 277,710 274,424
Accounts Receivable, Net (Note 3) 56,303 1,086 34,892 Inventory and Related Property, Net (Note 5) 9,744,229 0 0 General Property, Plant and Equipment (Note 6) 179,696 417,354 116,725 Other (Note 4) 474,441 62,341 178,563 Total Entity Assets 11,495,352 758,491 604,604 Non–Entity Assets Other (Note 4) 69,280 0 14,027 Total Non–Entity Assets 69,280 0 14,027 Total Assets $ 11,564,632 $ 758,491 $ 618,631
LIABILITIES Liabilities Covered by Budgetary Resources Intragovernmental Liabilities Accounts Payable (Note 16) $ 475,104 $ 190,600 $ 58,563 Other (Notes 7 and 9) 133,432 0 70,774 Total Intragovernmental 608,536 190,600 129,337
Accounts Payable (Note 16) 439,470 243,599 55,624 Other (Notes 7 and 9) 63,885 38,554 10,972 Total Liabilities Covered by Budgetary Resources 1,111,891 472,753 195,933 Liabilities not Covered by Budgetary Resources Military Retirement Benefits and Other Employment Related Actuarial Benefits (Note 8) 0 0 0 Total Liabilities not Covered by Budgetary Resources 0 0 0 Total Liabilities 1,111,891 472,753 195,933
NET POSITION Cumulative Results of Operations 10,452,741 285,738 422,698 Total Net Position 10,452,741 285,738 422,698 Total Liabilities and Net Position $ 11,564,632 $ 758,491 $ 618,631
80 OTHER ACCOMPANYING INFORMATION 81 Automated Eliminations 00 11,894 544 9,756,123 92,825 0 0 9,756,123 92,825 00 0 0 83,307 83,307 0 0 83,307 83,307 0 259 204,465 0 204,465 00 0 0 0 0 209,487 209,487 209,487 209,487 7,7415,077 31,651 0 753,167 720,422 0 0 753,167 720,422 6,3886,529 8,145 5,957 943,006 125,897 (297,668) 0 645,338 125,897 7,026 31,133 11,199,336 (209,487) 10,989,849 7,026 31,133 11,199,336 (209,487) 10,989,849 12,77121,592 20,184 26,520 1,068,119 1,640,929 (297,668) (297,668) 770,451 1,343,261 34,410 70,609 12,963,466 (297,668) 12,665,798 14,46727,384 25,374 39,476 778,534 1,847,437 (297,668) 0 1,549,769 778,534 27,384 39,476 1,847,437 (88,181) 1,759,256 Services Service Combined Adjustments Consolidated Information Printing and $ 8,821 $ 6,336 $ 572,810 $ 0 $ 572,810 $ 34,410$ $ 70,609 6,388 $ $ 13,046,773 7,886 $ $ (297,668) 738,541 $ 12,749,105 $ (297,668) $ 440,873 $ 34,410 $ 70,609 $ 13,046,773 $ (297,668) $ 12,749,105 Department of Defense Defense Logistics Agency – Defense Working Capital Fund Consolidating Statement of Changes in Net Position For the period ending September 30, 1998 (Dollars Rounded to Thousands)
Reutilization Supply and Marketing Management Distribution Service OTHER ACCOMPANYING INFORMATION OTHER ACCOMPANYING
Net Cost of Operations $ (358,426) $ 102,228 $ (235,960)
Financing Sources (Other than Exchange Revenues) Imputed Financing 0 0 0 Transfers-In 1,563,242 (580) 0 Transfers-Out (1,672,958) 223,748 66,627
Net Results of Operations 248,710 120,940 302,587
Prior Period Adjustments 318,234 (43,841) (10,579)
Net Change in Cumulative Results of Operations 566,944 77,099 292,008
Increase in Unexpended Appropriations 0 0 0
Change in Net Position 566,944 77,099 292,008
Net Position- Beginning of the Period 9,885,797 208,639 130,690
Net Position- End of Period $ 10,452,741 285,738 $ 422,698
Additional information included in Note 12.
82 OTHER ACCOMPANYING INFORMATION 83 Automated Eliminations 0 15,332 15,332 0 15,332 0 3,620 267,434 0 267,434 0 0 0 190,517 190,517 70 36,437 10,261,633 (191,226) 10,070,407 6,956 (5,304) 937,703 (18,261) 919,442 6,956 (20,636) 922,371 (18,261) 904,110 2,6866,956 (227) (24,256) 1,565,121 654,937 (18,261) 0 1,565,121 636,676 11,214 (15,067) (1,386,436) 0 (1,386,436) Services Service Combined Adjustments Consolidated $ 7,026 $ 31,133 $ 11,199,336 $ (209,487) $ 10,989,849 $ 6,944 $ 8,962 $ (476,252) $ 208,778 $ (267,474) Information Printing and Appropriations, Funds, and Accounts Included in Financial Statements
The following table lists all appropriation, funds, and accounts included in the financial statements for the year ended September 30, 1998:
Reporting Entity Entity Sub–Organization Fund/Account Subhead
Defense Logistics Agency Working
OTHER ACCOMPANYING INFORMATION OTHER ACCOMPANYING Capital Fund 97X4930.005 – Active Supply Management 97X4930.005 C Distribution Depots 97X4930.005 B Defense Reutilization and Marketing Services(DRMS) 97X4930.005 N Information Services 97X4930.005 F5 Defense Automated Printing Service (DAPS) 97X4930.005 G
Inactive Industrial Plant Equipment (IPE) (1) 97X4930.005 M
(1) The Industrial Plant Equipment sub–organization was consolidated with the Supply Management sub– organization in January 1992. Any remaining balances and activity through September 30, 1998 have been consolidated into the Supply Management sub–organization financial statements. Financial activity associated with contracts let before IPE’s consolidation into the Supply Management sub–organization is expected to continue for years. All residual balances in the IPE sub–organization will be closed when these contracts have been settled.
84 AUDITORS’ OPINION Opinion Auditors’ Auditors’ Defense Logistics Agency - Defense Working Capital Fund Agency - Defense Working Defense Logistics AUDITORS’ OPINION
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86 AUDITORS’ OPINION 87 Defense Logistics Agency Office of Comptroller 8725 John J. Kingman Road, STE 2533 Ft. Belvoir, VA 22060-6221
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