Fiscal Year 2005 United States Army Annual Financial Statement Call to Duty – 230 Years of Service to Our Nation http://www.army.mil We are interested in your feedback regarding the content of this report. Please feel free to e-mail your comments to [email protected] or write to: Department of the Army Offi ce of the Deputy Assistant Secretary of the Army (Financial Management and Comptroller) Offi ce of the Financial Reporting Directorate Room 3A312, 109 Army Pentagon Washington, DC 20310-0109 Additional copies of this report can be obtained by sending a written request to the e- mail or mailing address listed above. You may also view this document at: http://www.asafm.army.mil/fo/fod/cfo/cfo.asp Fiscal Year 2005 United States Army Annual Financial Statement Call to Duty – 230 Years of Service to Our Nation Table of Contents Message from the Secretary of the Army iii Message from the Assistant Secretary of the Army (Financial Management and Comptroller) v Message from the Assistant Secretary of the Army (Civil Works) vii FY 2005 in Review 1 General Fund – Management’s Discussion & Analysis 8 Working Capital Fund – Management’s Discussion & Analysis 144 Civil Works Fund – Management’s Discussion & Analysis 224 i The Honorable Francis J. Harvey ii Secretary of the Army Message | FY 2005 Army Annual Financial Statement As the President stated on July 07, 2005, the day terrorists struck in London, “the war on terror goes on.” This long war is likely to continue for the foreseeable future. Consequently, the Army must be ready and relevant today and tomorrow, always able to accomplish our mission of protecting America and providing the necessary forces and capabilities to the combatant commanders in support of the National Security and Defense Strategies. In parallel with fi ghting the global war on terror, the Army is undertaking its largest transformation since WWII. The transformed force will be more powerful, fl exible, rapidly deployable and it positions the Army to defeat new and emerging threats. Over the past year we continued to build the modular brigade combat teams, which are the centerpiece of the transformed force and to increase the size of the operational Army. Additionally, ongoing unit rebalancing, in conjunction with our new modular forces, will reduce the stress on our force by permitting more predictable rotation cycles with longer periods at home for our Soldiers. The Army is also transforming its “back offi ce” by streamlining its business practices and processes that enable us to more effectively manage people, cost and schedule – components which make up the backbone of business. The Army is beginning a critical review of the institutional Army to determine what resources, material, and property are essential to organizations, missions, and structures. We are adopting proven management analysis tools and procedures to analyze our manufacturing, repair, and administrative processes which will reduce cost while freeing up resources for the operational Army. We also awarded the contract for the General Fund Enterprise Business System, which will produce accurate, reliable, and timely fi nancial information enabling better decisions and support for our Soldiers and their families. To achieve our vision of remaining the preeminent landpower on earth, our Soldiers must remain the best trained, organized, equipped, and sustained in the world. Soldiers, and their civilian colleagues, are performing magnifi cently today in Iraq, Afghanistan, and in over 100 other countries around the globe; they deserve the best support we can provide. Consequently, transformation is ingrained in everything the Army does, operationally and institutionally. Francis J. Harvey Secretary of the Army iii Valerie Lynn Baldwin iv Assistant Secretary of the Army (Financial Management and Comptroller) | FY 2005 Army Annual Financial Statement During fi scal year 2005, the Army managed $149 billion of appropriated funds. This included $58.4 billion in Global War On Terrorism supplemental funds. Among numerous accomplishments, we maintained a high operations tempo with 19 active component and 10 reserve component brigade combat teams deployed to Iraq, Afghanistan, and throughout the world. We created seven additional modular brigades as part of our Army transformation, and provided support to civil authorities along the Gulf coast for Hurricanes Katrina and Rita. In addition, we adjusted the fi nancial management strategic planning framework to align with strategic objectives. Under this framework, four fi nancial initiatives were developed to close the gap between Army requirements and funding, improve the quality of fi nancial management information systems, improve accountability and management controls for the Army enterprise, and execute effective fi nancial management. Providing accurate, timely, and relevant fi nancial information to Army leaders requires sophisticated fi nancial and business case analyses. By stressing innovation, creativity, fl exibility, and following the Chief Financial Offi cer Strategic Plan, solid progress is being made to reach this objective. Thank you for your efforts and for serving this great Army. Valerie L. Baldwin Assistant Secretary of the Army (Financial Management and Comptroller) v John Paul Woodley, Jr. vi Assistant Secretary of the Army (Civil Works) | FY 2005 Army Annual Financial Statement The Army Corps of Engineers traces its origins back to the construction of fortifi cations at Bunker Hill in 1775. Since then, the Corps has responded to the challenges of the nation and the Army. Throughout its history, the Corps has been committed to serving the nation and the Army in peace and war by providing comprehensive engineering, management and technical services. Our responsibilities over time have continually evolved to refl ect America’s priorities. What began as a military engineering mission for nation building in the 18th Century expanded into a major peacetime mission in the 19th Century. The Corps helped a young nation map the frontier and expand westward by surveying roads and canals. The Corps contributed to the nation’s economy by developing an inland navigation system that moved commerce across states and keeping ports and harbors open, a role critical for national defense. In the 20th Century, the Corps’ civil mission expanded again with the adoption of more water resources development and management duties, including fl ood control, hydropower, recreation, water supply, shore protection, and disaster relief. More recently, environmental protection and restoration responsibilities were entrusted to the Corps. As society’s requirements and values have changed, the Civil Works mission has refl ected changing national priorities for public water management. The Corps’ abilities to evaluate, facilitate, advise, develop, operate, and manage provide a robust set of capabilities for the nation’s benefi t in facilitating an integrated approach to water resources management. Responsibilities for the development, management, and protection of water resources constitute the current Army Civil Works mission. One of the great strengths of the Corps is the force multiplier effect between civil and military missions. In addition to the direct contributions that the Civil Works mission makes to our economic and environmental security and prosperity, the Corps also applies its Civil Works assets to support the Army in times of national need to enhance homeland security. In turn, the Civil Works mission derives greater capability and effectiveness by being an integral part of the larger Army and Defense team. Looking to the future, we must seek to do everything within our authorities to ensure that our country’s economy remains strong and its natural resources protected. Our nation’s water resources are fi nite, and in managing those resources we are increasingly challenged to reach decisions that achieve an appropriate balance between the social and economic benefi ts of development with the need to protect the environment. As science and engineering continue to advance, we will seek to leverage these advancements to strike that balance. We are dedicated to continuing a national water resources program that serves the best interest of our citizens. In that regard, I will continue to rely on the Strategic Plan for the Army Civil Works mission that sets forth the framework for enhancing the sustainability of America’s water resources. John Paul Woodley, Jr. Assistant Secretary of the Army (Civil Works) vii Year in Review When the nation calls, the Army always has and always will answer that call. But we cannot stand still…we need to change. The Honorable Francis J. Harvey, Secretary of the Army viii FY 2005 in Review | FY 2005 Army Annual Financial Statement FY 2005 In Review Overview The operations of the Army tempo remained high in fi scal year (FY) 2005. More than 250,000 Soldiers - a signifi cant proportion of active and reserve component combat forces – are deployed in 120 countries around the world. Most of these Soldiers are in Iraq and Afghanistan, engaged in direct support of the Global War on Terrorism (GWOT); but the Army also continues to deter aggression and assist U.S. Allies in As FY 2005 came to a close, the Army had 1,014,910 Korea; Europe, including the Balkans; South America; men and women in uniform with 492,728 in the active Africa; and in numerous other locations. In addition, force, 189,005 in the Army Reserve (USAR) and 333,177 Soldiers perform much essential work throughout the in the Army National Guard (ARNG). In addition, the United States, to include providing homeland defense, Army employed 235,645 civilian personnel. supporting fi refi ghting efforts in national forests, and most recently, supporting the relief effort following Operation Iraqi Freedom and Iraq Hurricanes Katrina and Rita. Reconstruction Operation Iraqi Freedom continues to be the most signifi cant mission in terms of troop levels and other resources. The Army force at the end of the fi scal year “We are the best Army in the world consisted of approximately 105,000 active and reserve without a question.