The Soldier’s Creed I am an American Soldier. I am a Warrior and a member of a team. I serve the people of the United States and live the Army Values. I will always place the mission fi rst. I will never accept defeat. I will never quit. 2007UnitedStatesArmyAnnualFinancialStatement Fiscal Year I will never leave a fallen comrade. I am disciplined, physically and mentally tough, trained and profi cient in my warrior tasks and drills. I always maintain my arms, my equipment and myself. I am an expert and I am a professional. I stand ready to deploy, engage, and destroy the enemies of the United States of America in close combat. I am a guardian of freedom and the American way of life. I am an American Soldier. Fiscal Year 2007 United States Army Annual Financial Statement United States Army : 1500 Army Pentagon : Washington, DC, 20310-1500 : www.army.mil Commitment to Current and Future Readiness 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 Office of the Deputy Assistant Secretary of the Army (Financial Management and Comptroller) Office 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. About the Cover You may also view this document at: http://www.asafm.army.mil/fo/fod/cfo/cfo.asp Bottom Image Soldiers from the 3rd Brigade Combat Team, 25th Infantry Division. The smoke is from a controlled IED detonation. Top Image Soldiers from the 58th Brigade Combat Team practice room-clearing procedures during training. The brigade is preparing to deploy to Iraq. *Unless otherwise noted, all photos on the cover and inside pages are courtesy of the U.S. Army Contents FY 2007 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 Management’s Discussion & Analysis 1 General Fund – Principal Financial Statements, Notes, and Supplementary Information 39 i Working Capital Fund – Principal Financial Statements, Notes, and Supplementary Information 117 Civil Works Fund – Management’s Discussion & Analysis 163 Civil Works Fund – Principal Financial Statements, Notes, and Supplementary Information 189 Commitment to Current and Future Readiness Secretary of the Army Fiscal Year 2007 United States Army Annual Financial Statement Commitment to Current and Future Readiness ii While the Army remains a resilient, committed, professional force, it is out of balance. Six years of war and the demands of repeated deployments have stretched and stressed our institutions, support structures, equipment, Soldiers, Families and Army Civilians. We are acting quickly to restore this balance—to preserve our All-Volunteer Force, to rebuild the necessary depth and breadth of Army capabilities, and to build essential capacity for the future. We have a plan centered on four imperatives that frame what we must do: we need to improve the manner in which we sustain the Army’s Soldiers, Families and Civilians; we must continue to prepare our forces for success in the current conflict; we must continue to reset our units and rebuild readiness for future deployments and contingencies; and we must continue to transform our Army—including accelerating Army growth—to meet the demands of the 21” Century. The Honorable Much of our Soldiers’ strength comes from the strength of their Families and Pete Geren we’ve asked much of Army Families. In this era of persistent conflict, we will ask Secretary of the Army more of Soldiers and we must do more for their Families. To that end, we are committed to standardizing and funding existing Family programs and services: increasing accessibility and quality of health care; improving housing; ensuring excellence in schools, youth services, and child care; and expanding education and employment opportunities for Family members. We owe our Families a quality of life comparable to the quality of their service, and while we can never match their sacrifice, we can do more to recognize their service. Successfully restoring our balance through these imperatives will require considerable resources and several years. With your support, we have made significant progress in Fiscal Year 2007, but more remains to be accomplished. We need your continued support and partnership as we build the Army needed to protect our Nation in the 21” Century. Pete Geren Secretary of the Army iii Commitment to Current and Future Readiness Assistant Secretary of the Army (Financial Management and Comptroller) Fiscal Year 2007 United States Army Annual Financial Statement Commitment to Current and Future Readiness iv With declining defense budgets a likely prospect in the near future, efficient management of the Army’s finite resources will be the key to providing the capabilities needed by Soldiers on the battlefield. To ensure that we can satisfy this obligation, the Army must establish a “cost culture” now -- a culture in which all leaders and managers factor cost into their decision-making and understand both the near and long-term cost implications of their decisions. An effective cost culture has three requirements: establishment of the doctrinal Army’s cost, stronger internal controls and a modernized enterprise business system. The Army already has developed a tool to assess the full cost of producing and sustaining a force (institutional and operational) capable of fulfilling the National Military Strategy. Our most recent analysis concluded that the annual cost of this “doctrinal” Army in FY 2008 dollars is $152 billion, a significant increase from last year’s estimate of $138 billion. This rise was due largely to the President’s decision to grow the Army by 74,000 active- and The Honorable reserve-component personnel by FY 2010. Nelson M. Ford Assistant Secretary of the Army The Army is making good progress in implementing the second element of cost (Financial Management and Comptroller) culture. In FY 2007, we strengthened internal controls to improve compliance with laws and regulations and focused more attention on development and application of controls that safeguard both current appropriations and existing assets. These efforts have enabled the Army to reduce costs with no loss of mission effectiveness. With respect to systems modernization, the Army accelerated implementation of several systems, reducing transaction costs for vendor payments and travel vouchers and improving the linkage among the Army’s procurement, supply and finance functions. I see the eventual fielding of the General Fund Enterprise Business System (GFEBS) as a critical element of the cost culture for which we strive. Due for full deployment in FY 2011, GFEBS will not only eliminate 87 of our legacy financial systems and enable the creation of auditable financial statements; but will also place real time, high quality cost data in the hands of decision makers, empowering them to make prudent financial choices like never before. GFEBS Release 1.1 already has shown that the system can capture all real property inventory information and its associated financial data. Release 1.2 will expand the system to 38 installation functions, including financial processes for command and staff, personnel and community, information technology, operations, logistics, engineering, resource management, acquisition and health services. The reliance on supplemental appropriations continues to be a concern. It is likely that large supplementals will shrink dramatically within the next five years. Yet, many of the requirements and missions now covered by supplemental funding will continue. It will be extremely difficult to absorb these costs into the Army’s current baseline. A simultaneous decrease to the Army’s base budget in real terms -- a distinct possibility, if history is any indicator – would make it impossible. v It is critical that we be prepared to mitigate these budget pressures as much as possible. Army leaders must make the tough decisions that produce the best possible use of finite resources and improve the efficiency and effectiveness of our operations. Resource stewardship, and the tradeoffs between cost and performance, must become a part of every conversation. Only then can we be assured of maintaining an Army capable of meeting the Nation’s defense requirements. Nelson M. Ford Assistant Secretary of the Army (Financial Management and Comptroller) Commitment to Current and Future Readiness Assistant Secretary of the Army (Civil Works) Fiscal Year 2007 United States Army Annual Financial Statement Commitment to Current and Future Readiness vi During Fiscal Year 2007, the Army Corps of Engineers continued to serve the nation with its engineering and construction expertise both at home and abroad. Today, the Corps is present in over one hundred countries throughout the world, including Iraq and Afghanistan, where it is working to advance security, stability and economic opportunity in these regions. In addition to military programs at home and abroad, the Corps also attended to its Civil Works mission in the United States, highlighted in large part by its work in response to the destruction on the Gulf Coast and in the city of New Orleans caused by Hurricanes Katrina and Rita in 2005. In FY 2007, the Corps continued this massive effort to restore over 220 miles of damaged levees and floodwalls in order to reduce the risk of flooding in the metropolitan New Orleans area. The Corps has looked beyond New Orleans and is applying the lessons learned from Hurricanes Katrina and Rita into a major initiative to transform planning, The Honorable design, construction, and operation and maintenance principles and decision- John Paul Woodley, Jr. making processes. Key elements of the initiative are changes that will enhance Assistant Secretary of the Army the way the Corps uses risk management to guide decision making and ensures (Civil Works) that all stakeholders understand the risks associated with water resources projects.