Department Of Defense Agency Financial Report 2007 - Section 2: Financial Information Page 29
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82Section 2: Financial Information
Department of Defense Agency Financial Report 2007
1
1.K. Accounts Receivable
The Balance Sheet reports accounts receivable in three categories: accounts receivable, claims receivable, and refunds
receivable from other federal entities or from the public. Allowances for uncollectible accounts due from the public are
based upon an analysis of collection experience by fund type. The Department does not recognize an allowance for
estimated uncollectible amounts from other federal agencies. Claims against other federal agencies are to be resolved
between the agencies in accordance with dispute resolution procedures defined in the Intragovernmental Business Rules
published in the Treasury Financial Manual at
1.L. Direct Loans and Loan Guarantees
The Department operates a direct loan and loan guarantee program authorized by the National Defense Authorization Act
for FY 1996, P.L. 104-106, Section 2801. The Act includes a series of authorities that allow the Department to work with
the private sector to renovate military housing. The Department’s goals are to obtain private capital to leverage government
dollars, make efficient use of limited resources, and use a variety of private sector approaches to build and renovate military
housing faster and at a lower cost to the American taxpayers.
The Act also provides the Department with a variety of authorities to obtain private sector financing and expertise to improve
military housing. The Department uses these authorities individually or in combination. They include guarantees (both
loan and rental), conveyance/leasing of existing property and facilities, differential lease payments, investments (both limited
partnerships and stock/bond ownership), and direct loans.
The National Defense Authorization Act for FY 2005, P.L. 108-375, Section 2805 provided permanent authorities to the
Military Housing Privatization Initiative (MHPI).
The Department operates a loan guarantee program designed to encourage commercial use of inactive government facilities.
The revenue generated from property rental offsets the cost of maintaining these facilities.
The Department administers the Foreign Military Financing program on behalf of EOP. This program is authorized by
sections 23 and 24 of the Arms Export Control Act of 1976, as amended, P.L. 90-629, as amended, and section 503(a). This
program provides loans to help countries purchase U.S.-produced weapons, defense equipment, services, or military training.
The direct loans and loan guarantees related to Foreign Military Sales are included in the basic financial statements.
The Federal Credit Reform Act of 1990 governs all amended direct loan obligations and loan guarantee commitments made
after FY 1991 resulting in direct loans or loan guarantees.
1.M. Inventories and Related Property
The Department values approximately 63% of its resale inventory using the moving average cost method. An additional
9% (fuel inventory) is reported using the first-in-first-out method. The Department reports the remaining 28% of resale
inventories at an approximation of historical cost using latest acquisition cost adjusted for holding gains and losses. The
latest acquisition cost method is used because legacy inventory systems were designed for materiel management rather
than accounting. Although these systems provide visibility and accountability over inventory items, they do not maintain
historical cost data necessary to comply with SFFAS No. 3, “Accounting for Inventory and Related Property.” Additionally,
these systems cannot produce financial transactions using the USSGL, as required by the Federal Financial Management
Improvement Act of 1996, P.L. 104-208. The Department is continuing to transition the balance of the inventories to the
moving average cost method through the use of new inventory systems. However, since the on-hand balances which were
transitioned were not, for the most part, baselined to auditable historical cost, the reported values remain noncompliant with
SFFAS No. 3 and GAAP.
The Department manages only military or government-specific materiel under normal conditions. Materiel is a unique term
that relates to military force management, and includes items such as ships, tanks, self-propelled weapons, aircraft, etc., and
related spares, repair parts, and support equipment. Real property, installations, and utilities that are necessary to equip,
operate, maintain, and support military activities without distinction as to application for administrative or combat purposes
are excluded. Items commonly used in and available from the commercial sector are not managed in the Department’s
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