The Chief Financial Officers Act of 1990, as amended by the Federal Financial Management Act of 1994, requires an annual audit of the financial statements of the Defense Business Operations Fund. The Defense Business Operations Fund was established as a revolving fund in FY 1992 and consists of business areas such as Supply Management, Depot Maintenance, and Transportation. The Defense Business Operations Fund Consolidated Financial Statements for FY 1996 reported total assets of $92.2 billion and total revenues and financing sources of $73 .7 billion. The Defense Business Operations Fund Corporate Board and the Office of the Under Secretary of Defense (Comptroller) were responsible for oversight of the Defense Business Operations Fund, while the Military Departments and Defense agencies were responsible for the day-to-day management and operational responsibilities. In December 1996, the Under Secretary of Defense (Comptroller) announced that the existing Defense Business Operations Fund would be eliminated and separate working capital funds would be established. Under the working capital fund concept, each of the Components will be responsible for managing the functional and financial aspects of their support functions and activities and should retain their individuality in managing operations. This restructuring does not materially affect the issues raised in this report. The primary audit objective was to determine whether the FY 1996 Defense Business Operations Fund Consolidated Financial Statements were presented fairly in accordance with Office of Management and Budget Bulletin No. 94-01, "Form and Content of Agency Financial Statements," November 16, 1993. In addition, we determined whether controls were adequate to ensure that the consolidated financial statements were free of material error. We also assessed compliance with laws and regulations for transactions and events that have a direct and material effect on the financial statements.