The audit was performed in support of our audits of the FYs 1996 and 1997 DoD-wide financial statements required by the Chief Financial Officers Act of 1990, as amended by the Federal Financial Management Act of 1994. Financial data from the Defense Investigative Service are included in the "Other Defense Organizations" portion of the DoD consolidating financial statements. The Defense Investigative Service received $211.8 million and $203.8 million in direct appropriated funds during FYs 1996 and 1997, respectively. The FY 1996 financial statements for the Defense Investigative Service showed $123 million in assets, $120 million in liabilities, and $211 million in expenses. The Defense Finance and Accounting Service Denver Center provides accounting support for the Defense Investigative Service. The overall objectives of the audit were to assess internal controls and compliance with laws and regulations that require the production of accurate financial statements. We also reviewed FY 1996 account balances submitted to the Defense Finance and Accounting Service Indianapolis Center and supporting documentation for FY 1997 transactions and account balances. Audit Results. Accounting information reported for the Defense Investigative Service for FYs 1996 and 1997 was materially incomplete and inaccurate and could not be fully supported. As a result, fmancial information produced and reported for the Defense Investigative Service could not be relied on to prepare accurate financial statements required by the Chief Financial Officers Act of 1990. Also, at least $3.5 million of invalid liabilities and obligations from the FYs 1993 through 1997 Operation and Maintenance appropriations needed to be removed from the Defense Investigative Service's accounting records. Those expired funds could be used for adjustments to valid obligations, if needed.