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 trust and revolving funds, such as the Defense Business Operations Fund. The Defense Business Operations Fund was established as a revolving fund in FY 1992 and consisted of business areas such as Supply Management and Depot Maintenance. In December 1996, the Under Secretary of Defense (Comptroller) announced that the Defense Business Operations Fund would be eliminated and separate working capital funds would be established. Under the working capital fund concept, each Component or Defense agency will be responsible for managing the operational and financial aspects of its working capital funds. The changed structure of the Defense Business Operations Fund has no effect on the management control weaknesses discussed in this report. The reader of this report should substitute "Defense Working Capital Funds" for "Defense Business Operations Fund" whenever appropriate. The Under Secretary of Defense (Comptroller) initiated a comprehensive review of the Defense Business Operations Fund in response to a requirement in the FY 1997 Defense Authorization Act to provide Congress a plan for improving the management and performance of the Defense Business Operations Fund. This review, known as the Defense Working Capital Funds Study, involves participants drawn from all Military Departments and Defense agencies and includes Defense Business Operations Fund employees and customers. The FY 1996 Defense Business Operations Fund financial statements identified assets of $92.2 billion, liabilities of $18.4 billion, and revenues of $73.7 billion. The objective of the audit was to identify and summarize the Defense Business Operations Fund's major accounting and management control deficiencies that prevented the timely development and reliable presentation of its financial statement.