Internal audits are performed by the Army Audit Agency, Naval Audit Service, the Air Force Audit Agency, and the Defense Audit Service. In the 6-month period, these organizations issued 1,758 reports concerning comptroller functions, supply, personnel management, procurement, and other topics. These agencies have also developed improved fraud detection methods and provided special training for their auditors. Supplementing the work of central audit organizations, internal review groups within each service issued over 10,000 reports in the review period. A total of 79 reports were completed by the internal audit organizations of the 3 military exchange systems. The Defense Contract Audit Agency, which is responsible for auditing outside contractors, issued over 32,000 reports and is developing a self-study course on fraud prevention, as well as revised guidelines on internal controls. The inspection departments of the Army, Navy, Air Force, Marine Corps, and six other DOD agencies evaluate management of DOD programs in addition to testing military readiness. These units published 5,556 studies, coordinated activities with other DOD investigations, and improved inspectors< training programs. During the 6 months, 373 incidents of potential fraud were reported to the criminal investigative departments of the Army, Air Force, Navy, and the Defense Investigative Service. These agencies also completed crime prevention surveys, conducted training courses, and increased use of a team approach in investigating contractor-cost mischarging cases. Audit activities are summarized according to the following categories: reports of potential fraud incidents, significant instances of waste, opportunities for improving operations, and status of previously reported incidents. Special DOD programs regarding fraud and waste prevention are reviewed, including a high-level steering group on oversight of defense activities, improved procedures for monitoring corrective recommendations, and establishment of a hotline to report fraud or waste. Detailed statistics on the activities of each DOD component are appended, along with descriptions of specific cases of fraud, waste, or abuse.