Financial Management:

DOD Needs to Expedite Plans to Implement Deferred Maintenance Accounting Standard

AIMD-97-159R: Published: Sep 30, 1997. Publicly Released: Sep 30, 1997.

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GAO reviewed the status of the Department of Defense's (DOD) efforts to develop agencywide policies to address the deferred maintenance standard for mission assets and to emphasize the importance of developing timely DOD-wide guidance.

GAO noted that: (1) the development of DOD policy and implementing guidance for deferred maintenance is essential to ensure consistent reporting among the services and to facilitate the preparation of accurate DOD-wide financial statements, particularly since the new accounting standard provides extensive management flexibility in implementing the disclosure requirement; (2) during GAO's ongoing work on identifying and disclosing deferred maintenance on mission assets, both Army and Navy officials stated that they were reluctant to develop procedures to implement the required accounting standard until DOD issues overall policy guidance; (3) accounting policy officials within the Office of the Under Secretary of Defense, Comptroller (OUSD(C)), stated that they plan to issue DOD-wide policy guidance in the DOD Financial Management Regulation after OUSD(C) and the Under Secretary of Defense (Acquisition and Technology) review the results of a study by a nonprofit organization; (4) this study is expected to identify and evaluate alternative reporting approaches; (5) the officials then plan to provide financial management and logistic policy guidance as appropriate for deferred maintenance; (6) OUSD (Acquisition and Technology) maintenance policy staff plan to award the task order for this study in October 1997 and expect the results in 6 to 9 months; and (7) however, under this time frame, the military services may not have the DOD-wide guidance in time to develop service-specific policies and procedures for collecting deferred maintenance data for the fiscal year (FY) 1998 financial statements.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Although the planned issuance of a DOD-wide policy for preparing deferred maintenance estimates did not occur by the FY 1998 effective date, DOD, through an approved action plan, has been working to issue such policy by leading an interagency group tasked with developing government-wide methods for estimating deferred maintenance. DOD has expanded its current financial statement reporting requirements for deferred maintenance by including multi-use heritage assets and deferred maintenance on ships as reportable categories of General PP&E and National Defense PP&E, respectively. GAO believes these actions satisfy the intent of the recommendation.

    Recommendation: The acting Under Secretary of Defense (Comptroller) and the acting Under Secretary of Defense (Acquisition and Technology) should ensure that the DOD-wide policy is in place as soon as possible so that DOD can comply with the FY 1998 effective date of the deferred maintenance standard.

    Agency Affected: Department of Defense: Office of the Under Secretary of Defense for Acquisition

  2. Status: Closed - Implemented

    Comments: Although the planned issuance of a DOD-wide policy for preparing deferred maintenance estimates did not occur by the FY 1998 effective date, DOD, through an approved action plan, has been working to issue such policy by leading an interagency group tasked with developing government-wide methods for estimating deferred maintenance. DOD has expanded its current financial statement reporting requirements for deferred maintenance by including multi-use heritage assets and deferred maintenance on ships as reportable categories of General PP&E and National Defense PP&E, respectively. GAO believes these actions satisfy the intent of the recommendation.

    Recommendation: The acting Under Secretary of Defense (Comptroller) and the acting Under Secretary of Defense (Acquisition and Technology) should ensure that the DOD-wide policy is in place as soon as possible so that DOD can comply with the FY 1998 effective date of the deferred maintenance standard.

    Agency Affected: Department of Defense: Under Secretary of Defense (Comptroller)

  3. Status: Closed - Implemented

    Comments: DOD's planned issuance of a DOD-wide policy on deferred maintenance did not occur by March 1998. However, DOD subsequently developed and issued an approved action plan--including milestones and key actions--for guiding and directing the development of a DOD policy in this area.

    Recommendation: The acting Under Secretary of Defense (Comptroller) and the acting Under Secretary of Defense (Acquisition and Technology) should establish milestones for key actions in the policy development process to help ensure issuance of the policy no later than March 1998.

    Agency Affected: Department of Defense: Office of the Under Secretary of Defense for Acquisition

  4. Status: Closed - Implemented

    Comments: DOD's planned issuance of a DOD-wide policy on deferred maintenance did not occur by March 1998. However, DOD subsequently developed and issued an approved action plan--including milestones and key actions--for guiding and directing the development of a DOD policy in this area.

    Recommendation: The acting Under Secretary of Defense (Comptroller) and the acting Under Secretary of Defense (Acquisition and Technology) should establish milestones for key actions in the policy development process to help ensure issuance of the policy no later than March 1998.

    Agency Affected: Department of Defense: Under Secretary of Defense (Comptroller)

  5. Status: Closed - Implemented

    Comments: Although the study conducted by the Logistics Management Institute (LMI) was accelerated, the March timeframe for issuing policy was not achieved. The LMI final report, which provided recommendations for disclosing deferred maintenance on national defense property, plant, and equipment, was issued in November 1998. These recommendations, including several focused on the applicability of disclosing deferred maintenance at depot-level and field-level activities, are being considered in the policy development process.

    Recommendation: The acting Under Secretary of Defense (Comptroller) and the acting Under Secretary of Defense (Acquisition and Technology) should modify the proposed study with the Logistics Management Institute to accelerate completion of the deliverables to help achieve the March 1998 time frame.

    Agency Affected: Department of Defense: Office of the Under Secretary of Defense for Acquisition

  6. Status: Closed - Implemented

    Comments: Although the study conducted by the Logistics Management Institute (LMI) was accelerated, the March timeframe for issuing policy was not achieved. The LMI final report, which provided recommendations for disclosing deferred maintenance on national defense property, plant, and equipment, was issued in November 1998. These recommendations, including several focused on the applicability of disclosing deferred maintenance at depot-level and field-level activities, are being considered in the policy development process.

    Recommendation: The acting Under Secretary of Defense (Comptroller) and the acting Under Secretary of Defense (Acquisition and Technology) should modify the proposed study with the Logistics Management Institute to accelerate completion of the deliverables to help achieve the March 1998 time frame.

    Agency Affected: Department of Defense: Under Secretary of Defense (Comptroller)

 

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