Financial Management:

Accounting Implications of DOD's Facilities Demolition Programs

AIMD-98-194R: Published: Aug 28, 1998. Publicly Released: Aug 28, 1998.

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Pursuant to a legislative mandate, GAO reviewed the accounting issues related to the Department of Defense's (D0D) facilities demolition program.

GAO noted that: (1) facilities are considered general property, plant, and equipment, and facilities demolition is subject to the accounting requirements found in Statements of Federal Financial Accounting Standards (SFFAS) No.5 and No.6; (2) the accounting treatment for facilities scheduled for demolition depends on whether or not those facilities still contribute to the department's operations; (3) for facilities that contribute to an agency's operation, SFFAS No.6 requires that the assets and any related capital improvements be depreciated over the assets' remaining estimated useful lives; (4) facilities that no longer contribute to an agency's operations because they have become obsolete or have been identified as excess are characterized in SFFAS No.6 as awaiting disposal, retirement or removal from service; (5) no additional depreciation should be recorded for these assets, and additional deferred maintenance should be disclosed; (6) while facilities that no longer contribute to operations and that will be disposed of through the demolition program have no net sales or salvage value, they do have an associated cost that must be accrued and reported in accordance with SFFAS No.5; (7) the two key criteria cited in SFFAS No.5 for a reportable liability are that a future cost is probable and that it is estimable; (8) the military services have programs in place to identify unneeded facilities, and they have been demolishing these facilities for several years; (9) the second key criterion in SFFAS No.5 for reporting a liability is that an amount be reasonably estimable; (10) DOD has developed cost estimates for its facilities demolition program and used those estimates for budgetary and other purposes; (11) as DOD develops its implementing guidance for SFFAS Nos.5 and 6, it will have to address at what point an unneeded facility that is a candidate for demolition no longer contributes to the organization and, therefore, should be treated as an asset awaiting disposal; (12) DOD's guidance will need to address specific criteria for determining at what point facilities scheduled for demolition would cease being a general property asset and instead represent a disposal liability; (13) thorough guidance will be critical to ensuring that the military services properly and consistently account for their facilities demolition programs; and (14) GAO is available to work with DOD to update the Financial Management Regulation and develop the necessary implementing guidance.

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