Financial Management: Defense Business Operations Fund Implementation Status

GAO discussed the Department of Defense's (DOD) progress in planning and implementing the Defense Business Operations Fund. GAO noted that: (1) DOD is revising its Fund implementation plan to show specifically how the Fund will achieve its goals; (2) DOD has established operating and capital budgets for Fund activities based on the unit cost concept and adopted the percentage-of-completion method for revenue recognition for industrial fund activities; (3) it disagrees with DOD policies to increase prices to recover $454.8 million in accumulated operating losses, to include $305 million in military construction depreciation costs in fiscal year 1993 prices, and for major real property maintenance and repair projects which would average the estimated costs for these projects over a 10-year period; (4) DOD has not yet finalized other key policies involving cash management, capital asset accounting, and intrafund transactions that are needed to help account for, control, and report on billions of dollars of resources; (5) DOD has made little progress in improving the existing cost accounting systems that the stock and industrial funds use and is still in the process of determining the requirements for the Fund's cost accounting systems; and (6) DOD did not fully disclose or explain the effect of the changes it made in its management philosophy and practices for operating industrial and stock funds.