Financial Management:

DOD's Liability for the Disposal of Conventional Ammunition Can Be Estimated

AIMD-98-32: Published: Dec 19, 1997. Publicly Released: Dec 19, 1997.

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Gregory D. Kutz
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Pursuant to a legislative requirement, GAO reviewed the Department of Defense's (DOD) implementation of the requirement to disclose the liability associated with the disposal of various types of assets, specifically conventional ammunition.

GAO noted that: (1) DOD has not yet implemented the federal accounting standard that requires recognizing and reporting liabilities such as those associated with ammunition disposal, nor has it provided guidance to the military services; (2) in commenting on GAO's recent report on the aircraft disposal liability, DOD agreed with GAO's recommendation to incorporate statements of federal financial accounting standard (SFFAS) No. 5 in its Financial Management Regulation; (3) ammunition disposal is an ongoing process that results from materials with a limited shelf-life or that otherwise will not be used in operations, and the cost can be reasonably estimated; (4) accordingly, these activities meet the criteria for a reportable liability; (5) the cost information that DOD developed in response to requests from congressional committees can be used as a starting point to estimate the ammunition disposal liability; and (6) a number of additional factors will have to be addressed, including data reliability, data completeness, and the need for periodic updates.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Comptroller's office, in coordination with the Under Secretary of Defense (Acquisition and Technology), issued guidance for disposal cost liabilities in August 1999, that addresses conventional munitions.

    Recommendation: The Secretary of Defense should ensure that the DOD Comptroller and the Under Secretary of Defense (Acquisition and Technology) promptly issue joint implementing guidance for the services on the SFFAS No. 5 requirements for recognition of a liability for ammunition disposal costs. This guidance should address the key liability estimation factors identified in this report, including data reliability, data completeness, and the need for updated information.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In response to this report (AIMD-98-32) and a subsequent report (GAO-01-372) requiring DOD to calculate and record the demilitarization liability for excess ammunition in its financial statements, Army calculated a $1,195,508,248 liability for its fiscal year 2002 statements. This calculation included Army's demilitarization stockpile plus the forecast of expected additions to the stockpile over the next 5 years. However, Army did not include excess ammunition overseas or excess Army-owned war reserve ammunition. Therefore, GAO sent another letter to DOD (GAO-02-553R) indicating that the Army's reported liability was not complete. In response, Army re-calculated its demilitarization liability for its fiscal year 2002 financial statements to include overseas and war-reserve excess ammunition. As a result, Army will report a $1,693,878,127 liability for demilitarizing excess ammunition in its fiscal year 2002 financial statements.

    Recommendation: The Secretary of Defense should ensure that the DOD and military service comptrollers include the estimated ammunition disposal liability in DOD's fiscal year 1997 financial statements.

    Agency Affected: Department of Defense


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