Financial Management:

DOD's Liability for Aircraft Disposal Can Be Estimated

AIMD-98-9: Published: Nov 20, 1997. Publicly Released: Nov 20, 1997.

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Gregory D. Kutz
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Pursuant to a legislative requirement, GAO reviewed: (1) the status of the Department of Defense's (DOD) efforts to implement the new federal accounting standard for disclosure of liabilities, such as aircraft disposal; and (2) whether an estimate of the minimum disposal liability for aircraft, including the removal and disposal of hazardous materials, could be made.

GAO noted that: (1) DOD has not implemented the federal accounting standard that requires recognizing and reporting liabilities such as those associated with aircraft disposal, nor has DOD provided guidance to the military services; (2) aircraft disposal is an ongoing process and the cost can be reasonably estimated; (3) accordingly, these activities meet the criteria for a reportable liability; (4) information on the three major disposal processes--demilitarization, storage and maintenance, and hazardous materials removal and disposal--is available to develop cost estimates; (5) Congress has recognized the importance of accumulating and considering disposal cost information; and (6) in the National Defense Authorization Act for Fiscal Year 1995, Congress required DOD to develop life-cycle environmental costs, including demilitarization and disposal costs, for major defense acquisition programs.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD published revisions to its Financial Management Regulation in August 1999, that incorporate SFFAS Number 5. Regarding aircraft disposal, DOD specifically published guidance for accrued environmental and non-environmental disposal cost liabilities (volume 4, chapter 13).

    Recommendation: The Secretary of Defense should ensure that the DOD Comptroller incorporates Statement of Federal Financial Accounting Standards (SFFAS) Number 5 in DOD's Financial Management Regulation.

    Agency Affected: Department of Defense

  2. 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. Based on discussions with the DOD Comptroller's office and a DOD contractor assisting on environmental liability accounting and reporting issues, GAO is now satisfied that the guidance is adequate.

    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 Number 5 requirements for recognition of a liability for aircraft disposal costs.

    Agency Affected: Department of Defense

  3. Status: Closed - Not Implemented

    Comments: GAO is closing this recommendation as not implemented because, after more than 7 years, the Air Force has still not estimated a clean-up and disposal liability for its aircraft. In fact, the Air Force has stated that the cost of cleanup/disposal is likely to be insignificant and has claimed that it is not reasonable to determine such a liability until the aircraft is ready to be taken out of service and its disposition method is determined. In addition, the Federal Accounting Standards Advisory Board (FASAB) recently approved SFFAS 23, which changes the categorization of aircraft from national defense assets to general equipment assets for financial statement reporting purposes. While this change does not eliminate the requirement for recording environmental and disposal liabilities for aircraft, it does change how the liability is calculated. For national defense assets, the entire environmental and disposal liability had to be reported at the time the asset was put into service. For general equipment, the liability must be accrued and reported over the asset's useful life--30+ years for aircraft. Air Force intends to implement the new standard by 2007, but will likely maintain its stance of not estimating an environmental/disposal liability for aircraft.

    Recommendation: The Secretary of Defense should ensure that the DOD Comptroller includes the estimated aircraft disposal liability in DOD's fiscal year 1997 financial statements.

    Agency Affected: Department of Defense


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