Industrial Funds:

DOD Should Improve Its Accounting for Asset Capitalization Program Funds

NSIAD-86-112: Published: May 23, 1986. Publicly Released: May 23, 1986.

Additional Materials:


Martin M. Ferber
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GAO reviewed the implementation of the Department of Defense (DOD) Asset Capitalization Program (ACP) to evaluate its progress and problems after 2 years of operation.

GAO found that: (1) although ACP is in its fourth year of operation, DOD accounting procedures do not separate ACP funds from those generated through charges to customers for goods or services; (2) DOD does not have the financial data to ensure that funds will be available for equipment acquisition when needed; (3) information on ACP is not sufficient to assure Congress that program requirements are being met; and (4) since fiscal year 1983, the funds available for industrial fund purchases have increased. GAO also found that: (1) although DOD has not updated its industrial fund regulations to provide for ACP accounting procedures, it has developed internal accounting reporting requirements, which will include ACP; (2) cash generated through ACP, if not separately accounted for, is used to finance operating costs other than ACP purchases; (3) the influx of ACP cash has enhanced the position of the industrial funds and avoided cash shortages; (4) DOD does not track the status or use of ACP funds; and (5) the establishment of separate cash accounts, reflecting ACP revenues, is one way that DOD can provide the controls necessary to ensure the availability of ACP funds.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOD revised chapter 95, "Industrial Fund Statements," of its accounting manual. The revision provides for identifying ACP funds separate from other industrial funds.

    Recommendation: The Secretary of Defense should expedite the establishment of formal ACP accounting procedures within the next fiscal year.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: DOD decided not to establish separate cash accounts or equity sections in its accounting systems. However, DOD agreed to expand its reporting on ACP in its annual industrial fund report to Congress. The report, issued in February 1987, included a summary of capital asset purchases showing the amount of equipment purchased, amount of actual outlays, and the source of funding.

    Recommendation: To provide Congress with the information necessary to ensure the viability of ACP and compliance with section 305(j) of the 1985 DOD Authorization Act, the Secretary of Defense should consider establishing separate cash accounts and a separate equity section in the industrial fund accounting system, or expanding its annual reporting to Congress to include actual ACP revenues, obligations, and expenditures by fiscal year.

    Agency Affected: Department of Defense


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