Recent laws have enhanced the legislative requirements to provide policymakers and agency program managers with more reliable financial information to formulate budgets, manage government programs, and help make difficult policy choices.1 Recognizing the extent of incomplete and unreliable information on the cost and consequences of government programs and activities, these laws have made implementing new accounting standards and audited federal financial statements a priority. New federal financial accounting standards have been adopted to enhance federal financial statements by requiring that government agencies show the financial results of their entire operations and provide relevant information on their financial status. This report discusses one such requirement for valuable information related to deferred maintenance on mission assets.2 The second in a series of reports on the Department of Defense's (DOD) implementation of this requirement, this report focuses on Navy aircraft. We are not making recommendations in this report. Rather, we are identifying specific issues that need to be considered in carrying out the basic recommendation in our September 30, 1997, letter to expedite plans to implement the deferred maintenance standard.
Accurate reporting of deferred maintenance is important for key decisionmakers, such as the Congress, DOD, and Navy managers. Further, deferred maintenance applicable to mission assets, if reliably quantified and reported, can be an important performance indicator of mission asset condition (a key readiness factor), as well as an indicator of the proper functioning of maintenance and supply lines. While the existence of
'The Chief Financial Officers Act of 1990, the Government Performance and Results Act of 1993, the Government Management Reform Act of 1994, and the Federal Financial Management Improvement Act of 1996.
2Statement of Federal Financial Accounting Standard No. 6, Accounting for Property, Plant, and Equipment, dated November 30, 1995, defines federal mission property, plant, and equipment as possessing certain characteristics related to (1) its use, such as having no expected nongovernmental uses, and (2) its useful life, such as a very high risk of being destroyed in use or premature obsolescence.
3See Financial Management: DOD Needs to Expedite Plans to Implement Deferred Maintenance Accounting Standard (GAO/AIMD-97-159R, September 30, 1997).
LIONARY U. OF I. URBANA-CHAMPAIGN
deferred maintenance may indicate a need for additional resources for maintenance, such resources may already be available within the current funding of the military services.
In October 1990, the Federal Accounting Standards Advisory Board (FASAB) was established by the Secretary of the Treasury, the Director of the Office of Management and Budget (OMB), and the Comptroller General of the United States to consider and recommend accounting standards to address the financial and budgetary information needs of the Congress, executive agencies, and other users of federal financial information. Using a due process and consensus building approach, the nine-member Board, which has since its formation included a member from DOD, recommends accounting standards for the federal government. Once FASAB recommends accounting standards, the Secretary of the Treasury, the Director of OMB, and the Comptroller General decide whether to adopt the recommended standards. If they are adopted, the standards are published as Statements of Federal Financial Accounting Standards (SFFAS) by OMB and GAO. In addition, the Federal Financial Management Improvement Act of 1996 as well as the Federal Managers' Financial Integrity Act of 1982, require federal agencies to implement and maintain financial management systems that will permit the preparation of financial statements that substantially comply with applicable federal accounting standards.
SFFAS No. 6, Accounting for Property, Plant, and Equipment, issued on November 30, 1995, requires the disclosure of deferred maintenance in agencies' financial statements for the fiscal year beginning October 1, 1997. SFFAS No. 6 defines deferred maintenance as "maintenance that was not performed when it should have been or was scheduled to be and which, therefore, is put off or delayed for a future period." It includes preventive maintenance and normal repairs, but excludes modifications or upgrades that are intended to expand the capacity of an asset. The deferred maintenance standard applies to all property, plant, and equipment, including mission assets-which will be reported on the supplementary stewardship report.4 For DOD, mission assets, such as submarines, ships, aircraft, and combat vehicles, is a major category of property, plant, and equipment. In fiscal year 1996, DOD reported over $590 billion in this asset category, of which over $297 billion belonged to the Navy.
4SFFAS No. 8, Supplementary Stewardship Reporting, requires the reporting of federal mission property, plant, and equipment on the supplementary stewardship report for the fiscal years beginning October 1, 1997. Prior to this standard, these assets were reported on the Statement of Financial Position.
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