Industrial Funds

Weaknesses Remain in the Department of Defense's Capital Equipment Program Gao ID: NSIAD-91-175 April 17, 1991

Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) management of its Asset Capitalization Program (ACP) to determine: (1) DOD plans to request that Congress transfer funding for industrial and depot maintenance equipment back to the industrial funds; (2) the extent to which DOD industrial fund accounting allowed it to use unexpended ACP funds to pay for losses in the industrial funds; and (3) whether DOD appropriately computed unliquidated ACP obligations as liabilities in its reporting of net budgetary resources for its industrial funds.

GAO found that: (1) DOD plans to fund capital equipment at industrial fund activities, through the Defense Business Operations Fund (DBOF), did not adequately alleviate some of the ACP accounting and reporting weaknesses GAO previously reported and did not eliminate the need for better policies and guidance for the capital equipment program; (2) inappropriate DOD decisions to refund unexpended ACP revenue to customers and to fund operational losses contributed to inadequate industrial fund accounting and reporting procedures; (3) the industrial fund activities accumulated about $1.6 billion in operating losses as a result of customer refunds and operational losses sustained from fiscal year (FY) 1987 through FY 1989; (4) the lack of ACP reserves and low cash balances in the industrial funds precluded the industrial fund activities from making about $519.3 million in depreciation-related revenues to customers in FY 1990; (5) DOD reported inaccurate information on ACP cash requirements and insufficient information on the status of ACP revenues, disbursements, and obligations to Congress; and (6) comptroller officials did not find any violations of the Anti-Deficiency Act in the five DOD industrial funds, but were unable to document that unliquidated ACP obligations were included in the computations of the industrial funds' budgetary resources.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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