Financial Management

The development of Defense Department (DOD) and Navy guidance for deferred maintenance is essential to ensure consistent reporting in the military and to facilitate the preparation of accurate DOD-wide financial statements. Navy officials said that they were reluctant to develop procedures to implement the required accounting standard until DOD issues overall policy guidance. DOD and Navy officials have expressed many views on how to apply the deferred maintenance standard to aircraft. As a result, GAO believes that it is even more important for clear guidance to be developed. Key issues must be resolved to allow for consistent reporting within the Navy, among the military services, and from year to year, including what constitutes an acceptable operating condition in aircraft and when unperformed maintenance on aircraft becomes deferred maintenance. In addition, DOD needs to address its implementing guidance on whether (1) the deferred maintenance standard should be applied to certain groups of assets, such as equipment for which there is no current operational requirement, and (2) the reported deferred maintenance should differentiate between critical and noncritical and, if so, what constitutes critical.

GAO noted that: (1) the development of DOD and Navy policy and implementing guidance for deferred maintenance is essential to ensure consistent reporting among the military services and to facilitate the preparation of accurate DOD-wide financial statements, particularly since the new accounting standard provides extensive management flexibility in implementing the disclosure requirement; (2) Navy officials stated that they were reluctant to develop procedures to implement the required accounting standard until DOD issues overall policy guidance; (3) GAO's September 30, 1997, letter points out the need for accelerating DOD plans to issue implementing guidance to the military services; (4) DOD and Navy officials have expressed numerous views as to how to apply the deferred maintenance standard to aircraft; (5) since numerous views exist, GAO believes it is even more important for clear guidance to be developed; (6) the opinions ranged from including only maintenance needed on grounded aircraft to including all maintenance needs identified during aircraft inspections; (7) in formulating the DOD and Navy guidance, GAO believes key issues must be resolved to allow for consistent reporting within the Navy, among the military services, and from year to year, including: (a) what constitutes acceptable operating condition in aircraft; and (b) when unperformed maintenance on aircraft becomes deferred maintenance; (8) in addition, DOD needs to address in its implementing guidance: (a) whether the deferred maintenance standard should be applied to certain groups of assets, such as equipment (for example, aircraft engines) for which there is no current operational requirement; and (b) whether the reported deferred maintenance should differentiate between critical and noncritical and, if so, what constitutes critical.