Financial Management

Pursuant to a legislative requirement, GAO reviewed factors the Department of Defense (DOD) should consider in its efforts to meet the new Statements of Financial Accounting Standards (SFFAS) 6 requirement for reporting environmental liabilities for the cleanup of hazardous materials related to property, plant, and equipment, focusing on: (1) whether an estimate of the minimum environmental liability could be made; and (2) key factors DOD should consider as it develops its policy. This review of nuclear submarines and ships is one in a series of reviews GAO is conducting to address DOD environmental liabilities associated with various types of mission assets.

GAO noted that: (1) all nuclear submarines and ships contain hazardous materials and waste that must be removed and disposed of when they are deactivated; (2) the Navy's management information systems contain data that can be used to estimate an environmental liability as a portion of the costs to inactivate and dispose of nuclear submarines and ships; (3) in estimating an environmental liability for all of the Navy's submarines and ships, various factors need to be addressed as DOD develops its policy and chooses the appropriate methodology; (4) specifically, DOD must: (a) clarify that nuclear waste is a type of hazardous material as contemplated by the accounting standard; and (b) provide guidance on what specific activities and costs should be considered environmentally related; (5) Navy shipyard officials responsible for inactivation activities held divergent opinions on what should be considered hazardous material, including whether radioactive material should be included; (6) Navy officials had differing views on the specific inactivation activities that should be included in the environmental cost; (7) Navy officials suggested that the total cost to inactivate and dispose of nuclear submarines and ships, and not just the environmental costs, may provide useful information and is more consistent with their existing information systems and operational budget requirements; (8) the new accounting standards would not preclude accounting for and reporting as a liability the total cost of inactivation and disposal of nuclear submarines and ships; (9) depending upon DOD's definition of environmental costs, the total costs may not differ significantly from the environmental portion of inactivation and disposal costs and could be used to satisfy the new federal accounting standards; (10) regardless of whether the reported environmental liability is based on solely the environmental costs associated with the cleanup and disposal of submarines and ships or total disposal costs, the result will be a large liability--much of which would not require outlays in the current year; (11) a breakdown of the liability could be provided in a footnote to the financial statements based on the approximate time periods when the inactivations are expected to occur; and (12) such information could provide important context for congressional and other budget decisionmakers on the annual impact of inactivations that have occurred or are expected to occur during various budget periods, including those outside the Future Years Defense Program.