Financial Management

Recognizing the extent of incomplete and unreliable information on the costs and consequences of government programs, recent laws have made the implementation of new accounting standards and audited federal financial statements a priority. New federal financial accounting standards have required government agencies to show the financial results of all of their operations and to provide relevant information on their financial status. This, the third in a series of GAO reports on the military's implementation of the requirement for valuable information on deferred maintenance on mission assets, focuses on the Navy's ships, including submarines.

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) DOD and Navy officials have expressed numerous views as to how to apply the deferred maintenance standard to ships; (4) this makes it even more important for clear guidance to be developed; (5) the opinions ranged from including only unfunded ship overhauls to including cost estimates of repairing all problems identified in each ship's maintenance log; (6) in formulating the DOD and Navy guidance, key issues need to be resolved to allow for meaningful and consistent reporting within the Navy and from year to year including: (a) what maintenance is required to keep the ships in an acceptable operating condition; and (b) when to recognize as deferred needed maintenance which has not been done on a ship; and (7) in addition, DOD needs to address in its implementing guidance whether the: (a) deferred maintenance standard should be applied to all or only certain groups of assets, such as ships being deactivated in the near future; and (b) reported deferred maintenance should differentiate between critical and noncritical and, if so, what constitutes control.