We reviewed financial and operational regulations and documentation related to managing and reporting on the ship maintenance process. Implementing Guidance Needed to Ensure Consistent and Timely Reporting of Deferred Maintenance

Neither DOD nor the Navy has developed implementing guidance for determining and disclosing deferred maintenance on financial statements. Navy officials said that they are reluctant to develop their procedures until DOD issues its guidance. As we reported to DOD in our September 30, 1997, letter, DOD guidance is important to ensure consistency among the military services and to facilitate the preparation of DOD-wide financial statements. The views on how to apply the deferred maintenance standard to the ship maintenance process ranged from including only unfunded ship overhauls to estimating the cost of repairing all problems identified in each ship’s maintenance log. As a result of the variations in the way the deferred maintenance standard can be applied to ships (including submarines), DOD and the Navy need to consider a number of issues, including the following. 6 allows agencies to decide what “acceptable condition” means and what maintenance needs to be done to keep assets in that condition. The determination may also be influenced by whether the ship is currently deployed or scheduled to be deployed in the near future. Also, if DOD chooses to disclose deferred maintenance for all reported assets, including maintenance on assets not needed for current requirements, identifying the types of assets included in the deferred maintenance disclosure may be another way to differentiate between critical and noncritical. Agency Comments

In comments on a draft of this report (see appendix I), the Department of Defense agreed that it must consider the key issues identified in this report as it implements deferred maintenance reporting requirements.
Why GAO Did This Study

GAO reviewed the Department of Defense's (DOD) implementation of the requirement for valuable information related to deferred maintenance on mission assets, focusing on Navy ships, including submarines.

What GAO Found

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.