For DOD, mission assets, such as submarines, ships, aircraft, and combat vehicles, is a major category of property, plant, and equipment. Implementing Guidance Needed to Ensure Consistent and Timely Reporting of Deferred Maintenance

Neither DOD nor the Navy have 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 in our September 30, 1997, letter, the guidance is important to ensure consistency among the military services and to facilitate the preparation of DOD-wide financial statements. DOD guidance for applying the deferred maintenance definition to aircraft is essential to consistent reporting by all of the military services since each service operates aircraft. The views on how to apply the deferred maintenance standard to the aircraft maintenance process ranged from considering only the work needed on grounded aircraft to estimating the cost of repairing all maintenance problems identified on all aircraft during inspection, whether the aircraft “failed” or not. Other views expressed by DOD and Navy officials of what should be reported as deferred maintenance fell between the two described previously. 6 allows agencies to decide what “acceptable condition” means and what maintenance needs to be done to keep assets in that condition. Applicability of the reporting requirements - DOD and the military services need to determine whether deferred maintenance should be reported for assets that are not needed for current requirements. Also, if DOD chooses to disclose deferred maintenance for all reported assets, including maintenance on assets exceeding current operating 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, the Department of Defense agreed that it must consider the key issues identified in the report as it develops implementing guidance and policy for reporting deferred maintenance.
Why GAO Did This Study

GAO reviewed the Department of Defense's (DOD) efforts to develop guidance for disclosing deferred maintenance on aircraft, focusing on deferred maintenance on mission assets of Navy aircraft.

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) 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.