United States General Accounting Office

GAO Report to the Chairman, Committee on

Appropriations, U.S. Senate

January 1998 DEFERRED

MAINTENANCE

REPORTING

Challenges to

Implementation

GAO/AIMD-98-42

GAO United States

General Accounting Office

Washington, D.C. 20548

Accounting and Information

Management Division

B-278767 

January 30, 1998

The Honorable Ted Stevens

Chairman

Committee on Appropriations

United States Senate

Dear Mr. Chairman:

Maintenance of government-owned assets has been a long-standing

concern. For example, a 1993 report of the U.S. Advisory Commission on

Intergovernmental Relations noted that maintenance often does not

receive adequate attention, especially in times of tight budgets, and that

deferred maintenance can result in poor quality facilities, reduced public

safety, higher subsequent repair costs and poor service to the public.

While federal agencies historically have not been required to periodically

report on deferred maintenance, agencies have provided maintenance

estimates for budgetary and ad hoc reporting purposes. The validity of

these past estimates has been questioned. We previously reported to you

on reporting requirements and maintenance issues identified by GAO and

agency inspectors general (IGs).1

Recent laws have imposed requirements to provide policymakers and

agency program managers with more reliable financial information to

formulate budgets, manage government programs and help make difficult

policy choices. The Chief Financial Officers (CFO) Act of 1990 and its

subsequent expansion through the Government Management Reform Act

of 1994 established a solid framework for improving financial management

and accountability for federal resources and will result in the preparation

and audit of financial statements for the government’s 24 major

departments and agencies, which are responsible for over 99 percent of

the government’s outlays. These laws also have made the implementation

of new federal accounting standards a priority.

The Statement of Federal Financial Accounting Standards (SFFAS) No. 6,

Accounting for Property, Plant and Equipment (PP&E), recently

recommended by the Federal Accounting Standards Advisory Board

1

Deferred Maintenance: Reporting Requirements and Identified Issues, GAO/AIMD-97-103R, May 23,

1997.

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(FASAB)2 and approved by GAO, the Office of Management and Budget (OMB)

and the Department of Treasury, specifically addresses the need for better

information on maintenance by requiring the disclosure3

 of deferred

maintenance in agency financial statements beginning for fiscal years after

September 30, 1997.4 FASAB addressed the issue of deferred maintenance in

part because of concerns raised by many groups about the deteriorating

condition of government-owned PP&E. Further, the Board believes that

deferred maintenance represents a cost and that adequate information on

these costs is important to users of financial statements.

However, while providing useful new information for decision-making, the

standard raises some implementation and definitional challenges—such as

determining the acceptable condition of assets and the estimation

methods to be used. Your office expressed your continued interest in

ensuring the effective and timely implementation of the deferred

maintenance requirements of SFFAS No. 6 and requested us to explore the

implementation plans and capabilities of federal agencies with respect to

the new requirements. Specifically, this report responds to your request

that we (1) look at the plans and progress of 11 agencies5

 toward

implementing the new deferred maintenance requirements of SFFAS No. 6

and (2) obtain the official position of agency CFOs and IGs with respect to

its implementation.

To achieve these objectives, we asked agency CFOs and their staffs a series

of questions about estimating maintenance needs and implementing the

deferred maintenance requirements of SFFAS No. 6. In addition, because of

2

In October 1990, the nine member Federal Accounting Standards Advisory Board was established by

the Secretary of the Treasury, the Director of the Office of Management and Budget (OMB) and the

Comptroller General of the United States to consider and recommend accounting standards to address

the financial and budgetary information needs of the Congress, executive agencies and other users of

federal financial information. Once FASAB recommends accounting standards, the Secretary of the

Treasury, the Director of OMB and the Comptroller General decide whether to adopt the

recommended standards. If they are adopted, the standards are published as Statements of Federal

Financial Accounting Standards by OMB and GAO.

3

A disclosure is an explanation or exhibit attached to a financial statement containing a fact, opinion,

or detail required or helpful in the interpretation of the statement.

4

The deferred maintenance requirement of SFFAS No. 6 applies to all property, plant and equipment.

5

In our previous work, we identified 11 agencies responsible for almost 99 percent of the government’s

reported PP&E as of September 30, 1996. These agencies include: Department of Defense (DOD),

Tennessee Valley Authority (TVA), National Aeronautics and Space Administration (NASA),

Department of Transportation (DOT), Department of Energy (DOE), United States Postal Service

(USPS), Department of the Interior (DOI), General Services Administration (GSA), Department of

Veterans Affairs (VA), Department of Agriculture (USDA) and Department of State (State). Of these 11

agencies, nine are specifically required to implement the deferred maintenance requirements for fiscal

year 1998. TVA and USPS follow private sector practices in their financial statement reporting.

However, TVA and USPS are included in the governmentwide financial statements and will be subject

to reporting deferred maintenance under SFFAS No. 6 if their amounts prove material to the

governmentwide statements.

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their experience with the agency’s financial reporting, we asked agency IGs

a series of questions about the agency’s progress toward implementing the

deferred maintenance requirements of SFFAS No. 6. Our work focused on

department-level implementation efforts rather than the work of individual

bureaus within an agency. Agency responses were confirmed with each

agency’s CFO and IG to ensure that they accurately reflected the agency’s

official position.6

 Where available, we reviewed agency financial

statements and relevant policy documentation.

Results in Brief Agency officials at the nine agencies specifically required to implement the

standard for fiscal year 1998 told us that they intend to comply with the

deferred maintenance requirements of SFFAS No. 6. If effectively

implemented, the new federal accounting requirements will improve

information on the maintenance of federal assets. Accurate reporting of

deferred maintenance is an important step toward more informed

decision-making. By improving the validity of information on maintenance,

the disclosure of deferred maintenance has the potential to improve both

the allocation of federal resources and, ultimately, the condition of federal

assets.

The federal requirement to disclose deferred maintenance amounts

presents agencies with a new challenge for which they must adequately

prepare. Some initial steps have been taken, but significant work remains

to be done for all agencies to effectively implement the deferred

maintenance requirements promptly. Four of the cognizant IGs expressed

confidence that their respective agencies would implement the deferred

maintenance requirements promptly and five expressed reservations or

were reluctant to assess agency progress. Although most agencies do not

have experience generating agencywide estimates of deferred

maintenance because historically they have not been required to do so, all

agencies reported that they have estimated maintenance for ad hoc and

budgetary purposes. Two agencies—DOI and NASA—indicated that they had

agencywide estimates of deferred maintenance and four other

agencies—USDA, State, DOT, and DOD—reported that they had previously

made at least partial estimates of deferred maintenance. None of the

deferred maintenance estimates, including the agencywide estimates, have

been subjected to independent audit.

6

In several cases, the agency did not have a CFO or IG in place at the time of our review. In these

cases, we received responses and confirmation from the deputy or acting CFO or IG. In the case of

DOD, we received responses and confirmation from the Acting Under Secretary of Defense

(Comptroller).

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A critical step in generating a deferred maintenance estimate is a complete

and reliable inventory of PP&E on which to assess maintenance needs.

However, the results of the fiscal year 1996 financial audits show that four

agencies—USDA, DOD, DOI, and DOT—are hampered in their efforts to report

deferred maintenance because they have been unable to fully report PP&E

reliably. While the lack of an accurate accounting of PP&E will impede

efforts to implement the deferred maintenance requirements,

implementation can proceed while agencies work on improving their PP&E

reporting.

DOD holds about 80 percent of the federal government’s PP&E, and it faces

significant issues to implement the deferred maintenance requirements. In

particular, a study being conducted for DOD is expected to determine

methods of measuring and recording deferred maintenance data for

mission assets and to provide recommendations on implementation.

However, the study is not expected to be completed until March 1998. This

completion date does not allow sufficient time for the agency to establish

the policies and guidance necessary to ensure consistent and timely

disclosure of deferred maintenance amounts in its fiscal year 1998

financial statement. In addition, audits of DOD financial statements have

received disclaimers of opinion due in part to DOD’s inability to adequately

account for its PP&E.

Even for agencies where the independent audits indicated no report

modifications that pertained to PP&E, the deferred maintenance

requirements present a significant challenge. The flexibility in SFFAS No. 6

increases the need for agencies to develop departmental policies and

guidance that are compatible with agency mission and organizational

structure. Such departmental guidance would help ensure consistent

reporting across agency units and facilitate the preparation of agencywide

financial statements. GAO has issued a series of reports to assist DOD in

implementing deferred maintenance reporting that would be useful to

other agencies as well.7

In determining the extent of additional departmental guidance to provide

units, agencies must balance the desirability of consistent reporting with

the need for flexibility due to the diversity of missions and assets. In

addition, adequate data collection and tracking systems will be necessary

7

For example, see Financial Management: Issues to Be Considered by DOD in Developing Guidance for

Disclosing Deferred Maintenance on Aircraft (GAO/AIMD-98-25, December 30, 1997), Financial

Management: DOD Needs to Expedite Plans to Implement Deferred Maintenance Accounting Standard

(GAO/AIMD-97-159R, September 30, 1997), and Deferred Maintenance: Reporting Requirements and

Identified Issues (GAO/AIMD-97-103R, May 23, 1997).

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to gather and verify information on deferred maintenance amounts.

Overcoming these challenges to help ensure reliable and meaningful

reporting at the departmental level is critical to the effective

implementation of the deferred maintenance requirements of SFFAS No. 6.

Background PP&E consists of tangible assets, including land, that: (1) have an estimated

useful life of 2 or more years, (2) are not intended for sale in the ordinary

course of operations, and (3) have been acquired to be used or available

for use by the entity. The amount of PP&E reported by agencies can aid in

identifying agencies that may have deferred maintenance. These amounts

only include PP&E owned by the federal government—not assets financed

by the federal government but owned by other entities such as state and

local governments. Table 1 presents the amount of PP&E reported for fiscal

year 1996 by the 11 agencies that account for almost 99 percent of total

reported PP&E. DOD is the largest single holder of PP&E in the federal

government, controlling about 80 percent of the reported total, while the

next largest holders—TVA, NASA and DOT—hold about 3 percent each.

Table 1: Reported Property, Plant, and

Equipment by Federal Agency, Fiscal

Year 1996

Dollars in billions

Agency Total PP&E

Percent of total

PP&E

Department of Defense $773 80.5

Tennessee Valley Authority 30 3.2

National Aeronautics and Space

Administration

26 2.7

Department of Transportation 24 2.5

Department of Energy 22 2.3

U.S. Postal Service 18 1.9

Department of the Interior 17 1.7

General Services Administration 12 1.3

Department of Veterans Affairs 11 1.2

Department of Agriculture 9 .9

Department of State 5 .5

All other agencies 14 1.4

Totala $960 100.0

aFigures do not add precisely due to rounding.

Source: Data from audited financial statements for 11 agencies. For all other agencies, data

reported to the Department of the Treasury. This information was not independently verified by

GAO.

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The new accounting requirements for deferred maintenance contained in

SFFAS No. 6 have the potential to improve information on maintenance

needs. SFFAS No. 6 requires that a line item for “deferred maintenance

amounts” be presented on the statement of net cost. The statement of net

cost is one of several financial statements. It is designed to report the

gross and net costs of providing goods, services and benefits. Although no

dollar amounts for deferred maintenance are to be reported on the

statement of net cost itself and thus are not included in the net costs of

activities, the explanatory notes to the financial statements must include

dollar estimates of deferred maintenance. When agencies begin to disclose

deferred maintenance in their fiscal year 1998 financial statements in

compliance with the standard, the annual audits of agency financial

statements will help ensure that whatever is reported is subject to

independent scrutiny. As the objective of the financial statement audit is to

obtain reasonable assurance about the financial statements as a whole,

individually reported deferred maintenance amounts will receive varying

levels of audit coverage depending on their materiality to the financial

statements. Because of the nature of these estimates, the auditor’s

assessment will depend in part, on management’s judgement of the asset

condition, maintenance needs, and the methodology chosen to estimate

deferred maintenance.

Deferred maintenance is defined in SFFAS No. 6 as “maintenance that was

not performed when it should have been or was scheduled to be and

which, therefore, is put off or delayed for a future period.”

Maintenance—described as the act of keeping fixed assets in acceptable

condition—includes preventive maintenance and normal repairs, including

the replacement of parts and structural components and other activities

needed to preserve the asset so that it continues to provide acceptable

service and achieve its expected life. Modifications or upgrades that are

intended to expand the capacity of an asset are specifically excluded from

the definition.

SFFAS No. 6 recognizes that determining maintenance needs is a

management function and accordingly allows management flexibility and

judgment within broadly defined requirements. For example, the standard

acknowledges that determining the asset condition—condition rating—is a

management function because what constitutes acceptable condition may

differ both across entities and for different items of PP&E held by the same

entity. Under the standard, it is management’s responsibility to

(1) determine the level of service and condition of the asset that are

acceptable, (2) disclose deferred maintenance by major classes of assets,

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and (3) establish methods to estimate and report any material amounts of

deferred maintenance.8

 In addition, the standard has an optional

disclosure for stratification between critical and noncritical amounts of

maintenance. Management must decide whether to distinguish between

critical and noncritical deferred maintenance amounts and, if it chooses to

do so, what constitutes critical.

Of the 11 agencies included in our review, nine agencies are required

specifically to implement the standard for fiscal year 1998. TVA and USPS

follow private sector practices in their financial statement reporting.

However, TVA and USPS are included in the governmentwide financial

statements and will be subject to reporting deferred maintenance under

SFFAS No. 6 if their amounts prove material9 to the governmentwide

statements. Treasury officials are addressing whether there are any

significant issues regarding how to include entities in the consolidated

statements that are not required to follow federal accounting standards,

such as TVA and USPS.

Objectives, Scope,

and Methodology

The objectives of our work were to (1) look at the plans and progress of

the 11 agencies to implement the deferred maintenance requirements of

SFFAS No. 6 and (2) obtain the official position of agency CFOs and IGs with

respect to its implementation. To achieve these objectives we first

reviewed SFFAS No. 6, including the significant considerations made by the

board in developing the standard.

We then developed an interview guide covering (1) previous agency

experience with maintenance reporting, (2) agency management plans for

and commitment to implementing deferred maintenance reporting in

compliance with SFFAS No. 6, and (3) the status of agency policies and

procedures for implementing such reporting. Interviews using this guide

were held with 11 agency CFOs and their related staff. In addition, because

of their experience with agency financial reporting, we developed an

interview guide which was used to obtain agency IGs’ views about their

agency’s readiness and progress towards implementing the deferred

8

The standard provides that amounts disclosed for deferred maintenance may be measured using

either condition assessment surveys or life-cycle cost forecasts. Condition assessment surveys are

periodic inspections of PP&E to determine both its current condition and estimated costs to correct

any deficiencies. Life-cycle costing is an acquisition or procurement technique which considers

operating, maintenance, and other costs in addition to the acquisition cost of assets. Since it results in

a forecast of maintenance expense, these forecasts may serve as a basis against which to compare

actual maintenance expense and estimate deferred maintenance.

9

An item is considered material if its inclusion or omission would influence or change the judgment of

a reasonable person.

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maintenance requirements and about any previous relevant audit reports.

Interviews were conducted only with the IG’s at the nine agencies

specifically required to implement the deferred maintenance requirements

of SFFAS No. 6. Agency responses were confirmed with each agency’s CFO

and IG to ensure that they accurately reflected the agency’s official

position.10 Our work focused on departmental level implementation efforts

rather than the work of individual bureaus within an agency. We also

reviewed agency financial statements, relevant policy documentation, and

prior GAO and IG reports on deferred maintenance. We requested written

comments on a draft of this report from agency officials. Several agencies

provided comments of a technical nature which were incorporated into

this report. The Deputy CFO for DOT and the Under Secretary of Defense

provided us with formal written comments, which are reprinted in

appendixes XII and XIII, respectively.

We conducted our work from September through November 1997 in

accordance with generally accepted auditing standards. Throughout the

rest of the report, unless otherwise noted, agencies refers to the nine

agencies specifically required to implement the deferred maintenance

requirements of SFFAS No. 6 for fiscal year 1998.

Agencies Have

Limited Experience in

Developing

Comprehensive

Estimates

Historically, deferred maintenance reporting was not required, thus

agencies have limited experience in developing agencywide estimates of

deferred maintenance or maintenance backlogs. Although all agencies said

that they have estimated maintenance needs for ad hoc and budgetary

purposes, only two agencies—DOI and NASA11—indicated that they have

made agencywide deferred maintenance estimates. These estimates have

not been audited to ensure their reliability or conformance with the new

requirements included in SFFAS No. 6.

Four other agencies—USDA, State, DOT, and DOD—have previously made at

least partial estimates of deferred maintenance for other than financial

statement reporting purposes. USDA noted that its deferred maintenance

estimate included activities to expand and upgrade PP&E items—which are

not considered deferred maintenance under SFFAS No. 6. State’s estimate of

10In several cases, the agency did not have a CFO or IG in place at the time of our review. In these

cases, we received responses and confirmation from the deputy or acting CFO or IG. In the case of

DOD, we received responses and confirmation from the Acting Under Secretary of Defense

(Comptroller).

11The NASA estimate of deferred maintenance addresses only facilities maintenance. The CFO

reported (See appendix II) that NASA expected the new deferred maintenance reporting requirements

to occur primarily in the facilities maintenance area.

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deferred maintenance is based upon an inventory of known facility

maintenance requirements. However the CFO for State cautioned that not

all of these known requirements may be deferred maintenance as defined

by SFFAS No. 6. DOT noted that its estimates of deferred maintenance

included the Maritime Administration and the Federal Aviation

Administration, but did not include the Coast Guard. Similarly, DOD cited

Air Force estimates for deferred maintenance for depot and real property

but had no agencywide estimate. Three agencies—DOE, GSA, and VA—did

not have deferred maintenance estimates. Although DOE was able to

provide policies requiring field offices/sites to manage their maintenance

backlogs, the Acting CFO told us the department has no requirement for

reporting to headquarters.

None of the deferred maintenance estimates, including the agencywide

estimates, had been subject to an independent audit. GAO and IG reports

have questioned the validity of agency estimates of deferred maintenance

and maintenance backlogs. For example, GAO reports on the DOI’s National

Park Service confirmed deteriorating conditions at the National Parks but

questioned whether the Park Service had adequate financial and program

data or controls to know the nature or extent of resource problems or the

effectiveness of measures taken to address the problems.12 Similarly, a

1993 Department of State IG report found that while the department had

progressed in identifying its maintenance and repair deficiencies,

information on the maintenance backlog had not been summarized,

quantified or monitored.

Further, the size and scope of DOD PP&E creates special problems in its

reporting of deferred maintenance, many of which have been previously

reported by GAO. As noted in our May 1997 report,13 DOD’s changes in its

definition of backlogs have led to large decreases in its “unfunded

requirements” for maintenance. We also noted that the military services

have expressed concern about the adequacy of funding to maintain and

repair all of their facilities and have reported growing maintenance and

repair backlogs. However, the services also have many excess buildings

which could be demolished to avoid millions of dollars of recurring

12See National Parks: Difficult Choices Need To Be Made About the Future of the Parks

(GAO/RCED-95-238, August 30, 1995) and National Park Service: Better Management and Broader

Restructuring Efforts Are Needed (GAO/T-RCED-95-101, February 9, 1995).

13Deferred Maintenance: Reporting Requirements and Identified Issues (GAO/AIMD-97-103R, May 23,

1997).

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maintenance costs. Also, we recently reported14 that, while military service

installation officials cited increases in backlogs of deferred maintenance

and repair projects in recent years, reliable composite information was not

available due to differences in how services develop and maintain these

data. Further, recent efforts by the Office of the Secretary of Defense to

develop a comprehensive system for performing facilities condition

assessment have not been successful and systems maintained by the

individual services vary in terms of their capabilities to identify funding

requirements.

Most recently, we reported on DOD’s plans to implement the deferred

maintenance requirements for national defense assets, noting that DOD

needs to expedite plans to implement this new disclosure.15 In particular,

we recommended that DOD (1) ensure that DOD-wide policy is in place as

soon as possible so that DOD can comply with the effective date of the

deferred maintenance requirements, (2) establish milestones for key

actions in the policy development process to ensure issuance of the policy

no later than March 1998, and (3) modify the ongoing study of existing DOD

methods for determining deferred maintenance to complete the study by

the end of March.

Status of Agency

Implementation

Efforts

Although some initial steps have been taken, significant work remains to

be done for all agencies to effectively implement the deferred maintenance

requirements for fiscal year 1998 reporting. CFOs at the nine agencies

specifically required to implement the standard for fiscal year 1998

expressed the intention to implement the deferred maintenance

requirements on time. Each had designated an individual or individuals to

lead this effort.

None of the nine agencies had fully addressed other implementation

issues. The standard specifies that management needs to (1) determine the

level of service and condition of the asset that are acceptable, (2) disclose

deferred maintenance by major classes of assets, and (3) establish what

method—condition assessment or life-cycle—to use to estimate and report

any material amounts of deferred maintenance. Thus, the development of

departmental guidance to ensure consistent reporting within an agency

may be particularly important given that the standard allows flexibility

14Defense Infrastructure: Demolition Of Unneeded Buildings Can Help Avoid Operating Costs

(GAO/NSIAD-97-125, May 13, 1997).

15Financial Management: DOD Needs to Expedite Plans to Implement Deferred Maintenance

Accounting Standard (GAO/AIMD-97-159R, September 30, 1997).

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within broadly defined requirements. Seven agencies had not drafted

departmental guidance16 addressing these issues as a means of ensuring

consistency in reporting and facilitating the preparation of agencywide

financial statements. Further, neither of the two agencies (VA and USDA)

that had developed departmental guidance specifically addressing the

deferred maintenance requirements provided detailed guidance on

deferred maintenance beyond that included in the standard. While all

agencies could articulate their approach to implementing the deferred

maintenance requirements of SFFAS No. 6, only one, GSA, had a written plan

outlining preparation steps and recommended completion dates for

activities important to the deferred maintenance disclosure requirements.17

IG views on whether agencies would be ready to implement the deferred

maintenance requirements were divided. Four of the nine IGs expressed

confidence that their agency would implement SFFAS No. 6 promptly. IGs

from two agencies—DOD, with 80 percent of reported PP&E, and

DOT—stated that their agencies would not be prepared to implement the

deferred maintenance requirements and the remaining three IGs were

unwilling to assess agency readiness. The DOD IG indicated that DOD’s time

frame for implementation would not allow sufficient time for preparation

of the fiscal year 1998 financial statements. The IG for DOT stated that the

agency has not established a formal system to centrally identify or track

deferred maintenance estimates and the operating administrations of DOT

do not have an accurate accountability of all assets. Table 2 provides an

overview of each agency IG’s assessment of whether the agency will be

prepared to implement the deferred maintenance requirements on time.

Table 2: IG Assessments of Agency

Readiness to Implement the Deferred

Maintenance Requirements

IG Assessments of Agency Readiness Agencies

Agency should be prepared to implement

the deferred maintenance requirements

VA, USDA,a State, NASA

Agency will not be prepared to implement

the deferred maintenance requirements

DOT, DOD

No opinion provided GSA, DOI, DOE

aUSDA IG stated that this is contingent on the agency completing its PP&E inventory.

16In this report, departmental guidance refers to draft or final implementation policies or manuals that

provide instructions to agency officials on how to implement the requirements in SFFAS No. 6.

17Although GSA refers to this plan as guidance, we did not consider this departmental guidance

because it does not provide instructions to agency officials on how to implement the requirements in

SFFAS No. 6.

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Agencies Are Taking

Different Approaches in

Their Preliminary Efforts

to Implement the Deferred

Maintenance Requirements

At the time of our review, agencies were still in the preliminary stages of

preparing to implement the deferred maintenance requirements and were

taking different approaches. Given these different approaches and the

flexibility provided in the standard, no single indicator provides a

complete picture of agency progress towards implementing the deferred

maintenance requirements. For example, an agency that has issued written

but general departmental guidance could not be assumed to have made a

greater level of progress than an agency that has not issued departmental

guidance, but has previous experience in estimating deferred maintenance

or has established working groups identifying key implementation issues.

Approaches used by agencies in preparing to implement the deferred

maintenance requirements fall into three general categories—revision of

existing policies and procedures, issuance of minimal departmental

guidance, and study of implementation issues prior to the issuance of

departmental guidance. The agencies using these general approaches are

discussed below. Additional detail on each agency is included in

appendixes I to XI.

Two Agencies Plan to Revise

Existing Policies and

Procedures

Two agencies—DOE and NASA—plan to revise established policies on

estimating and reporting deferred maintenance or maintenance backlogs.

Both indicated that these policies would provide the foundation for

implementing the deferred maintenance requirements under SFFAS No. 6.

DOE has existing policies that require field offices to estimate and

document deferred maintenance amounts, but has no requirement for

reporting this information to headquarters. According to DOE’s Acting CFO,

her office has reviewed DOE’s existing policies and determined that for the

most part the department was complying with the requirements of SFFAS

No. 6. For areas not in full compliance with the standard, the department

anticipates issuing new or clarifying guidance. The Acting CFO stated that

her office is working to develop a cost-effective approach for

accumulating data from DOE field offices and reporting this information to

the department’s headquarters. DOE’s Deputy IG stated that although it was

too early to make a definitive judgment about the readiness and capability

of the department to implement the deferred maintenance requirements,

based on the department’s representations regarding its implementation

plans, it appeared that the deferred maintenance disclosure will be

auditable. Appendix IV presents additional information on DOE’s

implementation efforts.

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NASA also anticipated that with some minor adjustments the agency’s

current deferred maintenance estimating and reporting process would

allow the agency to meet the deferred maintenance requirements.

According to NASA’s CFO, the agency expects to have any policy revisions

completed by June 30, 1998, and to meet the deferred maintenance

requirements without difficulty. The CFO reported that NASA policy requires

that Centers continuously assess facility conditions in a manner which

results in an appropriate identification and quantification (in terms of

dollars) of the backlog of maintenance and repair. Once deficiencies are

identified, industry standard estimating guides are used to arrive at

estimated repair costs. NASA’s IG expressed the view that, based on audit

experience, NASA will be able to support the deferred maintenance

amounts. Appendix II presents additional information on NASA’s

implementation efforts.

Two Agencies Had Established

Written Policies but Detailed

Guidance Was Minimal

Two agencies—VA and USDA—have developed written policies specifically

addressing the deferred maintenance requirements included in SFFAS No. 6.

VA’s draft policy reiterates the definitional and reporting requirements for

deferred maintenance but does not provide guidance on which

measurement method—life cycle or condition assessment—should be

used. VA’s CFO indicated that the department is leaning towards using

condition assessment and that additional guidance and specific

procedures would likely be established as the policy is implemented

through the department. However, if no additional guidance is provided,

operating units will have to determine which method to use. The CFO also

noted that the general approach will be to provide guidance to units and

have the units report an estimate of deferred maintenance. The CFO office

plans to use a statistical account18 in its general ledger19 to compile this

information to provide the basis for the disclosure. VA’s Acting IG—citing

the agency’s progress in financial reporting over the last few years—stated

that the department will likely be prepared to implement the deferred

maintenance requirements.20 The VA’s Acting IG indicated that the ability to

audit any deferred maintenance disclosure will depend on the department

providing an audit trail and a good system of information. He also stated

that a challenge will be whether the VA issues ground rules to facilities so

that consistency will occur among the 173 Medical Centers and other VA

18A statistical account is a data gathering account maintained in VA’s integrated accounting system

used to track and report management information.

19The general ledger contains accounting and fiscal information used for the preparation of financial

reports.

20At the time of our interviews, the VA had an Acting IG who responded to GAO’s questions. As of

November 7, 1997, a new IG was confirmed for this agency.

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units. Appendix VII presents additional information on VA’s

implementation efforts.

USDA’s policy calling for the implementation of the deferred maintenance

requirements is outlined in the USDA Financial and Accounting Standards

Manual. The policy covers the accounting standards for PP&E and deferred

maintenance. According to the Acting CFO and IG, the guidance provided in

this policy conforms to SFFAS No. 6. The policy provides additional

guidance on asset classification beyond that included in SFFAS No. 6 but

does not provide significant additional guidance with respect to estimating

deferred maintenance. USDA provides its operating administrations with

most of the flexibility provided to management by SFFAS No. 6—and this is

reflected in the deferred maintenance section of its policy. The Acting CFO

noted that operating administration managers below the departmental

level are in the best position to make determinations on what is most

appropriate for a particular agency within USDA. Hence, each operating

administration has the option of choosing whichever of the allowable

methodologies under SFFAS No. 6 it deems most appropriate. One

exception to the extension of the standard’s flexibility downward is USDA’s

requirement that mission area or agency management distinguish between

critical and noncritical deferred maintenance amounts and disclose the

basis for that determination.

USDA’s IG said that since the department has disseminated the policy for

implementing the standard, the individual USDA operating administrations

need to develop operating procedures for estimating and reporting

deferred maintenance. Assuming that USDA operating administrations

continue to emphasize financial management and the Forest Service

completes its inventory of PP&E, the USDA IG expects that USDA should be

able to implement the standard on time, and the disclosure should be

auditable. Appendix VIII presents additional information on USDA’s

implementation efforts.

Most Agencies Were Studying

Implementation Issues Before

Determining the Extent of

Departmental Guidance

At the time of our review, five of the nine agencies—DOD, GSA, State, DOI,

and DOT— had not yet determined the extent of detailed departmental

guidance to provide with respect to implementing the deferred

maintenance requirements. Most of these agencies were conducting or

were planning to conduct studies to provide additional information on key

implementation issues. Findings from these studies would be used to help

determine the extent and content of departmental guidance.

Page 14 GAO/AIMD-98-42 Deferred Maintenance Reporting
B-278767 

DOD contracted with the Logistics Management Institute (LMI), to assess

existing DOD methods of determining, measuring, and recording deferred

maintenance data for mission assets. The LMI study, which only will

address DOD’s mission or defense assets and will not cover general PP&E, is

expected to be completed in March 1998. DOD then plans to review the

results and provide financial and logistic policy for deferred maintenance.

Recent GAO reports have stated that this timetable will not allow sufficient

time to ensure consistent and timely deferred maintenance disclosures

because the military services may not have the DOD-wide guidance in time

to develop service-specific policies and procedures for fiscal year 1998

financial statements.21 In addition, DOD’s Acting Comptroller22 stated that

for general PP&E—other than real property—DOD has not yet determined

whether amounts are material and therefore warrant reporting. DOD’s IG

agreed with our recommendations that completion of the LMI study be

accelerated, milestones established, and that DOD-wide policy be in place

as soon as possible so that DOD can comply with the effective date of the

standard. The IG expressed the view that DOD would not be prepared to

implement the deferred maintenance requirements. Appendix I presents

additional information on DOD’s implementation efforts.

GSA worked with an independent accounting firm to develop an

implementation report with recommended completion dates for several of

the new federal accounting standards including SFFAS No. 6. This report

recommended that GSA develop and implement a methodology for

estimating and compiling deferred maintenance costs by the first quarter

of 1998. At the time of our review, GSA had not developed an estimate of

deferred maintenance and had not yet developed departmental guidance.

GSA’s CFO stated that the agency had not yet determined whether condition

assessment and/or life-cycle cost methodologies will be used, nor has it

decided whether to distinguish between critical and noncritical assets. The

IG, citing a lack of information, declined to express a view on whether GSA

would be prepared to implement the deferred maintenance requirements.

Appendix VI presents additional information on GSA’s implementation

efforts.

Similarly, State had contracted with a firm to provide recommendations on

implementing the new federal accounting standards including SFFAS No. 6.

21See Financial Management: DOD Needs to Expedite Plans to Implement Deferred Maintenance

Accounting Standard (GAO/AIMD-97-159R, September 30, 1997) and Financial Management: Issues to

Be Considered by DOD in Developing Guidance for Disclosing Deferred Maintenance on Aircraft

(GAO/AIMD-98-25, December 30, 1997).

22At the time of our interviews, DOD had an Acting Comptroller who responded to GAO’s questions. As

of November 19, 1997, a new comptroller was confirmed for this agency.

Page 15 GAO/AIMD-98-42 Deferred Maintenance Reporting
B-278767 

At the time of our review, State had not developed departmental guidance

on implementing the deferred maintenance requirements. According to the

CFO, the department expects to develop a policy on deferred maintenance

by April 1998. The IG believes that the department will be able to

implement the deferred maintenance requirements for fiscal year 1998 but

cautioned that until her office reviews the amounts, it cannot attest to

their reliability. Appendix IX presents additional information on State’s

implementation efforts.

DOI plans to rely heavily on the findings of an internal working group in

developing departmental guidance on the implementation of the deferred

maintenance requirements of SFFAS No. 6. Since March 1997, a multibureau

team at DOI has been studying issues surrounding the implementation of

the deferred maintenance requirements. The Acting CFO reported that this

team is expected to provide the agency with data on current and deferred

maintenance as well as guidance on standard definitions and

methodologies for improving the accumulation of necessary information.

The Acting CFO believes that recommendations coming out of this team

will call for uniform information and condition assessments which are

supportive of the new standards. DOI is also working to standardize

definitions and procedures throughout the agency. The Acting CFO stated

that DOI intends to include deferred maintenance disclosures in its fiscal

year 1997 Annual Report in advance of the fiscal year 1998 reporting

requirements. DOI’s IG declined to express a view on whether the

department would be prepared to implement the deferred maintenance

requirements in fiscal year 1998. According to the IG, his office is planning

to assess the deferred maintenance information provided in the

department’s fiscal year 1997 financial statements. Thus, DOI’s early

implementation approach should provide the agency with some indication

of readiness to implement the deferred maintenance requirements for

fiscal year 1998. Appendix V presents additional information on DOI’s

implementation efforts.

DOT is taking a decentralized approach to implementing the deferred

maintenance requirements. The Deputy CFO reported that, where it is

useful, DOT applies financial policies issued centrally within the Executive

Branch with any necessary interpretation. DOT distributed SFFAS No. 6 to its

operating administrations without additional guidance. Each operating

administration will be responsible for determining how the deferred

maintenance requirements will be implemented. The Deputy CFO indicated

that his office will provide more detailed guidance on departmental

reporting of deferred maintenance by issuing guidance for preparation of

Page 16 GAO/AIMD-98-42 Deferred Maintenance Reporting
B-278767 

the fiscal year 1998 financial statements. The IG expressed concerns about

the department’s approach and indicated that, in his view, DOT would not

be prepared to implement the deferred maintenance requirements.

According to the IG, although the operating administrations have the basic

elements in place to implement the requirements, the department has not

established a formal system to centrally identify or track deferred

maintenance estimates. Further, the IG pointed out that the relevant

operating administrations do not have an accurate accounting of all assets.

Appendix III presents additional information on DOT’s implementation

efforts.

Applicability of SFFAS 

No. 6 to TVA and USPS Is

Limited

TVA and USPS follow private sector accounting standards in their financial

statement reporting. However, since they are included in the consolidated

financial statements of the U.S. government, TVA and USPS will be subject to

reporting deferred maintenance under SFFAS No. 6 if their amounts prove

material to the governmentwide financial statements. As of

November 1997, neither USPS or TVA reported that it had been contacted by

the Treasury with regard to the deferred maintenance reporting

requirements for fiscal year 1998. A Treasury official confirmed that TVA

and USPS have not been contacted regarding the fiscal year 1998

implementation of the deferred maintenance reporting requirements

contained in SFFAS No. 6. Treasury officials are starting to address whether

there are any significant reporting issues regarding how to include entities

in the consolidated statements that are not required to follow federal

accounting standards.

The TVA CFO stated that his office was unaware of the deferred

maintenance requirements. Although TVA has certain estimates of deferred

maintenance, the CFO noted that TVA’s definition of deferred maintenance

differs from that of SFFAS No. 6 and varies by category of asset. For

example, he stated that for fossil fuels and hydro power, deferred

maintenance is defined as repair work that is not performed on equipment

if the problem has minor effects on the performance of that equipment.

For building facilities, he stated that TVA defines deferred maintenance as

maintenance that can be delayed indefinitely based on factors such as the

change in the PP&E’s function, an increase/decrease in PP&E life expectancy,

and the relationship between repair, replacement, or abandonment costs.

However, should TVA be required to report deferred maintenance for the

consolidated U.S. government financial statements, the CFO reported that

TVA would comply and would not require significant preparation time.

Page 17 GAO/AIMD-98-42 Deferred Maintenance Reporting
B-278767 

Appendix X presents additional information on TVA’s implementation

efforts.

The USPS CFO stated that the agency does not defer maintenance because of

the potential effect such actions might have on employee safety and

on-time mail delivery. The majority of USPS assets are buildings to house

postal facilities, mail processing and computer equipment, and vehicles to

move and deliver the mail. USPS standard maintenance plans are provided

in its handbooks and policies and funding needs for maintenance are

routinely addressed in its base budget. USPS has a schedule of useful lives

for equipment, and local operating management has the authority to

replace items when it is not cost effective to repair them. The USPS CFO also

stated that the agency does not own any airplanes, railroad cars, or ships

to move the mail; this is all done via contracts with commercial entities

which also perform maintenance on this equipment. Appendix XI presents

additional information on USPS implementation efforts.

Agencies Face

Challenges in

Implementing the

Deferred Maintenance

Requirements

Agencies will be facing a number of challenges as they continue their

implementation efforts. These challenges stem from the relative newness

of the deferred maintenance requirements, the inherently difficult

definitional issues associated with determining maintenance spending, the

need for adequate systems to collect and track data, and, perhaps most

importantly, the need for complete and reliable inventories of assets on

which to develop estimates. As noted earlier, agencies are taking a variety

of approaches to these issues.

Inadequate PP&E

Reporting Will Impede

Implementation Efforts

Improving PP&E reporting is a critical step to implementing the deferred

maintenance requirements because deferred maintenance estimates are

contingent upon a complete and reliable inventory of PP&E. Three

agencies—DOD, USDA, and DOT—comprising 84 percent of total government

reported PP&E received disclaimers of opinion23 in part because of

difficulties reporting PP&E. A fourth agency, DOI received a qualified

opinion due to the inability to support the reported PP&E amounts at one of

its bureaus, the Bureau of Indian Affairs. Even agencies with unqualified

opinions may need to continue efforts to improve PP&E reporting. For

example, the fiscal year 1996 financial statement audit reports for both DOE

and VA described internal control weaknesses that could adversely affect

the departments’ future ability to accurately report PP&E. Thus, for many

23A disclaimer is a statement in an auditor’s report indicating the inability of the auditor to express an

opinion on the fairness of the financial statements referred to in the report.

Page 18 GAO/AIMD-98-42 Deferred Maintenance Reporting
B-278767 

agencies, an appropriate step toward implementing the deferred

maintenance requirements of SFFAS No. 6 is to improve their overall ability

to identify and account for PP&E.

DOD has received disclaimers of opinion on its fiscal year 1996 financial

statements due in part to its inability to adequately account for its PP&E.

DOD’s IG reported that control procedures over assets were inadequate and

caused inaccurate reporting of real property, capital leases, construction

in progress, inventory, and preparation of footnotes.

USDA also received a disclaimer of opinion on its fiscal year 1996 financial

statements due in part to its inability to report PP&E at the Forest Service.

In an effort to improve the accuracy of PP&E reporting, the Forest Service

in USDA is undertaking a complete physical inventory of PP&E. At the same

time, the Forest Service Acting CFO stated that the agency plans to

estimate deferred maintenance needs. The USDA IG concurs that a critical

step to implementing the deferred maintenance requirements of SFFAS No.

6 for USDA is to develop complete inventories of its PP&E; without this

inventory, the IG states that little reliance could be placed on estimates

reported for deferred maintenance. Similarly, the DOT IG stated that DOT is

focusing its efforts on correcting weaknesses identified in prior financial

statement audits, particularly in the area of PP&E. Because deferred

maintenance is linked to PP&E, the IG acknowledged that DOT needs to

identify and validate PP&E before estimating amounts of deferred

maintenance.

At DOI, reporting issues are limited to the Bureau of Indian Affairs which in

fiscal year 1996 could not provide adequate documentation or reliable

accounting information to support $170 million in PP&E. DOI intends to

include deferred maintenance disclosures in its fiscal year 1997

Consolidated Annual Report even though they are not required until fiscal

year 1998. Since the IG plans to assess DOI’s fiscal year 1997 deferred

maintenance disclosures, DOI’s early implementation approach should

provide the agency with some indication of its readiness to implement the

deferred maintenance requirements for fiscal year 1998.

Even for agencies where independent audits indicated no report

modifications pertaining to PP&E, the deferred maintenance requirement of

SFFAS No. 6 presents a significant challenge. While providing useful new

information for decision-making, the deferred maintenance requirements

raise a number of new implementation and definitional issues—such as

determining the acceptable condition of assets and the estimation

Page 19 GAO/AIMD-98-42 Deferred Maintenance Reporting
B-278767 

methods to be used. The necessary flexibility in the standard increases the

need for some departmental policies and guidance that are designed to be

compatible with agency mission and organizational structure. Such

departmental guidance could help ensure consistent reporting across

agency units and facilitate the preparation of agencywide financial

statements. However, the development of departmental guidance is

complicated by the number and diversity of missions and assets even

within a single agency. In determining the extent of additional

departmental guidance to provide units, agencies must balance the

desirability of consistent reporting with the need for flexibility.

In addition, adequate data collection and tracking systems will be

necessary to gather and verify information on deferred maintenance costs.

However, as we have previously reported24 and as was acknowledged in

June 1997 by both OMB and the Chief Financial Officers Council,25 the

condition of agency financial systems remains a serious concern. Our past

audit experience has indicated that numerous agencies’ financial

management systems do not maintain or generate original data to readily

prepare financial statements. Although some recent improvements have

been made, agencies are still struggling to comply with governmentwide

standards and requirements. Overcoming the above challenges to help

ensure reliable and meaningful reporting at the departmental level is

critical to the effective implementation of the deferred maintenance

requirements.

GAO Observations If effectively implemented, the new deferred maintenance reporting

required by SFFAS No. 6 will improve information for decision-making.

However, the deferred maintenance requirements present agencies with a

significant challenge for which they must adequately prepare. While

agencies have taken some initial steps to implement the deferred

maintenance requirements, significant work remains in order for all

agencies to effectively implement them on time. Moreover, agencies need

to continue to address their systems problems so that this and other

reporting requirements can be effectively met.

24Financial Management: Implementation of the Federal Financial Management Improvement Act of

1996 (GAO/AIMD-98-1, October 1, 1997).

25Federal Financial Management Status Report & Five Year Plan, issued by OMB, June 1997, and Status

Report on Federal Financial Management Systems, Investing in Improvements to Support Better

Management, prepared by the Chief Financial Officers Council and OMB, June 1997.

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B-278767 

Since agencies are most responsive to issues in which there is

demonstrated interest, continued congressional and executive branch

oversight would increase the chances of the standard being implemented

successfully and on time. Monitoring of agency progress toward

implementation, including the development of appropriate departmental

guidance compatible with agency mission and organizational structure,

could help ensure effective and timely implementation.

Agency Comments

and Our Evaluation

Agency officials generally concurred with our conclusion that significant

work remains to effectively implement the deferred maintenance reporting

requirements under SFFAS No. 6. Several agencies provided comments of a

technical nature which were incorporated into our report as appropriate.

Two agencies, DOT and DOD, expressed reservations about certain sections

of this report. The Deputy CFO for DOT indicated that a formal system for

tracking deferred maintenance is not required by SFFAS No. 6. While

technically correct, it is anticipated that deferred maintenance disclosures

and estimates will be adequately documented by agencies. Accurate

tracking of PP&E and deferred maintenance can be a valuable management

tool for assessing program status and supporting resource allocation

decisions on an ongoing basis. The Deputy CFO for DOT also did not believe

that it was necessary to fully validate PP&E prior to estimating deferred

maintenance. While we believe that the lack of an accurate accounting of

PP&E will certainly impede any efforts to implement the deferred

maintenance requirements, we agree that implementation of SFFAS No. 6

can—and should—proceed, even as agencies are continuing to validate

their PP&E reporting.

The Under Secretary of Defense, while stating that DOD is striving to

comply with the reporting requirements, questioned if the benefits to be

derived from reporting deferred maintenance will be proportionate to the

effort required to obtain and report this information. He noted that

deferred maintenance reporting represents a “snap-shot” at a specific time

and stressed that, given the diversity of DOD’s PP&E systems,

implementation of the requirements represents a significant challenge that

will be costly in terms of both funding and personnel. He expressed

concern that the report does not assess the impact on agencies of

implementing and complying with the standard.

Federal financial accounting standards, including the deferred

maintenance requirements, are developed by FASAB using a due process

and consensus building approach that considers the financial and

Page 21 GAO/AIMD-98-42 Deferred Maintenance Reporting
B-278767 

budgetary information needs of the Congress, executive agencies, and

other users of federal financial information as well as comments from the

public. DOD is a participant in these proceedings and has a member on

FASAB. In its deliberations on deferred maintenance reporting, FASAB

considered both the need to improve information on the condition of

federal assets and the complexities of measuring and reporting this

information. FASAB determined that deferred maintenance was a cost and

that information on this cost was important to users. However, in

recognition of measurement challenges and the limitations in the capacity

of agency systems, FASAB developed the standard to provide entities

flexibility in setting maintenance requirements and in establishing cost

beneficial methods to estimate deferred maintenance amounts. The

standard allows management flexibility to define deferred maintenance at

a level meaningful for the agency. For example, acceptable asset condition

is a management determination—the level of detailed information

obtained is dependent on management’s determination of decisionmakers’

needs.

As discussed in the Statement of Federal Financial Accounting Concepts

No. 1 Objectives of Federal Financial Reporting, federal financial reporting

is intended to address four broad objectives —budgetary integrity,

operating performance, stewardship, and systems and controls. Disclosure

of deferred maintenance amounts is consistent with these objectives. The

systematic financial reporting of deferred maintenance can improve

information on operating performance and stewardship and thus assist in

determining how well government assets are maintained. In contrast, the

usefulness of DOD’s current reporting of deferred maintenance through the

budget process is more limited because estimates are developed on an

ad-hoc basis and reporting is inconsistent among the military services and

weapons systems. In addition, much of the data used are based on

anticipated budgetary resources and not subjected to independent audit.

The disclosure of deferred maintenance is an important management

issue. Management should have this information throughout the year to

assess the status of management programs and to support resource

allocations on an ongoing basis. In the case of DOD, deferred maintenance

applicable to mission assets, if reliably quantified and reported, can be an

important indicator of mission asset condition (a key readiness factor) as

well as an indicator of the proper functioning of maintenance and supply

lines. Disclosure of deferred maintenance can also aid in supporting

budget and performance measurement information. Because all financial

reporting, including deferred maintenance, represents a “snap-shot” at a

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B-278767 

specific period in time—the value of financial reporting lies in the data

collection and reporting systems developed to create and support the

financial statements. Thus, the data systems that support financial

statements can provide the capability for monitoring and managing

day-to-day operations.

We recognize that the deferred maintenance requirement presents DOD

with a challenge in determining and disclosing reliable estimates of

deferred maintenance—especially in addressing the broad range of

financial management systems problems facing DOD. DOD’s longstanding

system problems are repeatedly cited as reasons for inadequate financial

information. Development of reliable systems should enhance DOD’s ability

to meet financial reporting requirements, including the deferred

maintenance disclosure requirement.

The flexibility provided in the standard and the diversity of agency

missions and assets increases the importance of department-level

guidance to ensure consistent reporting. For example, we recently

highlighted the key issues to be considered in developing guidance for

disclosing deferred maintenance on aircraft.26 In particular, we noted that

implementing guidance is needed so that all military services consistently

apply the deferred maintenance standard. This means that DOD must

address a number of issues, including (1) what constitutes acceptable

condition, (2) determining whether—or how—to distinguish between

critical and noncritical deferred maintenance, (3) determining when

maintenance needed but not performed is considered deferred, and

(4) whether deferred maintenance should be reported for assets that are

not necessary for current requirements. In this and another report,27 DOD

concurred with our statements citing the need for developing guidance

promptly in order to ensure timely implementation of the deferred

maintenance reporting requirements.

As agreed with your office, unless you publicly announce the contents of

this report earlier, we will not distribute it until 15 days from its date.

Then, we will send copies to the Ranking Minority Member of the Senate

Appropriations Committee. Copies will also be made available to others

upon request.

26Financial Management: Issues to Be Considered by DOD in Developing Guidance for Disclosing

Deferred Maintenance on Aircraft (GAO/AIMD-98-25, December 30, 1997).

27See also Financial Management: DOD Needs to Expedite Plans to Implement Deferred Maintenance

Accounting Standard (GAO/AIMD-97-159R, September 30, 1997).

Page 23 GAO/AIMD-98-42 Deferred Maintenance Reporting
B-278767 

Please contact me at (202) 512-9573 if you or your staff have any questions

concerning this report.

Sincerely yours,

Paul L. Posner

Director, Budget Issues

Page 24 GAO/AIMD-98-42 Deferred Maintenance Reporting
Page 25 GAO/AIMD-98-42 Deferred Maintenance Reporting
Contents

Letter 1

Appendix I 

DOD Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

32

Appendix II 

NASA Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

35

Appendix III 

DOT Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

37

Page 26 GAO/AIMD-98-42 Deferred Maintenance Reporting
Contents

Appendix IV 

DOE Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

40

Appendix V 

DOI Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

43

Appendix VI 

GSA Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

46

Page 27 GAO/AIMD-98-42 Deferred Maintenance Reporting
Contents

Appendix VII 

VA Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

48

Appendix VIII 

USDA Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

51

Appendix IX 

Department of State

Responses Regarding

Agency Readiness to

Implement Deferred

Maintenance

Requirements

55

Page 28 GAO/AIMD-98-42 Deferred Maintenance Reporting
Contents

Appendix X 

TVA Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

58

Appendix XI 

USPS Responses

Regarding Agency

Readiness to

Implement Deferred

Maintenance

Requirements

60

Appendix XII 

Comments From the

Department of

Transportation

62

Appendix XIII 

Comments From the

Department of

Defense

68

Tables Table 1: Reported Property, Plant, and Equipment by Federal

Agency, Fiscal Year 1996

5

Table 2: IG Assessments of Agency Readiness to Implement the

Deferred Maintenance Requirements

11

Page 29 GAO/AIMD-98-42 Deferred Maintenance Reporting
Contents

Abbreviations

A/FBO Office of Foreign Buildings Operations

ARS Agriculture Research Service

CAS Condition Assessment Survey

CFO Chief Financial Officer

DOD Department of Defense

DOE Department of Energy

DOI Department of the Interior

DOT Department of Transportation

FAA Federal Aviation Administration

FASAB Federal Accounting Standards Advisory Board

FASM Financial and Accounting Standards Manual

FMFIA Federal Managers’ Financial Integrity Act

GSA General Services Administration

IG inspector general

IPA independent public accountant

LCAM Life Cycle Asset Management Order

LMI Logistics Management Institute

MARAD Maritime Administration

NASA National Aeronautics and Space Administration

OMB Office of Management and Budget

PP&E Property, Plant and Equipment

SFFAS Statement of Federal Financial Accounting Standards

SGL U.S. Standard General Ledger

TVA Tennessee Valley Authority

USCG U.S. Coast Guard

USDA Department of Agriculture

USPS U.S. Postal Service

VA Department of Veterans Affairs

Page 30 GAO/AIMD-98-42 Deferred Maintenance Reporting
Page 31 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix I 

DOD Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Reported Amount of

PP&E

As of September 30, 1996, DOD reported PP&E of $772.9 billion. Of this

amount, $586.5 billion is military equipment, $123.0 billion is structures,

facilities, and leasehold improvements, and $63.5 billion is construction in

progress and other types of general PP&E. DOD holds approximately

80.5 percent of the federal government’s reported PP&E. Problems with

PP&E reporting contributed to a disclaimer of opinion on DOD’s fiscal year

1996 financial statements. In particular, DOD’s IG stated that control

procedures over assets were inadequate and caused inaccurate reporting

of real property, capital leases, construction in progress, inventory and

preparation of footnotes.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, DOD received a disclaimer of opinion from the Office

of the Inspector General based upon a scope limitation. The IG stated that

although progress had been made, significant deficiencies in the

accounting systems and the lack of a sound internal control structure

prevented the preparation of accurate financial statements.

Management Actions The DOD Acting Comptroller1

 stated that the agency intends to implement

the new deferred maintenance requirements of SFFAS No. 6 as required for

fiscal year 1998. The DOD Acting Comptroller reported that the agency has

contracted with the Logistics Management Institute (LMI) to perform a

study to assess existing DOD methods of determining, measuring and

capturing deferred maintenance data on National Defense PP&E.

2 DOD

expects the LMI study to be completed in March of 1998; until then, the

Acting Comptroller was uncertain whether additional changes would be

required to achieve full implementation of the standard. For other types of

general PP&E not addressed by the LMI study, the DOD Acting Comptroller

reported that the agency is actively reviewing existing methods for

reporting and tracing maintenance and deferred maintenance within the

budget process to determine if modifications must be made or new

reporting requirements developed to achieve full compliance with SFFAS

No. 6. However, current maintenance and deferred maintenance estimates

do not reflect SFFAS No. 6 PP&E categories. The Acting Comptroller also

noted that the agency has identified an individual responsible for

1

At the time of our interviews, DOD had an Acting Comptroller who responded to GAO’s questions. As

of November 19, 1997, a new comptroller was confirmed for this agency.

2

National defense PP&E are the PP&E portions of (1) weapons systems used by military departments

solely for the performance of military missions and (2) vessels held in a preservation status by the

Maritime Administration’s National Defense Reserve Fleet.

Page 32 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix I 

DOD Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

managing DOD’s effort to determine what and how reporting will be

accomplished for the deferred maintenance requirements of SFFAS No. 6.

Status of Policies and

Procedures

In September 1997, the Deputy CFO issued a memorandum to DOD

components stating that all eight of the accounting standards would be

incorporated into the DOD Financial Management Regulation. As of

November 1997, the DOD Acting Comptroller reported that the agency has

not determined its measurement methodology, its application to classes of

different assets, or whether it will report both critical and noncritical

amounts of deferred maintenance. In all cases, the Acting Comptroller

reported that these decisions will be made after the completion of the

deferred maintenance study being conducted by LMI. For general PP&E, the

DOD Acting Comptroller stated that the agency has not determined whether

the amounts of deferred maintenance, other than for real property, are

material and warrant reporting. The Acting Comptroller reported that DOD

currently uses the condition assessment survey method for real property.

Agency Experience

With Deferred

Maintenance

Reporting

The DOD Acting Comptroller reported experience with deferred

maintenance reporting through estimates of deferred maintenance in

exhibits that support the DOD budget request. For example, deferred

maintenance on weapons systems is reported through the agency’s Depot

Maintenance Program, while deferred maintenance of real property

(buildings and facilities and housing units) is reported on budget exhibits

as the backlog of maintenance and repair. The DOD Acting Comptroller

stated that the agency believes that this process captures the majority of

deferred maintenance but is not necessarily comprehensive of all deferred

maintenance.3

 The DOD Acting Comptroller reported that the agency’s

deferred maintenance estimates are developed from lower echelon

organizations as they build their individual budget requests and report on

their level of maintenance activity. Estimates must then be consolidated at

the departmental or component levels of DOD. The DOD Acting Comptroller

stated that, with perhaps some modification, the agency’s deferred

3

As noted earlier, while military service installation officials cited increases in backlogs of deferred

maintenance and repair projects in recent years, we found that reliable composite information was not

available due to differences in how the services develop and maintain these data. See Defense

Infrastructure: Demolition of Unneeded Buildings Can Help Avoid Operating Costs

(GAO/NSIAD-97-125, May 13, 1997).

Page 33 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix I 

DOD Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

maintenance estimates would satisfy SFFAS No. 6 and departmental

compliance requirements.4

Agency Assessment of

Key Challenges

The DOD Acting Comptroller stated that the primary challenges for DOD are

(1) addressing the magnitude and diversity of DOD PP&E, (2) implementing

and applying new standards and policy across the Military Services and

Defense Agencies, each of which operates differently, and (3) modifying or

establishing reporting requirements through existing or new automated

systems. The DOD Acting Comptroller also indicated that new barriers to

implementation may be identified when LMI completes its study.

IG Assessment of

Agency Readiness and

Audit Issues

The IG stated that DOD will not be prepared to implement the deferred

maintenance requirements. The IG cited GAO’s report which recommends

that the study be expedited5

 and asserted that it is virtually impossible for

DOD to receive the study results from LMI, develop a policy and

implementing guidance, and get all the information from the Military

Services in time for preparation of the fiscal year 1998 financial

statements. The IG stated that her office will only be able to audit any

deferred maintenance amounts if DOD has issued a policy and

implementing guidance. The IG indicated that her office would need to

begin preliminary work no later than March 1998 in order to complete the

audit on time. The IG stated that DOD’s size and diversity present special

problems on two key issues: timeliness and consistency. And, the IG

believes that DOD needs to issue specific guidance promptly to the Military

Services to assure consistent application across the services.

4

GAO has noted other problems with DOD reporting for deferred maintenance. See Financial

Management: Issues to Be Considered by DOD in Developing Guidance for Disclosing Deferred

Maintenance on Aircraft (GAO/AIMD-98-25, December 30, 1997), Financial Management: DOD Needs

to Expedite Plans to Implement Deferred Maintenance Accounting Standard (GAO/AIMD-97-159R,

September 30, 1997), and Deferred Maintenance: Reporting Requirements and Identified Issues

(GAO/AIMD-97-103R, May 23, 1997).

5

Financial Management: DOD Needs to Expedite Plans to Implement Deferred Maintenance

Accounting Standard (GAO/AIMD-97-159R, September 30, 1997).

Page 34 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix II 

NASA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Reported Amount of

PP&E

For fiscal year 1996, NASA reported general PP&E of $26.4 billion. Of this

amount, $9.2 billion is space hardware; $5.9 billion is structures, facilities,

and leasehold improvements; $5.0 billion is work in process; $5.0 billion is

equipment; and the remaining $1.4 billion is land, special tooling and test

equipment, and assets under capital lease. NASA holds approximately

2.7 percent of the federal government’s reported PP&E.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, NASA received an unqualified opinion on its financial

statements from the independent public accountant (IPA) contracted for

and monitored by the NASA Office of Inspector General. The IPA determined

that the financial statements present fairly, in all material respects, the

financial position of NASA as of September 30, 1996.

Management Actions The CFO stated that NASA will implement the new deferred maintenance

requirements of SFFAS No. 6 for fiscal year 1998 as required. The NASA CFO

reported that, while his office is exploring whether there is reportable

deferred maintenance on other types of assets, the agency expects the new

reporting requirements to primarily affect facilities maintenance for which

it has a system that captures some deferred maintenance data. Other types

of PP&E for NASA are not anticipated to report deferred maintenance. For

example, program equipment or contractor-held property is considered

mission critical and is subject to very stringent safety and quality

measures. As a result, maintenance would need to be performed right

away or the equipment would be replaced. The CFO believes that minor

adjustments to NASA’s facilities maintenance system will allow it to meet

the new reporting standard. The NASA CFO has also designated an individual

in charge of compliance issues related to the deferred maintenance

requirements of SFFAS No. 6.

Status of Policies and

Procedures

The NASA CFO reported that agency policy will be developed and

documented by June 30, 1998; however, NASA does not plan to change its

overall approach to reporting deferred maintenance. NASA also uses and

will continue to use the condition assessment method in determining

levels of deferred maintenance for facilities. Although the CFO stated that

the agency plans additional work to determine whether the same

methodology will be used for all assets, the CFO is fairly confident there

will be no deferred maintenance on these items.

Page 35 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix II 

NASA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Agency Experience

With Deferred

Maintenance

Reporting

The CFO for NASA reported that the agency currently has an estimate of

deferred maintenance on facilities as of the end of fiscal year 1996. The

CFO reported that NASA policy requires that Centers continuously assess

facility conditions in a manner which results in an appropriate

identification and quantification (in terms of dollars) of the backlog of

maintenance and repair. Once deficiencies are identified, industry

standard estimating guides are used to arrive at estimated repair costs.

Estimates of deferred maintenance have not been validated; the CFO stated

that NASA is reviewing SFFAS No. 6 to determine if additional work is needed

to comply with the deferred maintenance requirements. The NASA policy

regarding facilities maintenance is a public document available on the

Internet.

Agency Assessment of

Key Challenges

The CFO stated that a key challenge for NASA lies in implementing the

deferred maintenance requirements and other accounting standards at the

same time that it is implementing a wholly new, integrated financial

system and a full cost accounting, budgeting and management system with

declining human resources. However, the CFO stated that the agency

believes it has the appropriate expertise to make maintenance estimates.

In cases where workloads necessitate additional resources, the CFO for

NASA reported that the agency could use contractor assistance.

IG Assessment of

Agency Readiness and

Audit Issues

Based upon NASA’s audit history, the IG believes that NASA will be able to

implement the deferred maintenance requirements as required by fiscal

year 1998. The IG reported that a key issue in auditing deferred

maintenance reporting for NASA will be to determine whether the

measurement method was properly and consistently applied across the

different Centers.

Page 36 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix III 

DOT Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Reported Amount of

PP&E

For fiscal year 1996, DOT reported general PP&E of $24.4 billion. Of this

amount, $10.4 billion is structures, facilities, and leasehold improvements;

$8.5 billion is equipment; $3.4 billion is construction in progress; 

$1.6 billion is aircraft; and the remaining $0.4 billion is in land, assets

under capital lease, ADP software, and other PP&E. DOT holds

approximately 2.5 percent of the federal government’s reported PP&E.

Problems with PP&E reporting contributed to a disclaimer of opinion on

DOT’s fiscal year 1996 consolidated financial statement. In particular, the

IG’s report cited PP&E as a material weakness, stating that several DOT

operating administrations did not (1) report all PP&E that should be

reported, (2) maintain accurate subsidiary property records, (3) retain

documentation to support the value of property and equipment,

(4) reconcile subsidiary property records with general ledger property and

equipment accounts, and (5) post property and equipment transactions to

the proper general ledger asset accounts.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, DOT received a disclaimer of opinion on its

Consolidated Statement of Financial Position from the IG. The IG noted

that several operating administrations had not reconciled all general

ledger balances to subsidiary records, affecting the Property and

Equipment and Operating Materials and Supplies accounts.1

 Also, a lack of

records meant that the IG could not determine whether the balances

reported for the corresponding material line items were fairly presented.

In addition, the IG found that operating administrations were expensing

amounts that should have been capitalized, resulting in an understatement

of assets.

Management Actions The Deputy CFO for DOT stated that the agency intends to report deferred

maintenance in its fiscal year 1998 financial statements. The Deputy CFO

for DOT stated that implementation of the deferred maintenance

requirements of SFFAS No. 6 occurs in the Maritime Administration

(MARAD), the Federal Aviation Administration (FAA), and the U.S. Coast

Guard (USCG). Since the requirement was not effective until fiscal year

1998, the Deputy CFO reported that his office has been focusing efforts to

correct material weaknesses identified in prior financial statement audits,

particularly in the area of PP&E. However, the Deputy CFO stated that

implementing the deferred maintenance requirements, although impaired

because of the inability to support all of the account balances with

subsidiary detail, does not preclude an agency from implementing the

1

These three operating administrations accounted for over 90 percent of DOT reported PP&E.

Page 37 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix III 

DOT Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

standards. He further noted that for the validated PP&E, implementation

can proceed and estimates may be made where aggregate asset

information is available. Also, the Deputy CFO stated that in cases where

assets may not have been fully validated for financial statement purposes,

he believes that deferred maintenance estimates may also be implemented.

He described these actions as an evolving process that will continue to

improve with increased data accuracy and integrity. The Deputy CFO for

DOT reported that a key unresolved question for the agency is how to place

assets in proper categories for financial reporting on deferred

maintenance. He also stated that he would be interested in guidance

regarding acceptable reporting formats. The Deputy CFO has designated an

individual in charge of compliance with this new reporting standard.

Status of Policies and

Procedures

The Deputy CFO for DOT reported that the agency has distributed SFFAS No.

6 to departmental CFO and accounting offices. He further noted that the

CFO office will provide more detailed guidance on departmental reporting

at a later date and that any additional policy would be limited to

supplementary information used to clarify areas not clearly defined in

accounting standards or by the central agencies (e.g., Treasury or OMB).

The Deputy CFO reported that DOT is likely to use both condition

assessment and life-cycle cost, depending on the operating administration

and the classes of assets. He stated that MARAD has documented and

communicated the reporting requirements to staff and contractors who

need to make the estimate, while other operating administrations have not

completed this step. The Deputy CFO reported that three relevant operating

administrations currently have standards which define “acceptable

condition” for major assets.

Agency Experience

With Deferred

Maintenance

Reporting

The Deputy CFO reported that each of the three operating administrations

for which major deferred maintenance occurs has its own maintenance

plans for different types of PP&E. MARAD ships and facilities undergo

periodic inspections which typically result in the discovery of deficiencies.

If funds are available, the appropriate repairs are made; otherwise, the

requirements are made known and funds are requested during the normal

budget process. In some cases, this process is automated and spending

plans are developed from the database of information. The Deputy CFO

reported that FAA relies on the General Maintenance Handbook for Airway

Facilities, which addresses maintenance requirements, policies, and

procedures for specific assets. FAA estimates of deferred maintenance only

address certain areas such as the modernization of building and equipment

Page 38 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix III 

DOT Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

capital investment plan. Finally, the Deputy CFO reported that the USCG has

standard maintenance plans/requirements for its aviation, naval,

electronic, and shore assets. USCG does not currently have an estimate of

deferred maintenance. According to the Deputy CFO, USCG uses these plans

to (1) ensure that priority maintenance is accomplished, (2) estimate

budget requirements, (3) plan and program resources to meet mission

objectives, and (4) ensure that total expenditures stay within budgetary

limits.

Agency Assessment of

Key Challenges

The Deputy CFO cited three key challenges to implementing the deferred

maintenance requirements of SFFAS No. 6, namely (1) identifying and

validating an inventory of existing PP&E, (2) obtaining and allocating the

resources necessary to estimate, document, and report deferred

maintenance requirements, and (3) ensuring a system that centralizes the

data repository for management and analysis to meet deferred

maintenance reporting requirements.

IG Assessment of

Agency Readiness and

Audit Issues

The DOT IG does not believe that DOT will be prepared to implement the

deferred maintenance requirements. Based on his office’s experiences in

auditing property and equipment at DOT, the IG is concerned that amounts

for deferred maintenance reporting may not be adequately supported and

documented. The IG stated that in order to effectively implement the

deferred maintenance requirements, the operating administrations must

complete physical inventories of assets to determine what is actually

owned and properly account for these assets. The IG stated that DOT must

issue implementing guidance for SFFAS No. 6 which should identify the

types of assets qualifying for deferred maintenance. Finally, the IG stated

that DOT, in coordination with the operating administrations, must

establish an internal control system that requires documenting the process

of estimating amounts of deferred maintenance and accurately reporting

these estimates. The IG stated that the key issues in auditing the deferred

maintenance amounts are that (1) each operating administration obtain an

accurate inventory of property and equipment, (2) DOT have formal written

policies on deferred maintenance to ensure consistency among the

operating administrations, and (3) DOT establish a formal system to

effectively track and adequately document amounts reported for deferred

maintenance cost.

Page 39 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix IV 

DOE Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Reported Amount of

PP&E

For fiscal year 1996, DOE reported general PP&E of $22.0 billion. Of this

amount, $11.9 billion is structures and facilities, $5.9 billion is equipment,

$3.7 billion is construction work in process, and the remaining $0.5 billion

is land, ADP software, and natural resources. DOE holds approximately

2.3 percent of the federal government’s reported PP&E.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, DOE received an unqualified opinion on its financial

statement from the DOE IG. The IG noted that the financial statements

present fairly, in all material respects, the financial position of the

department as of September 30, 1996. The IG did note, however, in their

report on Internal Control Structure accompanying the financial

statements, that the department needed to strengthen its internal control

system over PP&E.

Management Actions The Acting CFO stated that DOE plans to implement the deferred

maintenance requirements of SFFAS No. 6 in fiscal year 1998 as required. In

preparation for implementing the standard, the Acting CFO reported that

DOE has reviewed the deferred maintenance requirements and considers

that, for the most part, the agency is complying with the requirements. For

example, DOE’s Life Cycle Asset Management Order (LCAM) currently

requires estimates of deferred maintenance, specifically requiring the

management of backlogs associated with maintenance, repair, and capital

improvements. The Acting CFO stated that DOE is determining whether

existing policy requirements are sufficient to meet SFFAS No. 6 as well as to

develop a cost-effective approach for accumulating data from DOE field

offices. The Acting CFO has also designated an individual point of contact

for meeting the deferred maintenance disclosure requirement.

Status of Policies and

Procedures

DOE has policies in place that require field offices to estimate and

document deferred maintenance amounts. However, the Acting CFO

reported that there is no requirement for reporting this information to the

department’s headquarters. She further stated that DOE is in the process of

determining the most cost-effective process for accumulating this

information from the field offices and reporting it to headquarters. She

stated that DOE uses condition assessment methods to determine its

deferred maintenance estimates.

Page 40 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix IV 

DOE Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Agency Experience

With Deferred

Maintenance

Reporting

While DOE did not provide a departmental estimate of deferred

maintenance, it does have experience tracking and estimating

maintenance backlogs. DOE’s LCAM order establishes minimum

requirements for asset management. One requirement of this order calls

for the management of backlogs associated with maintenance, repair, and

capital improvements, which DOE considers to be synonymous with

deferred maintenance. The Acting CFO for DOE reported that approximately

50 percent of agency assets are managed using a Condition Assessment

Survey (CAS) program which follows industry standards and inspection

methods. Sites using CAS can determine their deferred maintenance or

maintenance backlogs from the inspection and cost estimating features of

the program. Unautomated sites would base the deferred maintenance

estimates on their site-specific facility inspection program. Sites annually

report to individual Operations Offices estimates of deferred maintenance

as part of their performance indicators. These estimates are periodically

sampled by on-site individual evaluators.

Agency Assessment of

Key Challenges

The Acting CFO stated that DOE’s key challenges are to (1) confirm that field

sites are complying with deferred maintenance policies, (2) ensure that

proper databases, inspection procedures, and cost estimating programs

are being used to calculate deferred maintenance, and (3) determine the

appropriate level (i.e., materiality) of the inclusion of personal property.

IG Assessment of

Agency Readiness and

Audit Issues

Based upon DOE’s representations regarding its plans, the Deputy IG stated

that it appears that the disclosure will be auditable. However, the Deputy

IG believes it is too early to make a definitive judgment on the readiness

and capability of DOE to implement the deferred maintenance

requirements. The Deputy IG stated that during the fiscal year 1996 audit,

his office determined that a number of locations within DOE lacked the

ability to specifically identify amounts spent on repair and maintenance.

The IG office will have the capacity to audit the deferred maintenance

amounts, but stresses that doing so will further diminish its capacity to

provide audit coverage for high risk areas designated by GAO and OMB. He

also noted that coverage of high risk areas continues to decline because of

diminishing personnel resources and the continued increase in statutory

audit work. The Deputy IG stated that audit work related to the deferred

maintenance requirement will generally address three key questions:

(1) Has DOE developed cost-effective policies and procedures for

developing the estimate required to support the disclosure? (2) Is the

appropriate level of expertise applied to developing the estimate? and

Page 41 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix IV 

DOE Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

(3) Is the overall estimate reasonable, properly documented, and readily

verifiable?

Page 42 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix V 

DOI Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Reported Amount of

PP&E

For fiscal year 1996, DOI reported general PP&E of $16.6 billion. Of this

amount, $15.9 billion is land, buildings, dams, structures and other

facilities and the remaining $0.7 billion is vehicles, equipment, aircraft and

other property, plant, and equipment. DOI holds approximately 1.7 percent

of the federal government’s reported PP&E. Documentation and internal

control deficiencies with PP&E contributed to a qualified opinion on DOI’s

fiscal year 1996 financial statements. The audit opinion of the IG also

stated that internal controls for PP&E at the Bureau of Indian Affairs and

the National Park Service did not ensure that transactions were properly

recorded and accounted for to permit reliable and prompt financial

reporting.

Fiscal Year 1996 Audit

Opinion

DOI received a qualified opinion on its fiscal year 1996 financial statement

from its IG because the Bureau of Indian Affairs could not provide

adequate documentation or reliable accounting information to support

$170 million for other structures and facilities, $17 million in accounts

receivable, $136 million of revenue, and $19 million of bad debt expense.

Management Actions The Acting CFO for DOI stated that the agency will implement the

accounting requirements for deferred maintenance in fiscal year 1998. The

agency also noted that it intends to include deferred maintenance

disclosures in its fiscal year 1997 financial statements. To implement the

deferred maintenance requirements, the Acting CFO stated that he is

relying heavily on the work of the Facilities Maintenance Study Team and

other agency officials charged with coordinating implementation. In

March 1997, this multibureau team was tasked with seeking better

methods of determining, validating, and correcting maintenance and repair

needs. The Acting CFO reported that he expects the Facilities Maintenance

Study Team’s report to provide the agency with current and deferred

maintenance information as well as guidance on standard definitions and

methodologies for improving the ongoing accumulation of current and

deferred maintenance information.

Status of Policies and

Procedures

The Acting CFO for DOI stated that his office has not yet issued guidance for

implementing the deferred maintenance reporting requirements of SFFAS

No. 6. However, he noted that the work of the Facilities Maintenance

Study Team is currently addressing how to standardize definitions and

procedures throughout the department. The Acting CFO stated that his

office has determined that the condition assessment method will be used

Page 43 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix V 

DOI Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

to estimate deferred maintenance for all types of PP&E. Because

information on deferred maintenance will come from individual bureaus

within DOI, the Acting CFO reported that he plans to establish an

appropriate working group to define condition assessment criteria and

procedures for different facility types to further improve the comparability

of the information generated. While the Acting CFO does not plan to

distinguish between critical and noncritical assets in DOI’s consolidated

statements, he noted that the Bureau of Reclamation does make a

distinction between critical and noncritical deferred maintenance.

Agency Experience

With Deferred

Maintenance

Reporting

The Acting CFO stated that DOI has experience reporting and tracking

maintenance spending and deferred maintenance through the budgetary

process. Each bureau has established standards and a methodology for

determining which PP&E is not in acceptable condition due to deferred

maintenance. However, the Acting CFO reported that DOI’s past

maintenance funding requests have been tempered by available budgetary

resources. Given the varying missions of the agency, “acceptable

condition” has had (and will continue to have) different meanings for each

bureau.

Agency Assessment of

Key Challenges

The Acting CFO believes that the key challenges to implementing the

deferred maintenance reporting requirements are (1) developing

consistent terminology and data among the bureaus, (2) integrating the

data requirements into maintenance and accounting systems, and

(3) validating estimates for accuracy, while working within limited human

and financial resources.

IG Assessment of

Agency Readiness and

Audit Issues

The IG would not express an opinion on whether DOI would be prepared to

implement the deferred maintenance requirements of SFFAS No. 6 in fiscal

year 1998. The IG noted, however, that past IG work has addressed the need

for several bureaus within DOI to gather maintenance information so that

maintenance programs could be better managed. The IG stated that his

office is planning to perform a preliminary assessment of the deferred

maintenance information provided by DOI in its fiscal year 1997 financial

statements. Further, deferred maintenance will be included in the IG audit

of the fiscal year 1998 financial statements. Because audit requirements

for deferred maintenance have not been issued, the IG stated that his office

cannot make a determination regarding the skills or abilities required for

its audit of information reported in accordance with this standard.

Page 44 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix V 

DOI Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

However, the IG stated that it will require additional resources to audit the

added financial statement requirements and cost accounting standards.

The key issue in auditing deferred maintenance will be the adequacy of

systems established by DOI to gather complete and accurate data.

Page 45 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VI 

GSA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Reported Amount of

PP&E

As of September 30, 1996, GSA reported general PP&E of $12.1 billion. Of this

amount, $6.9 billion is buildings and leasehold improvements, $2.4 billion

is construction in process, $1.7 billion is motor vehicles and other

equipment, $1.0 billion is land, and the remaining $0.1 billion is

telecommunications and ADP equipment. GSA holds approximately

1.3 percent of the federal government’s reported PP&E.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, GSA received an unqualified opinion on its financial

statements from an IPA contracted for and monitored by the GSA Office of

Inspector General. The IPA stated that the financial statements present

fairly, in all material respects, the financial position of GSA.

Management Actions The GSA CFO stated that the agency intends to implement the accounting

requirements for deferred maintenance in fiscal year 1998. He believes that

agency reporting would be more meaningful and consistent if specific

guidance relating to certain asset types would be provided. In this regard,

he thinks that policy and coordination could be provided by the central

agencies such as OMB and the Treasury, with additional guidance from

GSA’s Office of Policy, Planning, and Evaluation. However, the GSA CFO

noted that he would expect the individual services within GSA to define

deferred maintenance and determine a methodology for reporting whether

or not additional guidance is pending. GSA has also designated an

individual responsible for leading GSA’s efforts to implement this standard.

Status of Policies and

Procedures

GSA reported that policies for implementing the new accounting standard

were inherent in its Agency Accounting Manual and in financial statement

preparation guidance. GSA also provided an implementation guidance

package prepared by an independent accounting firm which includes

actions to be taken and recommended completion dates in order to

achieve timely implementation of the standard. The CFO stated that GSA has

not determined whether it will use condition assessment or life-cycle cost

to estimate deferred maintenance, nor has it determined whether it will

distinguish between critical and noncritical assets.

Page 46 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VI 

GSA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Agency Experience

With Deferred

Maintenance

Reporting

While the CFO reported that GSA does have a universe of maintenance

needs, he also stated that it does not differentiate between deferred and

nondeferred maintenance, nor does it have an agencywide standard

maintenance plan. Instead, decisions regarding the level and frequency of

PP&E maintenance are established by each GSA service. According to the

CFO, each service performs maintenance both on a scheduled and as

needed basis. For example, the CFO noted that the Public Buildings Service

has maintenance plans for specific buildings in its inventory and that

maintenance spending is tracked against available resources, and funds

for maintenance needs are included as part of GSA’s annual budget request.

The CFO also reported that each service determines if PP&E is in acceptable

condition as well as when each type of PP&E ceases to be functional.

Agency Assessment of

Key Challenges

The CFO considers the key challenges to implementing the deferred

maintenance requirements of SFFAS No. 6 to be (1) developing consistent

terminology and data among the services, (2) integrating the data

requirements into maintenance and accounting systems, and (3) working

with limited human and financial resources.

IG Assessment of

Agency Readiness and

Audit Issues

The IG stated that at the present time, there is not enough information to

form an opinion as to whether GSA will meet the deferred maintenance

requirement. However, the IG stated that he is encouraged by the steps the

agency has taken to date and its overall commitment to financial

statement reporting. The IG noted that his office contracts with an IPA to

perform the financial statement audit of GSA; hence, the IG expects to have

the resources, skills, and abilities needed to audit the deferred

maintenance amounts. The IG stated that the key issues in auditing

deferred maintenance are those of definition and completeness. He

believes that it will be necessary—but may be difficult—for the agency to

obtain agreement within GSA as to when an asset is considered to be in

acceptable condition. Further, he noted that GSA’s internal control

structure will need review to determine whether GSA has properly included

all classes of assets for purposes of calculating deferred maintenance

amounts.

Page 47 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VII 

VA Responses Regarding Agency Readiness

to Implement Deferred Maintenance

Requirements

Reported Amount of

PP&E

For fiscal year 1996, VA reported general PP&E of $11.1 billion. Of this

amount, $7.1 billion is buildings, $1.9 billion is equipment, $1.2 billion is

construction in progress, and the remaining $0.8 billion is land and other

PP&E. VA holds approximately 1.2 percent of the federal government’s

reported PP&E.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, the VA Acting IG rendered an unqualified opinion on

the VA’s Statement of Financial Position and a qualified opinion on the

Statement of Operations because his office was unable to satisfy itself as

to the opening balances recorded for net PP&E and net receivables. The

Acting IG stated that the Statement of Financial Position presented fairly,

in all material respects, the financial position of VA. However, the Acting IG

cited six reportable conditions that could adversely affect VA’s ability to

record, process, summarize, and report financial data. One condition cited

was the need for VA to continue its efforts to refine property, plant, and

equipment records. In particular, the Acting IG noted problems with

correctly recording depreciation and capitalizing assets and data entry

errors.

Management Actions The VA CFO stated that the agency will implement SFFAS No. 6 in 1998 and is

in the process of developing a formal plan for implementing the deferred

maintenance requirements. He also noted that his office is developing

guidance to communicate deferred maintenance reporting requirements

for fiscal year 1998. The CFO stated that VA does not defer maintenance on

medical devices or critical hospital systems but that deferred maintenance

exists on noncritical building systems such as parking lots, roads, grounds,

roofs, and windows. The CFO has designated an individual in charge of

implementing the reporting requirements for deferred maintenance.

Status of Policies and

Procedures

The CFO provided a copy of a draft policy intended to provide financial

accounting policy for PP&E, noting that this policy is currently being

circulated throughout the department for concurrence. VA’s draft policy

defines deferred maintenance as in SFFAS No. 6 and reiterates the reporting

requirements for a footnote disclosure. The CFO also stated his intent to

provide more detailed guidance to individual units within the agency. The

CFO plans to set up a statistical account in VA’s general ledger to record

deferred maintenance information as policy is implemented throughout

the department. The CFO is leaning towards establishing condition

assessment as the method for determining deferred maintenance and

Page 48 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VII 

VA Responses Regarding Agency Readiness

to Implement Deferred Maintenance

Requirements

plans to use the same methodology for all types of assets. The CFO also

intends to require each individual unit within VA to review and classify its

deferred maintenance into the various categories of PP&E and then record

material amounts in various representative statistical accounts. These

categories and totals are then planned to be rolled up to the departmental

level, thus providing the basis for meeting the disclosure requirements of

SFFAS No. 6.

Agency Experience

With Deferred

Maintenance

Reporting

The CFO noted that VA’s experience with deferred maintenance reporting is

largely decentralized. While the VA does not have an agencywide

maintenance plan, it does have a standard policy requiring maintenance of

PP&E. For example, VA Medical Centers follow maintenance schedules

developed from equipment manufacturer’s information. Each VA unit

estimates its operational funding, which includes maintenance. Individual

VA administrations determine the acceptable condition of each type of PP&E

based on its mission. In the case of critical hospital equipment, the VA CFO

asserted that maintenance is not deferred since a hospital environment

requires that equipment be operational and items must be kept in working

condition for safety and reliability reasons.

Agency Assessment of

Key Challenges

The CFO reported that VA’s biggest challenges in implementing the deferred

maintenance requirements will be to (1) get VA’s several hundred units to

provide comparable deferred maintenance data and (2) determine the

most efficient and effective method to estimate and report required data

for deferred maintenance.

IG Assessment of

Agency Readiness and

Audit Issues

The Acting IG1 expressed confidence that VA will implement the deferred

maintenance requirement. The Acting IG stated that this confidence is

based on the CFO’s progress over the past 4-5 years addressing issues

raised by the IG in audits. The Acting IG cited VA improvements in accounts

receivable and PP&E as examples. The Acting IG stated that his office will

audit a deferred maintenance amount if it is a material item. The Acting IG

believes that his office has the necessary resources or would be able to get

an independent engineer or consultant to assist in evaluating any deferred

maintenance issues beyond the expertise of his office. The Acting IG

believes that the key audit requirements are an audit trail, a good system

of information, and the ability of his office to test the records. The Acting

1

At the time of our interviews, the VA had an Acting IG who responded to GAO’s questions. As of

November 7, 1997, a new IG was confirmed for this agency.

Page 49 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VII 

VA Responses Regarding Agency Readiness

to Implement Deferred Maintenance

Requirements

IG stated that one challenge will be whether the VA issues ground rules to

facilities so that consistency will occur among the 173 Medical Centers

and other units. The Acting IG also noted that it is difficult to draw a line

between critical and noncritical assets and that this distinction may vary

among different administrations of VA. Thus, the Acting IG stated that his

office would need to review each administration’s definition of “critical.”

Page 50 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VIII 

USDA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Reported Amount of

PP&E

For fiscal year 1996, USDA reported general PP&E of $8.6 billion. Of this

amount, about $5.9 billion is land; $1.8 billion is structures, facilities, and

leasehold improvements; $0.8 billion is equipment; and the remaining

$0.1 billion is ADP software and other PP&E. USDA holds approximately

0.9 percent of the federal government’s reported PP&E. Problems with PP&E

reporting contributed to a disclaimer of opinion on USDA’s fiscal year 1996

consolidated financial statement. In particular, the Forest Service, which

has over 90 percent of USDA’s PP&E, was unable to provide complete

auditable financial statements for fiscal year 1996. The IG also noted that

problems with fiscal year 1995 Forest Service reporting resulted in an

adverse opinion due to pervasive errors, material or potentially material

misstatements, and/or departures from applicable accounting principles.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, the USDA IG issued a disclaimer of an opinion on the

consolidated financial statements of USDA. The IG stated that his office did

not attempt to audit the statement of financial position and related

statements because of problems with Forest Service reporting. In addition

to the Forest Service being unable to provide complete auditable financial

statements, the IG also stated that the Secretary of Agriculture reported

that the department could not provide assurance that, as a whole, agency

internal controls and financial management systems comply with Federal

Managers’ Financial Integrity Act (FMFIA) requirements.1

 As a result, USDA’s

fiscal year 1996 consolidated financial statements were prepared using the

Forest Service’s fiscal year 1995 account balances and activity. With

regard to Forest Service accounting for PP&E, the IG cited inadequate

documentation, pervasive instances of errors, and material control

weaknesses.

Management Actions The Acting CFO for USDA stated that the agency elected to implement SFFAS

No. 6 beginning in fiscal year 1997 and anticipates it will be substantially

implemented for fiscal year 1998 as required. His office provided its draft

plan for implementing the standard which is outlined in chapter 9

(“Property, Plant, and Equipment”) of the USDA Financial and Accounting

Standards Manual (FASM). The Acting CFO noted that this chapter conforms

with SFFAS No. 6, but does not include milestones. He stated that suitable

milestones will be developed during fiscal year 1998. With regard to

designating an official responsible for ensuring the implementation of the

1

FMFIA requires ongoing evaluations of the internal control and accounting systems that protect

federal programs against fraud, waste, abuse, and mismanagement. It further requires the heads of

federal agencies to report annually to the President and Congress on the condition of these systems

and on their actions to correct the weaknesses identified.

Page 51 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VIII 

USDA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

deferred maintenance requirements, the Acting CFO stated that he makes

departmentwide determinations on financial statement reporting and

oversees compliance with SFFAS No. 6. In addition, he has also identified

responsible officials in the two agencies that control the material portion

of USDA PP&E—Agriculture Research Service (ARS) and the Forest Service.

The Acting CFO believes that his agency needs additional guidance in the

following areas: (1) related OMB budget requirements related to

maintenance and deferred maintenance, (2) general criteria for critical and

noncritical deferred maintenance, (3) setting priorities for deferred

maintenance, (4) minimum standards for condition assessment surveys

and for life-cycle costing, (5) criteria for distinguishing between deferred

maintenance and reconstruction, and (6) the point at which a need to

perform deferred maintenance becomes a need for a new asset.

Status of Policies and

Procedures

USDA has established broad policies for implementing the deferred

maintenance requirements of SFFAS No. 6. The Acting CFO stated that rather

than arbitrarily restricting the USDA agencies to only one method of

estimating deferred maintenance, USDA policy allows the use of any of the

methods described in SFFAS No. 6. The Acting CFO believed that the

agencies within USDA are in the best position to determine which of the

allowable methods is most appropriate for their particular agency. The

Acting CFO stated that these policies provide a great deal of discretion to

individual agencies within USDA. For example, each agency has the option

of selecting condition assessment and/or life cycle cost methodologies as

allowed by SFFAS No. 6. The USDA Acting CFO expressed his belief that the

agency has described the allowable measurement methodologies (e.g.,

condition assessment or life-cycle cost) but stated that it must give more

attention to communicating the methodologies to those making the

estimates. He stated that his office intends to more clearly communicate

methodology requirements during fiscal year 1998. The FASM does establish

mutually exclusive major classes and base units of measurement for

general, heritage, and stewardship land PP&E. It also requires that

management distinguish between critical and noncritical deferred

maintenance and disclose the basis for distinguishing between the two.

Agency Experience

With Deferred

Maintenance

Reporting

Both agencies with the material portion of USDA PP&E—Forest Service and

ARS—have some experience with deferred maintenance reporting and have

estimates for deferred maintenance. We were told that ARS has a standard

maintenance plan for facilities that is called the ARS 10-Year Facility Plan.

The USDA Acting CFO stated that the plan provides the framework for future

Page 52 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VIII 

USDA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

decision-making, setting priorities, and allocating resources to implement

necessary improvement, maintenance, modernization, and repairs to ARS

research facilities. We were also told that ARS uses information from USDA’s

Central Accounting System to update its 10-Year Facility Plan each year

and to ascertain that spending is in accordance with congressional intent.

According to the Acting CFO, ARS routinely estimates its funding needs for

repairs and maintenance each fiscal year. In contrast, individual Forest

Service managers are responsible for assessing the condition of their PP&E

and obtaining the funding needed for maintenance. We were told that

Forest Service managers also inspect the actual condition of PP&E, using a

building and facility handbook that broadly defines maintenance levels

ranging from level 1, not in operation, to level 5, major offices and high-use

areas.

ARS and Forest Service provided deferred maintenance estimates. The

Acting CFO for Forest Service cautioned that the Forest Service estimates

were overstated per SFFAS No. 6 because they included activities needed to

expand, upgrade, or reconstruct a facility. The USDA’s Acting CFO noted that

both agencies are scheduled to update these estimates for fiscal year 1998.

He believes that the current estimates of deferred maintenance may not

comply fully with SFFAS No. 6.

Agency Assessment of

Key Challenges

According to USDA’s Acting CFO, the department’s key challenges to comply

with the new deferred maintenance accounting requirements include

(1) communicating applicable requirements, (2) documenting the correct

and consistent use of allowable methodologies, (3) establishing an

accurate physical inventory of PP&E, and (4) obtaining guidance from

central agencies.

IG Assessment of

Agency Readiness and

Audit Issues

The IG stated that, assuming that agencies continue to emphasize financial

management, and the Forest Service completes its inventory of PP&E, USDA

should be prepared to implement the requirement for fiscal year 1998. At

the time of our review, the IG noted that the department has a draft policy

for implementing the deferred maintenance requirements that adequately

mirrors requirements addressed by SFFAS No. 6.2

 However, the IG also

emphasized that deferred maintenance estimates are contingent on a

complete and accurate inventory of PP&E. While efforts are underway

within the Forest Service (the largest PP&E holder for USDA) to develop

complete inventories and supportable valuations for its PP&E, the IG stated

2

According to the Acting CFO, this policy has been finalized.

Page 53 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix VIII 

USDA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

that these efforts may or may not be completed by the end of fiscal year

1998. The IG said that if the Forest Service cannot complete its efforts and

accurately report PP&E in its financial statements, little reliance can be

placed on estimates reported for the associated deferred maintenance. The

IG stated that the key issues in auditing the deferred maintenance

requirements are determining if the estimation methodology is

appropriate, applied correctly, applied consistently, and adequately

documented. And, since deferred maintenance estimates are contingent on

a complete and accurate inventory of PP&E, audit results addressing PP&E

will play an important role in his office’s evaluation of the deferred

maintenance estimates.

Page 54 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix IX 

Department of State Responses Regarding

Agency Readiness to Implement Deferred

Maintenance Requirements

Reported Amount of

PP&E

For fiscal year 1996, the Department of State reported general PP&E of

$4.6 billion. Of this amount, $2.3 billion is land and land improvements,

$1.9 billion is capital improvements and buildings, structures, facilities,

and leaseholds, and the remaining $0.3 billion is construction in progress

and vehicles and other equipment. State holds approximately 0.5 percent

of the federal government’s reported PP&E.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, State received a qualified opinion on its consolidated

financial statements from an IPA. The IPA noted that, except for any

adjustments that might have been necessary had it been possible to review

undelivered orders, State’s 1996 Consolidated Statement of Financial

Position is presented fairly in all material respects. The IPA also stated that

the undelivered orders scope limitation did not affect the Consolidated

Statement of Financial Position for the department.

Management Actions The State CFO intends to implement the deferred maintenance

requirements for the fiscal year 1998 financial statements. He cited several

actions by the agency to prepare for deferred maintenance reporting. The

CFO reported that State has contracted with a firm to provide

recommendations on implementing the new federal accounting standards,

including SFFAS No. 6. The CFO has also designated individuals from the

Bureau of Finance and Management Policy to determine the reporting

policy and (in conjunction with the IG Office) oversee compliance.

Status of Policies and

Procedures

The CFO for State reported that the agency has not yet developed a formal

policy on implementing the deferred maintenance requirements of SFFAS

No. 6, but expects to develop a policy by April 1998. The CFO stated that he

expects, but has not decided, to use the condition assessment method,

because the process is substantially the same as the one now used for

determining maintenance requirements. The CFO further noted that he does

not plan to disclose critical and noncritical assets on the financial

statements.

Agency Experience

With Deferred

Maintenance

Reporting

The CFO reported that State has experience with estimating maintenance

needs through the budget process. For example, he noted that each

overseas mission prepares an annual budget for routine maintenance and

repair and special maintenance requirements and submits it to the Office

of Foreign Buildings Operations (A/FBO). The CFO said that A/FBO allots

Page 55 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix IX 

Department of State Responses Regarding

Agency Readiness to Implement Deferred

Maintenance Requirements

funds to overseas missions to carry out maintenance activities. He also

reported that appropriations for specific maintenance projects are

requested as line items and are included in the functional programs’

budget submissions to OMB and the Congress. He noted that A/FBO then

compares actual costs of implementing these maintenance projects with

the budget established for their execution.

The CFO reported that currently State has the results of condition

assessment and other surveys recorded in a database. Offices review,

determine priority ratings, and develop cost estimates to implement

requirements. The CFO reported that these priority ratings are used to

balance requirements with available resources. Unfunded requirements

are then listed as State’s maintenance and infrastructure repair deficit. He

cautioned, however, that State’s backlog includes repair and replacement

requirements and minor property improvements, and therefore goes

beyond deferred maintenance. He further stated that routine maintenance

requirements at individual posts are not broken out or tracked separately.

In addition, the CFO noted that State’s estimates may not separate deferred

maintenance from current maintenance requirements. In addition, he

noted that the current estimates also include some improvements and

other projects that would not fall within the scope of the accounting

standard’s definition of deferred maintenance.

Agency Assessment of

Key Challenges

The CFO described the primary problem of implementing the deferred

maintenance requirements of SFFAS No. 6 as being one of definition. For

example, he noted problems with defining deferred maintenance and

determining when maintenance requirements are past due. He also cited

the complexity and cost of maintaining current data for a program

responsible for management oversight of more that 3,000 properties in 260

locations worldwide.

IG Assessment of

Agency Readiness and

Audit Issues

Based upon the work that the CFO’s staff has done, the IG believes that

State will be able to implement the deferred maintenance requirement.

However, until her office reviews the deferred maintenance information

reported for fiscal year 1998, the IG is unable to determine if the

information provided will be reliable. The IG reported that work with the

CFO has focused on establishing a process to track deferred maintenance

so that auditable information would be available for the fiscal year 1998

financial statements. The IG stated that her office would be able to audit

the amount presented on the fiscal year 1998 statements and she

Page 56 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix IX 

Department of State Responses Regarding

Agency Readiness to Implement Deferred

Maintenance Requirements

anticipates that she will have adequate resources and abilities to review

the deferred maintenance amount. Although the IG has not yet developed

an audit plan for deferred maintenance, she noted that key issues for

auditing the deferred maintenance amounts included reviewing the

(1) methodology established to value deferred maintenance,

(2) qualifications of officials making the determination of the value of

deferred maintenance, and (3) completeness and accuracy of the deferred

maintenance amounts.

Page 57 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix X 

TVA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Application of

Deferred Maintenance

Requirements of

SFFAS No. 6

TVA follows private sector practices in its financial statement reporting.

However, TVA is included in the governmentwide financial statements and

will be subject to reporting deferred maintenance under SFFAS No. 6 if

reported amounts prove material to the governmentwide statements.

Reported Amount of

PP&E

As of September 30, 1996, TVA reported general PP&E of $30.4 billion. Of this

amount, $22.2 billion is completed plant, $6.3 billion is deferred nuclear

generating units, $1.1 billion is nuclear fuel and capital lease assets, and

$0.8 billion is construction in progress. As of September 30, 1996, TVA held

approximately 3.2 percent of the federal government’s reported PP&E.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, TVA received an unqualified opinion from an IPA. The

IPA found that TVA’s financial statements present fairly, in all material

respects, the financial position of the power program and all programs of

TVA.

Management Actions Prior to being contacted by GAO, the TVA CFO stated that he was unaware of

the SFFAS No. 6 reporting requirement for deferred maintenance. The CFO

noted that TVA does comply with the U.S. Treasury’s request for TVA

financial statement information which is then consolidated within the U.S.

government financial statements. However, the CFO stated that as of

December 1997, TVA had not heard from Treasury regarding compliance

with the deferred maintenance requirement in SFFAS No. 6.

Status of Policies and

Procedures

Because the TVA was unaware of the deferred maintenance reporting

requirement, no policies and procedures for implementing the standard

have been initiated. The CFO noted that TVA’s definition of deferred

maintenance differs from that of SFFAS No. 6 and varies by category of

asset. For example, the CFO stated that maintenance of nuclear assets is

not deferred because of safety and health reasons; hence, deferred

maintenance on these assets does not exist. The CFO said that deferred

maintenance for fossil fuels and hydro power means repair work that is

not performed on equipment if the problem has minor effects on the

performance of the equipment. For building facilities, the CFO noted that

TVA defines deferred maintenance as maintenance that can be delayed

indefinitely based on factors such as the change in the PP&E’s function, an

increase/decrease in PP&E life expectancy, and the relationship between

Page 58 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix X 

TVA Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

repair, replacement, or abandonment costs. For land management, TVA

defines deferred maintenance as the delay or postponement of needed

repairs or refurbishment, and maintenance which was not performed at

the scheduled time and continues to accumulate. However, should TVA be

required to report deferred maintenance for the consolidated U.S.

government financial statements, the CFO reported that TVA would comply.

The CFO indicated that TVA could provide an estimate of deferred

maintenance with about 2 months notice.

Agency Experience

With Deferred

Maintenance

Reporting

The TVA CFO reported that, for the most part, the agency does have

standard maintenance plans for its different types of PP&E. For example,

the very nature of the agency’s nuclear power program requires sites to

comply with Nuclear Regulatory Commission regulations to ensure that

plants can operate safely and that equipment is not degraded. He also

noted that fossil and hydroelectric fuel programs have standard

maintenance plans and use an automated Maintenance Planning and

Control system for scheduling and tracking of maintenance work.

Agency Assessment of

Key Challenges

The TVA CFO noted that the agency has the systems to track PP&E related to

fossil fuel and building facilities deferred maintenance, but does not have

data on hydroelectric power, transmission of power, land management,

and certain recreation areas. The CFO also noted that TVA has qualified

in-house expertise in all operations areas who could estimate deferred

maintenance.

Page 59 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XI 

USPS Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Application of

Deferred Maintenance

Requirements of

SFFAS No. 6

The USPS follows private sector practices in its financial statement

reporting. However, USPS is included in the governmentwide financial

statements and will be subject to reporting deferred maintenance under

SFFAS No. 6 if reported amounts prove material to the governmentwide

statements.

Reported Amount of

PP&E

For fiscal year 1996, USPS reported general PP&E of $17.9 billion. Of this

amount, $8.3 billion is structures, facilities, and leasehold improvements;

$5.9 billion is equipment; $2.1 billion is land; and $1.6 billion is general

construction in progress. USPS holds approximately 1.9 percent of the

federal government’s reported PP&E.

Fiscal Year 1996 Audit

Opinion

For fiscal year 1996, USPS received an unqualified opinion on its financial

statements from an IPA. The IPA found that the financial statements present

fairly, in all material respects, the financial position of USPS.

Management Actions The USPS CFO stated that the agency does not have any deferred

maintenance and, therefore, will not need to disclose a figure for purposes

of the governmentwide financial statements. The USPS CFO indicated that

he has not been contacted by officials from Treasury with regard to

deferred maintenance reporting requirements.

Status of Policies and

Procedures

The CFO stated that USPS has standard maintenance plans provided in

agency handbooks and policies for its primary types of assets, such as

buildings, vehicles, and equipment. These plans or schedules include

detailed records of maintenance required for each building, vehicle, and

piece of equipment in operation. However, the CFO stated that the agency

does not own airplanes or ships to move the mail; thus for these activities,

required maintenance is performed by the contractors as stipulated in the

contracts. For example, the CFO stated that USPS leases planes from a

contractor for its overnight and priority mail. The contractor is motivated

to keep its planes regularly maintained because USPS can impose fines for

late or nondelivery of mail caused by not properly maintaining such

equipment.

Page 60 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XI 

USPS Responses Regarding Agency

Readiness to Implement Deferred

Maintenance Requirements

Agency Experience

With Deferred

Maintenance

Reporting

The USPS has extensive experience with reporting maintenance on its

buildings, vehicles, and equipment. USPS buildings, vehicles, and equipment

must be regularly maintained so that the mail service operates promptly

and smoothly.

Agency Assessment of

Key Challenges

The USPS CFO did not report any challenges to implementing the deferred

maintenance requirements because he does not believe the agency has any

deferred maintenance.

Page 61 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XII 

Comments From the Department of

Transportation

Page 62 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XII 

Comments From the Department of

Transportation

Page 63 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XII 

Comments From the Department of

Transportation

Now on p. 11.

See comment 1.

See comment 2.

See comment 2.

See comment 2.

Now on p. 16.

Page 64 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XII 

Comments From the Department of

Transportation

Now on p. 17.

See comment 1.

Now on p. 19.

See comment 1.

Now on p. 19.

See comment 2.

Now on p. 37.

See comment 2.

Page 65 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XII 

Comments From the Department of

Transportation

See comment 2.

See comment 1.

See comment 2.

Now on p. 38.

Now on p. 38.

Now on p. 39.

See comment 2.

Page 66 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XII 

Comments From the Department of

Transportation

The following are GAO’s comments on the Department of Transportation’s

letter.

GAO Comments 1. Discussed in the “Agency Comments and Our Evaluation” section.

2. We considered DOT’s suggestions and have modified the report as

appropriate.

Page 67 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XIII 

Comments From the Department of Defense

Page 68 GAO/AIMD-98-42 Deferred Maintenance Reporting
Appendix XIII 

Comments From the Department of Defense

(935245) Page 69 GAO/AIMD-98-42 Deferred Maintenance Reporting
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